Incredibly Anemic Performance of Chinese Stock Market; Decoupling in Reverse?

Fri, 12/02/2011 - 00:24 EDT - Mish's Global Economic Trend Analysis

RDF10

Every day I watch the relative performance of various equity markets. Since April, the Shanghai index has been the last to rally and the first to go down.

$SSEC Shanghai Composite Index

click on chart for sharper image
On recent news China Cuts Bank Reserve Ratios by .5 Percentage Points; Central Banks Cut Rates on Dollar Swap Lines global equities soared.

However, the Shanghai stock index stands alone in failing to hold the gains, a pattern I have seen and commented about for months.

Note the Shanghai Index was the last global index to rally in late October. Also note that in November the index gave up nearly the entire October rally.

Yesterday the index gapped up strong but gave back much of the gains.

The night is young, but so far today (morning in China) the index is strongly in the red, down 34 points (1.44%) to 2,352 as of 11:12 PM EST.

Chinese Manufacturing in Contraction

Earlier today I commented China Manufacturing PMI Plunges to 32-Month Low of 47.7; Reflections on Stocks Rallying on "Bad News"
Yesterday stocks rallied on news China Cuts Bank Reserve Ratios by .5 Percentage Points and Central Banks Cut Rates on Dollar Swap Lines.

However, the reason Chinese central bank reacted is hugely deteriorating conditions in China. The reason the Fed reacted is hugely deteriorating conditions in Europe.

Equities have rallied on reported "good news". However the first irony is the global economic picture outside the US is horrendous. The second irony is bottoms are formed on bad news (and tops on good news), but central banks intervention is really bad news widely recognized as good news. Decoupling in Reverse?

The equity markets can rally all the want on deteriorating fundamentals but it will not change the facts one bit.

Europe is in recession, Australia is in recession, Chinese manufacturing is in recession, and the US cannot carry the global economy on its own.
Note the irony in that last sentence. Peter Schiff and others mistakenly thought in 2008 the global economy would decouple from the US economy. The idea was silly then and it is silly now (in reverse).

The US will not decouple from the global economy. China is slowing and faces a hard landing, Europe is in recession, and a Fed inspired rally in commodities will end in pain given the slowdown in China and Europe. Gold may be the exception.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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China Manufacturing PMI Plunges to 32-Month Low of 47.7; Reflections on Stocks Rallying on "Bad News"
Equity markets soared on central bank manipulations and various rumors the past few days. However, neither rumors nor trivial actions (which is all that happened) can save the global economy. Yesterday stocks rallied on news China Cuts Bank Reserve Ratios by .5 Percentage Points and Central Banks Cut Rates on Dollar Swap Lines.
China Cuts Bank Reserve Ratios by .5 Percentage Points; Central Banks Cut Rates on Dollar Swap Lines; German 1-Year Bond Yield Negative First Time Ever; Futures Soar
Equity futures sharply reversed an overnight pullback on a pair of central bank actions, one in China, the other an agreement between the US and Europe. China Cuts Bank Reserve Ratios by .5 Percentage Points The Wall Street Journal reports China Cuts Reserve-Requirement Ratio
Demand for Dollars from Fed's Discount Window Swells in Europe by 12,735% After Fed Cuts Rates on Dollar Swap Lines
On November 30, Central Banks Cut Rates on Dollar Swap Lines which made borrowing at the Fed's discount window cheaper for foreign banks than US banks. As a result, Dollar-Loan Demand Swells In Europe and Japan
"Actual" New Home Sales First 6 Months of 2012 vs. Prior Years; Reflections on the Housing Recovery
New home sales unexpectedly plunged today, with the biggest drop in over a year. New U.S. single-family home sales in June fell by the most in more than a year and prices resumed their downward trend, suggesting a set back for the budding housing market recovery.
China PMI barely Above Contraction; Chinese Stocks Slump as Manufacturing Slows
Bloomberg reports Chinese Stocks Slump Most in Three Weeks as Manufacturing Slows China’s stocks fell, dragging the benchmark index down the most in three weeks, as data showed the country’s manufacturing growing at a slower pace.
China Manufacturing "Expands" at Faster Pace; China Manufacturing "Contracts" 6th Consecutive Month; Confused by Conflicting Headlines?
China manufacturing is reported to be in contraction and expansion simultaneously. The Chinese government reports expansion. The HBSC PMI says China is in contraction for the 6th consecutive month. Obviously this is impossible, so the question is "who to believe?" China Manufacturing Expands at Faster Pace Bloomberg reports China’s Stocks Rise Most in Two Weeks on Manufacturing, Fee Cut
China Manufacturing Contraction Continues Second Month; Japanese Manufacturing Sentiment Turns Negative; Asia Pacific Equities Sink
All Asia-Pacific Equity indices are in the red tonight following more bad news from China and Japan. Asia Pacific Equities Japanese Manufacturing Sentiment Sinks
Japan Composite PMI Contracts; China Composite PMI Stagnates
The contraction hit parade keeps humming along. Japan Composite data show first fall in business activity since November 2011 Business activity in Japan’s service sector decreased for a second successive month during June, as new order growth remained muted.
US Manufacturing ISM Contracts for First Time in Three Years; New Orders and Prices Plunge; Perfect Miss: 0 of 70 Economists Polled By Bloomberg Expected Contraction
US Manufacturing contracted this month as reported in the June 2012 Manufacturing ISM Report On Business® Economic activity in the manufacturing sector contracted in June for the first time since July 2009; however, the overall economy grew for the 37th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.
China Manufacturing Weakens 8th Month; Will the US Economy Continue to Decouple From the Rest of the World?
The global economy led by Europe and China continues its downward path. Will the US follow? First let's take a look at China. Markit reports China Manufacturing PMI Declines 8th Consecutive Month. Key points

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Incredibly Anemic Performance of Chinese Stock Market; Decoupling in Reverse?

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