Shanghai Chaori defaults on bond interest payments -
BEIJING—A Chinese solar-equipment maker on Friday failed to meet interest payments on a bond, according to a company official there, becoming China’s first domestic corporate bond default.
The default, though small in size, marks the first time a Chinese company has defaulted on a bond traded in the mainland, according to Moody’s Investors Service.
So far, the Chinese government and state-owned banks have largely kept risky borrowers afloat by providing bailouts or debt extensions, keeping borrowing costs low for companies with high debt.
That has led many investors to flock to Chinese corporate bonds on the belief they have an implicit guarantee, helping to fuel growth. Total corporate bonds outstanding rose more than tenfold to 8.7 trillion yuan at the end of January from the end of 2007, allowing even weak borrowers to tap funds at relatively low rates.
The default comes amid broader concerns about the impact of China’s slowdown in economic growth on the rising amount of debt among local government-connected financing vehicles as well as among some Chinese companies. Standard & Poor’s estimates China’s corporate debt could hit $13.8 trillion in 2014, surpassing that of the U.S. as the largest in the world.
On Thursday, Mr. Liu said the company plans to pay just four million yuan in interest owed on its one billion yuan bond on Friday. “We will try our best to pay bondholders as soon as possible but the company also has other debts,” he said. — (WSJ)
New Jobless Claims Fall to a Three-Month Low -
The number of people seeking unemployment benefits dropped by 26,000 last week, to a seasonally adjusted 323,000, the lowest level in three months as layoffs remain at prerecession levels.
The Labor Department said on Thursday that the four-week average of applications, a less volatile measure, fell slightly to a seasonally adjusted 336,500. That indicates that firms are cutting few jobs and anticipate steady economic growth despite the winter slowdown. Applications are a rough proxy for layoffs.
Economists have estimated that 145,000 jobs were added last month. But there are signs that this forecast might be optimistic after a pair of lackluster reports released Wednesday suggested that winter storms hampered hiring in February.
A survey by the payroll processor ADP said private businesses added just 139,000 jobs last month. But that figure does not include state, local and federal government workers, unlike the coming Labor Department report. Most economists predict it will show that governments shed workers in February.
And a survey of service companies by the Institute for Supply Management found that its measure for hiring plunged 8.9 percentage points to 47.5, evidence that many companies let go of employees in February. Any reading above 50 indicates expansion in the group’s index. — (NYT)
The ISM Services employment sub-indicator caught my eye. Also notable is that the ISM manufacturing survey’s sub-index is at its lowest since mid last year. Definitely a lot of conflict reports. For example, Rasmussen’s employment indicator just rose to a 7-month high. Open to many interpretations ;-).
Given new market highs, a fast trigger-finger tomorrow on the futures market morning could net you some short-term gains if the report tomorrow disappoints significantly. Lots of people on the bull bandwagon (ie on the same side of the trade). 7:30 am!!!
Dudley Sees High Threshold for Change in Pace of Tapering (2) -
William Dudley, president of the Federal Reserve Bank of New York, said that while harsh weather will slow growth during the first quarter, it won’t harm the economy enough to merit slowing the tapering of bond purchases.
The winter weather doesn’t prompt “a fundamental change in the outlook,” and “does not rise to the level where you change the taper path,” Dudley said at an event in New York today organized by the Wall Street Journal. “The threshold is pretty high to change it.”
“The economy should do better in 2014 than 2013,” Dudley said, predicting growth of about 3 percent. “The area of question” is the weather, which has been making analyzing economic data “more difficult” and will “depress economic activity” during the beginning of the year.
“As we get into the spring, we’ll see some of these weather effects dissipate,” he said.
Philadelphia Fed President Charles Plosser predicted the U.S. economy will expand 3 percent this year even after the harsh winter.
“I believe that weakness largely reflects the severe winter weather rather than a frozen recovery,” Plosser said today in a speech in London. “So, we must be wary of attaching too much significance to the latest numbers.”
“Unseasonably cold weather has played some role,” Yellen said in reply to a question during Feb. 27 testimony to a Senate committee. “What we need to do, and will be doing in the weeks ahead, is to try to get a firmer handle on exactly how much of that set of soft data can be explained by weather and what portion, if any, is due to softer outlook.”
The Fed should move away from its pledge to consider raising interest rates when unemployment falls below 6.5 percent given it’s “already a little bit obsolete,” Dudley said. Joblessness fell to 6.6 percent in January.
Dudley said he prefers a “qualitative” approach to guidance about the path of interest rates.
“We’re going to have to look at a broad set of labor-market conditions rather than one single indicator,” Dudley said.
The Fed should talk more about what happens after the first interest-rate increase, not just the timing of “liftoff,” Dudley said. Increases in borrowing costs will be “relatively gradual” because of the “persistent headwinds” to U.S. economic growth, he said.
“When you look at the U.S. today, I don’t really see much excess in terms of things that worry me about financial stability,” Dudley said. Still, there are some areas that may be overvalued, such as biotechnology stocks, leveraged loans and farmland, he said. — (Bloomberg)
Germany Factory Orders up More Than Expected -
German factory orders rebounded more than expected in January, driven by demand from outside the 18 countries using the euro.
Domestic orders increased 1.6 percent, while foreign orders overall rose 1 percent. Non-eurozone orders rose 7.2 percent, but orders from within the bloc dropped 8.8 percent.
ING economist Carsten Brzeski says the numbers send two important messages — that the near-term looks positive with industrial production gaining momentum, but that in the long term Germany needs greater domestic demand. - (abcnews.com)
Important to note the dichotomy between euro and non-euro orders.
Hollande gets boost from quarterly French jobs data, but trend remains weak -
PARIS—French President François Hollande got an unexpected boost Thursday from data showing the unemployment rate began to fall at the end of last year.
The quarterly publication from statistics agency Insee came as a surprise because it is at odds with a separate monthly publication which showed the number of registered job seekers kept rising to reach a new high in January. Those monthly figures had prompted ministers to drop Mr. Hollande’s pledge to “invert the unemployment curve” last year.
The data come as Mr. Hollande struggles on nearly every other front. Economic growth is accelerating only slowly after two years of stagnation, the European Unionhas warned that France is falling far behind on its deficit reduction plans, and the president’s popularity has sunk to new lows with local elections just weeks away.
At the turn of the year, Mr. Hollande fought back, promising to forge a pact with business to cut taxes on labor in the hope that would spur investment and recruitment. He secured an initial victory on Wednesday when some labor unions and business groups signed off on plans for companies to make commitments on jobs in exchange for the tax cuts.
Additional tax cuts won’t come in until next year and the promise of a pact has so far failed to translate into the desired confidence boost.
Only 17% of French people are confident Mr. Hollande can resolve France’s problems, a new low for the socialist leader, according to a TNS Sofres’ poll of 1,000 people between Feb. 27 and March 3.
Analysts warned Mr. Hollande will struggle to use the unemployment numbers as a confidence boost as the slight fall in the rate is due mainly to government-sponsored contracts for young people rather than an economic recovery.
"This is a half-victory for François Hollande," said ING economist Julien Manceaux.
The apparent divergence between the quarterly statistics and the monthly data also tempers the boost for the French president.
The outlook for the trend remains bleak: the European Commission recently forecast unemployment will be stuck at high levels through this year and 2015. — (WSJ)
Here’s the bearish spin on the news. Overall, a wash.
French Unemployment Drops in Unexpected Victory for Hollande -
France’s unemployment rate fell in the first quarter, handing an unexpected victory to President Francois Hollande, who is trying to revive the nation’s economy.
The unemployment rate dropped to 10.2 percent in the fourth quarter from 10.3 percent, national statistics office Insee said in an e-mailed statement. Economists had expected an increase, according to the median of six forecasts gathered by Bloomberg News.
The first decline in unemployment since Hollande came to power in May 2012 bolsters the Socialist president as he seeks to convince his own lawmakers to back a plan to trim payroll taxes to strengthen French competitiveness. France’s main business lobbies and three unions agreed yesterday to back the president’s plan, labeled “the responsibility pact.”
“The main thing is that unemployment has dropped, even if that drop is slight,” Agriculture Minister Stephane Le Foll said today on I-tele. “This should encourage us to stick to our policies. The French economy is re-starting and we need to support it.” — (Bloomberg)
UPDATE 1-Australia economy on a rising tide as spending, exports swell -
SYDNEY, March 6 (Reuters) - Australian retail sales surged by the most in almost a year in January and exports jumped to record highs, clear evidence the resource-rich economyis stepping up a gear even as a boom in mining investment cools.
Likewise the country’s A$1.4 billion ($1.26 billion) trade surplus was the largest in almost three years as exports climbed 3.7 percent and dwarfed analyst estimates of A$400 million.
"People are choosing to spend more borrow more and save less, and that’s all too the good," said Michael Blythe, chief economist at Commonwealth Bank of Australia.
"That’s a key transmission mechanism of monetary policy and it shows the stimulus is working," he added. "The next move in rates is now likely to be up, albeit not until late this year."
The revival in retail spending was especially important as the A$270 billion retail sector accounts for 17 percent of Australia’s A$1.5 trillion in annual gross domestic product (GDP) and is the second-biggest employer after the health industry, with 10 percent of all jobs.
Indeed, it was a revival in consumption and a sustained surge in resource exports that lifted Australia’s economic growth to a stronger-than-expected 2.8 percent in the final quarter of 2013, the fastest pace in a year.
Exports continued their stellar run in January to hit a record A$29.8 billion, with farm goods up 5 percent and metal ores such as iron ore rising 3 percent.
Export growth for the year to January accelerated to 20 percent, the fastest in almost three years, as the hundreds of billions spent on mining projects turns into actual output. — (Reuters)
Fisher warns Fed's bond buying could be distorting U.S. financial markets -
(Reuters) - A U.S. Federal Reserve policymaker who has long criticized its bond-buying stimulus said on Wednesday the program has lasted too long, and there are signs it is now distorting financial markets and encouraging risk-taking.
"There are increasing signs quantitative easing has overstayed its welcome: Market distortions and acting on bad incentives are becoming more pervasive," he said of the asset purchases, which are sometimes called QE.
Fisher, a voter on U.S. monetary policy this year, also praised Mexico’s moves to stimulate growth in the wake of the global recession. As for the United States, he repeated criticisms that the government has failed to take advantage of the five years of easy Fed money, missing its opportunity to restructure debt and to reform entitlements and regulations.
"I do think we have had some short-term weather impact but that can turn around very quickly," Fisher said, adding that warmer temperatures would boost consumption and industry.
Fisher, an outspoken policy hawk, pointed to soaring margin debt and the narrow spreads between corporate and Treasury debt as areas of concern.
In the stock markets, he said price-to-projected-earnings, price-to-sales ratios, and market capitalization relative to GDP are all at “eye-popping levels not seen since the dot-com boom” of the late 1990s.
Fisher said that while the Fed has no “clear plan” for draining some of the $2.5 trillion in reserves that have built up at banks, he was confident the Fed would find a “practicable” way to normalize its balance sheet and avoid inflation. — (Reuters)
Weather obscures economic conditions: Beige Book Economic Report -
In sector after sector and region after region, the weather played havoc on conditions, the report said. There were 119 separate mentions of the word “weather” in the Beige Book.
The assessment is not likely to stop the Fed from continuing its steady reduction in monthly asset purchases.
Fed Chairwoman Janet Yellen said it might be “months” before the Fed gets a good reading of economic conditions.
The Beige Book does “reinforce our bias, and that at the Fed, that the slowdown in economic activity is short-lived,” said Eric Green, global head of rates, foreign-exchange, and commodity research at TD Securities.
The Beige Book said that eight of the 12 Fed districts reported that economic conditions continued to expand though Feb. 24.
Weather impacted retail sales and manufacturing.
Not all of its effects were negative: many districts reported energy production was rising on increased demand. — (Marketwatch)
U.S. ISM non-manufacturing PMI falls to 43-month low of 51.6 in February -
U.S. ISM non-manufacturing PMI falls to 43-month low of 51.6 in February
Ouch. Employment sub index fell into contraction for first time in 25 months. Looking under the hood of the report, the commentary surprisingly didn’t mention much about the weather, less than 30% of all the commentary. That caught my attention.
Eurozone Retail Sales Rise More Than Expected In January
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.