Stocks, oil tumble as grim China PMI sparks growth fears

The dismal August flash number bodes ill for upcoming official data, and could fuel fears that the China’s economy is slumping faster than authorities anticipated, dashing hopes for a global recovery.

AUD/USD changed hands at 0.7297, down 0.53%, with Australia relying on China demand for many commodity exports, while USD/JPY traded at 123.30, down 0.10%.

The preliminary reading of Caixin’s Purchasing Manager’s Index (PMI) came in at 47.1 this month, the Chinese media group said in a joint statement with Markit, a financial information services provider that compiled the survey.

The index remained above the 50 threshold that separates expansion from contraction for the fourth straight month and showed activity expanded at the fastest pace since January.

But as growth in investment and manufacturing has slowed to its weakest level in more than a decade, there are growing signs that consumption is struggling to take up the slack.

Markets in countries whose economic fortunes are closely linked to China’s growth tumbled.

Meanwhile, vehicle sales fell 3.4 per cent in June against the year before, the first decline since early 2013, according to wholesale figures compiled by the China Association of Automobile Manufacturers.

“There is still pressure on the front of maintaining growth rates”, He Fan said.

Julian Evans-Pritchard, an analyst with research firm Capital Economics, blamed the disappointing August PMI reading on last week’s massive explosions in the northern port city of Tianjin, which killed at least 114 people and caused more than a billion dollars in financial losses. Japan’s Nikkei average dropped more than 2% to six-week lows on Friday while the Kopsi index in South Korea fell 1.5%.

The pan-European FTSEurofirst 300 was down 1.6 percent at 1,453.62 by 0703 GMT, hitting its lowest level since January and set for its biggest weekly fall of the year.

The FTSEurofirst 300 is down 8.5 percent since China devalued its currency last week.

Strong downward momentum on global equity markets has led to another weak opening this morning. That shakeout also raised fears of tighter credit supply for companies, as state-controlled banks shifted their funding priorities to supporting the stock market instead.