China Weakness could postpone Fed Rate Hike

A significant slide in a preliminary measure of China’s factory activity for September is getting more attention than usual because Janet Yellen mentioned concern about China’s economic outlook as a reason for Fed caution.  This reduces the odds of a rate hike in October.

Excess capacity across a number of industries in China, as well as weakness in domestic and international demand, are major challenges facing Chinese factories.  Finished goods inventories rose sharply, pointing to a further drag on industrial production in the near term.  Alberta and Newfoundland are in recession and Saskatchewan’s economy has weakened.  Continued weakness in China spells further bad news for this part of the Canadian economy, pointing towards further weakness in the Canadian dollar and potential further rate cuts by the Bank of Canada.

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