Dow Futures Cling to Gains as China’s Economy Averts Disaster

China's Caixin composite purchasing managers' index (PMI) remained on the right side of growth in September. | Image: REUTERS/Aly Song

Futures on the Dow and broader U.S. stock market advanced in overnight trading Tuesday after a closely-watched report of China’s economic output improved slightly in September, alleviating fears of a more protracted downturn in the world’s second-largest economy.

Dow Futures Rise; S&P 500, Nasdaq Follow

Futures contracts on all three major U.S. indexes rose during the Asian session. Futures on the Dow Jones Industrial Average (DJIA) advanced by 79 points, or 0.3%, to 26,518.00.

S&P 500 futures climbed 0.3% to 2,947.25. The Nasdaq 100 mini contract advanced 0.5% to 7,777.00.

U.S. equities are coming off a disappointing Monday session that saw the Dow lose almost 100 points. The loss of risk appetite may have been stoked by President Trump’s stern warning to Turkey not to invade Syria’s northern regions after the U.S. withdraws its troops from the country.

China’s Service Economy Weakens in September

Output in China’s vast services sector weakened more than expected in September, though the overall economy improved slightly compared to the previous month.

The Caixin China services purchasing managers’ index (PMI) fell to 51.3 in September from 52.1 in August on a scale where 50 separates expansion from contraction. Analysts in a median estimate were prepared for a PMI reading of 52.9.

Even with the softer reading, China’s composite PMI of services and manufacturing improved to 51.9 in September compared with 51.6 in August. The Caixin report, which captures activity at the small- and mid-sized enterprise level, suggests manufacturing activity improved at the end of the third quarter.

Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, issued the following statement:

“China’s economy showed signs of marginal recovery in September, as the labor market improved and domestic demand increased at a faster pace. However, fluctuations in exchange rates, and rising costs of labor and raw materials increased pressure on companies, which restrained business confidence. Due to previous destocking and capacity-reduction activities, constraints on companies’ production capacity became more severe and backlogs of work increased noticeably, which will help companies restore their investment. After a fast slowdown in previous quarters, China’s economic growth began to show signs of stability.”

China’s economy is battling a multi-year downturn that has accelerated since President Trump was elected. Under Trump, the United States is taking China to task over trade practices, government subsidies and industrial policies – all of which are said to undermine U.S. interests.

Both countries remain locked in a trade war that may spill over into the U.S. presidential elections next year. Although both sides will return to the negotiating table this week, China has narrowed the scope on the types of policy changes it will entertain.