80% of World Manufacturing Activities Contracting

About 80% of world manufacturing activities have been shrinking. Yet many of the world’s equity markets seem detached to this reality. Negative developments have been offset with positive expectations from promises of central banking rescues.

From Zero Hedge, (bold original)

With the US closed today, the rest of the world is enjoying a moderate rise in risk for the same old irrational reason we have all grown to loathe in the New Normal: expectations of more easing, or "bad news if great news", this time from China, which over the weekend reported the first official sub-50 PMI print declining from the magical 50.1 to 49.2, as now even the official RAND() Chinese data has joined the HSBC PMI indicator in the contraction space for the first time since November. Sadly, following today's manufacturing PMI update, we find that the rest of the world is not doing any better, and in fact of the 22 countries we track, 80% are now in contraction territory. True, Europe did experience a modest bounce from multi-month lows of 44 in July to 45.1 in August (below expectations of 45.3), but this is merely a dead cat bounce, not the first, and certainly not the last, just like the US housing, and now that China is officially in the red, expect the next shoe to drop in Europe. Also expect global GDP to eventually succumb to the manufacturing challenges faced by virtually every country in the world, and to post a negative print in the coming months.

The above only exhibits of the growing risk of a global recession.

This means central banks will either make good their promises soon or that the diminishing returns of returns from political promises may jolt the markets back to reality.

Be careful out there.

PIMCO’s Mohamed El-Erian: “Frightening” Global Synchronized Slowdown

Mohamed El-Erian of PIMCO, one of the top investment firms with more than $1.7 trillion of managed funds, has been apprehensive with current global economic conditions.

From Bloomberg,

Pacific Investment Management Co.’s Mohamed El-Erian called recent declines in purchasing manager indexes in Europe and Asia “frightening” and said the world economy is suffering its severest slowdown since the global recession ended in 2009.

El-Erian, who is chief executive officer of the Newport Beach, California-based Pimco, predicted global growth of 2.25 percent over the next 12 months. That’s down from the 3.9 percent in 2011 and 5.3 percent in 2010 recorded by the International Monetary Fund. The world economy contracted 0.6 percent in 2009.

“This is a serious, synchronized slowdown,” El-Erian said in an interview today.

His forecast highlights the troubles the global economy is facing as the euro area struggles to contain its debt crisis and growth in the U.S. and China slows. Separate surveys of purchasing managers released yesterday showed manufacturing in the 17-nation euro area shrinking by the most in 37 months while Chinese factories teetered on the edge of contraction.

Mr. El-Erian shares my concern about the huge uncertainty which beclouds the global economy.

The growing risks of global recession, in my view, has been brought about by political gridlocks in major economies, aside from tentative central bankers who seem to have shifted to Public Relations work to manage the public’s expectations than from taking real actions.

Considering that global financial markets and economies have become heavily dependent on central banking steroids, the dearth of these only brings to the surface all the misdirected investments which only magnifies the bubble busting conditions.

Below is a list of the factory activities of some of the major economies of the world. Table from the Wall Street Journal Blog

About 70% of the global factory activity index has been in contraction, this includes all G-7 economies.

To add, over the past three days, news seems to be getting a lot bleaker.

Taiwan’s economy contracted in the three months which ended in June (BBC).

Japan’s industrial output fell for the third straight month. (BBC)

South Korea’s factory index sank the most in seven months in July (CNBC)

US consumer spending slips in June (Northern Trust)

US Manufacturing contracts for the second month in a row (Zero Hedge)

This morning, China’s non-manufacturing industries expanded at a slower pace in July as new orders and outlooks for future business slipped, an official survey indicated (Bloomberg)

This seems congruent to the recent decline of China’s Manufacturing Index which seems at the brink of contraction (Bloomberg)

Be careful out there.