Chinese factory activity shrinks for fourth month as trade woes deepen

Growing trade frictions with the US and slowing global demand are wreaking havoc on China’s factories, with export orders falling for the 15th straight month. (AP)
Updated 31 August 2019

Chinese factory activity shrinks for fourth month as trade woes deepen

  • Beijing tipped to cut major lending rates amid rising job losses, falling export orders and weakening domestic demand

BEIJING: Factory activity in China shrank in August for the fourth month in a row as the US ramped up trade pressure and domestic demand remained sluggish, pointing to a further slowdown in the world’s second-largest economy.

Persistent weakness in China’s vast manufacturing sector could fuel expectations that Beijing needs to roll out stimulus more quickly, and more aggressively, to weather the biggest downturn in decades.

The Purchasing Managers’ Index (PMI) fell to 49.5 in August, China’s National Bureau of Statistics said on Saturday, versus 49.7 in July, below the 50-point mark that separates growth from contraction on a monthly basis.

A Reuters poll showed analysts expected the August PMI to stay unchanged from the previous month.

The official factory gauge showed growing trade frictions with the US and cooling global demand continued to wreak havoc on China’s exporters.

Export orders fell for the 15th straight month in August, although at a slower pace, with the sub-index picking up to 47.2 from the 46.9 reading recorded in July.

Total new orders — from home and abroad — also continued to fall, indicating domestic demand remains soft, despite a flurry of growth-boosting measures over the past year.

“Frontloading of exports to the US ahead of higher tariffs supported trade and overall activity growth, but this effect will likely fade in the next few months,” said analysts at Goldman Sachs in a note.

Manufacturers in consumption-oriented industries such as the auto sector have been especially vulnerable. Carmakers including Geely and Great Wall have slashed expectations for sales and profits.

The data showed that activity at medium and small-sized firms contracted, even as large manufacturers, many backed by the government, managed to expand in August.

Factories continued to shed jobs in August amid the uncertain business outlook. The employment sub-index dropped to 46.9, compared with 47.1 in July.

August brought a dramatic escalation in the bitter year-long Sino-US trade row, with President Donald Trump announcing early in the month that he would impose new tariffs on Chinese goods from Sept. 1, and China letting its yuan currency sharply weaken days later.

After Beijing hit back with retaliatory tariffs, Trump said that existing levies would also be raised in coming months. The combined moves now effectively cover all of China’s exports to the US.

Trump said late on Friday that trade teams from both sides continue to talk and will meet in September, but tariff increases on Chinese goods set to go into effect on Sunday will not be delayed.

The US president had said earlier in the week that China wants to reach a deal “very badly,” citing what he described as increasing economic pressure on Beijing and job losses.

But most observers are highly doubtful of an end to the dispute any time soon, and some analysts have recently cut economic growth forecasts for China in coming quarters.

The sudden deterioration in trade ties has prompted speculation over whether China needs to roll out more forceful measures to keep growth from sliding below 6 percent this year, the bottom end of its target range of around 6-6.5 percent.

Analysts widely expect Beijing will cut some of its major lending rates in September for the first time in four years to help stabilise growth.

But sources had told Reuters before the latest trade escalations that big benchmark rate cuts were considered a last resort since policymakers worry that such a move could fuel a further build-up in debt and squeeze banks’ profit margins, heightening risks to the financial sector.

So far, Beijing has relied on a combination of fiscal stimulus and monetary easing to deal with the economic slowdown, including hundreds of billions of dollars in infrastructure spending and tax cuts for companies.

But analysts note infrastructure investment growth has remained subdued despite the earlier pump-priming measures, underlining the need for additional support.

Growth in China’s services sector activity picked up for the first time in five months in August, with the official numbers from a separate business survey rising to 53.8 from 53.7 in August.

Beijing has been relying on a strong services sector to cushion some of the economic impact from trade uncertainties and sluggish manufacturing activities.

However, despite the higher overall figure, activity in the property industry contracted, the statistics bureau said.

The services sector has been propped up by Chinese consumers’ rising wages and robust spending power in recent years. However, the sector softened late last year amid a broader slowdown.


NYSE begins move to delist Chinese state oil producer CNOOC

Updated 16 min 23 sec ago

NYSE begins move to delist Chinese state oil producer CNOOC

  • The Trump administration had last year moved against certain Chinese companies that Washington said were owned or controlled by the Chinese military in an effort to ramp up pressure on Beijing

The New York Stock Exchange on Friday decided to begin formal delisting of Chinese state oil giant CNOOC Ltd. based on an update to an executive order signed by former US President Donald Trump in November last year.
Prohibitions on CNOOC will take effect on March 9, 60 days after the company was added to the list that prohibits US investments, according to a guidance issued by the Treasury Department on Jan. 27.
However, the exchange did not disclose a target date for the completion of the delisting.
The Trump administration had last year moved against certain Chinese companies that Washington said were owned or controlled by the Chinese military in an effort to ramp up pressure on Beijing.
The NYSE said CNOOC has the right to appeal the delisting decision. The exchange will include any appeal it receives in its application to the US Securities and Exchange Commission, which will be submitted on completion of all procedures.
CNOOC could not be immediately reached for comment.


McDonald’s considers selling part of digital startup Dynamic Yield

Updated 31 min 9 sec ago

McDonald’s considers selling part of digital startup Dynamic Yield

  • Dynamic Yield is run as a standalone company within McDonald’s
  • The startup, whose customers include IKEA and Lacoste, has businesses with more than 300 brands globally

McDonald’s Corp. is exploring selling part of Israeli artificial intelligence startup Dynamic Yield Ltd, which it acquired two years ago in an attempt to boost online marketing efforts, the company said on Friday.
Dynamic Yield, run as a standalone company within McDonald’s, personalizes customers’ experience by changing offerings on the chain’s Drive Thru menu displays, according to time of day, weather, customer traffic and trending choices.
The startup, whose customers include IKEA and Lacoste, has businesses with more than 300 brands globally.
“The potential sale of the non-McDonald’s part of our business has been discussed from the outset and now feels like the right time to explore that possibility,” its chief executive, Liad Agmon, said in a statement.
The Chicago-based hamburger chain said it was considering a sale of only the part of Dynamic Yield that works with other companies with no timeline set for the deal.
McDonald’s said Dynamic Yield’s technology was used across many markets, adding, “We’re continuing to deploy to more.”


SoftBank says deal reached with WeWork founder, directors

Updated 27 February 2021

SoftBank says deal reached with WeWork founder, directors

  • Tokyo-based SoftBank is a majority shareholder in WeWork, whose bumpy results, especially amid the coronavirus pandemic, has dented SoftBank’s financial results
  • SoftBank says WeWork holds potential, especially in markets like Japan

TOKYO: SoftBank Group Corp. has reached a settlement in a US legal dispute with directors of office space-sharing venture WeWork Inc. and its founder Adam Neumann, the Japanese technology company said Saturday.
The terms of the settlement in the Delaware Court of Chancery were not disclosed. The statement said the agreement was not yet final. Other details were not immediately available.
The wrangling began more than a year ago after SoftBank acquired shares in WeWork, which was suffering after its failed IPO. But some investors and Neumann were not satisfied with the monetary deals offered by SoftBank.
“With this litigation behind us, we are fully focused on our mission to reimagine the workplace and continue to meet the growing demand for flexible space around the world,” said Marcelo Claure, executive chairman of WeWork and SoftBank Group International chief executive.
Tokyo-based SoftBank is a majority shareholder in WeWork, whose bumpy results, especially amid the coronavirus pandemic, has dented SoftBank’s financial results.
SoftBank says WeWork holds potential, especially in markets like Japan, where office space is costly and workers’ commutes tend to be long. SoftBank also invests in artificial intelligence, Internet services, sustainable energy and IoT.


Investors weigh new stock leadership as broader market wobbles

Updated 27 February 2021

Investors weigh new stock leadership as broader market wobbles

  • Tech and momentum stocks helped drive returns in 2020 “when everyone was locked down and all they had was their computer”

NEW YORK: A shakeup in stocks accelerated by the past week’s surge in Treasury yields has investors weighing how far a recent leadership rotation in the US equity market can run, and its implications for the broader S&P 500 index.
Moves this week further spurred a shift that has seen months-long outperformance for energy, financial and other shares expected to benefit from an economic recovery, while a climb in Treasury yields weighed on the technology stocks that have led markets higher for years.
The two-track market left the benchmark S&P 500 down for the week, and sparked questions about whether it could sustain gains going forward if the tech and growth stocks that account for the biggest weights in the index struggle.
So far this year, the S&P 500, which gives more influence to stocks with larger market values, is up 1.5 percent, while a version of the index that weights stocks equally is up 5 percent.
“That just tells us the gains are less narrow, more companies are participating, and I think that’s healthy,” said James Ragan, director of wealth management research at D.A. Davidson.
The focus on market leadership comes as investors are weighing whether the S&P 500 is due for a significant pullback after a 70 percent run since March, with the rise in long-dormant yields the latest sign of trouble for equities as it means bonds are more serious investment competition. The yield on the 10-year US Treasury note this week jumped to a one-year peak of 1.6 percent before pulling back.
Economic improvement will be in focus in the coming weeks, including the monthly US jobs report due next Friday, as will the country’s ability to ensure widespread coronavirus vaccinations, especially as new variants emerge.
Tech and momentum stocks helped drive returns in 2020 “when everyone was locked down and all they had was their computer,” said Jack Ablin, chief investment officer at Cresset Capital Management. “Now it seems with the vaccines, the stimulus and the prospect of reopening that we are looking out toward a recovery phase.”
The shift in the market this week is building on one that was fueled in early November, when Pfizer’s breakthrough COVID-19 vaccine news generated broad bets on an economic rebound in 2021.
Among the moves since that point: the S&P 500 financial and energy sectors are up 29 percent and 65 percent, respectively, against a nearly 9% rise for the benchmark index and 7 percent rise for the tech sector. The Russell 1000 value index has gained 16.5 percent against a 4.3 percent climb for its growth counterpart, while the smallcap Russell 2000 is up 34 percent.
“You definitely are seeing the reopening trade that has pretty much come alive here,” said Gary Bradshaw, portfolio manager of Hodges Capital Management.
Despite the gains, there remains “plenty of room for the reflation trade to run from a valuation perspective,” Lori Calvasina, head of US equity strategy at RBC Capital Markets, said in a report this week. RBC is “overweight” the financials, materials and energy sectors.
Rising rates tend to be favorable for more cyclical sectors, David Lefkowitz, head of Americas equities at UBS Global Wealth Management, said in a note, with financials, energy, industrials and materials showing the strongest positive correlations among sectors with 10-year Treasury yields.
Still, how long the market’s reopening trade lasts remains to be seen. Investors may be reluctant to stray from tech and growth stocks, especially with many of the companies expected to put up strong profits for years.
Any setbacks with the economy or with efforts to quell the coronavirus could revive the stay-at-home stocks that thrived for most of 2020.
And with a GameStop-fueled retail-trading frenzy taking hold this year, banks and other stocks in the reopening trade may fail to draw the same attention from amateur investors as stocks such as Tesla, said Rick Meckler, partner at Cherry Lane Investments.
“There isn’t the pizzazz to those stocks,” Meckler said. “There rarely is a potential for stocks to make the kind of moves that big tech growth stocks have made.”


IMF urges Tunisia to cut wage bill and energy subsidies

Updated 27 February 2021

IMF urges Tunisia to cut wage bill and energy subsidies

  • The IMF said in statement that monetary policy should focus on inflation by steering short term interest rates, while preserving exchange rate flexibility

TUNIS: The International Monetary Fund urged Tunisia on Friday to cut its wage bill and limit energy subsidies to reduce a fiscal deficit, putting more pressure on the fragile government amid a severe financial and political crisis.
With the coronavirus pandemic, political infighting and protests since last month over social inequality, it is a time of unprecedented economic hardship in the North Africa country that ran a fiscal deficit of 11.5 percent of GDP in 2020.
The IMF said in statement that monetary policy should focus on inflation by steering short term interest rates, while preserving exchange rate flexibility.
Tunisia’s 2021 budget forecasts borrowing needs $7.2 billion including about $5 billion in foreign loans. It puts debt repayments due this year at 16 billion dinars, up from 11 billion dinars in 2020.
The IMF said the service salary bill is about 17.6% of GDP, among the highest in the world.