Persistent Pressure From The Trade Tension

Forex News

According to surveys of purchasing managers, manufacturing activity has broadly weakened on the trade tension between China and the U.S.

Ben May at Oxford Economics noted: "While we remain alert to the risk of a further loss of momentum from factors such as more protectionism and liquidity shocks, we still think that the most likely scenario is a modest slowdown after the exceptional performance of 2017".

Stocks are dropping for 3rd consecutive day on the threat of trade war. The outlook for US economy is positive, suggesting the growth will slow as one of the outcomes.

UK manufacturing is doing no better as its manufacturing PMI dropped to its 2-year minimum of 52.8 in August. Andrew Wishart at Capital Economics stated: "The main reason for the fall in the headline orders was a contraction in export orders, suggesting that the possibility of a 'no deal' exit from the EU in March and a moderation in global growth is starting to weigh more heavily on the sector".

Manufacturing activity in major Asian economies weakened after decline in exports orders, suggesting that the sector is already feeling the harm from trade tension. In China, manufacturing sector growth marked minimum of more than a year and export orders have been falling for 5th month. China's Caixin/Markit Manufacturing PMI dropped from 50.8 to 50.6. The data marked its yearly minimum. New export orders have contracted for the longest period since the first half of 2016.

Zhengsheng Zhong, director of Macroeconomic Analysis at CEBM Group stated: "The manufacturing sector continued to weaken amid soft demand, even though the supply side was still stable," and: "China's economy is now facing relatively obvious downward pressure."

Japanese corporate capital expenditure growth hit its 12-year maximum in Q2. Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Japan warned: "The tit-for-tat tariff retaliation hurts China's economy far more than that of the United States. And when you look at Asia's economic prospects, much depends on whether China could avoid a sharp slowdown in growth”.

In South Korea, factory activity contracted for a 6th month straight after export orders declined for the first time in 3 months.

EU countries are feeling the harm as well. German industrial orders, for example, began easing as well.