China is threatening to slow down. Industry activity is declining

The Chinese economy seems to be slowing down more and more, which may be indicated by the NBS PMI reading for manufacturing. It fell to 49,6 in September from 50,1 in August, which indicates a recession in this sector. This was the first decline in activity in Chinese factories since February 2020.

The Chinese economy is clearly slowing down

Readings below the 50 point line separating development from recession hit the indexes of production, new orders, export sales, new purchases, and the employment index fell for the sixth consecutive month to 49 points. All this, as the report emphasizes, in connection with the spread of the coronavirus delta variant, higher material costs and electricity rationing. Cost inflation may be suggested by the production cost index, which rose from 61,3 to 63,5 points. In turn, the outlook for the following months deteriorated for the seventh month in a row.

Europe and the USA with the specter of a slowdown. What's next for indices and commodities?

If the Chinese slowdown spills over into Europe or the United States, then this fall or winter we can observe a situation where, in these parts of the world, PMI indices may show recessionary readings with local inflation records at the same time, which in turn may mean a period of stagflation. Then, investors looking at stock indices could see slightly larger corrections, and currently rapidly rising commodity prices, which is typical for expansion in the phases of the business cycle, could quickly turn back from their highs. Moreover, such a situation could embarrass central banks, which on the one hand try to support the economy through low interest rates, and on the other hand should chase inflation, as in the US in the 70s. GDP will be more important than CPI, is a market playing against rate hikes in 2022 by Fed and thus strengthening the USD, it could change its attitude.

Underestimated gold

During the period stagflation theoretically precious metals, incl goldcan be considered a safe haven and next to a bond a way to store money. Both gold and inflation-linked bonds can be instruments of choice by investors who, following a very strong upward trend, could leave the stock market due to the lack of prospects for an improvement in corporate results. Undoubtedly, the upcoming last quarter of 2021 promises to be very interesting and although the temperature in the northern hemisphere will drop, the one in the markets may be very high.