International News 02/10
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China's manufacturing sector now in a state of contraction.
The manufacturing sector in China experienced a significant decline in activity in September 2024, driven by a sharp drop in new orders both domestically and internationally. This led to a record low in factory owners' confidence. The Caixin/S&P Global China manufacturing PMI index fell to 49.3, indicating a contraction, compared to 50.4 in the previous month. This figure was below analysts' expectations and marks the lowest since July last year. In response, the Chinese government implemented a series of aggressive stimulus measures, including lowering interest rates and injecting liquidity into the banking system, with the aim of achieving the targeted economic growth rate of around 5% for the year. In a rare September Politburo meeting focused on macroeconomic issues, Chinese leaders acknowledged the presence of new economic problems and called for new policies to stimulate growth.
The Fed is expected to reduce interest rates by a further 50 basis points in November.
The US Federal Reserve's recent bold interest rate cuts have bolstered investor confidence in the likelihood of another 50 basis point reduction in November. Michael Kushma, Senior Fixed Income Portfolio Manager of Morgan Stanley Investment Management, has stated that the Federal Reserve bases its policy decisions on economic data. The latest economic data is in line with the central bank's current approach, with inflation slowing and the unemployment rate remaining slightly above the target. Mr. Kushma believes that the Federal Reserve has the freedom to further cut interest rates by at least 50 basis points this year to loosen monetary policy. The objective of these rate cuts is to stimulate economic growth, particularly given the slowing of inflation and the elevated unemployment rate. Financial markets have already factored in the possibility of these rate cuts, creating an expectation for further easing of interest rate policy.
Asia Factory Activity Slows as Global Uncertainty Hits.
Factory activity in Asia has shown a decline in September, primarily due to a reduction in demand from China and global economic uncertainty. A decline in factory activity has been observed in key Asian countries, including Japan and Taiwan, as a consequence of weak global demand. Additionally, exports from South Korea have decelerated due to the repercussions of a decelerating US economy. In China, factory output has declined, with the manufacturing PMI reaching its lowest level since July last year. Japan, which relies on exports for economic growth, has seen its manufacturing PMI fall for the third consecutive month. A similar trend has been observed in Taiwan, Vietnam, Malaysia, and Indonesia.