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Pre-Market in Red on Weak Economic Data

A key regional economic print for August, the Empire State Manufacturing Index, is out this morning. Headline results are far more disappointing than predicted: -31.3 is well off the +5.0 analysts were expecting, and +11.1 reported in July. It’s the lowest drop since the first half of 2020, and marks the fifth negative month for this productivity survey from New York State so far in 2022.

This has helped usher pre-market futures lower this morning, coming off a very strong Friday session and the fourth-straight up-week for the S&P 500: the Dow has shed -204 points so far in early trading, the Nasdaq is -56 and the S&P is -27 points. The Empire State numbers don’t really help sentiment, but markets were already lower this morning on news coming from China, which appear a bit odd compared to economic decisions being made elsewhere in the world.

Economic growth in China has been disappointing of late, with Industrial Production coming in at +3.8% year over year, missing expectations of +4.6%, while Retail Sales reached only +2.7% from +5.0% expected. China’s economic downturn now looks wider and deeper than initially thought, with Property Investment -12.3% year over year and New Property Sales -28.9%. Covid lockdowns continue in the world’s second-largest economy, so a couple 10 basis-point rate cuts announced this morning don’t appear to bring much impact.

It is notable, however, to see China cutting rates — as well as injecting the equivalent of $60 billion into its financial system — when the U.S. and the ECB are cranking rates higher. From the outside looking in, it would seem an adjustment on its “Zero Covid” policy may deserve a re-think, but the top-down decision making of the Chinese government may make this policy — which is very clearly what’s hampering the Chinese economy overall — may prove stubbornly resistant to change.

After today’s open, we’ll get a look at the National Association of Home Builders’ print for August, which is expected to come down a tad from July’s 55, which was the lowest read going back to May of 2020. This would represent the eighth straight month lower, as home builders halt construction on supply constraints and prohibitive costs. Tomorrow, we’ll take a look at Housing Starts and Building Permits for July, so tracking the Housing market is big this week.


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