Tag Archives: Global Economy

Business activity worldwide at weakest in three years in February

LONDON (Reuters) – Global business activity expanded at its weakest rate in over three years in February despite firms cutting prices for the first time since September, business surveys showed on Thursday.

The U.S. service sector contracted for the first time since October 2013, euro zone businesses had their worst month in over a year, and China’s service sector growth slowed.

Thursday’s downbeat surveys come just days after reports showed manufacturing output across much of Asia shrank in February and faded throughout Europe and the Americas.

JPMorgan’s Global All-Industry Output Index, produced with private data vendor Markit, slumped to 50.6 in February from January’s 52.6, its lowest reading since October 2012 when it nudged above the 50 mark that divides growth from contraction.

“February’s PMI surveys further highlight the broad-based weakness in global growth during the opening quarter of 2016,” said David Hensley, a director at JPMorgan.

A purchasing managers index (PMI) covering the global service industry fell to a 40-month low of 50.7 from 52.8.

US SERVICE SECTOR CONTRACTS FOR FIRST TIME SINCE 2013

In the U.S., private data vendor Markit said its service sector purchasing managers index (PMI) fell to 49.7 in February from 53.2 in January and is now below the 50 level that separates growth from contraction for the first time since October 2013.

Markit’s composite index of both manufacturing and service sector activity fell to 50.0 from 53.2 in January.

An alternative reading from the U.S. Institute of Supply Management (ISM) showed service sector activity still growing in February, but at a slower pace and employment in the sector declined for the first time in two years.

ISM said its index of non-manufacturing activity fell to 53.4 from 53.5 the month before, while the employment index fell to 49.7 from 52.1 a month earlier, marking the first fall in service-sector employment since February 2014.

The U.S. dollar fell sharply against the euro on Thursday after the data showed a decline in U.S. service sector employment. [USD/]

“The data this morning was weak enough to add a touch of concern to the market,” said Jason Leinwand, managing director at Riverside Risk Advisors in New York. “The market is definitely leaning away more and more from the prospects of a Fed hike this year.”

The U.S. Federal Reserve raised interest rates for the first time in a decade in December, but is not expected to raise rates again at its March policy meeting.

BRAZIL SLUMPS AT EVEN FASTER PACE

Activity in the service sector of Brazil, Latin America’s largest economy, plunged in February at the fastest pace on record, according to a survey by HSBC/Markit, as Brazil suffers from its worst economic crisis in over a century.

The HSBC/Markit service sector PMI Brazil fell 36.9 in February from 44.4 in January.

The deeper contraction in services, along with an accelerating decline among manufacturers, dragged Markit’s composite Brazil index to 39.0 in February from 45.1 in January.

Brazil’s gross domestic product shrank 3.8 percent in 2015, capped by another steep contraction in the fourth quarter, according to statistics agency IBGE on Thursday.

“The Brazilian economic downturn took a real turn for the worse in February,” said Rob Dobson, a senior economist at Markit. “The labor market also appears to be in dire straits, as manufacturers and service providers reported further substantial reductions to headcounts.”

EUROZONE BUSINESS SEES WORST MONTH IN A YEAR

Euro zone businesses had their worst month in over a year in February which, coupled with further signs of deflationary pressures, is likely to solidify expectations for further monetary policy easing.

Markit’s euro zone composite PMI, seen as a good guide to economic growth, fell to 53.0 last month from January’s 53.6, its lowest reading since the start of 2015, but was still over the 50 mark that denotes growth.

“The slowdown in growth of business activity, accompanied by a similar easing in the pace of job creation and the steepest fall in prices charged for a year, suggest that the region’s recovery is losing momentum,” said Chris Williamson, chief economist at Markit.

Another cut in the already-negative deposit rate is likely when the ECB meets on March 10. A Thursday Reuters poll gave a 60 percent chance the central bank would also expand its bond-buying program from 60 billion euros a month [ECB/INT].

BREXIT FEARS HIT BOARDROOMS

The prospect of Britain voting to leave the European Union at a referendum in June sent shivers through the boardrooms of the country’s dominant services sector last month, sending growth to a three-year low.

The Markit/CIPS UK services purchasing managers’ index slumped to 52.7 from 55.6 in January, the weakest reading since March 2013.

The news halted sterling’s recovery against the U.S. dollar over the last few days, following last week’s Brexit-driven sell-off. [GBP/]

“Survey responses reveal that firms are worried about signs of faltering demand, but boardrooms have also become unsettled by concerns regarding the increased risk of Brexit, financial market volatility and weak economic growth at home and abroad,” said Markit’s Chris Williamson.

British gross domestic product now looks likely to expand by just 0.3 percent in the first quarter of 2016, according to Markit, a slowdown from 0.5 percent in the final three months of 2015 and its poorest performance since late 2012.

The Bank of England was once expected to be the first major central bank to tighten policy but now it is not expected to act until the end of the year, and Thursday’s readings may push the forecasts even further out [ECILT/GB].

CHINA MANUFACTURING SLOWDOWN SPREDS TO SERVICES

Growth in China’s services activity slowed in February, adding to risks for policymakers in Beijing who are counting on robust growth in the sector to offset a planned overhaul of bloated state companies.

The Caixin/Markit PMI fell to 51.2 in February from a six-month high of 52.4 in January.

But a composite Caixin output index covering both manufacturing and services fell below the 50-point level in February, suggesting weakness in the manufacturing sector was overcoming the contribution from the services sector.

He Fan, chief economist at Caixin Insight Group, said further government measures were need to boosted the services sector and improve balance in the economy.

“While implementing measures to stabilize economic growth, the government needs to push forward reform on the supply side in the services sector to release its potential,” he said.

China said on Monday it expects to lay off 1.8 million workers in the coal and steel industries, or about 15 percent of the workforce, as part of efforts to reduce a capacity glut, but no timeframe was given.

Reuters reported this week that China aims to lay off 5-6 million state workers in two to three years to curb industrial overcapacity and pollution.

China’s central bank injected an estimated $100 billion worth of long-term cash into the banking system on Tuesday..

Activity in Japan’s services sector expanded in February at the slowest pace in seven months as new business weakened. The Markit/Nikkei Japan services PMI fell to 51.2 from 52.4 in January, and is now at the lowest since July last year.

(Additional reporting by Winni Zhou and Nicholas Heath in Beijing, Stanley White in Tokyo, Andy Bruce in London, Dan Burns in New York and Brad Haynes in Brazil; Editing by Ross Finley, Larry King and Clive McKeef)

Wall Street snaps up shares in late-day scramble

Traders work on the floor of the New York Stock Exchange

(Reuters) – Wall Street moved higher on Thursday, adding momentum to a recent recovery as the energy and financial sectors emerged into positive territory for the year.

The S&P 500’s increase was the most recent in four weeks of mostly steady gains that have left the index down 2.5 percent in 2016 after the worst January since 2009.

It was the second straight day that stocks strengthened late in the session, a pattern that some investors view as sign of improving sentiment. The S&P has gained in five out of the last seven sessions.

“That is a positive and I think there’s reason to look at that with some hope,” said Andrew Bodner, president of Double Diamond Investment Group in Parsippany, New Jersey. But Bodner said he remains cautious following the market’s recent volatility.

Earlier, a report showed that the number of Americans filing for unemployment benefits unexpectedly rose last week, but the underlying trend continued to point to a strengthening labor market.

Investors were also looking to Friday for a comprehensive labor report that is expected to show an addition of 190,000 jobs in February, up from a gain of 151,000 in January.

Brent crude prices, which are up about 35 percent from last month’s lows, were largely steady.

The Dow Jones industrial average ended 0.26 percent higher at 16,943.56 points and the S&P 500 gained 0.35 percent to 1,993.39.

The Nasdaq Composite added 0.09 percent to 4,707.42.

Eight of the 10 major S&P 500 sectors gained, with the energy sector up 1.28 percent and financials up 0.63 percent, both climbing into positive terrain for 2016.

The financial sector has surged 13 percent in the past 14 sessions, although it remains down 7 percent in 2016. Investors fear that low oil prices will force energy companies to default on their debts.

The health index fell 0.35 percent, pulled down by a 1.91-percent dip in Celgene Corp.

Herbalife fell 7.02 percent after the multilevel marketer said it had overstated growth in the number of new members due to a database error.

Kroger dropped 7.01 percent after the largest U.S. supermarket operator’s quarterly sales missed estimates.

Advancing issues outnumbered decliners on the NYSE by 2,304 to 726. On the Nasdaq, 1,736 issues rose and 1,057 fell.

The S&P 500 index showed 16 new 52-week highs and one new low, while the Nasdaq recorded 39 new highs and 20 new lows.

Volume hit 8.8 billion shares, matching the daily average in the past 20 sessions.

(Additional reporting by Tanya Agrawal; Editing by James Dalgleish and Nick Zieminski)

Brazilian economy’s steep slide raises specter of depression

BRASILIA (Reuters) – Brazil’s economy contracted sharply in 2015 as businesses slashed investment plans and laid off more than 1.5 million workers, official data showed on Thursday, setting the stage for what could be the country’s deepest recession on record.

Gross domestic product (GDP) shrank 3.8 percent last year, capped by another steep contraction in the fourth quarter, according to Brazilian statistics agency IBGE. It was the worst performance of any G20 nation in 2015.

The annual contraction, which matched market expectations in a Reuters poll, was also Brazil’s largest since 1990, when the country was struggling with hyperinflation and a debt default. The outlook for 2016 is nearly as bad, with a central bank survey forecasting a 3.45 percent contraction.

Back-to-back annual drops of that magnitude would amount to the longest and deepest downturn since Brazil began keeping records in 1901.

Brazil is “replicating the lost decade of the ’80s in just two years,” Goldman Sachs economist Alberto Ramos said in a research report. He added that the economy was close to an outright depression, as defined by the length of the current downturn – nearly two years – and the more than 7 percent GDP drop experienced during that time.

A paralyzing political crisis, rising inflation and interest rates and a sharp drop in prices of key commodity exports have formed a toxic cocktail for Latin America’s largest economy. The disastrous burst of a major mining dam and the biggest oil strike in 20 years added further strain in 2015.

Brazil’s government said the downturn had been expected and added that it was focused on boosting the economy this year. “The government has taken all the necessary measures for an economic recovery,” the Finance Ministry said in a note.

However, a private survey on Thursday showed services activity in February fell at the steepest pace on record, suggesting the economy had yet to hit bottom.

“We will probably see a similar contraction this year. There are no growth engines yet. The only one could be exports. But Brazil’s economy is relatively closed, so we don’t see that taking us out of this hole,” said Joao Pedro Ribeiro, Latin America economist with Nomura Securities.

Unemployment and loan delinquency rates are likely to rise further this year as the recession drags on, economists forecast, potentially feeding public discontent. Meanwhile, debt restructuring firms are expecting a record amount of business this year as companies seek protection from creditors and go through painful reorganizations.

Analysts say banks appear well-capitalized to weather the crisis but could tighten credit to stay safe, which could delay an economic recovery.

Stocks on the Sao Paulo exchange shrugged off the poor GDP data, posting sharp gains.

The country’s currency, the real, rose on news that leftist President Dilma Rousseff could be implicated in the massive corruption scandal at state-run oil producer Petroleo Brasileiro SA, also known as Petrobras.

COSTLY STIMULUS

Brazil, once the world’s seventh-biggest economy, has been underperforming since 2011, the year Rousseff took office. A sharp increase in government spending and subsidized credit underpinned the labor market until 2014, at the cost of fueling inflation and eroding government finances.

The recession took root just as Rousseff started to roll back the costly stimulus policies, hiking taxes and interest rates and slashing investments in oil production. Rousseff’s popularity plummeted to record lows last year, fueling street protests and calls for her impeachment.

“Despite all the rhetoric from Rousseff last year about boosting private investment, it’s abundantly clear that investors, both foreign and domestic, are staying away in their droves,” said Michael Henderson, lead economist with consulting firm Verisk Maplecroft in England.

The downturn has been so severe that Brazil’s economy will probably only regain its previous size by 2019, as it grapples with a much larger debt load, according to a Reuters poll.

The IBGE data showed that Brazil’s GDP contracted 1.4 percent in the fourth quarter from the third, which was its fourth straight quarterly decline. It was down 5.9 percent from the fourth quarter of 2014.

Agriculture was the only bright spot, with a fourth-quarter growth rate of 2.9 percent versus the third quarter. In the same period, the industry and services sector fell 1.4 percent each.

Household consumption declined for a fourth straight quarter, with a drop of 1.3 percent, while investments plunged 4.9 percent. Government consumption fell 2.9 percent, the steepest quarterly decline since the end of 2008.

(Additional reporting by Bruno Federowski in Sao Paulo; Editing by Daniel Flynn, W Simon and Paul Simao)

Oil below $37 as record U.S. inventories overshadow output freeze plan

By Alex Lawler

LONDON (Reuters) – Oil fell further below $37 a barrel on Wednesday as U.S. crude stockpiles rose to a new record, underlining the extent of a supply glut and countering support from producer efforts to tackle it.

Crude inventories rose by 10.4 million barrels, the U.S. government’s Energy Information Administration (EIA) said in its weekly report released at 1530 GMT (10:30 a.m. EST), much more than analysts had expected. [EIA/S]

Global benchmark Brent crude <LCOc1> was down 45 cents at $36.36 a barrel by 1548 GMT (10:48 a.m. EST). On Tuesday, it reached $37.25, the highest in almost two months. U.S. crude <CLc1>, also known as WTI, was down 55 cents at $33.85.

“Today’s EIA data will do very little to help oil’s recent bounce,” said Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland.

“In short, it’s difficult to make a bullish case. Signs that the glut in oil and reversal of the building trend will subside any time soon seems distant.”

The inventory rise was even larger than the 9.9 million-barrel increase reported on Tuesday by industry group the American Petroleum Institute (API). The API report had weighed on prices earlier in the session.

Brent has risen 34 percent from a 12-year low of $27.10 hit on Jan. 20, adding to expectations that further declines may not be on the cards. An analyst at the International Energy Agency said on Tuesday prices appeared to have bottomed.

Crude has collapsed from more than $100 in mid-2014, pressured by excess supply and a decision by the Organization of the Petroleum Exporting Countries to abandon its traditional role of cutting production by itself to boost prices.

After more than a year of failing to agree any steps, OPEC and outside producers have stepped up diplomatic activity to fix the supply glut. Saudi Arabia, Qatar, Venezuela and non-OPEC producer Russia said on Feb. 16 they would freeze output.

The four countries have agreed to meet again in mid-March, Venezuelan Oil Minister Eulogio Del Pino said last week. The location for the talks has yet to be decided, OPEC delegates say.

In an early sign that Moscow will stick to the plan, Russia reported its oil output was little changed in February and oil company Rosneft <ROSN.MM> is even floating the idea of a domestic production cut, two industry sources said.

Saudi Arabia has yet to report its production, but a Reuters survey this week found no sign of an increase in February. <OPEC/O>

(Additional reporting by Barani Krishnan in New York and Osamu Tsukimori in Tokyo; Editing by Dale Hudson and Susan Fenton)

Euro zone, IMF split over how much Greece needs to reform

By Jan Strupczewski

BRUSSELS (Reuters) – Euro zone lenders and the International Monetary Fund disagree over how much more Greece needs to do to reform its economy, a dispute that may delay new payouts and the start of debt relief talks, officials said.

Greece has been kept afloat since 2010 by IMF and euro zone bailouts. The lenders have disagreed in the past, but they have managed to resolve their issues before they got much publicity.

But after Athens had to ask for a third bailout last year, some in the IMF wanted to stay out of yet another program unless they were sure it would get Greece back on its feet.

“The main problem now is disagreement between the institutions, because that will harm the credibility of any solution,” one senior official said. “They must get their act together and agree on a scenario and on policy measures.”

IMF and euro zone officials hope to reach a compromise on Greece in talks this week, before a meeting of euro zone finance ministers on Monday. Senior officials from both sides are to meet for dinner on Wednesday in Brussels to discuss the issue.

Until the euro zone and the IMF agree, they cannot decide if Greece has met the first requirements for the payout of new loans. Nor can the euro zone start discussions with Athens on debt relief that would help make Greece’s huge debt sustainable.

Greece has no major debt redemptions due until July, giving the lenders and Athens time to find a compromise. But the drawn- out talks undermine investor confidence.

“If we now enter a cycle of whether this review will be concluded or not, it will generate the kind of insecurity we more or less had last year … with the loss of confidence and capital flight,” a third official close to the lenders said.

The dispute focuses on what Greece has to do to reach a 3.5 percent primary surplus in 2018 and keep it there so that it no longer has to borrow from the euro zone to remain solvent.

Officials said the IMF had a more cautious outlook than euro zone institutions on Greek economic growth and fiscal performance, as experience showed Athens underperformed targets.

The IMF believes Greece’s primary surplus in 2018 will be around 2 percent with the current reforms. Growth will be about a percentage point lower than forecast by the euro zone. Greece should therefore be more ambitious with reforms, especially with the most politically difficult, pension reform.

REFORMS NOT ENOUGH

Yet Greece’s commitments are spelled out in a memorandum of understanding (MoU) it signed with the euro zone in August. It says the pension reform will deliver savings of 1 percent of gross domestic product in 2016.

The draft reform prepared by Athens does that, but Greece also understood the deal from August a bit differently.

“In summer we promised to do 1 pct GDP of extra measures to be legislated in 2016 but to be implemented in 2017 and 2018. The IMF is asking for even more measures than this, which is very difficult for us to understand,” Greek Finance Minister Euclid Tsakalotos told a hearing in the European Parliament.

“We feel that we have already compromised. I don’t think we have to make a greater compromise … because we are at the end of a recession and … we have already had 11 cuts,” he said.

The IMF was involved in talks on the memorandum, but did not sign off on it and is not formally part of the bailout. It says the numbers don’t add up.

“To reach its ambitious medium-term target for the primary surplus of 3.5 percent of GDP, Greece will need to take measures in the order of some 4-5 percent of GDP,” the IMF’s head of the European department, Poul Thomsen, wrote on Feb 11. “We cannot see how Greece can do so without major savings on pensions.”

The pension reform could be less ambitious and the 2018 primary surplus lower if the euro zone offered Greece greater debt relief, Thomsen said.

That would irk some in the euro zone who have to maintain similar surpluses to keep debt sustainable or who, like the Baltics or Slovakia, find it difficult to justify Greeks getting bigger pensions than their own citizens.

“We should do what we promised in the summer, and the IMF should pressure the EU to make that sustainable (with more debt relief),” Tsakalotos told European parliamentarians.

Another snag is that the IMF wants debt relief to solve the issue once and for all. The euro zone wants a staggered scheme, linked to conditions over time.

While the IMF is not formally part of the third bailout, the euro zone would very much like it to be. But the Fund will not join unless their views align.

The approval of the IMF is also a must for northern European countries like Germany, Austria or Finland, which believe the European Commission is too lenient towards Greece and too optimistic with forecasts.

(Reporting By Jan Strupczewski, additional reporting by Paul Taylor and Francesco Guarascio in Brussels, Gernot Heller in Berlin, editing by Larry King)

Wall Street chalks up strongest day in a month

(Reuters) – Wall Street enjoyed its strongest session in a month on Tuesday, led by financial and technology stocks after encouraging U.S. factory and construction data suggested the world’s biggest economy was regaining momentum.

The S&P 500 closed 2.39 percent higher, leaving the index down 3 percent in 2016 after partly recovering in recent weeks from a steep selloff in January. A rally in Apple shares helped give the Nasdaq Composite its strongest day since August.

While manufacturing activity contracted in February, steadying new orders growth and improving inventories offered signs of stability.

Construction spending in January surged to the highest since 2007, while strong auto sales also boosted sentiment.

The data strengthened expectations the U.S. economy is gaining steam after slowing in the fourth quarter.

“What was the spin since last August? That the Chinese slowdown is going to affect the rest of the world,” said Donald Selkin, chief market strategist at National Securities in New York. “Now we’re seeing there’s virtually no chance we’re going to have a recession.”

Swings in the price of oil have been tightly linked to stock prices in recent months, and on Tuesday they continued their recovery from recent lows, with U.S. crude <CLc1> up 2 percent.

In a sign that investors are becoming more confident, the CBOE Volatility index fell 13.87 percent to its lowest since Dec. 31.

The Dow Jones industrial average surged 2.11 percent to end at 16,865.08 points.

The S&P 500 jumped 46.12 points to 1,978.35 and the Nasdaq Composite climbed 2.89 percent to 4,689.60.

The S&P 500 and the Dow both had their best one-day percentage gain since Jan. 29. The S&P moved back above its 50-day moving average, seen as a sign of improving sentiment.

Nine of the 10 major S&P sectors rose 1 percent or more.

Financials surged 3.54 percent, with Morgan Stanley and Citigroup both rising over 5 percent. The sector is the worst performer this year, down about 9 percent, due partly to fears of debt defaults by energy companies.

The technology sector rose 3.08 percent. Apple gained 3.97 percent, giving the biggest boost to the S&P and the Nasdaq.

Utilities, seen as a safe haven in times of trouble, fell 0.49 percent.

Fiat Chrysler rose 7.15 percent and Ford added 4.64 percent after strong U.S. auto sales in February defied fears of a slowdown after a record 2015.

Tesla Motors dropped 2.91 percent to $186.35 after influential short seller Citron Research predicted the electric car maker would fall to $100 by year-end due to supply and demand problems.

Advancing issues outnumbered decliners on the NYSE by 2,550 to 533. On the Nasdaq, 2,117 issues rose and 690 fell.

The S&P 500 index showed nine new 52-week highs and no new lows, while the Nasdaq recorded 38 new highs and 49 new lows.

About 8.8 billion shares changed hands on U.S. exchanges, in line with the 8.8 billion daily average for the past 20 trading days, according to Thomson Reuters data.

(Additional reporting by Abhiram Nandakumar in Bengaluru; Editing by James Dalgleish and Nick Zieminski)

China to lay off five to six million workers, earmarks at least $23 billion

BEIJING (Reuters) – China aims to lay off 5-6 million state workers over the next two to three years as part of efforts to curb industrial overcapacity and pollution, two reliable sources said, Beijing’s boldest retrenchment program in almost two decades.

China’s leadership, obsessed with maintaining stability and making sure redundancies do not lead to unrest, will spend nearly 150 billion yuan ($23 billion) to cover layoffs in just the coal and steel sectors in the next 2-3 years.

The overall figure is likely to rise as closures spread to other industries and even more funding will be required to handle the debt left behind by “zombie” state firms.

The term refers to companies that have shut down some of their operations but keep staff on their rolls since local governments are worried about the social and economic impact of bankruptcies and unemployment.

Shutting down “zombie firms” has been identified as one of the government’s priorities this year, with China’s Premier Li Keqiang promising in December that they would soon “go under the knife”..

The government plans to lay off five million workers in industries suffering from a supply glut, one source with ties to the leadership said.

A second source with leadership ties put the number of layoffs at six million. Both sources requested anonymity because they were not authorized to speak to media about the politically sensitive subject for fear of sparking social unrest.

The ministry of industry did not immediately respond when asked for comment on the reports.

The hugely inefficient state sector employed around 37 million people in 2013 and accounts for about 40 percent of the country’s industrial output and nearly half of its bank lending.

It is China’s most significant nationwide retrenchment since the restructuring of state-owned enterprises from 1998 to 2003 led to around 28 million redundancies and cost the central government about 73.1 billion yuan ($11.2 billion) in resettlement funds.

On Monday, Yin Weimin, the minister for human resources and social security, said China expects to lay off 1.8 million workers in the coal and steel industries, but he did not give a timeframe.

China aims to cut capacity gluts in as many as seven sectors, including cement, glassmaking and shipbuilding, but the oversupplied solar power industry is likely to be spared any large-scale restructuring because it still has growth potential, the first source said.

DEBT OVERHANG

The government has already drawn up plans to cut as much as 150 million tonnes of crude steel capacity and 500 million tonnes of surplus coal production in the next three to five years.

It has earmarked 100 billion yuan in central government funds to deal directly with the layoffs from steel and coal over the next two years, vice-industry minister Feng Fei said last week.

The Ministry of Finance said in January it would also collect 46 billion yuan from surcharges on coal-fired power over the coming three years in order to resettle workers. In addition, an assortment of local government matching funds will also be made available.

However, the funds currently being offered will do little to resolve the problems of debts held by zombie firms, which could overwhelm local banks if they are not handled correctly.

“They have proposed this dedicated fund only to pay the workers, but there is no money for the bad debts, and if the bad debts are too big the banks will have problems and there will be panic,” said Xu Zhongbo, head of Beijing Metal Consulting, who advises Chinese steel mills.

Factories shut down would have to repay bank loans to avoid saddling state banks with a mountain of non-performing loans, the sources said. “Triangular debt”, or money owed by firms to other enterprises, would also have to be resolved, they added.

Although China has promised to help local banks transfer the bad debts of zombie steel mills to asset management firms, local governments are not expected to gain access to the worker lay-off funds until the zombie firms have actually been shut down and debt issues settled.

($1 = 6.5476 Chinese yuan)

(Additional reporting by Ruby Lian in Shanghai; Editing by Raju Gopalakrishnan)

Factory activity slows worldwide in February despite price discounting

LONDON/SYDNEY (Reuters) – World manufacturing sector growth stagnated in February as falling prices failed to stimulate new orders, pushing factories to trim workforces, and dealing a blow to policymakers who are struggling to stimulate their economies.

Manufacturing output across much of Asia shrank in February while waning throughout Europe and remaining sluggish in the U.S., according to surveys of purchasing managers on Tuesday.

JPMorgan’s Global Manufacturing Purchasing Managers’ Index (PMI), produced with data vendor Markit, slipped to 50.0 last month, right on the level that separates growth from contraction, and down from 50.9 in January.

“Inflows of new business and production volumes barely rose, while the trend in international trade deteriorated,” said David Hensley, a director at JPMorgan. “Market conditions will need to improve in the short run if global manufacturing is to avoid falling back into contraction.”

The global PMI combines survey data from countries including the United States, Japan, Germany, France, Britain, China and Russia.

“If you were looking for evidence of manufacturing growth stabilising then this isn’t it. There were a couple of low spots that are quite surprising,” said Philip Shaw at Investec.

“(But) to get a fuller picture of what is going on we will have to see evidence from the service sector.” Monthly service industry surveys are due later this week.

Tuesday’s downbeat data may sharpen the focus of officials from the world’s leading economies who declared at a weekend G20 meeting they needed to look beyond ultra-low rates and printing money to reanimate growth.

ASIAN FACTORY ACTIVITY CONTRACTS

Chinese manufacturing suffered a seventh straight month of contraction in February.

China’s official Purchasing Managers’ Index (PMI) stood at 49.0 in February, down from the previous month’s reading of 49.4 and below the 50-point mark that separates growth from contraction on a monthly basis.

A private survey also showed China’s factories shed jobs at the fastest rate in seven years in February, raising doubts about the government’s ability to reduce industry overcapacity this year without triggering a sharp jump in unemployment.

The Caixin/Markit China Manufacturing Purchasing Managers’ Index (PMI) fell to 48.0 in February from January’s 48.4.

Sluggish demand and years of overexpansion fueled by debt have weighed on China’s manufacturers, leaving many with large amounts of idle capacity and helping to drag China’s broader economic growth to 25-year lows.

Activity in China’s services industry expanded in February but at a slower pace than in the previous month. The official non-manufacturing Purchasing Managers’ Index (PMI) stood at 52.7 in February, down from the previous month’s reading of 53.5.

“The big question is do we see a pick up in the second quarter once China does pass through the seasonal disruption, but at the moment there is little hope for that to happen in any significant way,” said Angus Nicholson at brokerage IG.

On Monday, China’s central bank announced it was cutting the amount of cash banks must hold as reserves for the fifth time since February 2015 yet analysts expect it will have to do more, including cutting interest rates this year.

“Risks to our 6.0 percent baseline GDP growth forecast in 2016 remain tilted to the downside,” analysts at Barclays Capital wrote to clients.

Japan’s factories saw their weakest growth in eight months, while Indonesia and Malaysia contracted for the 17th and 11th month respectively, according to private data vendor Markit.

The Markit/Nikkei Final Japan Manufacturing Purchasing Managers Index (PMI) fell to 50.1 in February from 52.3 in January.

India was perhaps the only standout in Asia, and for merely maintaining modest growth driven by cutting prices to attract demand.

EUROPEAN MANUFACTURING EXPANDS AT SLOWER PACE

Euro zone manufacturing activity expanded at its weakest pace for a year last month as deep price discounting failed to put a floor under slowing order growth.

Markit’s manufacturing PMI for the euro zone dropped to 51.2 from January’s 52.3.

Although the overall expansion was slightly better than previously thought, Markit’s euro zone PMI will make gloomy reading for the European Central Bank, coming little more than a week before its next policy setting meeting.

“Concerns are growing that the region is facing yet another year of sluggish growth in 2016, or even another downturn. Lacklustre domestic demand is being compounded by a worsening global picture,” said Chris Williamson, Markit’s chief economist.

An additional cut to the ECB’s deposit rate is almost certain on March 10 and there is an even chance the central bank increases the size of its 60 billion euro a month bond buying programme, a Reuters poll found last month. [ECILT/EU]

German manufacturing hardly grew in February with activity falling to its lowest in 15 months.

British factories had their weakest month in nearly three years in February as demand at home slowed and export orders fell.

“The near-stagnation of manufacturing highlights the ongoing fragility of the economic recovery at the start of the year and provides further cover for the Bank of England’s increasingly dovish stance,” Rob Dobson, a senior economist at Markit, said.

U.S. FACTORIES SLUGGISH

U.S. manufacturing activity slowed for a fifth straight month in February, but there were signs the embattled sector was stabilizing, with new orders growth steady and inventories improving.

Markit’s final reading of its U.S. manufacturing sector PMI for Feb was 51.3, down from 52.4 in January. Markit’s manufacturing output index for Feb fell to 51.2 from 53.2 in January and was the lowest since October 2013.

An alternative reading from the U.S. Institute of Supply Management (ISM) showed factory activity contracted in February but at a slower pace than the previous month. ISM said its U.S. PMI rose to 49.5 from 48.2 the month before.

Canadian factory activity was little changed in February though the industry shrank for the seventh month in a row.

Canada was in a mild recession in the first half of 2015 and has struggled to regain momentum as oil prices continue to fall.

Brazil’s manufacturing downturn accelerated in February as higher inflation increased costs across the production chain, suggesting the country’s recession continued to worsen in the first months of 2016.

Brazil’s economy is headed to its worst recession in more than a century, and will return to its pre-crisis size only in 2019, according to a Reuters poll.

However, growth in Mexico’s manufacturing sector accelerated in February to its fastest pace in nine months despite uneven U.S. demand for Mexican factory exports and tanking oil prices which have hit economic growth in Latin America’s no. 2 economy.

(Additional reporting by Nathaniel Taplin in Shanghai, Stanley White in Tokyo, Michael Nienaber in Berlin, William Schomberg in London, Silvio Cascione in Sao Paulo, Leah Schnurr in Ottawa, Chuck Mikolajcak in New York and Alexandra Alper in Mexico City; editing by Richard Borsuk and Clive McKeef)

S&P 500 slides below closely watched threshold as Wall Street dips

(Reuters) – Wall Street ended lower on Monday, falling out of lockstep with oil prices as energy and healthcare shares lost ground.

U.S. indexes gave up early gains despite a 3 percent rally in U.S. oil prices. Stocks and oil have been strongly correlated in recent months as crude prices tanked to decade lows, and their movements in opposite directions during the session was notable to investors.

Following gains last week, technical trading dominated the action as the S&P 500 fell below its 50-day moving average, a sign seen as bad for sentiment. The index broke above the average on Thursday for the first time this year.

“If stocks rally up to a declining 50-day average, people will sell against that,” said Michael Matousek, head trader at U.S. Global Investors Inc in San Antonio. “From a psychological standpoint, you have that overhead resistance at that level.”

Nine of the 10 major S&P sectors fell, led by a 1.58 percent decline in the healthcare sector, with Amgen Inc down 3.60 percent.

The energy index fell 1.16 percent despite a 3 percent increase in the price of U.S. oil amid signs that a 20-month selloff could be hitting bottom.

The S&P utilities index was the lone gainer, up 0.2 percent and helped by a 1.34 percent increase in Edison International.

The Dow Jones industrial average fell 0.74 percent to 16,516.5 points and the S&P 500 lost 0.81 percent to 1,932.22.

The Nasdaq Composite dropped 0.71 percent to 4,557.95.

For the month, the Dow rose 0.3 percent, the S&P 500 lost 0.4 percent and the Nasdaq lost 1.2 percent.

Strong data, including improving consumer spending, released last week suggested the U.S. economy was recovering better than expected, raising expectations that the Federal Reserve will hike interest rates this year.

After the bell, Workday fell 1 percent as the cloud-computing company reported a bigger quarterly net loss, hurt by higher spending on sales, marketing and product development.

Shares of Endo International slumped 21 percent after the pharmaceutical company’s revenue forecast missed estimates.

Valeant tumbled 18.41 percent after the Canadian drugmaker said its chief executive would return from medical leave and it delayed the release of its quarterly results.

Icahn Enterprises rose 3.68 percent after the activist investor offered to buy the rest of Federal Mogul. Shares of the auto parts maker soared 45.78 percent.

Although the main indexes closed lower, advancing issues outnumbered decliners on the NYSE by 1,593 to 1,453. On the Nasdaq, 1,545 issues fell and 1,283 advanced.

The S&P 500 index showed seven new 52-week highs and two new lows, while the Nasdaq recorded 38 new highs and 46 lows.

About 8.0 billion shares changed hands on U.S. exchanges, above the 8.9 billion daily average for the past 20 trading days, according to Thomson Reuters data.

(Additional reporting by Abhiram Nandakumar in Bengaluru; Editing by Dan Grebler and Meredith Mazzilli)

Wall Street ends lower in feeble end to strong week

(Reuters) – Wall Street ended lower on Friday in a feeble end to another week of strong gains after concerns about the timing of future interest rate hikes offset gains in materials and energy stocks.

The S&P utility sector led declines, down 2.73 percent. The materials index was the biggest winner and was up for the third straight day with a 1.35 percent rise.

In a break from a trend seen for much of this year, energy shares clung to gains even after a rally in crude oil prices faded, with ConocoPhillips up 3.21 percent.

The Commerce Department said gross domestic product expanded at a 1-percent annual rate in the fourth quarter, an upward revision from its previous estimate of 0.7 percent growth. The data exacerbated concerns that the U.S. Federal Reserve could raise rates sooner rather than later. The economy grew at a rate of 2.0 percent in the third quarter.

Federal funds futures implied traders see a 36-percent chance of the Fed raising rates in June and 53-percent chance in December, both above Thursday’s levels, according to CME Group’s FedWatch program.

Following a steep selloff in January and a partial recovery in the past two weeks, the S&P 500 is just above its 50-day moving average for a second session, which some traders believe is a sign of improving sentiment.

But investors, shell-shocked by months of volatility, remained cautious, with decade-low oil prices, rate hikes and a potential slowdown in China’s economy still very much on their minds.

“I think we’re near the top of the roller coaster again. All of the things that made the market go wild in January are still up in the air,” said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago.

In other U.S. data, consumer spending rose strongly in January, while underlying inflation picked up by the most in four years.

The Dow Jones industrial average fell 0.34 percent to end at 16,639.97 points.

The S&P 500 lost 0.19 percent to finish at 1,948.05 after spending much of the day in positive territory.

The Nasdaq Composite added 0.18 percent to 4,590.47.

For the week, the Dow gained 1.5 percent, the S&P rose 1.6 percent and the Nasdaq added 1.9 percent. The S&P 500 is now down about 5 percent for 2016.

Shares of J.C. Penney jumped 14.71 percent after the department store operator reported better-than-expected revenue.

Baidu rose 9.87 percent after the Chinese internet search firm posted quarterly results that impressed Wall Street.

Advancing issues outnumbered decliners on the NYSE by 1,894 to 1,168. On the Nasdaq, 1,780 issues rose and 973 fell.

The S&P 500 index showed 21 new 52-week highs and no new lows, while the Nasdaq recorded 43 new highs and 47 new lows.

About 7.9 billion shares changed hands on U.S. exchanges, below the 8.9 billion daily average for the past 20 trading days, according to Thomson Reuters data.

(Additional reporting by Abhiram Nandakumar in Bengaluru; Editing by Leslie Adler and Nick Zieminski)