China factory gauge reaches new low in September

BEIJING--A preliminary measure of Chinese factory output in September was the lowest since the financial crisis, adding to a parade of weak data that is increasingly eroding hopes that China's slowdown would stabilize in the second half.
Chinese stock markets fell on the news, which follows weak readings in August for fixed-asset investment, industrial production and exports as Beijing struggles to meet its growth target of about 7% this year, the slowest pace in 25 years.
"New export orders have really collapsed. It means global trade is facing headwinds, and even China can't escape that," said HSBC economist Frederic Neumann. "It's not so bad that we need to hit the alarm button, but the decline in the economy is evident."

The preliminary Caixin China Manufacturing Purchasing Managers' Index, a gauge of nationwide manufacturing activity, fell to 47.0 in September, compared with a final reading of 47.3 in August, Caixin Media Co. and research firm Markit said Wednesday. The reading was the lowest since March 2009, when China was grappling with the global financial crisis.
A reading above 50 indicates expansion from the previous month, while one below 50 indicates contraction.
The Shanghai Composite Index was down around 2% in midday trading.
China has announced a flurry of infrastructure plans in recent months, browbeaten local officials to spend their full budgets and tried to ease funding constraints for highway, rail and other projects. The infrastructure subindex of fixed-asset investment data in August grew 19.9% year-over-year in August compared with 16.4% in July.
But this hasn't been enough to counteract a sharp and protracted fall in real-estate investment. And local-government spending remains weak given Beijing's effort to contain shadow banking and fight corruption.
"The situation is definitely worsening in September," said Zhang Yiping, an economist with China Merchants Securities. "China's economy is facing more downward pressure now."
Subindexes for output, new orders, new export orders, employment, prices and inventory in the Caixin data all weakened, suggesting that companies covered by the survey are struggling across the board. "The corporate sector is pretty pessimistic on the outlook for future demand," said HSBC economist Ma Xiaoping. "All those government ministers are tasked to do what they can to try and revive the economy, but all those measures are not very effective," she added.
Retail spending, however, has remained strong, growing by a better-than-expected 10.8% in August from a year earlier compared with July's 10.5%.
The weak outlook for the nation's factories puts more pressure on the government to step up fiscal and monetary stimulus between now and the end of the year to reach its target. Economists said China has more leeway to reduce interest rates given that the U.S. Federal Reserve held off on an anticipated rate increase. And it will likely cut required bank reserves to stem an outflow of capital seeking higher returns abroad.

"I think they still have plenty of room to ease monetary policy," said BBVA Research economist Xia Le. "I think we'll see it stabilize in the fourth quarter."

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U.S. stocks tumble as Fed sows fear and confusion

U.S. stocks sank Friday, with the S&P 500 and the Dow Jones Industrial Average closing down for the week, as Federal Reserve’s decision to leave interest rates unchanged fueled fears about global economic growth.

The central bank cited concerns about the global economy and a lack of inflation growth in its Thursday decision to leave interest rates unchanged.

“Many are confused by the outcome of the recent Fed meeting,” said Kent Engelke, chief economic strategist at Capitol Securities Management. “Markets hate confusion and lack of clarity.”

The S&P 500 SPX, -1.62%  skidded 32.16 points, or 1.6%, to close at 1,958.08 for a weekly loss of 0.2%. All S&P 500 sectors finished lower, led by energy shares.

The Dow Jones Industrial Average DJIA, -1.74%  dropped 289.95 points, or 1.7%, to close at 16,384.79 with all 30 components in the red. The blue-chip index edged down 0.3% for the week.

The Nasdaq Composite COMP, -1.36%  shed 66.72 points, or 1.4% to 4,827.23. The tech-heavy index is the only one of the three major stock barometers to finish out the week higher with gains of 0.1%.

Trading volume was elevated, with 5.74 billion shares changing hands on the New York Stock Exchange, due to “quadruple witching,” which means the expiration of various stock-index futures, stock-index options, stock options and single-stock futures. Friday is the second highest volume day of the year.

“By not raising the rates, the Fed is now fanning global growth fears,” said Steven Wieting, global chief investment strategist, at Citi Private Bank.

“The key for future market action depends largely on whether or not the Fed had any good cause to worry about international developments,” Wieting said.

These 5 charts show why the Fed is fretting about emerging markets.

Weak oil prices and investors rotating into bonds as Treasurys rallied in wake of the Fed’s decision also pressured stocks, said Ian Winer, director of equity trading at Wedbush Securities.

October West Texas Intermediate crude CLZ5, -3.73%  skidded 4.7% to settle at $44.68 a barrel. Treasury yields fell and prices rose with the yield on the two-year Treasury note TMUBMUSD02Y, +0.63%  dropping 6.7 basis points to 0.678%. The 10-year Treasury note yield declined 5 basis points to 2.14%.

“We are not surprised to see the selloff in the market, as investors are realizing that the zero-rate policy for the past seven years has not resolved any issues in the economy,” said Bruce Bittles, chief investment strategist at R.W. Baird & Co.

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Malaysia's Najib delivers RM20b boost for stock market

KUALA LUMPUR (Sept 14): The Malaysian government will inject 20 billion ringgit (US$4.6 billion) into a state investment firm to shore up the stock market, Prime Minister Najib Razak said on Monday, in a bid to boost confidence in a country reeling from a political scandal.

Najib has rebuffed calls for him to quit over a corruption scandal raging round heavily indebted state fund 1Malaysia Development Berhad (1MDB), and for his handling of the economy as the ringgit currency slumped to its weakest levels since the Asian financial crisis nearly 18 years ago.

The embattled prime minister announced some new measures on Monday at a news conference, and offered reassurances meant to improve sentiment.

He said the equity investment firm, ValueCap, would be given funds to invest in undervalued Malaysian companies.

"As such, the government will reactivate ValueCap with funds of 20 billion ringgit," he told reporters at the Prime Minister's office.

The prospect of government support for the share market helped lift Malaysia's benchmark stock index 1.7% to 1,630 points in afternoon trade, but it was still 8.7% weaker compared with the start of the year.

A Kuala Lumpur-based fund manager with a bank-backed insurance firm told Reuters that the move bode well for the share market, where foreign holdings are relatively low. But the ringgit was largely unmoved.

Najib also announced that the factory sector would be exempted from import duties until the economy recovers from a slowdown, but did not specify which specific sectors would benefit.

The ringgit's fall reflects a deterioration in Malaysia's trade position because of falling prices for its liquefied natural gas and commodity exports. But capital outflows accelerated in July as the political storm over 1MDB worsened.

Najib's failure to adequately explain how 1MDB racked up $11 billion debt, or who deposited over US$600 million in a bank account held in his name has led to mounting public unease over his leadership.

Najib has denied wrongdoing. He said on Monday that the rationalisation plan for 1MDB was on track. The fund is in the process of divesting its energy and real estate assets.

He also sought to allay concerns over the ringgit.

"The ringgit's decline is not expected to have adverse impact on government debt as 97% of the debt is denominated in ringgit and mostly funded by domestic sources," Najib said.

The country's international reserves have fallen to US$94.7 billion, more than US$37 billion less than a year earlier, worrying some economists.

Reflecting those concerns, Najib called on state-linked firms to bring funds home.

"Companies have profited from investments made (abroad) and now it's time to bring those funds back home," Najib said.

He also reiterated that there were no plans to introduce capital controls, adding that the government was on track to achieve fiscal consolidation target for 2015.

(US$1 = 4.3130 ringgit)

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