Month: April 2012

China PMI not that rosy, rate cut on the cards: Nomura

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Markets may be taking the latest manufacturing data from China positively, but one economist warns that the data point to further weakness in the economy, which could prompt authorities cut interest rates despite signs of inflation creeping higher.

The official Purchasing Managers` Index (PMI) that highlights large factories jumped to an 11-month high of 53.1 in March, up from February`s reading of 51. The figure reinforces views that China is not sliding towards a hard landing, prompting risk to return to markets. The Australian dollar advanced 0.8% to USD 1.0428, while the MSCI Asia Pacific increased 0.4% in Tokyo in early morning trading.

But Nomura`s Chief China Economist Zhiwei Zhang cautions that the actual underlying story “may not be that strong.”

“Keep in mind that, in March, the official PMI always rises 3 percentage points from its February level. It`s a seasonal factor,” Zhang told CNBC Monday. “Compared to the past, the official average PMI is about 56, whereas this month, it`s only 53. It`s still very much lower.”

A separate private survey of smaller factories by HSBC released on Sunday also showed factory activity in China slowing further. The HSBC PMI, fell to 48.3 in March from February`s 49.6, largely in line with a preliminary PMI reading of 48.1 released in March.

This brought the measure into its worst quarter in three years between January and March, HSBC said in a statement, describing the rate of contraction in manufacturing output as the “steepest since November last year”.

Nomura`s Zhang sees a cut in the benchmark lending rate as soon as this month because the PMI numbers indicate that demand is “really weakening”.

“We believe that the government needs to cut the benchmark lending rate not just the triple-R (required reserve ratio) because the problem now is that demand is very weak,” Zhang said. “The triple-R cuts also help to increase the supply of loans to the market but the problem now is really weakening demand so the government really needs to work on that.”

Richard Jerram, Chief Economist of Bank of Singapore, points to the government`s strong fiscal position, which gives authorities plenty of room to stimulate the economy if there were signs that the economy is slowing at a quicker pace than expected.

“You can cut reserve requirements as much as you want I think,” Jerram told CNBC Monday. “They`ve got a really good fiscal situation. They could expand some of the fiscal expenditure works as well.”

The People`s Bank of China has reduced the RRR twice since November, by 50 basis points each time, in a bid to boost economic growth.

But the central bank will have to keep a close watch on rising prices if it takes on further monetary easing. Zhang pointed to inflation as a potential threat to the Chinese economy, after the sub-index for raw material purchasing prices rose for four consecutive months to 55.9%, 1.9 percentage points higher than a month ago.

“This inflation will affect the producers` price index and this will hurt profit margins of manufacturers and will hurt small, medium size enterprises more,” Zhang said. “Going forward, this will be another pressure that will hurt manufacturing firms.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

As market heads into April, ‘Where is the pullback?’

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

April has been called the “cruelest month,” but in the past two years, it`s when the stock market made its highs for the year.

So investors start the second quarter with that on their minds, and head into a holiday shortened week, where the most important piece of data will be released when the stock market is closed.

The March jobs report is released Good Friday, when just the bond market and some electronic futures markets are open for trading in the US.

Besides the monthly jobs report, there is a steady stream of important data all week long that will paint a fresh picture of the manufacturing environment and the consumer.

The important headlines will be March auto sales, chain store sales, the ISM manufacturing survey, weekly jobless claims, plus the contents of minutes of the Fed`s last meeting.

The Dow finished the past week at 13,211.96, up 1% for the week and closing the first quarter with a 8.14% gain, its best first quarter since 1998. The SandP 500 was at 1,408.45, for the week and up 12% for the quarter.

The sharp rise in the stock market since October has had analysts predicting a pullback as stock indices hit each new level, and they are still expecting to see that as the second quarter begins.

“We`ll get a pullback but I don`t think we`ll get anything disastrous,” said Citigroup chief equities strategist Tobias Levkovich. He said he expects to see a five to seven percent reversal. “Maybe it`s the pause that refreshes, barring some exogenous event,” he said.

He expects to see a selloff in “the next few months. I think it`s hard to pin point.” Levkovich said the market decline should not be like the 22 percent the SandP lost last year from late April through early October.

At that time, the global economy was dealing with a sudden oil price rise, after the Arab spring; the Japanese earth quake and tsunami aftermath, and the tightening of financial conditions from the European debt crisis.

Barclays Capital US equity portfolio strategist Barry Knapp said the recent weaker-than-expected data could be a signal. Six of the last seven pieces of housing data were shy of expectations.

“The markets are running a little bit ahead of reality right now,” said Knapp. “It just means they`re vulnerable.”

Some analysts say the market could follow its seasonal history, and investors could “sell in May,” as they did last year. They also are watching gasoline to see if the steep price rise stings consumers and starts to become a setback for the economy.

“Where is the pullback? I`m still waiting. I just think the longer it takes, maybe the more painful it will feel but I still think it will be pretty shallow,” said JP Morgan chief US equities strategist Thomas Lee.

As for next week, he said the bias could start out positive. “Usually the first day (of the quarter) does have inflows. I don`t really have any expectations except that seasonally speaking, markets are going to have a positive bias through May. I still think you`re going to have a pretty good tone to the market. I think the concerns about China, quarterly earnings and interest rates-they don`t really occur until the summer,” said Lee.

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“Seasonals have played a big role. They`ve been increasingly important, and maybe because the fundamental trends haven`t been so prevalent,” he said. “…A correction definitely seems way overdue, but it`s really keeping everyone at home waiting for this thing.”

Analysts expect to see investors buy the dips, as many are still underinvested in US equities and have lost out on recent gains.

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The March jobs report is the big event for markets in the coming week.

“I think we`ll get a couple hundred thousand jobs in March. I say that with some trepidation because there will be some pay back from the warm winter weather at some point,” said Mark Zandi, chief economist at Moody`s Economy.com. “The question is when, and it could be March, but my sense is it`s going to be April and May, so underlying job growth…is 200,000.”

February`s jobs report showed job growth of 227,000 and an unemployment rate of 8.3%.

“I think investors are realizing we`re not in the new world of 250,000 jobs per month, at least not yet,” Zandi said.

Zandi said he is also watching auto sales closely. “That`s been one bright shiny part of the economy in recent months. It got up over 15 million units in February. I suspect we`ll get a little bit of a pullback, but how much will be important in terms of peoples` thinking about consumer spending more broadly. If we`re 14 million or south of that, it will be very disappointing,” he said.

The Fed minutes, released Tuesday afternoon, could give some clues as to further Fed easing. The Fed`s “operation twist,” which involves selling short-dated Treasury securities and buying longer dated, expires in June.

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“The market seems to be convinced that there`s going to be some additional or extension to twist, and I`m sure the minutes will address that in some capacity,” said Deutsche Bank chief US economist Joseph LaVorgna.

What to Watch (All times are ET)

Monday

1000 am ISM manufacturing

1000 am Construction spending

1000 am St. Louis Fed Pres. Bullard speaks

1235 pm Cleveland Fed Pres. Pianalto speaks

Tuesday

Monthly auto sales

1000 am Factory orders

0200 pm FOMC minutes

1605 pm San Francisco Fed Pres. Williams speaks

Wednesday

0815 am ADP employment

1000 am ISM nonmanufacturing

1100 am San Francisco Fed Pres. Williams speaks

Monthly chain store sales

0830 am Initial claims

0910 am St. Louis Fed Pres. Bullard speaks

Friday

Stock market closed-Bond and some futures market shortened session

0830 am Employment report (March)

0300 pm Consumer credit

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow