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The Financial World Falling Apart At The Seams

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Although the sector is still expanding, the pace of growth in the U.S. manufacturing sector slowed in August to its weakest in more than two years, according to an industry report. It is going to be very hard to sort out the chicken-and-egg problems such as: What effect China is having? How much of a problem has a much stronger dollar become? And what exactly is going on in emerging economies?

The last question loops us back around to China. China's official manufacturing purchasing managers index (PMI) edged down to 49.7 last month from 50 in July, which throws it into the contraction category. The Caixin/Markit manufacturing purchasing managers' index (PMI) came in at 47.3 in August, above initial readings of 47.1 but down from 47.8 in July.

Besides further pulling down the Shanghai composite index, the Chinese struggles demolished the Nikkei today, which declined almost 4%. Hong Kong was down by 2.25% in Tuesday trading.

U.S. stock indices were down just north or just south of 2.5%. Europe found itself in pretty much the same boat as Asia and the U.S., declining strongly though not sharply.

But the losses are beginning to add up around the globe and beginning to do some technical damage to charts.

The systemic weakness in equities and China’s poor overall economic performance has prompted gold to rise as a haven play. Gold is up about $8.50 today. Silver is also up, although more modestly.

Otherwise, practically across the board, commodities are down. Almost all ag products are off in the 1% to 2% range, the coffee and soybean contracts being treated most roughly.

Over in energy, crude, which had been leading with its chin like an overconfident boxer, got what it was looking for.

West Texas Intermediate and Brent North Sea are both down by more than 7% on the day. Some of the loss is profit taking and technical selling. But the slowdowns in China and U.S. manufacturing also helped to sink oil.

As we’ve said, longer-term outlooks for crude are poor. If bad general economic news keeps turning up and producers of every type don’t stop overproducing, we may find our selves in the midst of a new price paradigm.

This is an aside, but the low price of just about everything “physical” is one of the many continuing holdovers from the Great Recession.

The one very bright spot in the U.S. economy today was data that showed construction spending was at its highest in seven years – or pre-Recession. It gives you an idea of how deep the economic cataclysm was and how long and steep the climb back out has been.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer