Stocks lower over China fears

Equity markets finish in the red today as fears that China is running out of steam prompt traders to sell stocks.

Overnight, the HSBC survey of manufacturing in China revised down its previous estimate for May. The bank originally reported the manufacturing purchasing manager’s index (PMI) to be 49.6 in May, but it has now lowered it to 49.2; any reading below 50.0 highlights a contraction in the sector. This figure now differs even more significantly from China’s official manufacturing data, which came in at 50.8 in May. However, the markets indicate that equity traders have more confidence in HSBC's figures, as they have sold stocks this afternoon, indicating fears that the second largest economy in the world is slowing down.

To add to the worries, manufacturing figures from Italy and Spain were also weak; the manufacturing industry has contracted for 23 and 25 months consecutively for Italy and Spain respectively.

In the US, the Dow is up 40 points at 15,155, as stronger than expected manufacturing PMI figures gave traders a reason to buy back into the market after Fridays dip. The final PMI report for May came in at 52.3, when economists were expecting 52.0.

Traders will now be looking ahead to Friday’s non-farm payrolls report, where we might see low trading volumes up to the announcement. If the report comes in better-than-expected, we might see traders sell their equity positions in anticipation of the Federal Reserve scaling back their stimulus package in response to unemployment falls.

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