Asia Showing Signs of Contagion

       The idea that Greece leaving the euro will be no big deal is more clearly a fantasy with each passing day. The investors in Spain and Italy clearly don't believe it.

      Now there are signs that the contagion is already spreading. China is "slowing down" to 8% growth and now India is down to 5.5%  with the rest of China so dependent on it this is a very ominous sign.

      "Two purchasing managers indexes for China fell in May, briefly rattling investors Friday and stoking speculation Beijing may have to respond aggressively to support growth. Indonesia posted its first trade deficit in nearly two years, and South Korea's exports, considered a bellwether for Asia, unexpectedly fell for a third straight month."

     "The green shoots of recovery that we were seeing a month or so back are wilting away," said Rob Subbaraman, chief Asia economist at Nomura Securities. "The crisis in Europe is one reason; the other one is the China slowdown. But I think less appreciated is that the height of uncertainty about the outlook has caused Asian firms and multinationals in Asia to pause in their investments, and I think that's the bigger factor right now."

     "China's official PMI, based on government data, showed manufacturing continuing to grow but by the barest of margins, falling to 50.4 in May from 53.3 in April. A figure above 50 indicates expansion. An index produced by HSBC and Markit showed Chinese manufacturing was worse, falling to 48.4 in May from 49.3 a month earlier."

       http://online.wsj.com/article/SB10001424052702303640104577439103464926734.html?mod=WSJ_World_LEFTSecondNews

       "Ominously, the slowdown in China doesn't appear to have spread fully to other Asian countries—yet. Partly, HSBC's Mr. Neumann said, it's because other Asian countries didn't tighten policy last year as sharply as China, which feared overheating and runaway inflation. But there also may simply be a time lag."

    "Everybody had always looked to China as the pillar of Asian growth, but it turns out that in the current environment these smaller economies are actually holding up better," he said. But, "if China continues to slow, ultimately the weakness will spread to the rest of Asia."

     Indeed with the slowdown in China and the idea that the ripple effects haven't even been fully felt yet the US is more and more becoming the Little Engine That Must. Unfortunately the latest numbers here today were not fortuitous either. But we'll save that for the next post.