US and China Manufacturing Slowdown... Fed Official Expects Tapering in October

US July Manufacturing PMI Falls from Previous Month...Below Expectations
Concerns Grow Over Economic Recovery Slowdown Amid Weak China PMI
Fed Official Expects Tapering in October

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] Concerns about the slowdown in economic recovery in the US and China have resurfaced. As anxiety about future economic recovery spreads, the yield on safe-haven US Treasury bonds fell to the 1.1% range. Concerns over economic slowdown also dragged down international oil prices and the US stock market.

On the 2nd (local time), the US Institute for Supply Management (ISM) announced that the July Manufacturing Purchasing Managers' Index (PMI) was 59.5. This not only fell short of June's 60.6 but also missed the Dow Jones consensus forecast of 60.8.

The US manufacturing PMI had recorded 64.7 in March, the highest since December 1983, and had maintained above 60 for three consecutive months. A PMI above 50 indicates economic expansion, while below 50 indicates contraction.

Investors interpreted the manufacturing PMI slowdown as a signal that the economic recovery had peaked.

On the same day, the yield on the US 10-year Treasury bond fell intraday to 1.151%. A major foreign news outlet reported that the decline in the US manufacturing PMI led to a rise in bond prices. Bond prices in the UK and Germany also showed an upward trend. A decline in bond yields means a rise in bond prices.

The PMI decline also occurred in China. China's July manufacturing PMI was 50.4, the lowest level since the outbreak of COVID-19 in February last year.

The decline in manufacturing PMI in both the US and China also pulled down oil prices. On the same day, the price of September West Texas Intermediate (WTI) crude oil on the New York Mercantile Exchange fell $2.69 (3.6%) to close at $71.26 per barrel.

In the US stock market, the Dow Jones Industrial Average fell 0.38%, and the S&P 500 index dropped 0.18%. The Nasdaq index rose 0.06%, but the gain was limited.

Despite the slowdown in economic recovery and the rise in bond prices, Federal Reserve (Fed) Governor Christopher Waller predicted that the Fed's asset purchase tapering could proceed rapidly.

He forecast that if employment growth exceeds 800,000 in August, the Fed could announce tapering in September and take action in October. The market expects nonfarm payroll employment growth in July to be 880,000.