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Wall Street Sharply Higher

August 1, 2013 by NewsMaker

Stocks rose on Wall Street on Thursday, with the Standard Poor’s 500-stock index topping the 1,700 level for the first time, after data pointed to a modestly improving global economy and kept afloat expectations for continued support from global central banks.

China’s official purchasing managers’ index for manufacturing rose to 50.3 in July, defying expectations that it would fall and suggesting a rise in activity as growth in new orders increased.

Adding to the optimism, Markit’s purchasing managers’ index for euro zone manufacturing rose to 50.3 in July from 48.8 in June, topping the 50 threshold indicating growth for the first time since July 2011.

But a rival HSBC report on China’s manufacturing was more gloomy, falling to 47.7 in July, the weakest reading since August 2012, which tempered growth expectations.

Both the Bank of England and European Central Bank kept interest rates at 0.5 percent. While the Bank of England opted not to revive its bond-buying program, Mario Draghi, president of the European Central Bank, reiterated that its rates would remain at their present level or lower for an “extended period” of time.

In its latest policy statement on Wednesday, the Federal Reserve gave no hint that a reduction in the pace of its bond-buying program was imminent, as the economy continues to recover but is still in need of support.

“Bottom line, it’s still free money everywhere — whether it is in the U.S., the Bank of England, the E.C.B. — they are all saying the same thing and everyone is kind of loving it,” said Joseph Saluzzi, co-manager of trading at Themis Trading in Chatham, N.J.

In morning trading, the Dow Jones industrial average rose 0.8 percent, the S. P. 500 gained 0.96 percent and the Nasdaq added 1 percent.

Weekly initial jobless claims dropped 19,000, to a seasonally adjusted 326,000, the lowest level since January 2008 and better than the forecast of 345,000, suggesting a steadily improving labor market.

The drop in initial claims, coupled with Wednesday’s better-than-expected ADP employment report, bodes well for payroll data on Friday.

The data provider Markit said its final purchasing managers’ index for manufacturing in the United States rose to 53.7 for July, the highest since March, beating both a preliminary July estimate of 53.2 and the 51.9 reading for June.

The Institute for Supply Management said its index of national factory activity rose to 55.4 in July from 50.9 in June, its highest level since June 2011, topping expectations for 52.

But construction spending dropped 0.6 percent in June, below expectations of a 0.4 percent rise.

The benchmark S. P. index had traded within 10 points of the 1,700 level in the previous 10 sessions, representing a technical resistance level that could lead to more gains if convincingly pierced.

Shares in Procter Gamble, the world’s largest household products maker, rose 2.1 percent, to $81.97, after posting a quarterly profit that fell less than expected. It added that full-year earnings should rise at least as much as last year.

But shares in Exxon Mobil dipped 1.8 percent, to $92.06, after second-quarter profit declined.

The consumer review Web site Yelp surged 19.6 percent, to $49.95 a share, after it posted a smaller-than-expected quarterly loss and forecast third-quarter revenue above analysts’ expectations.

According to Thomson Reuters data through Wednesday morning, of the 331 companies in the S. P. 500 that have reported earnings for the second quarter, 67.7 percent have exceeded analyst expectations.

As earnings season enters its latter stages, 40 companies in the S. P. 500 are expected to report earnings on Thursday, including Kraft Foods.

Article source: http://www.nytimes.com/2013/08/02/business/wall-street-sharply-higher.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: chatham, mario draghi, markit

News Analysis: Asian Economies Encounter Stiff Winds

July 24, 2013 by NewsMaker Leave a Comment

For the last few years, Asia’s developing economies — like China, Indonesia, the Philippines and Thailand — have been powering ahead of much of the rest of the world, buoyed by a heady cocktail of stimulus from policy makers at home and investment flows from abroad. In 2011, the region grew more than four times as fast as the American economy, and last year’s 6.5 percent growth was nearly three times that of the United States. Stock markets in the Philippines and Thailand were among the world’s best performers in 2012.

Over the past couple of months, however, some of the shine has come off the Asia story.

“The music has stopped playing,” said Frederic Neumann, a co-head of Asian economics at HSBC, which on July 9 slashed its growth forecasts for Asia, outside of Japan, to 6.1 percent for this year and 6.5 percent next year. The bank had projected 7.2 percent growth for both years.

One week later, the Asian Development Bank followed suit, trimming 0.3 percentage point off its projections for developing Asia. (The bank’s definition includes more countries than HSBC’s.) That leaves it with forecasts of 6.3 percent expansion this year and 6.4 percent in 2014.

The region was expected to bounce back from its “relatively sluggish” growth pace in 2012 but is now expected to pick up “only slightly,” the bank said in its regular review of the region’s economic outlook.

And Wednesday, the latest evidence of weakness in the Chinese economy emerged in the form of a survey that showed manufacturing activity in July contracting at its quickest pace since last summer. The survey, compiled by the research firm Markit and released by HSBC, produced a reading of 47.7 points for this month, down from 48.2 in June. A figure below 50 signals contraction.

As Mr. Neumann put it: “The air is getting thinner.”

This is also bad news for the rest of the world, which had been hoping that booming expansion in Asia could inject some much-needed oxygen into a global economy that is weighed down by anemic growth in the West.

The problem for developing Asia is that two of its main drivers of growth — China’s once red-hot economy and an inflow of money prompted largely by the Federal Reserve’s efforts to revive American growth — have fizzled.

Since May, when the Federal Reserve chairman, Ben S. Bernanke, signaled that the United States economy might soon be ready to be weaned off the huge purchases of Treasury securities it has been enjoying since the global financial crisis, emerging markets around the world have watched investors pull their money out of assets they deemed more risky.

While the Dow Jones industrial average and the Standard Poor’s 500-stock index in the United States have soared to record highs, stocks in most Asian markets have sagged, with key market indexes in Indonesia, the Philippines and Thailand down about 9 percent since mid-May.

Currencies like the Malaysian ringgit, the Philippine peso and the Thai baht have all dropped about 5 percent against the dollar. In Indonesia, the rupiah fell earlier this month to 10,000 per dollar for the first time since September 2009.

In India, the rupee is hovering near its weakest-ever level against the dollar, prompting the central bank to announce a number of steps this month aimed at arresting the currency’s slide. And Indonesia and Thailand recently lowered their growth forecasts for 2013.

To a large extent, the declines are not unexpected after a period of strong gains, as investors in search of high returns poured into Asian markets over the past few years. Analysts had long warned that the inflows could reverse if conditions changed.

Now that that has happened, economists at Australia New Zealand Banking Group wrote in a recent report, the region is “facing the consequences of having drunk too readily from an abundance of virtually free credit.”

For the most part, companies are well financed, analysts say, and the recent turmoil does not herald imminent collapses or a flood of defaults. But it has, at least for now, turned off the faucet on the cash that had helped fuel Asia’s recent growth spurt.

“The region’s leverage-driven growth model has come to an end,” said Mr. Neumann of HSBC.

What is more, the jitters about the Federal Reserve’s bond-purchase plans have coincided with rising nervousness about China’s cooling economy.

After years of powering ahead at growth rates of more than 10 percent a year, China is now in the throes of a major economic overhaul aimed at raising productivity and domestic demand.

But that revamp comes with slower growth. The economy — the second-largest in the world after that of the United States — could struggle to grow at a rate of 7.5 percent this year.

Article source: http://www.nytimes.com/2013/07/25/business/global/asian-economies-encounter-stiff-winds.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: chinese economy, developing economies, markit

Ray of Light in European Economic Data

June 3, 2013 by NewsMaker Leave a Comment

FRANKFURT — In what passes for good news in Europe these days, a survey Monday showed that manufacturing in the euro zone was deteriorating more gradually than preliminary estimates had indicated. The slight improvement in economic data fed hope that the euro zone was in a temporary downturn and not stuck in a recession that could last for years.

The data, along with an expression of mild optimism by the president of the European Central Bank, suggested that makers of monetary policy were likely to continue to resist calls for more forceful action to prevent the euro zone from slipping into long-term torpor.

“The economic situation in the euro area remains challenging but there are a few signs of a possible stabilization,” Mario Draghi, the president of the E.C.B., said Monday at a conference in Shanghai. The central bank still expects “a very gradual recovery starting in the latter part of this year,” he said.

The E.C.B. will hold its regular monetary policy meeting on Thursday, but the chances of a rate cut or other action, which were already slim, fell after the release Monday of a survey of purchasing managers by Markit, a data provider. The Markit data pointed to a continued decline in economic activity, but at a slower rate than before.

Despite such tentative signs of improvement, a growing chorus of economists is warning that the euro zone could be facing prolonged stagnation of the kind that has gripped Japan for decades. They have asked the E.C.B. to act more aggressively to stimulate lending to struggling businesses in countries like Spain and Italy. Lack of credit is making it impossible for many businesses to invest in expansion or hire more workers.

“We do think more could be done by the E.C.B” to unlock credit in the struggling countries, Nemat Shafik, deputy managing director of the International Monetary Fund, said at a gathering of economists and policy makers in the northern Italian town of Trento on Sunday, Reuters reported.

The I.M.F. continued to express concern about prospects for the euro zone economy. In a separate report published Monday, the organization said it expected Germany to grow only 0.3 percent this year, half its previous forecast. Recession in the rest of the euro zone has made German businesses reluctant to invest, the I.M.F. said. The organization has forecast that the euro zone as a whole will decline by 0.25 percent this year.

The E.C.B.’s options to stimulate the euro zone economy are limited, however. Last month, the central bank cut the benchmark interest rate to 0.5 percent from 0.75 percent. Most analysts do not expect the rate to fall again this month.

There has also been speculation that the central bank could buy packages of outstanding commercial loans known as asset-backed securities, as a way to push down interest rates. Mr. Draghi has said that the E.C.B. is exploring ways to stimulate the moribund market for asset-backed securities.

However, such unconventional action would risk a split on the E.C.B. governing council between members who would like to effectively print money and conservatives led by the Bundesbank, the German central bank, who fear inflation. That potential dispute has kept the E.C.B. from embarking on the same large-scale intervention as other central banks like the U.S. Federal Reserve and the Bank of England, which bought huge swaths of bonds in an effort to bring down rates and stimulate economic growth, a practice known as quantitative easing.

Mr. Draghi said in Shanghai that there were limits to what the E.C.B. could do to repair troubled economies. He again urged political leaders to remove barriers to hiring and firing and take other steps to promote growth. “It is the responsibility of national governments to eliminate uncertainty about growth and the sustainability of public finances,” Mr. Draghi said.

Germany, under pressure to deploy its economic strength to help its troubled euro zone allies, is considering a program that would funnel €1 billion, or $1.3 billion, in loans to small and medium businesses in Spain, The Associated Press reported, citing a document it had seen.

Germany also faced criticism for holding up progress on a so-called banking union that would centralize bank regulation and establish a way to close ailing banks without burdening taxpayers.

Ahead of national elections this autumn, Chancellor Angela Merkel of Germany is anxious to avoid any appearance that voters might be liable for banking problems in other countries, said Mujtaba Rahman, director for Europe at Eurasia Group, a political risk consultancy.

“Agreement on the two most important political questions — who decides and who pays — is still a long way off,” Mr. Rahman said in a note to clients.

Article source: http://www.nytimes.com/2013/06/04/business/global/04iht-ecb04.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: downturn, euro zone, markit

Chinese Factories Appear to Be Stabilizing

June 3, 2013 by NewsMaker Leave a Comment

HONG KONG — Two surveys that take the temperature of China’s giant manufacturing sector showed an economy that appears to have stabilized for now but that is still struggling to recover some of the momentum it lost at the start of the year.

The two purchasing managers’ indexes — one published by the Chinese statistics bureau on Saturday, the other released by the British bank HSBC on Monday — painted somewhat divergent pictures for May, though both underlined the fact that the factory sector is still struggling with lackluster demand.

The official survey, which is more focused on large and midsize state-owned companies of the kind that benefit from state-led investment, provided a positive surprise by edging up slightly, to 50.8 in May, from 50.6 in April. Economists polled by Reuters had expected the index to slip toward the 50-point level, with figures above indicating expansion and those under showing contraction.

On the other hand, the final version of the HSBC index for May, compiled by the research firm Markit and released Monday, came in at 49.2 points. The reading was a downward revision from the preliminary number of 49.6, which had been published on May 23, and showed conditions at their weakest in eight months. The HSBC gauge is more focused on smaller companies, which have benefited less than their larger counterparts from the recent credit expansion, HSBC said in a research note.

“Overall conditions for China’s manufacturing sector were at best stabilizing at a relatively low level in May,” HSBC economists said, adding that a batch of official economic data for May, to be released this coming weekend, could provide more clarity on China’s growth outlook. “Beijing policy makers continue to face a tough challenge in striking an appropriate balance between the need to push through structural reforms versus the need to preserve near-term growth,” they said.

After years of double-digit expansion, China’s pace of growth has cooled in recent years — a slowdown that has in part been deliberately engineered by the authorities in Beijing as they try to ease a potentially worrisome flood of lending, forestall asset price bubbles and direct the economy toward higher-quality expansion.

Beijing is targeting 7.5 percent growth this year, a rapid clip compared with the rates of expansion of other leading economies but a significantly slower pace than the 9.3 percent growth in 2011 and the 10.4 percent in 2010.

“While the data may ease some concerns of rapid deteriorating of the Chinese economy, the impact may be short-lived,” economists at Australia New Zealand Banking in Hong Kong said in a research note on the official purchasing managers’ index, adding that structural reforms were needed to help sustain growth prospects.

Article source: http://www.nytimes.com/2013/06/04/business/global/chinese-factories-appear-to-be-stabilizing.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: contraction, markit, purchasing managers

Euro Watch: Data Points to Slow Recovery in Euro Zone

January 25, 2013 by NewsMaker Leave a Comment

But in an indication of the hurdles left to scale, Spain’s unemployment surged to 26 percent in the fourth quarter, a record high since measurements began in the 1970s, as a prolonged recession and deep spending cuts left almost 6 million people out of work at the end of last year.

The manufacturing survey published by Markit supports European Central Bank President Mario Draghi’s assertion that the 17-nation currency union is benefiting from “positive contagion” but still hints at an economic contraction in the first quarter of 2013.

Markit’s Flash Composite Eurozone Purchasing Managers’ Index, which surveys around 5,000 companies and is seen as a good growth indicator, jumped to 48.2 from December’s 47.2, beating expectations for a rise to 47.5.

While the index has now held below the 50 mark that separates growth from contraction in all but one of the last 17 months, Markit said the data suggested conditions in the bloc were improving.

“We shouldn’t get too gloomy about those numbers,” Chris Williamson, a data collator at Markit, said. “There is a turning point that took place towards the end of last year and the beginning of this year so things are picking up. Any downturn is looking likely to end in the first half.”

He added, however, that the manufacturing index was “still consistent” with gross domestic product in the 17-country bloc falling at a quarterly rate of about 0.2 percent to 0.3 percent.

The euro zone economy contracted in the second and third quarters of last year, meeting the technical definition of recession, and the downturn is expected to have deepened in the fourth quarter.

Earlier data from Germany, Europe’s largest economy and the bloc’s growth engine, showed its private sector expanded at its fastest pace in a year.

In neighboring France, data from Markit showed that business activity shrank in January at the fastest pace since the trough of the global financial crisis. The preliminary composite purchasing managers’ index, covering activity in the services and manufacturing sectors combined, came out at 42.7 for the month, slumping from 44.6 in December.

Spain’s unemployment rate rose to 26 percent in the fourth quarter of 2012, or 5.97 million people, the National Statistics Institute said on Thursday, up from 25 percent in the previous quarter and more than double the European Union average.

“We haven’t seen the bottom yet and employment will continue falling in the first quarter,” José Luis Martínez, a strategist with Citigroup, said.

Spain sank into its second recession since 2009 at the end of 2011 after a burst housing bubble left millions of low-skilled laborers out of work and sliding private and business sentiment gutted consumer spending and imports.

Efforts by Prime Minister Mariano Rajoy’s government to control one of the euro zone’s largest deficits through billions of euros of spending cuts and tax increases have fueled general malaise, further hampering demand.

Still, Mr. Draghi of the E.C.B. is taking an optimistic view, declaring earlier this month that the euro zone economy would recover later in 2013 and that there was now a “positive contagion” effect in play.

Europe’s top central banker cited falling bond yields, rising stock markets and historically low volatility as evidence for this, causing several forecasters to ditch expectations for an imminent cut in euro zone interest rates.

Article source: http://www.nytimes.com/2013/01/25/business/global/daily-euro-zone-watch.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: assertion, fourth quarter, markit

Euro Watch: Data Point to Slow Recovery in Euro Zone

January 24, 2013 by NewsMaker Leave a Comment

The euro zone economy took a step closer to recovery this month as the rate of decline in the bloc’s private sector eased more than expected, a business survey showed on Thursday.

While the index has now held below the 50 mark that separates growth from contraction in all but one of the last 17 months, Markit said the data suggested conditions in the bloc were improving.

He added, however, that the manufacturing index was “still consistent” with gross domestic product in the 17-country bloc falling at a quarterly rate of about 0.2 percent to 0.3 percent.

The euro zone economy contracted in the second and third quarters of last year, meeting the technical definition of recession, and the downturn is expected to have deepened in the fourth quarter.

Earlier data from Germany, Europe’s largest economy and the bloc’s growth engine, showed its private sector expanded at its fastest pace in a year.

“We haven’t seen the bottom yet and employment will continue falling in the first quarter,” José Luis Martínez, a strategist with Citigroup, said.

Article source: http://www.nytimes.com/2013/01/25/business/global/daily-euro-zone-watch.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: currency union, markit, turning point

World Stocks Mixed Amid Uncertain Economic Picture

December 15, 2011 by NewsMaker Leave a Comment

BANGKOK (AP) — Asian stocks fell Thursday as Japanese business confidence and Chinese manufacturing both slipped, but European shares rose as data showing the region’s economic output contracted less than anticipated.

Benchmark oil rose to near $96 per barrel after a big slide the day before while the dollar rose against the euro but fell against the yen.

Stock markets headed higher in early European trading. Britain’s FTSE 100 rose 0.7 percent to 5,404.36. Germany’s DAX jumped 1.1 percent to 5,734.83 and France’s CAC-40 added 0.9 percent to 3,001.80.

Wall Street was headed for a higher opening, with Dow Jones industrial futures rising marginally to 11,770 and SP 500 futures gaining slightly to 1,207.20.

The purchasing managers’ index published by financial data company Markit showed eurozone manufacturing and services output contracting for a fourth month in December, although at the slowest rate since September. The composite output index stood at 47.9 in December, up from 47.0 in November.

“The December Eurozone purchasing managers

But stocks faced strong headwinds earlier in Asia as business confidence fell in Japan and Chinese manufacturing data showed a contraction, although at a slower rate.

Japan’s Nikkei 225 index shed 1.7 percent to close at 8,377.37, a three-week low. South Korea’s Kospi lost 2.1 percent to 1,819.11 and Hong Kong’s Hang Seng tumbled 1.8 percent to 18,026.84.

Mainland Chinese shares lost ground for a sixth straight trading day, with the benchmark Shanghai Composite Index falling 2.1 percent to 2,180.90, while the Shenzhen Composite Index lost 2.3 percent to 886.01.

In Japan, confidence at major manufacturers fell over the last quarter. The Bank of Japan’s “tankan” survey of business sentiment fell to minus 4.

The figure represents the percentage of companies saying business conditions are good minus those saying conditions are unfavorable, with 100 representing the best mood and minus 100 the worst.

Japan’s strong yen has hit multiple historic highs this year against the dollar, making business conditions difficult for Japan’s export-reliant economy.

Meanwhile, preliminary manufacturing figures showed that Chinese factory output contracted, but at a slower rate, in December. HSBC’s purchasing manager’s index for December stood at 49.0, up from 47.7 in November. Any number below 50 indicates a contraction in manufacturing activity.

But the figure didn’t raise hopes that China might ease its monetary policy anytime soon.

“I don’t think there will be an interest rate cut in the short-term,” said Dickie Wong, executive director of research at Kingston Securities Ltd. in Hong Kong. “Sentiment is really bad in China.”

On Wall Street, stocks plummeted Wednesday amid a growing sense that Europe’s leaders have failed to contain that region’s debt crisis.

Since European leaders reached an agreement to rein in future government budget deficits last week, investors and credit rating agencies have criticized the deal for failing to address current problems.

Italy had to pay higher borrowing rates in its last bond auction of the year Wednesday. The third-largest economy among the 17 nations the use the euro paid 6.47 percent interest to borrow 3 billion euros ($3.95 billion) for five years — up 0.17 percentage point from last comparable auction — and the highest rate since the euro came into existence in 1999.

The higher rates make it more expensive for Italy to borrow money and reflect rising doubts that the country will be able to repay its debts.

Oil prices, which plunged more than $5 on Wednesday, drove down energy-related shares. South Korea’s S-Oil Corp. fell 4.7 percent. Hong Kong-listed China National Offshore Oil Corp. dropped 4.6 percent.

Asian banking shares fell on the heels of a downgrade by Fitch Ratings of five major European commercial banks and cooperative banking groups. Hong Kong-listed Industrial Commercial Bank of China, the world’s largest bank by market value, fell 2.6 percent. Australia’s Westpac Banking Corp. fell 1.8 percent.

The Dow Jones industrial average fell 1.1 percent to close at 11,823.48 on Wednesday. The Standard Poor’s 500 index fell 1.1 percent to 1,211.82. The Nasdaq fell 1.6 percent to 2,539.31.

Benchmark oil for January delivery was up 76 cents at $95.71 a barrel in electronic trading on the New York Mercantile Exchange. The contract declined $5.19 to finish at $94.95 per barrel on the Nymex.

In currency trading, the euro slipped to $1.2975 from $1.2977 late Wednesday in New York. The dollar slipped to 77.92 yen from 78.07 yen.

Article source: http://www.nytimes.com/aponline/2011/12/14/business/AP-World-Markets.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: composite output, dow jones, markit

China’s Economic Engine Shows Signs of Slowing

September 23, 2011 by NewsMaker Leave a Comment

As the American economy appears to teeter on the edge of another recession, Europe struggles with a financial crisis and emerging markets like Brazil and India show new weaknesses, China might appear to be in better shape than most countries, economists say. But “better” is relative.

On the surface, economists at the International Monetary Fund and most banks are still estimating China’s growth rate to be over 9 percent this year. China continues to run very large trade surpluses. New construction starts have soared with a government campaign to provide more affordable housing.

And yet, the country’s huge manufacturing sector is starting to slow and orders are weakening, especially for exports. The real estate bubble is starting to spring leaks, even as inflation remains stubbornly high for consumers — despite a series of interest rate increases and ever-tighter limits on bank lending.

A survey of Chinese purchasing managers, just completed by HSBC and Markit Economics, shows a third consecutive month of contraction in the manufacturing sector. The release of the survey results on Thursday contributed to a global slide in stock markets that day.

Meanwhile, huge loans that Chinese banks have made to state-owned enterprises and local governments over the last three years could cause trouble if the economy does slow.

What’s more, there are further signs of trade hostilities from Washington, where the impulse is to blame China’s cheap exports, at least partly, for America’s continued high unemployment. On Thursday, a bipartisan group of senators announced that they would pursue legislation requiring the Obama administration to confront China more directly on currency policy. They want the White House to push harder for China to allow its currency, the renminbi, to appreciate.

If China does allow its currency to rise more quickly and if its trade surplus narrows, that could help economies elsewhere. But because China’s mighty growth engine has been one of the few drivers of the global economy since the financial crisis of 2008, signs of deceleration could add to worries about the global outlook.

Chinese exporters are particularly worried. Nicole Huang, the sales manager at Dongguan Lianyi Sport Goods Co. Ltd., a maker of beer coolers, diving suits and other products in the industrial hub city of Dongguan, said the number of orders had dropped 5 percent so far this year, and the average size of each order had also begun to shrink.

And instead of the labor shortages that plagued many manufacturers last year as workers sought better jobs elsewhere, more people now seem willing to accept assembly-line tedium. Short term, that could help exporters. But it could be an early sign of looming unemployment problems.

“At least it is easier now for us to hire workers who come into our factory looking for work, after seeing our job notices posted outside,” Mr. Huang said. “Before, no one would respond to these notices.”

The sentiments of investors and economists inside and outside China have taken a bearish turn in recent weeks. As global stock markets have tumbled, the Shanghai A-share stock market has fallen 14.7 percent since July 15. That includes a further decline of 0.4 percent on Friday.

The most worried economists are those who follow China’s often turbulent monetary policy. The central bank oversaw a huge stimulus effort in 2009 and 2010 in response to the global economic slowdown, rapidly expanding its issuance of money and then encouraging banks to lend and relend it. Broadly measured, the money supply surged 53 percent in two years.

The extra cash has sent inflation at the consumer level surging to more than 6 percent even by official measures, which tend to understate true inflation for methodological reasons. With inflation now running at more than twice the regulated interest rate paid by banks for deposits, millions of Chinese have been betting their savings on real estate. That frenzy had been sending property prices through the roof, at least until the last couple of months.

But this year, to fight inflation, the Chinese financial authorities have veered in the other direction, setting strict administrative quotas on new loans. And they have ordered the mostly state-owned banks to park more than a fifth of their assets at the central bank, which further limits the banks’ ability to lend — and businesses’ ability to borrow.

Hilda Wang contributed reporting.

Article source: http://www.nytimes.com/2011/09/24/business/global/chinas-economic-engine-shows-signs-of-slowing.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: economic engine, interest rate increases, markit

Global Stocks Tumble After Grim Forecast by the Fed

September 22, 2011 by NewsMaker Leave a Comment

“Today, we really seem to be stuck in a negative spiral,” said Matthias Jasper, head of equities at WGZ Bank in Düsseldorf. “Investors just want to keep their exposure low and watch from the sidelines.”

In the opening minutes of Wall Street trading, the Dow Jones industrial average was down 301.06, or 2.7 percent, 10.823.78. The Standard Poor’s 500-stock index lost 2.6 percent, and the Nasdaq composite was down 2.7 percent.

In afternoon trading Thursday in Europe, the benchmark Euro Stoxx 50 index, the FTSE 100 in London and the CAC-40 in Paris were all down between 4 and 5 percent.

As well as fears about the economic outlook on both sides of the Atlantic, investors have been unnerved by the failure of policy makers in the 17-nation euro zone to resolve the region’s debt crisis.

On Wednesday, the Fed said a complete economic recovery was still years away, adding that the United States economy has “significant downside risks to the economic outlook, including strains in global financial markets.”

It also said it would buy long-term Treasury bonds and sell short-term bonds to help stimulate lending and growth.

Meanwhile, a closely watched economic report from the euro zone — the composite purchasing managers’ index — fell to 49.2 in September from 50.7 in August, according to Markit, a financial data provider. The reading, released Thursday, was below the consensus forecast of 49.8. Both the manufacturing and services indexes declined.

“The initial and follow-up reaction from the equity market is likely the realization that the Fed has little left to offer, that Washington is a mess, and their only hope is to “ride it out” over a long period of time,” said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company.

“This is about to get ugly and there is very little anyone can do about it,” he added in a research note.

Stocks had fallen in the United States 2 percent or more on Wednesday after the Federal Reserve announcement.

On Thursday, the yield on 10-year United States Treasury securities hit a new low of 1.76 percent in London. After the markets opened in the United States, the benchmark bond yield was 1.77 percent.

Commodities fell. Comex gold futures were down nearly 4 percent at about $1,737 just before Wall Street opened, while crude oil futures traded in New York were down more than 6 percent at $80.57 a barrel.

The Fed pointed to a number of long-term problems in the American economy, including high unemployment and a depressed housing market. In addition Moody’s Investors Service downgraded ratings on three big American banks — Bank of America, Wells Fargo and Citigroup — saying government support had become less likely in the event of financial trouble.

The Fed’s statement “continued to suggest that the Fed funds rate will remain on hold until at least mid-2013,” said Rob Carnell, an analyst at ING in London. He added that quantitative easing could be introduced as early as November.

Analysts said the fall in the euro-area index reflected a combination of slowing global growth, significant belt-tightening in the euro area and growing concern about the escalating sovereign debt crisis.

“Whether or not the economy dips into another recession largely depends on whether governments move to contain the crisis,” said Nick Kounis, head of research at ABN AMRO in Amsterdam. “These surveys suggest that the window of opportunity is closing fast.”

“Clearly the risks of recession are elevated,” he added.

The weak economic backdrop appeared to give added importance to a series of meetings in Washington in coming days at the International Monetary Fund and World Bank.

Mr. Jasper of WGZ Bank said the gloomy economic backdrop belied the fact that many companies in Europe are in fact in a positive position in terms of their order books, profit margins and cash positions.

“We’re in a politics-driven market, and it’s hard to see light at the end of the tunnel until we have a workable solution for Greece and stabilization of the situation in Italy and Spain,” he said

In Europe there was still uncertainty about the fiscal outlook for Greece and Italy.

Christine Hauser, Niki Kitsantonis, Elisabetta Povoledo, Kevin Drew, Robert Pear and Jennifer Steinhauer contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=0097ecf6f2e80310a6a7698d4b4b385a

Filed Under: Business News Tagged With: downside risks, markit, morgan keegan

Surveys Point to Slowdowns in Euro Zone and China

July 21, 2011 by NewsMaker Leave a Comment

LONDON — While most investor attention was focused on a meeting of European leaders attempting to resolve the Greek debt crisis, survey data released Thursday suggested a backdrop of stagnating economic activity in the euro zone and softening output in China.

The composite euro zone purchasing managers’ indexes, known as P.M.I.s and complied by Markit, showed growth in the euro area’s manufacturing and service sectors stalled in July, with the composite index showing its lowest reading in 23 months.

In China, a closely watched survey of purchasing managers produced the lowest level in 28 months, according to HSBC, which published the index.

That suggested that a series of regulatory and policy measures is having the desired effect of cooling the red-hot Chinese economy.

The euro zone composite P.M.I. fell to 50.8 in July from 53.3 in June, Markit said. The consensus forecast among economists had been for a more modest decline to 52.6. The drop in the P.M.I.s was broad, with the services index slowing to 51.4 from 53.7 and manufacturing falling to 50.4 from 52.

The indexes provide a fairly good indication of where quarterly economic growth rates are heading, according to analysts.

Nick Kounis, head of economic research at ABN Amro in Amsterdam, said higher oil prices, budget cuts and the global economic slowdown having been dragging on growth in Europe.

“More recently,” he added, “it’s possible that business confidence also took a blow because of the escalating sovereign debt crisis.”

He said the P.M.I.’s current levels were consistent with a slowdown in euro area growth in the third quarter to flat or up just 0.1 percent from the previous quarter. The region posted a preliminary growth rate during the second quarter of 0.2 percent after a gain of 0.8 percent in the first three months.

“The slowdown in euro zone G.D.P. growth to near-stagnation levels is another warning shot to Europe’s leaders about the high stakes at today’s summit,” Mr. Kounis said. “It might not take too much of a shock to push the economy into recession from these levels.”

The releases of both sets of data came before European leaders reached an agreement Thursday in Brussels on new aid for Greece.

In China, the vast manufacturing sector appears to have contracted in July for the first time in a year, according to the closely watched HSBC survey.

The initial results of the poll of purchasing managers produced a reading of 48.9 in July, the lowest level in 28 months and down from 50.1 in June. The final reading will be released Aug. 1.

Readings below 50 represent contraction, so the slide below that level indicated that manufacturers had seen business slow markedly over the past few months, based on a combination of feeble global demand and tighter conditions at home.

For the past year and a half, Chinese policy makers have used a wide variety of tools to rein in booming growth and limit the rising prices that have accompanied it. Formerly free-flowing bank loans have become harder to obtain, for example, as banks were instructed to lend less.

Those measures have slowed the economy, but at a gradual pace that leaves room for still more tightening by Beijing in the coming months, most analysts say.

A P.M.I. reading of below 50 does not imply a “hard landing” for China, said Qu Hongbin, chief China economist at HSBC.

Industrial growth is likely to continue to decelerate in the coming months as tightening measures filter through, Mr. Qu said, but “resilient consumer spending and continued investment in ongoing mass infrastructure projects should support a G.D.P. growth rate of almost 9 percent for the rest of this year.”

The International Monetary Fund echoed that sentiment in its latest assessment of the Chinese economy, published Thursday, noting that “China’s near-term growth prospects continue to be vigorous and are increasingly self-sustained, underpinned by structural adjustment.”

“Wage and employment increases have fueled consumption, the expansion in infrastructure and real estate construction has driven investment upward, and net exports are once again contributing positively to economic growth,” the fund said.

The I.M.F. projects 9.6 percent economic growth for China this year, and 9.5 percent expansion for 2012, in line with many other forecasts. That is down from 10.3 percent last year, but well above what developed nations like the United States are managing.

But an aging population and gradually shrinking labor force risks fanning inflation in the longer term, the I.M.F. said, while low interest rates and a lack of places for savers to invest their cash mean there is a lingering risk of bubbles in the already hot property sector.

Those factors could lead to potential “significant risks” to financial and macroeconomic stability in China, the fund said, and it urged Beijing to address the challenges by raising interest rates further and allowing the renminbi to strengthen.

Beijing has so far relied heavily on so-called reserve requirement ratios for lenders as a policy tool. Successive increases in the ratio since early last year have gradually restricted the amount of money banks have been able to lend. Interest rate increases came into the policy mix relatively late: The central bank began nudging rates up again in October 2010.

Bettina Wassener reported from Hong Kong.

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Filed Under: Business News Tagged With: chinese economy, markit, services index