Stocks sink as Chinese factories gear down – CBS News

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NEW YORK – Renewed concerns that China’s economy is slowing down are denting U.S. financial markets.

The Caixin magazine’s purchasing managers’ index (PMI) for the manufacturing sector declined to a reading of 49.4 points from March’s reading of 49.7. A number below 50 indicates that manufacturing is contracting. Worries about China were largely responsible for the turmoil in global financial markets in the early part of the year.

The Dow Jones industrial average lost 197 points, or 1.1 percent, to 17,694 as of 11:19 a.m. Eastern. The Standard & Poor’s 500 index lost 24 points, or 1.2 percent, to 2,057 and the Nasdaq composite fell 61 points, or 1.3 percent, to 4,756.

Compounding the worries about China, Australia’s central bank unexpectedly cut interest rates to a record low. Australia’s economy has been battered as commodity prices have plummeted and other parts of the developed world have slowed down. The news sent the Australian dollar down more than 2 percent.

In another headwind that points to the weak global economic, the European Commission on Tuesday trimmed its 2016 growth forecast for the eurozone to 1.6 percent, down from a previous estimate of 1.7 percent. Inflation in the 19-member trading block is also softer than previously thought.

The global economic worries hit two of the hardest-hit sectors this year: energy stocks and banks. Energy companies in the S&P 500 slumped 2.1 percent, the most in the index, and financial stocks were close behind with a drop of 1.9 percent.

Despite the slump in Chinese manufacturing, some forecasters expect the world’s second-largest economy to shrug off the weakness.

“The upshot is that although they missed expectations, the latest PMI readings do little to alter our view that China is in the midst of a cyclical rebound that should continue for at least another couple of quarters,” Julian Evans-Pritchard, China economist with Capital Economics, said in a note.

Ned Rumpeltin, an analyst with TD Securities, also thinks fears of deflation in China are overstated, pointing to signs in the Caixin manufacturing data that price pressures are building.

Benchmark U.S. crude oil lost 70 cents to $44.04 a barrel on the New York Mercantile Exchange. Brent crude, the international standard, fell 56 cents to $45.27 a barrel in London.

U.S. government bond prices rose sharply. The yield on the 10-year Treasury note fell to 1.79 percent from 1.87 percent late Monday. The euro rose to $1.1548 from $1.1523. The dollar fell to 105.97 yen from 106.45 yen.