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China targets lower growth but has exceeded its target every year for eight years

Currencies
China targets lower growth but has exceeded its target every year for eight years

Equities on Wall Street and in Europe fell amid signs from China and Europe that the economic outlook is dimming.

China Premier Wen Jiabao has slashed the 2012 growth target for the world's second-largest economy behind the US to an eight-year low of 7.5 percent.

“It’s wise to take a little money off the table,” David Joy, the Boston-based chief market strategist at Ameriprise Financial, told Bloomberg News. “Some of the easy gains have already been made. We’re back to focusing on the economic fundamentals. China saying that they are targeting 7.5 percent growth raises concern of a hard landing.”

In early afternoon trading in New York, the Dow Jones Industrial Average fell 0.50 percent, the Standard & Poor's 500 Index dropped 0.64 percent and the Nasdaq Composite Index shed 0.82 percent.

The S&P 500 has gained 102 percent since March 2009 to an almost four-year high last week, data compiled by Bloomberg show. Still, valuations are lower than at every 52-week peak since 1989.

In Europe, data indicated that manufacturing and services in the euro zone contracted more than expected. The composite Purchasing Managers' Index for the euro zone dropped to 49.3 from 50.4 in January, London-based Markit Economics said today. That was below an initial figure of 49.7 published on February 22.

Europe's Stoxx 600 Index ended the session with a 0.6 percent decline for the day.

Also weighing on markets was a report showing that orders to US factories in January fell for the first time in three months. The Commerce Department in Washington said orders for manufactured goods fell 1.0 percent. While that was better than the 1.5 percent drop economists had forecast, it was the largest decline since October 2010.

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A brighter note came from the Institute for Supply Management which said its services index rose to 57.3 in February from 56.8 in January. That bettered economists' expectations for a decline to 56.1, according to Reuters.

The gauge of new orders rose to 61.2 from 59.4, while the employment index slipped to 55.7 from 57.4.

"It was overall a solid report," Tom Porcelli, chief US economist at RBC Capital Markets in New York told Reuters, pointing specifically to the gain in the forward-looking new orders component. "At this level of ISM, this is not really changing our view that you're still looking at around a 2.0 percent year in terms of GDP, but it is holding up and this is certainly what you want to see."

Another positive note is that China tends to exceed its growth estimate. The 8-percent target set in the previous eight years was comfortably surpassed each year.

"In recent years, the GDP target has obviously always been a minimum acceptable floor rather than a ceiling, so I think it is more likely that in the government's heart of hearts, it is leaning on growth of a bit above 8 percent," Paul Cavey, an economist with Macquarie Bank in Hong Kong, told Reuters.

(BusinessDesk)

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