Eurozone Composite PMI At 32-Month High -
According to data released by Markit Wednesday, the composite output index in the euro zone beat expectations to rise to 53.3 in February, up from 52.9 in January and an earlier flash reading of 52.7. A Wall Street Journal consensus had estimated the figure to come in at 52.7. PMI for the services sector was recorded at 52.6, up from a flash estimate of 51.7 and January’s 51.6 reading.
“The survey suggests the region is on course to grow by 0.4-0.5% in the first quarter, which would be its best performance for three years,” Chris Williamson, Markit’s chief economist, said in a statement. — (IBTimes)
Italian services PMI rises to 35-month high of 52.9 in February -
In a report, market research group Markit said that its Italian services purchasing managers’ index rose to a seasonally adjusted 52.9 last month from a reading of 49.4 in January. Analysts had expected the index to inch up to 49.8 in January.
Commenting on the report, Phil Smith, economist at Markit said, “These figures, alongside the sister survey data that showed continued growth in manufacturing, support the notion that Italy will see back-to-back quarterly increases in GDP.” - (Investing.com)
Cheaper energy pulls down euro zone factory prices in Jan -
* Producer prices in euro zone fall faster than expected onenergy * Annual factory prices inflation lowest since Dec. 2009 * Deflationary pressures to keep ECB on alert BRUSSELS, March 4
U.S. auto sales flat, incentives could hit profit -
(Reuters) - U.S. auto sales in February finished even with the year-earlier period as hefty incentives to lure customers into dealerships late in the month could not overcome cold and snowy weather.
The annualized sales rate for the month finished at 15.34 million vehicles, just short of the 15.4 million expected by analysts polled by Reuters. It was the third month in a row that U.S. auto industry sales were weaker than expected.
Larry Dominique, executive vice president of industry research firm TrueCar, said there are about 80 days of supply on dealer lots, compared with a more desirable level of 60 to 65 days.
Monthly auto sales are typically an early indicator of consumer demand. But January and February are usually two of the slowest sales months every year.
For now, the incentives are not out of control, but Toprak warned, “it might get a bit out of control this summer and beyond if the pace of inventory accumulation does not slow down.”
The frost on sales for January and February will thaw in March as temperatures rise and customers return to showrooms in greater numbers, some industry analysts said.
"Despite all the challenges, it was a robust market," Felice said of February, "and we feel that as we head into March we’ll be in very good shape." — (Reuters)
What’s not mentioned is that car sales actually began weakening in September of last year. So the weather may be masking genuine consumer weakness right now. March looks to be a make or break month for figuring out where the truth actually lies.
ISM - ISM Report - February 2014 Manufacturing ISM® Report On Business® -
Not as great a bounce back as Markit; but internals suggest the weakness in the manufacturing sector is transitory.
Construction spending continues to climb, rising 0.1% in January -
Construction spending rose to a seasonally adjusted annual rate of $943.1 billion in January from a revised $941.9 billion in December. Spending is up 9.3% year-over-year. Private construction rose 0.5% month-over month, while public construction spending fell 0.8%. Public construction has been coming back recently and is slightly positive on a year-over-year basis. Year-over-year, private construction is up 12.3%. Residential construction rose 0.9% month-over-month and is up 13.9% year-over-year. Non-residential construction is up 6.5% year-over-year. - (Market Realist)
ECB's Draghi says euro zone clearly not in deflation| Reuters -
(Reuters) - The euro zone is not experiencing deflation, but the European Central Bank is alert to potential downside risks to price stability and will act if needed, ECB President Mario Draghi said on Thursday.
Giving no hint of any urgency to take action at the ECB’s policy meeting next Thursday, Draghi said households in the euro area are not deferring purchases, which would be a sign of deflation taking hold.
"With the average euro area inflation rate standing at 0.8 percent, we are clearly not in deflation," Draghi said in the text of a speech entitled ‘The Path to Recovery and the ECB’s Role’.
Draghi, who has previously warned of the risk of inflation getting stuck in a “danger zone” below 1 percent, said cheaper energy contributed to the low inflation rate and added that the ECB saw no evidence consumers were postponing expenditure plans.
The ECB saw the euro zone’s economic recovery taking hold gradually, he said, “albeit at a slow and uneven pace.”
After the ECB’s February 6 meeting, Draghi said the bank had decided not to act while it acquired more information on the growth and inflation outlook and assessed the impact on the euro zone of turmoil in emerging markets.
The ECB has set out two situations that could trigger fresh policy action: a deterioration in the medium-term inflation outlook and an “unwarranted” tightening of short-term money markets.
The central bank has already said it would keep its key interest rates at their present or lower levels. Draghi reiterated this so-called forward guidance, saying “we expect the key ECB interest rates to remain at current or lower levels for an extended period of time.” — (Reuters)
Factory activity growth highest since 2010: Markit -
Financial data firm Markit said the final read of its U.S. Manufacturing Purchasing Managers Index rose to 57.1 in February, above both the preliminary read of 56.7 and expectations for a read of 56.6.
The new orders component rose to 59.6 from 53.9, above the preliminary read of 58.8 and the highest read for the subindex since April 2010.
"This to a large extent reflects a temporary rebound after supply chains and production had been disrupted by severe weather,” Chris Williamson, Chief Economist at Markit said in a statement. “While bad weather continued to hamper production at many companies in February, many also reported that weather-related issues were being overcome.”
Williamson added, “The upturn pushes the trend over the last three months to the strongest since May 2012, suggesting that the sector maintained robust underlying growth momentum throughout the winter months.”— (Reuters via CNBC)
Russian cbank raises key interest rate to 7 percent from 5.5 percent -
MOSCOW, March 3 (Reuters) - Russian central bank hiked itskey lending rate on Monday to 7 percent from 5.5 percent due toan increased risk to financial stability and inflation.
According to data from 2012 from the World Bank, Russia accounts for 2.8% of global GDP.
China's non-manufacturing PMI rebounds -
BEIJING, March 3 (Xinhua) — The purchasing managers’ index (PMI) for China’s non-manufacturing sector rebounded in February after dropping for three consecutive months, new data showed on Monday.
The index rose 1.6 percentage points from January to 55 percent last month, according to the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFLP).
CFLP Vice Chairman Cai Jin attributed the rebound mainly to robust business activities after the Spring Festival, China’s lunar new year.
"Rising activities, especially in service sectors, laid a solid foundation for steady economic growth," Cai said.
The sub-index for new orders edged up 0.5 percentage points from a month earlier to 51.4 percent, marking the first rebound in five months, the NBS said. - (Xinhua)
China's manufacturing, services sectors diverge in February -
(Reuters) - China’s services sector regained some momentum in February but its manufacturing sector struggled, separate surveys showed on Monday, with the divergence adding to the difficulty in assessing the strength of the economy at the start of 2014.
Data for the world’s second-largest economy has been mixed, and the Lunar New Year holidays have made it harder to assess momentum. Weak investment and declining manufacturing PMI readings have been countered by surprisingly buoyant exports and bank lending.
The official non-manufacturing Purchasing Managers’ Index (PMI) rose to a three-month high of 55.0 in February, while the final Markit/HSBC manufacturing Purchasing Managers’ Index fell to 48.5, its third straight decline.
That followed an official manufacturing PMI on Saturday which fell to an eight-month low of 50.2, just above the 50 level that separates contraction from expansion.
"It’s a domestic investment-led slowdown. You see exports strong, so external demand is fine," said Wei Yao, China economist at Societe Generale in Hong Kong. — (Reuters)
China 7.2% Growth Would Meet 2014 Target, Minister Says -
China’s Finance Minister Lou Jiwei said growth as low as 7.2 percent would meet this year’s target of “about” 7.5 percent as he tried to moderate expectations for an economy at risk from swelling debt.
Expansion of 7.2 percent or 7.3 percent would be consistent with the goal announced yesterday, Lou said at a press briefing in Beijing today as part of the annual meeting of the National People’s Congress, the legislature. The key is employment, not the exact level of growth, he said.
Ha haaaaa!! I knew I heard 7.2% a whiles back.
China Bear Stearns Moment Seen by BofA in Solar Default - Bloomberg -
“We doubt that the financial system in China will experience a liquidity crunch immediately because of this default but we think the chain reaction will probably start,” Hong Kong-based strategists David Cui, Tracy Tian and Katherine Tai wrote in a note yesterday. During the U.S. financial crisis, it took a year “to reach the Lehman stage” when investors began to panic and shadow banking froze, the strategists added. —(RCS: Go back to June 2007 when two Bear Sterns hedge funds went bust)
Chaori’s potential failure to pay investors would mark the first bond default in Asia’s largest economy, highlighting the strain in China’s $4.2 trillion bond market after a trust product issued by China Credit Trust Co. was bailed out in January. There haven’t been any defaults in China’s publicly traded domestic debt market since the central bank started regulating it in 1997, according to Moody’s Investors Service.
From Zero Hedge:
While everyone was focusing on the threat of tumbling debt dominoes in China’s shadow banking sector, a new threat has re-emerged: regular, plain vanilla corporate bankruptcies
…the Chinese Default Protection Team will have its hands full as soon as Friday, March 7, which is when the interest on a bond issued by Shanghai Chaori Solar Energy Science & Technology a Chinese maker of solar cells, falls due. That payment, as of this moment, will not be made, following an announcement made late on Tuesday that it will not be able to repay the CNY89.8 million interest on a CNY1 billion bond issued on March 7th 2012.
From the FT:
"The company has until March 7th to repay the interest, charged at an annual 8.98 per cent, the company said in a statement. “Due to various uncontrollable factors, until now the company has only raised Rmb 4m to pay the interest,” it said in the statement.
Trading in the Chaori bond, given a CCC junk rating, was suspended last July because the company suffered two consecutive years of losses. The company had a further RMB1.37bn loss in 2013, according to the results it posted on the exchange.”
Just pointing out the obvious here, but how bad must things be for the company to be on the verge of default not due to principal repayment but because two years after issuing a bond, it only has 4% in cash on hand for the intended coupon payment?
More from the FT:
"Though the bond is relatively small, a default could deliver a sharp shock to risk management strategies in China vast corporate debt market, estimated by Standard&Poor’s to be $12tn in size at the end of 2013.
Any default could also slow down new issuance. A Thomson Reuters analysis of 945 listed medium and large non-financial firms showed total debt soared by more than 260 per cent, from Rmb1.82tn to Rmb4.74tn, between December 2008 and September 2013.
In January, a Chinese fund company avoided a high-profile default, reaching a last-minute agreement to repay investors in a soured $500m high-yield investment trust, in a case that had sent tremors through global markets.”
Then again, those who follow China’s bond market will know that Chaori’s failure to pay interest would not really be the true first Chinese corporate default: recall as we reported almost exactly a year ago…
So yes: a prior default, and one by a solar company no less. However, going back down memory lane again, ultimately Suntech had the same fate as all other insolvent corporations in China do - it got a post-facto bailout… — (Zero Hedge)
Mark Friday on your calendars. I just did.
China Targets Spur Speculation of More Credit Loosening - Bloomberg -
China’s leaders spurred speculation they will allow the country’s $21 trillion debt mountain to inflate after refraining from cutting their annual economic-growth target.
Analysts at Australia & New Zealand Banking Group Ltd. and Nomura Holdings Inc. said authorities will need to loosen monetary policy, after Premier Li Keqiang yesterday announced a goal of 7.5 percent growth, the same target as last year. Li said China will seek an “appropriate” increase in credit.
Any easing would contrast with leaders’ efforts to rein in a $6 trillion shadow-banking industry and control the build-up of local-government debt that followed stimulus measures unleashed in 2008.
“I had hoped that they would pay more attention to curbing the risks but instead they focused on growth,” said Dariusz Kowalczyk, Hong Kong-based economist and strategist at Credit Agricole SA. “They will just have to pay the price of higher leverage and once they start to deal with this in earnest, the costs of solving the issue will be bigger.”
The combined debt of Chinese households, corporates, financial institutions and the government rose to 226 percent of GDP last year, up from 160 percent in 2007, Credit Agricole estimated in a report last month. GDP reached $9.4 trillion in 2013.
This year’s growth target is “flexible and guiding,” the National Development and Reform Commission said in a related report yesterday.
Li, who reiterated that China will pursue a “prudent” monetary policy, announced a target of 13 percent growth in M2, the government’s broadest measure ofmoney supply. That was the same target as last year, when M2 expanded 13.6 percent. The budget deficit as a percentage of GDP will be about the same as last year, Li said at the annual meeting of the legislature in Beijing.
“If they are pursuing a trajectory to slow down the pace of leverage they should target a slower M2 growth,” said Wang Tao, chief China economist at UBS AG in Hong Kong, who previously worked at the International Monetary Fund. “Without doing that it’s not clear.”
Not everyone saw a conflict between the growth target and China’s vow to introduce more market-driven change. Stable economic and labor-market conditions are “conducive for actually implementing the top-down reforms,” Qu Hongbin, chief China economist with HSBC Holdings Plc in Hong Kong, wrote in a note yesterday. “Reform and growth should support each other.” — (Bloomberg)
EU tells Italy, France to up reforms, trim deficit -
BRUSSELS (AP) — The European Commission is warning Italy and France must do more to tackle their high levels of public debt and reform their economies…