Global stock markets wait on tomorrow's economic numbers from China and United States for direction

09/29/2011 3:19 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Fasten your seat belts; it could be a bumpy ride tomorrow.

Two economic numbers, one from China overnight (from a U.S. perspective) and one from the United States before the New York market opens, have the power to move stocks in the current very volatile environment.

The Chinese number is the official version of the preliminary manufacturing purchasing managers index (PMI). The preliminary version, released by HSBC and Markit Economics on September 22, showed the manufacturing PMI falling to 49.4 in September from a reading of 49.9 in August. Any index level below 50 indicates that the sector is contracting.

The Shanghai Composite Index fell 2.8% on September 22 and has been dropping since. As of September 29, the index was down 5.9% from September 22.

The fear is that the drop in the manufacturing PMI signals that China’s economy is slowing more than expected and that projections for 8.2% to 8.5% GDP growth in 2012 are still too high and will have to come down, bringing company earnings and stock prices with them.

But the September 22 preliminary reading on the PMI only includes data from about 85% to 90% of China’s companies in the fuller survey that will be released tonight. That extra 10% to 15% might not seem like a big deal but the missing surveys tend to come from China’s biggest state-owned companies. And not only are these companies major exporters but also since they have ready access to financing from the country’s state-owned banks, they haven’t been hit as hard as the smaller companies in the survey by the lending slowdown engineered by the People’s Bank. Anecdotes and data from China say that smaller companies are starved of capital right now.

The market hope is that the full number from the PMI will hang above 50. That wouldn’t be totally unexpected since it has stayed above that level in the last two months even as the preliminary PMI has moved below 50. The fear, of course, is that the full PMI will confirm the drop in the preliminary survey.

At 8:30 a.m. New York time the U.S. Census Bureau is set to release data on personal spending for August. In July spending climbed a very strong 0.8%. With consumer spending accounting for 70% of U.S. economic activity that strength was good news for investors hoping that the U.S. economy will avoid slipping back into recession.

The consensus forecast now, according to Briefing.com’s survey of economists, is that personal spending will show an increase of 0.2% for August when the figures are announced tomorrow.

As positive surprise in the personal spending number tomorrow would reinforce the modest good news from today’s economic data. Initial claims for unemployment fell to 391,000 for the week ended on September 24 from 428,000 the previous week. (The Department of Labor did warn, however, that mis-timed seasonal adjustments may have made the drop look bigger than it was. I said the good news was “modest.”) Today also saw the release of the third revision to second quarter GDP growth. The revision took growth up to 1.3% for the quarter from a 1% annual rate in the previous revision. Economists had been looking for a revision to 1.2%, according to Briefing.com.

The danger in tomorrow’s U.S. data is that the modest good news today may have set the market up to hope for good news on consumer spending.

Like I said, Fasten your seatbelts.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did not own shares of any stock mentioned in this post as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

 

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