Kokomo, IN – (StockNewsDesk) – 12/01/2014 — The future index of major indices in the United States retreated from all-time highs after China’s economy faced slowdowns in the manufacturing sector and factory activity. Following the disclosure of the economic indicator, gold prices fell to a two-week low while crude oil prices also corrected over 2%. With the Chinese manufacturing and factory activity contracting, there is a high chance that stimulus measures will be taken to boost the Gross Domestic Product (GDP) growth to 7.5%
Chinese Manufacturing and Factory Output Slows
The manufacturing Purchasing Managers’ Index (PMI) continued to contract. The manufacturing PMI came in at 50.3 compared to the Street’s expectation of 50.6 and earlier period’s reading of 50.8. Lower than expected demand and increasing costs are predominantly responsible for the fall in the manufacturing sector. The PMI index is gradually approaching the 50.0 level, which separates expansion from contraction. Another preliminary reading hints at the slowdown in factory activities as well. Growth in factory activities declined for the first time in six months. The reading came in at 50.0. However, factory output went below the 50.0 level to 49.6; the lowest level since May this year.
Housing Prices Weigh on China’s GDP
Housing prices continue to cool and add to the slowing economy. On average, home prices fell 0.4% in November compared to October prices. This was the seventh consecutive month of declination. Chinese policy makers gained investors trust when they decided to cut one-year interest rates to 2.75%. However, they expect more stimulus measures in light of the slowing housing sector and ailing manufacturing and factory activity. Last month, China reported a GDP of 7.4%, lowest in more than two decades. Prevailing weakness in economic numbers point towards further weakness in GDP numbers. Economists predict a GDP growth of 7.1%, which is likely to touch the lowest level in nearly three decades.
The labour market was also not spared from the slowing economy of China. The employment index of China declined for the thirteenth consecutive month. Chinese policymakers fear that at the prevailing pace, the country is vulnerable to face a GDP of 7% and a deflationary situation. Major problems in the Chinese economy include business failures, bad loans and job losses. They may further reduce the interest rates if they think it can help stabilize economic growth and ease the slowdown.
Economic Indicators of the U.S., Euro zone to Impact
In light of lower than expected manufacturing PMI, the gold futures and crude oil futures fell more than 2% each. Gold futures fell to a two-week low of $1,150 while crude oil futures fell to $63 a barrel. The U.S. is set to reveal employment and jobs data on Thursday and Friday. This could decide the trajectory of these commodities in the days to come. Moreover, the euro zone is also set to report their manufacturing and factory activities today, which can also impact the gold and crude prices.