Another weak macroeconomic reading from China was the worst possible thing the market could get at the end of the week and this is exactly what happened when the Chinese PMI slid to 47.1 pts., significantly below the consensus of 48.2 pts. Equity markets tumbled further, the dollar and oil were losing while gold saw the highest levels since early July.
While China was a risk for a long time (and we presented it on numerous occasions) let us recall that only a devaluation of the CNY last week was a trigger that really took the global markets by surprise. Investors realized that traditional tools no longer worked and took it as a desperate step from the Chinese officials that were trying to halt a slowdown at home. A weak PMI is a signal that the economy is indeed decelerating quickly and fears that China may devalue some more (to a detriment of Western companies) and perhaps not be able to put the economy back on track at all.
The USD, GBP and the CAD are the weakest G10 currencies today while SEK, NZD and the JPY are leading the pack. Greenback and the pound are losing ground as investors bet that slowdown risks will discourage central banks from increasing rates while the CAD remains weak with oil declining again today. Gold gained substantially in the morning but at the moment is just at +0,3% today.
There is a great battle on Wall Street forging and the outcome might be decisive for the next week.