Oh no, there goes China again!

This weekend it was more horrific PMI numbers out of China as January manufacturing activity contracted at its fastest pace in 3 years, suggesting the world’s second largest economy is off to a weak start in 2016 (and adding to the case for near-term stimulus).  The official Purchasing Managers’ Index stood at 49.4 in January, compared with the previous month’s reading of 49.7, below the 50-point mark that separates growth from contraction on a monthly basis. It is the weakest index reading since Aug, 2012 and below the median 49.6 forecast from a Reuters poll of leading economorons.

The PMI marks the sixth consecutive month of factory activity contraction, highlighting a manufacturing complex under severe pressure from falling prices and overcapacity in key sectors including steel and energy. “The electricity production remained sluggish and the crude steel output continued the weak trend in January, reflecting an ongoing deleveraging process in the industrial sectors,” said Zhou Hao, an economist at Commerzbank.  “In the meantime, China has started an aggressive capacity reduction in many sectors, which could add downward pressure on the bulk commodity prices over time.”

China’s slowdown has sent Korea’s eports plunging at the fastest rate since Aug, 2009, down 18.5% in January and now the 13th month in a row of declining exports.  Imports fell 20.1% – spreading the contagion further to other trading partners.  South Korean data are viewed as a proxy for the global trade picture because of the Asian nation’s heavy dependence on imports of raw materials and exports of goods such as cars and phones. The Korean data also give a reading of the health of the Chinese economy because around a quarter of South Korea’s exports are sent to China.

All this bad news out of Asia (Japan’s PMI also negative) has sent oil crashing back to Earth, back to $32.23 this morning after topping out at $34.50 on Friday.  As I said to our Members in Friday’s Live Chat Room (2:44):

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