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wall street december 2017

Wall Street Recession Warning Shrinks Global Manufacturing

June 3, 2019
Investors foresee a global recession within nine months if Trump imposes 25% tariffs on an additional $300 billion of Chinese exports and Beijing retaliates.

Global manufacturing was the weakest since 2012 last month, a victim of mounting trade tensions and further reason to worry that the world economy is weakening.

With softness in Germany, Japan, the U.K. -- as well as the lowest U.S. result in a decade -- IHS Markit’s global Purchasing Managers Index fell to 49.8 in May, below the 50 level that divides expansion from contraction.

The reports underscore the growing threat posed by the escalating U.S.-China trade war, and they coincided with a fresh warning from Wall Street about recession risks.

U.S. President Donald Trump has also threatened Mexico with tariffs, adding to market concern, boosting demand for bonds and pushing stocks lower. On Sunday, China released a document blaming the U.S. for a breakdown in trade talks and accusing it of unreasonable demands.

Morgan Stanley has warned that investors continue to underestimate the situation. It sees a global recession within nine months if Trump imposes 25% tariffs on an additional $300 billion of Chinese exports and Beijing retaliates.

In the U.S., the main purchasing managers index unexpectedly fell in May to the lowest level since October 2016, according to an Institute for Supply Management report Monday. A separate PMI by IHS Markit fell to the weakest level since 2009.

European and U.S. stocks declined on Monday, extending the declines seen in May. German bonds rose, pushing the country’s 10-year yield further below zero.

“The last few weeks has undoubtedly unsettled investor confidence,” Julian Chillingworth, chief investment officer at Rathbones, said on Bloomberg Television. “The uncertainty that’s crept into investors’ thinking has occurred because of the unpredictability.”

In the U.K., where Brexit uncertainty is proving an additional burden, manufacturing shrank for the first time in almost three years in May. That’s partly due to pullback after huge stockpiling before March 29, when Britain was initially due to leave the European Union.

South Korea’s PMI also signaled contraction, and survey respondents noted slowdowns in the semiconductor and car industries.

Weak demand for new cars is hitting automakers in Japan, Germany and elsewhere, with ripple effects being felt more widely. Italian tiremaker Pirelli last month cut its 2019 revenue growth forecast, saying it was taking a “more cautious view.”

China’s official PMI for May slid to 49.4, and an employment index tumbled to the lowest level since the aftermath of the global financial crisis. The Caixin manufacturing PMI for May released Monday held at 50.2.

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