Strange stock market reaction August 15, 2022

Two indicators on August 15, 2022

(1) China's July major economic indicators (a series of indicators)

China's major economic indicators for July broadly slowed contrary to expectations.
This can be interpreted as signs of global economic slowdown spreading worldwide, with commodity prices such as oil falling.
Resource-rich currencies and even in Europe a tone of monetary easing emerged, and the euro weakened.

(In Europe, which is experiencing record heat waves, the water level of the Rhine, a major物流 artery for freight, has fallen further. Large ships cannot navigate, causing delays in fuel and other shipments, raising concerns about power shortages and factory shutdowns.)

(2) NY Fed manufacturing index

The August New York Fed Manufacturing Index dropped the most since 2001, suggesting a sharp decline in demand.

In response, U.S. interest rates fell, resulting in a weaker dollar and a stronger yen. The decline in rates pushed up the price-earnings ratio and lifted stock prices.
Strangely, with the NY Fed manufacturing index falling so much, one would expect corporate earnings to fall sharply, so why are stock prices rising?

The stock market seems to believe that even if a recession occurs, corporate earnings will not decline, and only price stabilization and monetary easing will occur.

By the way, empirically, when the ISM index falls below 51, earnings tend to shrink. If the ISM index falls below 47, GDP growth tends to be negative.

The August New York Fed Manufacturing Index suggests ISM in the 40s, indicating a large decline in earnings and a high likelihood of a recession.

In NY Fed manufacturing surveys, input and selling prices have fallen. The market may have welcomed signs of price stabilization, but they remain at fairly high levels. While an inflation rate of 8% decreasing to 4% might be possible, it is still far from the Fed's 2% target.