More China Economic Woes

China’s official PMIs signalled economic contraction across sectors in October.

Although these data points are weaker than expected, it should be no surprise given those broad-based covid-related restrictions that remained in place during the party congress.

China-related markets are starting the week on the back foot, with the Hang Seng China index marking a 1.2% decline – close to the lowest levels since 2005. The selloff does not entirely reflect the weaker-than-expected PMIs, but negative news from the real estate sector is adding salt to the economic wounds. The resignation of Longfor chair Wu Yajun is an apparent vote of no confidence in the industry.

Higher Grain Prices Likely

Wheat futures are up 5.8% in early trading after Russia withdrew from an agreement to allow grain exports from Ukraine through the Black Sea. The existing deal was due to run out in mid-November, so Russia’s withdrawal represents an early termination. No ships carrying grain moved through on Sunday, although the UN said in a statement that it had agreed to a plan for 16 vessels in and out from Ukraine on Monday.

Further gains in the grain complex can be expected unless Russia returns to the table on a new agreement. For the global economy, the pass-through for higher grain prices points to downside risks for consumer spending on squeezed real incomes.