Chinese Manufacturing Growth Slows in June
Chinese manufacturing growth continued to slow in June, according to the China Federation of Logistics and Purchasing. The slowing pace of of China's largest economic sector raises further fears over the health of the Chinese economy.
The official Purchasing Manager's Index (PMI) fell to 50.2 in June from 50.4 in May. However, this did beat economists' expectations of 49.8. A PMI reading above 50 signals expansion in the manufacturing sector, whereas a reading below 50 signals contraction.
Even though the headline number beat expectations, sub-indexes--new orders, exports, and imports--all painted a gloomy picture of the health for the Chinese economy. The new orders sub-index, considered to be a leading indicator for future manufacturing growth, fell to 49.2 in June from 49.8 in May. New exports orders showed a rapid drop in June as well, falling to 47.5 in June from 50.4 previously. Imports also declined, falling to 46.5 from May's 48.1.
Chinese exports and imports continue to fall as China's largest trading partner, the European Monetary Union (EMU), continues to slip further into recession. Expectations of future trade slipped in the report, raising questions over whether China's target of 10 percent net trade growth in 2012 is achievable. After growing at a remarkable 15.3 percent annualized rate in May, some market watchers may begin to worry that the trade sub-indexes in this report will show that net export growth slowed in June. The 10 percent target would be difficult to reach if global trade continues to slow.
Commodities such as copper, whose prices are buoyed by Chinese manufacturing demand, sold off on the news. Copper's price fell about 0.61 percent to traded near $347.50 per pound in early New York trading. Oil also fell on the news; WTI crude fell nearly 1.2 percent to trade near $83.95 per barrel.
Further weakness in the Chinese economy would put additional pressure on copper prices. Traders who believe that the Chinese economy will continue to slow could consider shorting copper, either at spot or through an ETF such as the iPath DJ UBS Copper ETN (NYSE: JJC). Reduced copper demand could also hurt the Australian dollar (NYSE: FXA) and could impact miners as well,. Traders can get exposure to global miners via the MSCI Global Select Metals and Mining Producers Fund (NYSE: PICK).
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