The world markets have been rattled by last night’s disappointing China Flash PMI number, which unexpectedly fell to 49.6 in May from 50.4 in April.
This is the first sub-50 reading in seven months. Any reading below 50 signals contraction.
This only confirms fears that China, the world’s second largest economy, is decelerating.
“The reading pretty much dashed hopes of a Q2 growth recovery,” wrote Societe Generale’s Wei Yao in a note titled “Simply No Recovery.”
“In light of this report, we expect the official manufacturing PMI (due on 1 June) to follow suit and tank below the boom-bust line to 49.9,” added Yao. “As the central government look committed to cautious easing only, we will continue to stay on the bearish side in terms of economic growth. Then the possible short-term positive catalyst that the financial market is so desperately looking for can only come from reform progress. The new leaders will hold a high-level meeting in the coming weeks on China’s urbanisation strategy. This should be the event to watch for.”