World stocks are plunging after USA manufacturing hits a decade low

WATERBURY CT- OCTOBER 21 The remaining interior of a shuttered factory connected to the brass industry stands in what was once a vibrant manufacturing city

A production line employee works at the AMES Companies shovel manufacturing factory in Camp Hill, Pennsylvania, US.

Tim Fiore, president of the Institute for Supply Management, told FOX Business on Tuesday that an ongoing strike at General Motors did not artificially suppress data on the manufacturing sector last month, which some had posited as a plausible explanation for the bad reading. This could be an indication that the tariff war is affecting US manufacturing negatively.

Worries the drop in manufacturing was a harbinger of a sharper slowdown in the economy continued on Wednesday, as each of the major indexes closed down more than 1.5%.

U.S. President Donald Trump once again lashed out at the Federal Reserve on Tuesday, saying the central bank has kept interest rates "too high" and that a strong dollar is hurting U.S. factories. They are their own worst enemies, they don't have a clue. Any reading above 50 indicates growth. The index has now declined for six consecutive months and is in stark contrast with a rebound in the so-called hard data like industrial production, which showed output at factories rising in August.

On this side of the pond, the focus will turn to the US ISM Non-Manufacturing report which is due at 14:00 GMT.

Addressing inventories, Fiore said the sector is still matching import orders to input material levels, which makes a lot of sense, as manufacturers are closely watching new order levels softened four months ago, with the inventory number being at the 49 level, give or take, with the inventory number now at 46.9. He believes the risk of recession is real and serious.

In news of local concern yesterday, as would be well known, the RBA cut interest rates to a new record low of 0.75%.

"The main reasons appear to be slower growth overseas and trade policy developments - two sources of uncertainty that we have been monitoring all year", Fed Chairman Jerome Powell told reporters at a press conference last month.

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All 11 primary S&P 500 sectors dropped, with energy, financials, and technology sectors decreasing 2.61 percent, 2.10 percent, and 1.98 percent, respectively, the top three laggards.

Analysts noted that investors have valid reasons to be concerned about the US economy.

"Global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019". That move prompted a tumble in Australian Government Bond yields, and the AUD, with local currency trading at a fresh 10 year low briefly overnight.

Investors will, of course, now have one eye on tomorrow's all-important nonfarm payrolls report, which will give us a better indication as to how the USA labour market is performing going into the final quarter of the year.

The trade war is also hurting economies around the world, as both trade and manufacturing are slowing at a pace close to the Great Recession.

Economists had expected the index to recover to above 50 percent.

The dollar fell against a basket of currencies on the ISM survey, while US Treasury prices rallied.

The new export orders index slid to 41.0 in September from 43.3 in August, falling to its lowest level since hitting 39.4 in March of 2009. The group's production gauge slipped to a 10-year low while the employment measure also dropped to the lowest since January 2016.

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