Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


Growth gloom grows at start of third quarter
Copyright The Financial Times Limited 2010
Published: July 1 2010 07:39 | Last updated: July 1 2010 16:41
http://www.ft.com/cms/s/0/bca9cc0e-84cc-11df-adfa-00144feabdc0.html


Thursday 16:35 BST. Bulls have started the third quarter as they finished the second: with a trip to the slaughterhouse.

The FTSE All-World equity index is down 1.1 per cent and commodities prices are sharply lower as investors, worried about the prospects for global economic growth following news that manufacturing growth in China is slowing, continue to take risk off the table. “Haven” government bond yields have struck fresh multi-month lows.

It is noticeable, however, that the dollar, usually also considered a haven in times of such stress, is having a bout of weakness, following poor US home sales and weekly initial claims data.

The S&P 500 in New York is down 1.1 per cent.

Investors hoping to escape the two main factors that delivered such a turbulent close to the first half of the year – double-dip concerns and the interlinked eurozone fiscal woes – have been disappointed.

Wednesday night’s warning by Moody’s of a possible downgrade to Spain’s sovereign debt was still able to shock, in spite of the credit rating agency’s move being expected and tardy. Markets are also keeping an alert ear for any more chatter on eurozone banks’ stress tests.

At least Wednesday’s well-received result of the ECB’s three-month liquidity offer presaged a straightforward expiry of its €442bn loan programme today. And a reasonably decent €3.5bn auction of Spanish five-year notes today has also calmed nerves.

But it is fears of a double dip in the US that has really spooked traders later in the session, as consumer-focused data continues to raise alarms. Friday’s important non-farm payrolls data for June looms large.

● Asia. The FTSE Asia-Pacific index fell 1.1 per cent as traders reacted to the China PMI numbers and Wall Street’s drop overnight.

Sydney fell 1.4 per cent as lower commodities and uncertainty about Canberra’s tax regime hurt miners. The Nikkei 225 in Tokyo lost 2 per cent, with exporters suffering, as usual, and in spite of a better-than-expected reading of the Tankan corporate confidence survey. Hong Kong was closed for for a public holiday, but Shanghai fell 1 per cent.

● Europe. Exchanges are under pressure despite manufacturing surveys for the region that pointed to continued growth and with the Spanish bond auction salving fears about sovereign borrowing.

The FTSE Eurofirst 300 is down 2.5 per cent, with all sub-sectors lower. Madrid’s Ibex, where financials remain a concern, was earlier down about 2 per cent but is now off just 1.5 per cent. London’s FTSE 100 closed down 2.3 per cent, even though it was supported by further gains for BP.

● Forex. The complex has partially divorced itself from the standard “risk-on/risk-off” pavlovian response. The euro is up 1.8 per cent versus the dollar at $1.2449 and up 0.3 per cent against the yen to Y108.42.

The dollar has tended to rally after weaker US data on haven flows. But so far today the badly-received initial claims and house sale numbers has seen the buck slide, and it is down 1.4 per cent on a trade-weighted basis.

● Debt. US Treasuries are seeing demand as stocks slump. The yield on the 10-year note is down 5 basis point at 2.89 per cent, a fresh 14-month low.

The Spanish bond auction result was greeted by a fall in Bund futures as investors pulled out of the eurozone’s haven benchmark. Spanish 10-year bond yields are down 10 basis points to 4.59 per cent as funding fears recede.

● Commodities. The complex is again struggling as one of its favourite themes – demand from China – weighs on sentiment. The Reuters-Jefferies CRB basket is down 1.7 per cent, with oil off 1.5 per cent at $72.18 a barrel.

Gold is still refusing to use the past few days’ broader market turbulence, or for that matter the weaker dollar, as an excuse to break virgin territory above $1,265. It is down 1.5 per cent at $1,222 an ounce.

Thursday’s Market Menu
What’s affecting risk appetite

Risk off

● S&P 500: chartists warn that 1,140 support has been broken

● China PMIs: pace of activity slows...

Risk on

●...but manufacturing still expanding (see also europe) and isn’t this reflected in stocks’ recent decline anyway?

● Eurozone: Spain auction, ECB tender and bank stress tests taken as broad positives





China fears rise as Asian growth slows
ByKevin Brown in Singapore
Copyright The Financial Times Limited 2010
Published: July 1 2010 05:40 | Last updated: July 1 2010 16:53
http://www.ft.com/cms/s/0/e3f89d9a-84b7-11df-9cbb-00144feabdc0.html


Nervous investors in China were given a fresh reason to worry on Thursday as a slew of reports on manufacturing suggested that the pace of growth in factory activity was slowing across much of Asia and might even have turned negative in China.

China’s manufacturing output contracted slightly on one unofficial but closely watched measure while the country’s National Bureau of Statistics described the official numbers as grim.

Purchasing managers’ index reports for South Korea, Taiwan, India, Australia and China all showed weaker activity for June, confirming indications that the region is seeing an easing of the growth surge that followed the global financial crisis. The monthly PMI report for Japan, published on Wednesday, told a similar story.

However, the overall level of factory activity – which includes a range of measures in addition to output – continued to expand in all six countries, suggesting that manufacturers may be experiencing a return to more normal rates of growth rather than heading for contraction.

The possible exception was China. The unofficial HSBC purchasing managers’ index remained positive, falling to 50.4 from 52.7 in May, and the official PMI index from the Federation of Logistics and Purchasing fell to 52.1 in June from 53.9.

An index figure above 50 indicates an expansion of activity, while a figure below 50 indicates a contraction.

However, HSBC also said its sub-index for Chinese factory output fell to 49.6, which would be consistent with a slight fall in production. The index stood at 60.6 at the start of the year and has been slowing steadily.

The general picture of growing weakness was broadly supported by the official index, which reported falls in the sub-indices for new export orders, backlogs of work, imports and employment, though not all turned negative. However, the output sub-index in the official report remained positive, falling to 55.8 from 58.2 in May, but remaining well above the level that indicates a contraction.

China’s National Bureau of Statistics said the official numbers reflected the impact of tighter government policies and a weakening of the global recovery.

As well as slowing the approval of new investment projects and growth in bank credit, the government in April unveiled a package of policies aimed at reducing speculation in the country’s property market. Beijing has also modestly appreciated the currency against the US dollar in recent days.

However, although international investors have been reacting nervously to reports of slowing growth in China, most economists analysing the country believe the economy is headed for a much-needed slowdown from the heady growth of the first quarter, when gross domestic product rose 11.9 per cent, rather than a slump.

“China’s recovery remains solid but is clearly moderating from the very fast pace set at the start of the year,” said Brian Jackson, strategist at RBC Capital Markets in Hong Kong. However, he added that “a slowdown in activity in the months ahead might prompt some in Beijing to argue for a halt” in currency appreciation.

Economists said the gradual slowing in the Chinese economy would only turn into a hard landing if construction activity collapsed as a result of the clampdown on property speculation or if exports weakened sharply again as a result of subdued growth in Europe and the US.

Hongbin Qu, HSBC’s China chief economist, said the PMI numbers implied slower growth in the country’s manufacturing sector, partly due to the tightening measures taking effect. But he said fears of a hard landing were “overplayed”.

Mr Qu said HSBC expected China’s economy to continue growing strongly in the second half of the year, underpinned by massive investment spending and robust private consumption.

The HSBC South Korea PMI fell to 53.3 for June from 54.6 in May, indicating the weakest pace of expansion since December 2009, but extending a series of positive monthly reports to 16 successive months.

Economists said the figures for Asia’s fourth-largest economy suggested that more normal growth was returning to South Korea’s manufacturing sector, with the volume of new export orders still expanding, although coming in at a slower pace.

Waiho Leong, economist at Barclays Capital in Singapore, pointed to a 32.4 per cent increase in South Korean exports in June from a year earlier as evidence that growth in Asia “may not be about to keel over just yet”.

HSBC’s Taiwan Manufacturing PMI fell for the third successive month to 53.8 in June, from 57.4 a month earlier. But it remained positive for a 15th successive month.

Frederic Neumann, co-head of Asia economic research at HSBC in Hong Kong, said new export orders were still growing at a “decent” pace.

“After surging over the first five months of the year, the growth of Taiwan’s economy is starting to cool. This, however, does not signal a hard landing,” said Mr Neumann.

In Japan, the Nomura/Japan Materials Management Association PMI fell to 53.9 from a four-year peak of 54.7 in June. The numbers, published on Wednesday, suggested that firm growth was continuing, and marked the 12th successive month of expansion.

Minoru Nogimori, an economist at Nomura, said the continued high level of new export orders indicated that shipments would remain solid.

“While some have been concerned about the impact on the Japanese economy of financial market disruption triggered by the European fiscal troubles, so far that impact appears to have been small, and we expect the Japanese manufacturing sector to continue to improve for a while,” he said.

The HSBC India manufacturing PMI retreated from a 27-month high of 59.0 in May to 57.3 in June, but recorded its 15th successive month of expansion. Economists said factory activity and prices were retreating from very elevated levels, noting that there were no real signs of a slowdown in growth.

The Australian Industry Group/PwC performance of manufacturing index fell by 3.4 points to 52.9, remaining positive, but registering slower growth in production, orders, employment and supplier deliveries.

Separately, Vietnam’s government statistics office said the communist country’s economy had grown by an estimated 6.4 per cent in the second quarter from a year earlier, accelerating from growth of 5.8 per cent in the first three months.

The office said the economy had grown by 6.2 per cent in the first half of 2010 from the same period last year. “The higher growth rate of the second quarter suggests the economy is recovering swiftly and achieving a high growth rate,” it said.









Jobless claims fuel fear of slowing US recovery
By James Politi in Washington
Copyright The Financial Times Limited 2010
Published: July 1 2010 14:24 | Last updated: July 1 2010 15:38
http://www.ft.com/cms/s/0/c710f29a-8511-11df-adfa-00144feabdc0.html


Fears that the US recovery is losing steam were reinforced on Thursday, as new data on the health of the labour market, as well as the manufacturing and housing sectors, disappointed economists.

The number of people seeking jobless claims in the US rose unexpectedly last week by 13,000 to 472,000, while the less volatile four-week moving average also rose slightly to 466,500, offering further evidence that the improvements in the labour market seen earlier this year may be slowing.

In March and April, the recovery in labour market conditions appeared to be gaining traction, amid solid job creation in the private sector. But in May, private employers seemed to put hiring plans on hold, bringing only 41,000 new positions onto their payrolls.

David Semmens, US economist at Standard Chartered Bank, said that today’s jobless claims figures were “a timely reminder that firings in the US remain elevated and appetite from employers for hirings remains anemic”.

Meanwhile, growth in the US manufacturing sector, which has been one of the bright spots of the US recovery, appears to be slowing. The Institute for Supply Management’s manufacturing index fell from 59.7 in May to 56.2 in June, a much larger drop than predicted by economists. Although any reading above 50 indicates an expansion in manufacturing activity, this is now the second consecutive monthly drop in the index. Some of the components of the survey were also discouraging, with the employment gauge and the new orders gauge dropping.

No solace for observers of the US economy came from data on the troubled housing market. The National Association of Realtors reported that pending home sales, a measure of activity in home purchases that have been agreed but not completed, tumbled by 30 per cent in May, much worse than the 12.5 per cent drop predicted by economists. A decline was widely predicted because of the expiry in April of the homebuyer tax credit, which shifted demand for housing to early spring, but the extent of the so-called “payback” in both pending home sales and new home sales has brought renewed fears of a housing double-dip.

“If you’re looking for a silver lining in housing, you aren’t going to find it here. Demand has fallen off a cliff in the wake of the tax credit expiration, “ said Mike Larson, interest rate and real estate analyst at Weiss Research. “With so many Americans unemployed or underemployed, the housing market is going to keep hurting”.

The next big data release on the US economy occurs on Friday, when the labor department publishes its monthly jobs report for June. Economists are expecting that payrolls overall will decline because of layoffs associated with the 2010 census, but that private businesses will grow by about 100,000.




Toyota to recall 270,000 Lexus cars
ByJonathan Soble in Tokyo
Copyright The Financial Times Limited 2010.
Published: July 1 2010 09:47 | Last updated: July 1 2010 09:47
http://www.ft.com/cms/s/0/9e4a7c6e-84e9-11df-adfa-00144feabdc0.html


Toyota is to recall 270,000 Lexus luxury cars after it discovered that a key component in their engines was susceptible to cracking, a problem the company said could cause the vehicles to stall.

Thursday’s revelation of the defect in some of the Japanese company’s most expensive models was a further blow to its already battered reputation for quality.

Toyota has recalled about 9m vehicles since November to fix problems with accelerators, brakes and other systems. In April, it paid a record $16.4m fine to the US government for failing to notify authorities promptly about alleged instances of unintended acceleration.

The company on Thursday informed Japan’s transportation ministry of its intention to recall the Lexus vehicles, mostly GS, IS and LS models. It said it would issue a formal notice to drivers on Monday.

About 180,000 of the vehicles were sold outside Japan, Toyota said, without giving details about the countries involved.

Toyota said it had found cracks in some cylinder-valve springs installed in engines used by the affected models. The springs control the opening and closing of valves that draw in oxygen and release waste gas from the engines’ combustion chambers.

The company said it checked the parts after receiving about 200 complaints from drivers. The defect can cause “unstable idling” – odd noises and vibrations when a car is stopped with its engine running – and in extreme cases the engine could quit altogether while the vehicle is in motion.

No accidents had been linked to the problem, Toyota said.

Toyota did not reveal the supplier of the springs. The defect was discovered in two types of Lexus engines built in Japan, an eight-cylinder 4.6-litre model and a smaller six-cylinder 3.5-litre model.