Possibly meaningless Chinese economic data lead global markets down

Overnight numbers showed that China’s purchasing managers index for manufacturing fell to 50.3 in February.

That was down from 51.3 in January and the biggest drop in five years. Economists surveyed by Bloomberg had expected a reading of 51.1 in the index. The services PMI declined to 54.4 for the month from 55.3 in January.

Easy to understand why these index figures–especially the manufacturing index–would make markets nervous. 50.3 is way too close to the level that signals contraction in this index (anything below 50.)

There is, of course, a strong possibility that the data are meaningless. China’s Lunar New Year fell in February this year and the holiday always distorts economic activity.

But the PMI indexes in Europe and Japan have also showed recent declines, arguing to many traders that all these numbers are signaling a slump in global manufacturing and trade. A weighted average of flash PMIs for China’s major trade partners fell to 56.7 in February from 57 in January. The December reading of 57.1 was the highest since 2010, according to Bloomberg.  Economics. New export orders for Chinese companies fell for a second month in February.

All this suggested to traders today that global growth was about as good as it gets and they decided to take profits, and to cut risk just in case the global economy is slowing and just in case the Trump administration does indeed follow through on its threats against Chinese exports in areas such as steel and aluminum.

The Standard & Poor’s 500 stock index was off 1.11%. The Dow Jones Industrial Average dropped 380 points, of 1.5%.

The decline in the S&P 500 on the last day of the month meant that February showed a total retreat of 3.9%.

The CBOE S&P 500 Volatility Index (VIX) was very restrained today, moving up only 6.4% to 19.78, only slightly above its long term average.

Given the possible distortion introduced by the Lunar Year New holiday, I think it’s worth waiting a few days before drawing any big conclusions from the numbers. But China’s economy and trade do bear watching.