NEW$ & VIEW$ (2 JULY 2013)

U.S. Factories Buck Global Growth Slowdown

The Institute for Supply Management on Monday said its broad index, in which any reading above 50 indicates expansion, rose to 50.9 last month from 49 in May. The report showed growth in new orders, production and inventories. However, in a potentially troubling sign for Friday’s jobs report, the employment index contracted for the first time since September 2009.

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The JPMorgan Global Manufacturing PMI, produced by Markit from its worldwide business surveys, was unchanged at 50.6 in June. At a level close to the nochange mark of 50, the index signalled a continuation of the near-stagnant trend recorded throughout the first half of the year.

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While the near-stagnation is an improvement on the mild rate of decline seen throughout much of the second half of last year, the survey data indicate that the underlying trend in the global manufacturing economy remains well below the trend rate of approximately 5% per annum seen in the years leading up to the financial crisis, growing instead at an annual rate of just 1-2%.

imageHowever, the unchanged reading masks diverging manufacturing performances by country, with the top of the manufacturing PMI rankings dominated by developed countries.

The top of the table was in fact dominated by developed countries, with the UK followed closely by Japan, where the PMI came in at 52.3 and signalled the fastest rate of improvement since February 2011. Meanwhile, the Markit US PMI dipped to an eight month low, which was in turn linked to the steepest drop in export orders for four years. The US
nevertheless ranked third in the PMI rankings. Part of the global export weakness reflected theongoing recession in the eurozone. However,  although euro countries continued to dominate the lower end of the PMI rankings, the single-currency area’s manufacturing PMI rose to 48.8 in June, indicating that the region is contracting at the slowest rate for 16
months. Output and new orders more or less stabilised, following big improvements in the survey data for Spain, Italy and France in recent months, and offsetting a slight deterioration in the German survey numbers.

In Asia, the ongoing improvement in the Japanese PMI, linked to rising domestic and export orders, contrasted with the PMI for China hitting a nine-month low of 48.2.

The increased rate of decline in China came as the country’s manufacturers reported the steepest monthly fall in export orders for four years. China sank to third from the bottom of the PMI ranking table as a result. Taiwan’s manufacturing sector meanwhile contracted for a second successive month, the PMI at 49.5, while the PMI for South Korea also dipped below the 50-line for the first time in five months with a reading of 49.4. At 46.4, the PMI for Vietnam registered the steepest
downturn for almost a year, and at 51.0 the PMI indicated the weakest expansion for four months in Indonesia. Of all the countries surveyed in June, the scale of the downturn seen in Vietnam was only exceeded by that recorded in Greece.

In India, the PMI ticked higher to 50.3, but nevertheless indicated the second-weakest expansion for over four years as orders fell for the first time since March 2009.

Elsewhere, the PMI for Mexico fell to 51.3, its lowest since data collection began in early-2011, and Brazil’s PMI was unchanged on May’s seven-month low of 50.4, with weakness fuelled in both bases by increased
rates of decline of exports. Russia bucked the deteriorating trend seen in other emerging markets, with rising domestic orders helping push the PMI to a four-month high of 51.7.

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(Business Insider)

Air freight market struggled to grow in May: IATA

The international air freight market grew by a mere 0.1 percent in May compared to April, and was up 0.8 percent from May 2012, as slowing business confidence and weaker Asian trade undermined cargo demand, the International Air Transport Association (IATA) said on Tuesday.

Construction Spending Hits 3½-Year High

Total U.S. construction spending rose by 0.5% in May from the prior month to a seasonally adjusted annual rate of $874.9 billion, the Commerce Department said Monday. That was the highest level since September 2009.

The rise was driven by residential construction, which rose 1.2% from a month earlier and 22.7% from a year ago. Private residential construction, which excludes public housing, rose to the highest level since October 2008.

Meantime, spending on construction of public buildings—including, state, local and federal government structures—rose 1.8% in May from April, but was down 4.7% from a year ago.

Household Incomes Languish

Four years into recovery, parts of the economy have strengthened but real median household income remains below prerecession levels. The Household Income Index came in at 92.2 in May, below the 97 of June 2009, when the recession ended. It is also lower than the 98.8 reading seen in December 2007, when the recession began. In May, real median annual household income was $51,500.

Clouds Over Canada Damp Loonie

The Canadian dollar, also known as the “loonie,” has dropped 5% against the U.S. dollar since mid-May amid a broad downdraft in currencies of big commodity-exporting countries. On Friday, it hit its lowest level since October 2011. (…)

The combination of lower global commodity prices and nervousness about housing has become a drag on growth, which the Bank of Canada forecasts will slow to 1.5% this year from 1.8% in 2012.

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CHINA

 

China Home Prices Jumped in May

Housing prices in China’s 70 major cities in May registered their highest annual growth rate in more than two years, at 5.3%, which could increase pressure on cities to enforce the government’s property-cooling measures.

Average prices of newly built homes in China’s 70 major cities rose 5.3% in May compared with a year earlier, up from a 4.3% rise in April, according to calculations by The Wall Street Journal based on National Bureau of Statistics data. That is the highest reading since March 2011, when prices rose 5.3% as well. On a month-to-month basis, the increase in prices was 0.9%, the same as in April.

Prices rose in 69 cities in May compared with a year earlier, up from 68 cities in April. But there has been a moderation on a month-to-month basis, with prices of new homes in 65 of 70 cities rising in May from the month before, down from 67 cities in April.

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Inside China’s Bank-Rate Missteps

A rare peek into the actions of China’s leaders in a month when a Chinese cash crunch spooked global investors shows a leadership falling short in its struggle to redirect China’s economy.

The People’s Bank of China instigated the cash shortages that catapulted Chinese interest rates to nosebleed highs during the past two weeks because the central bank felt it had no alternative amid what it saw as out-of-control credit growth, according to an internal document reviewed by The Wall Street Journal.

But by failing to make that clear—at a time when worries about slowing Chinese demand had already scared away some foreign capital, and as signals from the U.S. Federal Reserve also were redirecting global cash flows—the Chinese central bank inadvertently contributed to a surge in global market anxiety.

(…) Chinese leaders are blaming market speculation and what the authorities view as overly aggressive media coverage for the problems. Some critics, however, say the fault lies partly with clumsy maneuvering by the central bank and the senior officials who oversee it, saying it exposed their inexperience in anticipating how markets—domestic and foreign—would interpret their actions. (…)

According to a previously undisclosed summary of a PBOC internal meeting on June 19, the central bank was especially concerned that in the first 10 days of June, Chinese banks increased lending by 1 trillion yuan ($163 billion)—an amount the central bank said “had never been seen in history.” About 70% of that amount consisted of short-term notes that mostly don’t show up on banks’ balance sheets—making it easier for the banks to get around regulatory lending restrictions-—rather than lending the money to promising companies or projects.

The PBOC interpreted banks’ actions to mean that “some banks thought the government would launch stimulus policies as the economy slows, and positioned themselves in advance,” according to the summary. (…)

Spanish unemployment falls for fourth month Temporary hiring stepped up for holiday season

The number of Spaniards claiming unemployment benefits fell by more than 127,000 last month, a record drop for the month of June, as hotels and other businesses exposed to the holiday season stepped up temporary hiring.

Spain’s labour ministry said the number of registered unemployed now stood at 4.76m, down 2.6 per cent from the previous month. It was the fourth consecutive month that saw a drop in registered unemployment.

High five  However, economists warned that the drop in registered unemployment was likely to be a fleeting phenomenon – and that there was no sign yet of a genuine turnround in the labour market. Their case was bolstered by news that the seasonally adjusted number of registered unemployed in June rose by 996 to 4.88m. The number of workers on permanent contracts also fell compared with both the previous year and the month before, another sign that Spain has yet to enter a new phase of lasting job growth. (…)

The discrepancy between the registered employment data published monthly by the labour ministry and the more closely watched survey released by the statistics office has long been a topic of controversy in Spain. Experts say the difference is largely the result of the fact that many unemployed have little incentive to register with employment offices, for example because they are too young to claim benefits.

Auto  AUTOMOBILES

 

France, Spain, Italy Drag on Car Market

Europe’s car market is struggling to get out of reverse gear with sharp declines in new-car registrations in France, Spain and Italy in June.

In France, registrations fell 11% in the first half of the year, putting the proxy for new-vehicle sales on course for their lowest level since 1997.

The overall French market for passenger cars fell 9% in June from a year before. Adjusted for an equivalent number of working days, the year-over-year decline in June would have been 4.4%.

In Spain, new-car registrations slid 4.9% in the first half.

Italy saw a drop similar to that of France, with registrations down 10% at 731,203 units between January and June.

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Germans Let Cars Age as Consumers Halt Buying in Crisis

Cars on German roads are older than they’ve ever been as consumers balk at replacing aging models with new ones amid Europe’s sovereign-debt crisis.

Registrations of new models in the country slumped 4.7 percent in June, the fifth decline this year, leading to an 8.1 percent drop for the first half of 2013 to 1.5 million vehicles, according to data released today from Germany’s motor vehicle office, KBA.

The lack of buying meant cars are 8.7 years old on average, a new high and a full year older than the pre-crisis level in 2007, the VDA, Germany’s auto-industry association, said today.

Maruti Posts Decline in Sales

Maruti Suzuki, the India’s largest car maker by sales, posted its sixth straight drop in monthly sales in June, as rising fuel prices and high loan rates continued to weigh on purchasing decisions by customers.

Total sales at Maruti fell 13% in June to 84,455 vehicles from 96,597 a year earlier. Sales in the local market dropped 7.8% to 77,002 vehicles, while exports plunged 43% to 453 vehicles.

Maruti—the biggest overseas unit of Japan’s Suzuki Motor Corp.–is considered the benchmark of the vitality of India’s car market as the company sells small cars, which comprise about three fourth of overall car sales in Asia’s third-biggest economy.

Revitalized Car Industry Cranks Up U.S. Exports

The U.S. auto industry, in tatters just four years ago, is emerging as an export powerhouse, driven by favorable exchange rates and labor costs in a trend experts say could drive business for many years.

(…) More competitive labor costs and restructurings that closed unproductive factories have made American auto plants tougher competitors in the global market. Some are also looking at U.S. production as a way to serve booming emerging markets. (…)

U.S.-made cars are being shipped to China, the world’s largest auto market, Saudi Arabia, the second largest destination for U.S.-made cars behind Germany, and South Korea, which now has a free-trade agreement with the U.S. (…)

Labor agreements paved the way for the two auto makers to hire thousands of workers who earn $14 an hour, about half that of veteran workers. Ford, which restructured without government intervention, got much the same terms from the United Auto Workers union as its crosstown rivals.

The leaner U.S. industry also contrasts with Europe and Japan, which are struggling with too much capacity, rising labor costs and shrinking domestic demand.

The average cost of a U.S. auto worker’s pay and benefits was $38 an hour in 2011, compared with $60 in Germany and $37 in Japan, according to the Center for Automotive Research. That’s up only $3 an hour from 2007. In Germany, the per-hour compensation has jumped $14 in the same period; in Japan, it is up $12. These trends have encouraged German and Japanese auto makers to boost exports from their U.S. factories. (…)

Forces Converge in Emerging Markets

Countries from Turkey to Brazil to China are getting hit by a brutal combination of events, as economies slow, investors pull out cash and protesters take to the streets—all fresh reminders that these markets can be difficult places to try to make money.

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