China PMI may hurt US, Fed to defer rate increase: ING Fin

Speaking on widening losses in Asian markets, global growth concerns and Fed rate hike uncertainty, Tim Condon, ING Financial Markets said China could be the epicenter of investor uncertainty and so, would be cautious investing in equities at this point.In an interview to CNBC-TV18 he said, the poor China PMI number reinforces the fact that there is material slowdown, which could be threat to US growth and push the Fed rate hike further than September, resulting in flight from all risk assets.The final Caixin China PMI dropped to a two-year low of 47.8 in July, while the official China PMI avoided falling into contraction territory by coming in at 50 for the month. Caixin's China PMI data tends to focus on smaller and medium-sized companies, filling a niche that isn't covered by the official data.The European markets could also open weak today, he said.Below is the transcript of Tim Condon’s interview with Ekta Batra and Anuj Singhal on CNBC-TV18. Anuj: What is happening globally? What is happening in the US market first of all? The kind of fall that we saw has got a lot of people worried. A: China, the Federal Open Market Committee (FOMC) minutes that were released a couple of days ago mentioned China and now, we have got a poor print from the August/ manufacturing purchasing managers’ index (PMI) and that has reinforced that sense that there has been a material slow down in China and that which the FOMC minutes warned could be bad for US growth. And obvious investors are pushing out a likelihood of a September rate hike and you are seeing that in this flight from risk across all risk assets -- treasury bonds rallying, the dollar down, commodities down, equity is down. I think there is a great deal of uncertainty about what s going on in China. China is sort of the epicentre of uncertainty and until visibility improves, I think we are in for a bump patch here. Ekta: What is your expectation from the European market opening today? A: I am in Asia, I can only imagine that the contagion is somewhat, as investors wake up and see what is going on in this part of the world and it was a bad night in Wall Street overnight. I suspect it will be a poor opening there. There may be some additional uncertainty around calls for elections in Greece. So, there is enough uncertainty around that I am expecting a red opening there are well. Anuj: What is the chance that what we are seeing right now could be a start of a bit of a bear phase in global equity markets? A: You have got several emerging markets that have locked in spending patterns that were based on an outlook for commodity prices that has proved wronga, and adjusting in those economies is proving difficult. There are couple of candidates like that in Asia, notably Mongolia, Indonesia and Malaysia. This sort of exchange rate depreciation in any large economy and that would be in this part of the world, Indonesia and Malaysia would have global repercussions but it is not just Asia, there are countries you can identify in the Middle-east, nearly all of the Brazil, Russia, India, China and South Africa (BRICS) with the exception of India would be candidates. So, this is a dangerous patch for investors. You need to be very cautious at this point until we have more visibility on China. The risk of a crisis somewhere is elevated. Ekta: Are we in a new normal for oil prices now? For example, Nymex is at the longest weekly losing streak that it has seen all the way back since 1986 and even Brent crude is now testing USD 45 per barrel. Is this a new normal? A: I wish I knew the answer to that. I tend to think that commodities are moving very closely with the US dollar but that correlation has broken down a bit since July. We had a collapse in commodity prices and the dollar has not moved very much. Now many things could explain that, a new normal among them, but until we have greater visibility on some of the, on the cause, you could put China into the mix. It may be just a re-pricing for a much slower growth in China. It may be that oil is heading back to USD 20 a barrel and we just do not have a very good idea and that is certainly not the ING House view butconvictions on those house views have dropped sharply because of the volatility in the markets. More of visibility is needed before people are going to be comfortable and coming back into these risk assets.