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China Data Confirm Slowdown in Factories

May 1, 2013 by Leave a Comment

BEIJING — Growth in the mainland Chinese manufacturing sector unexpectedly slowed in April as new export orders fell, data released Wednesday showed, raising fresh doubts about the strength of the economy after a disappointing first quarter.

The official purchasing managers’ index fell to 50.6 in April from an 11-month high in March of 50.9. A reading above 50 indicates expansion; below indicates contraction. Analysts had expected the April reading to be 51.

The reading mirrored a similar decline in a preliminary P.M.I. report last week by the British bank HSBC, suggesting that China’s export engine faces obstacles resulting from the euro zone recession and sluggish U.S. growth.

China’s new leadership has signaled it will step up infrastructure investment, which analysts said would provide support for the economy in the second quarter.

“Over all, my general feel is that China is growing, but slower than people expected, say, a month ago,” said Alvin Pontoh, economist at TD Securities in Singapore.

“But I don’t think this is reason for alarm,” he added. “This is probably what the new administration is looking for. Structurally, China cannot grow at 9 or 10 percent any more, so over the next few years, you’d reasonably expect growth to edge lower — to, say, 7 percent or so.”

Global data, including lower-than-expected U.S. economic growth figures, have dented the optimism at the start of the year that the world economy was picking up.

Market reaction to the P.M.I. was muted, as many countries in Asia and Europe were marking the Labor Day holiday. Chinese markets were closed and were scheduled to reopen Thursday.

The official P.M.I. figures showed that a subindex of new orders had fallen to 51.7 in April from 52.3 in March, holding above 50. However, the index of new export orders fell to 48.6 from 50.9 in March, suggesting the orders were shrinking.

The input price subindex fell to 40.1 in April, its lowest in at least four years.

“The dip in April P.M.I. shows that the foundation for China’s economic recovery is still not solid,” Zhang Liqun, an economist at the Development Research Center, a government agency in Beijing, said in an e-mailed statement accompanying the index.

“All these show the possibility for China’s growth to slow slightly in the future. We must work to stabilize domestic demand and make our economic recovery more sustainable,” he said.

HSBC’s preliminary P.M.I. for April fell to 50.5, from 51.6 in March, as new export orders shrank. The final reading is scheduled to be published Thursday.

The latest P.M.I. adds risks to market expectations that China’s annual economic expansion will pick up to 8 percent in the April-to-June quarter after slipping in the January-to-March period to 7.7 percent, from 7.9 percent in the previous quarter.

Zhiwei Zhang, a China economist at the Japanese bank Nomura, said in a client note before the release of the P.M.I. figures that he expected growth to ease again in the second quarter, to 7.5 percent.

Apart from expectations of more infrastructure investment, the central bank is expected to hold rates steady throughout 2013, as it needs to tread a delicate balance between inflation and growth, a Reuters poll showed.

“We still expect major activity indicators to show a moderate growth recovery in April” and in the second quarter, Ting Lu, a China economist in Hong Kong for Bank of America Merrill Lynch, said in a note to clients. “On policies, we expect overall monetary and fiscal policies to remain accommodative, though we see no need for significant stimulus.”

Beijing is aiming for economic growth of 7.5 percent in 2013, lower than the double-digit levels in most years in the past three decades, as it tries to shift the economy to reduce reliance on exports and more towards consumption.

 

Article source: http://www.nytimes.com/2013/05/02/business/global/02iht-chinapmi02.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Jobs and Housing Reports Show Resilience in Recovery

January 17, 2013 by Leave a Comment

The reports on Thursday showed the economy was weathering an uncertain fiscal environment surprisingly well. Still, growth in the fourth quarter was most likely subdued, and only a modest pickup was expected in the first three months of this year.

“While growth has been slow, the damage done from the uncertainty surrounding the fiscal cliff was not sufficient to topple the recovery,” said Millan Mulraine, a senior economist at TD Securities in New York.

The fiscal cliff refers to deep government spending cuts and tax increases, many of which were avoided after a last-minute agreement in Congress. A fight over raising the government’s borrowing limit looms.

Initial claims for state unemployment benefits fell 37,000 to a seasonally adjusted 335,000, the lowest level since January 2008, the Labor Department said on Thursday. It was the largest weekly drop since February 2010, ending four straight weeks of increases.

While problems adjusting the data for seasonal fluctuations might have exaggerated the size of the decline, economists said the report still suggested an improvement in the labor market and the economy as a whole.

“Having taken a pinch of salt, however, we would suggest that the trend in claims generally show no pickup in layoff activity around the turn of the year,” said John Ryding, chief economist at RDQ Economics in New York.

A separate report from the Commerce Department showed housing starts jumped 12.1 percent last month to their highest level since June 2008. Permits for home construction were also the highest in about 4 1/2 years.

The data was confirmation that the housing market was improving, aided in part by favorable weather, with gains in home building across all four regions in the survey. Groundbreaking increased for both single-family homes and multifamily units.

Housing appeared to no longer be a drag on the economy and residential construction was expected to have contributed to growth last year for the first time since 2005.

The jobs and housing data helped United States stocks surge. The reports came on the heels of data this week showing solid retail sales and manufacturing growth in December.

Still, the outlook for the economy remains shaky. A report showed that factory activity in the mid-Atlantic region had contracted this month as new orders tumbled, pointing to a cooling in manufacturing activity.

The Philadelphia Federal Reserve Bank said its business activity index fell to minus 5.8 from minus 4.6 in December. A reading below zero indicates contraction in manufacturing in eastern Pennsylvania, southern New Jersey and Delaware.

“Manufacturing has slowed but it’s still growing,” said Gus Faucher, a senior economist at PNC Financial Services in Pittsburgh. “I’m not going to read too much into this until I see other regional surveys.

Article source: http://www.nytimes.com/2013/01/18/business/economy/claims-for-jobless-benefits-drop.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Italian Bond Rates Rise to New Levels

November 8, 2011 by Leave a Comment

Is the endgame near for Italy?

Interest rates on Italian bonds rose to euro-era records on Monday, close to the level that have forced Greece, Ireland and Portugal to seek financial rescues.

Most economists do not expect Italy to plead for a bailout yet. Instead, they say they think the higher rates will force the European Central Bank or other European neighbors to intervene more forcefully with measures to push down rates.

The yields on Italy’s 10-year bonds, a measure of investor anxiety about lending money to the country, rose to 6.63 percent at one point during trading on Monday. Five-year yields were even higher, at 6.65 percent, up half a percentage point on the day. The two-year yield also rose, to 5.9 percent.

Economists and investors say the dynamic is worrying. They fear the higher rates may incite bond clearing houses — the middlemen between buyers and sellers of the bonds — to demand higher collateral payments from traders of Italian debt. That, in turn, could lead to a further damaging spike in interest rates. Higher rates also threaten to sap Italy’s long-term ability to support its debt load, nearly 120 percent of its annual economic output at the end of last year, which is among the highest for countries that use the euro currency.

“This is feeding on itself,” said Eric Green, an economist at TD Securities. “It continues to put pressure on Italy.”

Bond rates are being driven by investors’ doubts that Prime Minister Silvio Berlusconi of Italy can push through sweeping changes to improve economic growth, including making pensions less generous and selling off some of the country’s assets. The measures are widely considered necessary to tackle Italy’s heavy debt load and revive its stagnating economy.

Investors are also selling Italian bonds because they fear that other European countries will not provide billions of euros to support Italy if conditions deteriorate even more.

They worry that European leaders have not come up with sufficient details about an expanded bailout fund, which is meant to provide ample firepower for Italy and other countries, like Spain, should the markets turn against them.

“Euro zone policy makers have yet to announce a policy bazooka,” Jens Nordvig, an economist at Nomura Holdings in New York, said in a research note. He said the structure of a purported $1.4 trillion bailout fund, announced at a meeting of European leaders in Brussels last month, “is insufficient to provide a credible backstop.”

Italy’s interest rates rose early Monday, then fell back slightly as rumors spread through the markets that Mr. Berlusconi was intending to step down, although they rose again later in New York trading.

Mr. Berlusconi denied the speculation that he was leaving office. Yet the markets seemed to say that investors would be happier about Italy’s future if he yielded power.

“The government needs to do a lot more to gain the full confidence of the Italian people, external creditors and the markets,” said Mohamed El-Erian, chief executive of the bond giant Pimco.

Andrea Schlaepfer, a spokeswoman for LCH.Clearnet, the big European clearing house that trades in bonds, said the spread between the yield on Italian bonds and the yield on a basket of AAA-rated bonds is one factor the company would consider before deciding to raise collateral requirements. Other factors include rates on credit default swaps.

The credit default swap rates that measure the cost of insuring Italian debt against default rose to near-record highs on Monday. It now costs $511,000 a year to insure $10 million in Italian debt for five years, according to the data provider Markit, compared with $145,000 in June.

The higher interest rates present hurdles for issuing new debt. Italy’s next auction of debt is on Nov. 14. It must raise 30.5 billion euros in November, and another 22.5 billion euros in December, according to Daiwa Securities.

When its interest rates were just above 6 percent, Daiwa estimated, the extra bond yields were already adding as much as 3 billion euros a year in additional interest payments compared with around 4.5 percent, the rate as recently as the summer.

Now those debt costs are rising with every basis point increase in bond yields.

The climbing yields could present a worrying spiral that, before Italy, affected Greece, Ireland and Portugal. When rates for those countries’ bonds reached around 7 percent, they suddenly jumped even higher and have still not come down to more sustainable levels.

Italy, the euro zone’s third-largest economy after Germany and France, is on a different scale than those much-smaller nations.

Italy is also, in a way, in a healthier situation. Although its debt mountain is large, it is actually running a primary budget surplus, which means that its budget is running a surplus before debt service costs.

According to Mr. Green of TD Securities, this means Italy could survive paying rates close to 7 percent for some time — but not forever. Eventually, the higher rates would worsen economic growth, and as the economy contracted, a wider and wider deficit would begin to open up.

Before Italy is forced to seek assistance from the European Union or the International Monetary Fund, economists say, the rising rates will force the European Central Bank to increase its purchases of Italian debt in secondary markets, which began in August.

Because the central bank bond purchases have failed to keep Italian interest rates down, economists expect that the bank will soon have to act much more aggressively.

Mr. Green said the design of the bailout package announced last month might, in fact, have encouraged investors to sell Italian bonds. The new fund may only protect holders of newly issued Italian bonds, which reduces investors’ incentives to hold existing securities.

The deal to allow Greece to write off 50 percent of its debts to private investors without setting off credit default insurance protection has also left many investors feeling vulnerable, encouraging them to sell now.

Article source: http://feeds.nytimes.com/click.phdo?i=4e72a1f62e732d27f1212933e1df6250

Filed Under: Economy News Tagged With: , ,

Stock Slide Extends to Wall Street

November 2, 2011 by Leave a Comment

Meanwhile, the bankruptcy of the brokerage firm MF Global sent some ripples through the markets, reducing trading volumes as its traders were barred from commodity exchange floors in Chicago and New York, but analysts and traders said its effects were minor compared with the actions in Greece.

Declines that started in Asia accelerated in Europe — where the major indexes slumped 5 percent. Bank stocks led the sell-offs, and the broad United States stock market slid nearly 3 percent. In the credit markets, crucial stress gauges moved toward recent highs, while rising interest rates on Italian debt underscored investors’ growing doubts about that highly indebted country, which has become the new focus of concern in the euro zone.

“It is all Europe right now,” said Eric Green, an economist at TD Securities in New York.

The Greek referendum threatened to undo the work of the summit meeting last week in Brussels, where leaders outlined a rescue plan that cheered markets and contributed to the biggest monthly United States stock market rally in October since 1982.

“The markets don’t know which way to look,” said Andrew Wilkinson, an economist at Miller Tabak Company.

“This has absolutely blindsided markets.”

The declines in Europe wiped out the exuberant gains of last week after the Brussels deal, which initially led some investors to believe Europe was addressing the Greek problem. The reversal in Greek markets included insurance contracts on bonds pricing in a higher likelihood of default.

Even last week doubts grew that the grand European plan would be enough to stop the crisis from spreading to Italy, a much bigger economy that has to refinance billions of euros of debt in the coming year.

Italy has a small budget deficit of about 3 percent of its gross domestic product, which means it has a relatively small amount of net new borrowing to do, although this percentage may be revised upward if growth slows next year as expected.

The much bigger problem is its mountain of existing debt that must be rolled over as it matures — about 52 billion euros this year and 307 billion more next year, according to Tobias Blattner, an economist at Daiwa Securities in London.

As Italy’s borrowing costs shoot up — the 10-year government bond yield jumped to a record 6.33 percent on Tuesday — investors are concerned that too much of its strained budget will be consumed by the costs of its enormous debt.

In signs of a reappearance of stress in the European credit markets, the rates that banks charge to lend euros to one another rose, and the costs to banks of swapping euros for dollars in the open foreign exchange market — the three-month euro-dollar cross-currency basis swap — also increased sharply.

The cost of insuring the debt of a basket of European banks against default rose to the highest level since Oct. 5. It now costs $261,000 to insure $10 million of bank debt annually for five years, compared with $207,000 at the end of last week, according to the data provider Markit.

Analysts said European leaders had so far failed to come up with a clear solution to cope with a problem on the scale of Italy’s debt.

Officials had proposed maximizing the European bailout fund, though they did not offer details, and in particular had not defined a role for the European Central Bank, analysts said.

The central bank was buying bonds to support the Italian bond market on a large scale on Tuesday, traders said. But many analysts say it is inevitable that the central bank will have to act much more aggressively, in effect printing money by buying hundreds of billions of euros of bonds from peripheral countries like Italy.

Such an action, however, is politically poisonous in countries like Germany where the public fears inflation. It would be a big test for Mario Draghi, the new president of the European Central Bank, whose first day in office was Tuesday.

Article source: http://www.nytimes.com/2011/11/02/business/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,