Markets slump again on Greek and Chinese woes

It seems Greece will continue to dominate global market sentiment for some time longer as prime minister Alexis Tsipras managed to both resolve one crisis and create another within the space of a few hours.

Greece
Source: Bloomberg
  • Markets crash as Greece swings from one crisis to another
  • Chinese manufacturing contraction will have global implications
  • US manufacturing suffers Chinese contagion
  • Brent at six-year low, as bulls flee

The creation of a new hard left wing 'unity' party out of a broken Syriza seeks to do anything but unify, despite both sides laying claim to the title of anti-austerity party. The problem is that for now markets are still fairly unprepared for the next stage of this crisis, and so the selling seen across Europe in particular is driven by fear rather than certainty of an impending crisis.

Given that 62% of Greeks voted against a very similar bailout agreement back in June, it seems foolish to assume Syriza can win a vote this time around which sees it rally for the very bailout agreement that it fought so hard to reject two months ago.

The Chinese slowdown is becoming the status quo, with the overnight Markit PMI reading indicating a manufacturing sector which is contracting at its fastest rate since 2009. The Chinese boom is imploding on a number of fronts, be it stocks, housing, imports or exports. Yet despite both PBoC and government action, they have failed to stem the bleeding evident within the Asian powerhouse.

Global reliance upon China means that the Chinese growth story is inextricably linked with worldwide markets, be it the multi-year lows across commodity markets, or falling sales forecasts as the Chinese middle class suffer due to falling gold, house and now stock market valuations. There is a growing feeling that China is fast running out of ideas to fix this crisis and the implications for global business have been exhibited perfectly on the stock markets, with DJIA on course to suffer its biggest monthly loss since 2009.

US manufacturing saw the slowest growth since October 2013, with falling new orders and output having a knock-on effect upon employment for the month. With China representing the third-largest market for US manufacturers, it’s clear that the slowdown in Asia will feel much closer to home for US workers. Unfortunately this is no one-off, with four of the last five manufacturing PMI readings exhibiting a similar slowing of expansion in the sector.

Oil prices plummeted yet again, in a show that this relentless sell off could still have some legs in it yet. A Chinese manufacturing slowdown, coupled with a break for Brent to a new six-and-a-half-year low today means that the bulls seem few and far between with all eyes now turning to the $40 mark.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.