China Official Services PMI Rises to 56.7 in June

The move to shift to a domestic demand driven service economy seems to be well underway?

China Official Services PMI Rises to 56.7 in June

July 2 (Reuters) — China’s official purchasing managers’ index (PMI) for the services sector rose t o 56.7 in June from May’s 55.2, reversing two months of softening readings, data from the National Bureau of Statistics showed on Tuesday.

The services sector index follows two PMI surveys of China’s vast manufacturing industry that showed factory activity fell to a seven-month low in June, raising expectations for further policy easing to boost growth in the world’s No 2 economy.

A reading below 50 indicates contracting activity and one above 50 means expansion according to the survey methodology.

The China Federation of Logistics and Purchasing conducts the survey on behalf of China’s National Bureau of Statistics.

China’s fast-growing services industry has so far weathered the global slowdown much better than the factory sector, with the PMI consistently signaling healthy expansion and hitting a 10-month high of 58.0 in March.

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Germany signals shift on 2.3 trillion redemption fund for Europoe

Getting there as previously discussed:

Germany signals shift on 2.3 trillion redemption fund for Europoe

By Ambrose Evans-Pritchard

June 13 (Telegraph) — The German government has begun opening the door to shared debts for the first time in a profound change of policy, agreeing to explore proposals for a €2.3 trillion (£1.9 trillion) stabilization fund in order to stop the eurozone’s crisis escalating out of control.

Mr Merkel rejected the Redemption Pact last November as “totally impossible”, even though it was drafted by Germany’s Council of Economic Experts or Five Wise Men and is widely-viewed as the only viable route out of the current impasse. Photo: Alamy

Officials in Berlin say privately that Chancellor Angela Merkel is willing to drop her vehement opposition to plans for a “European Redemption Pact”, a “sinking fund” that would pay down excess sovereign debt in the eurozone.

“It is conceivable so long as there is proper supervision of tax revenues,” said a source in the Chancellor’s office. The official warned that there would be no “master plan” or major break-through at the EU summit later this month.

Mr Merkel rejected the Redemption Pact last November as “totally impossible”, even though it was drafted by Germany’s Council of Economic Experts or Five Wise Men and is widely-viewed as the only viable route out of the current impasse.

Fast-moving events may have forced her hand. She is under immense pressure from the US, China, Britain, and Latin Europe to change course as the crisis engulfs Spain and Italy, threatening a global cataclysm.

China Services Industry Expands at Faster Pace

Seems to be some credence to the notion that China is working to expand its service sector vs manufacturing and construction:

China Services Industry Expands at Faster Pace

June 4 (Bloomberg) — China’s services industry expanded at a faster pace in May, according to a survey of purchasing managers released by HSBC Holdings Plc and Markit Economics.

The PMI rose to a 19-month high of 54.7 in May from 54.1 in April, HSBC and Markit said today. The result contradicted a government-backed survey of services businesses released June 3 and signs from other data that a slowdown in the world’s second- biggest economy is deepening.

China’s stocks rebounded today from the biggest drop in six months on speculation the government will accelerate measures to spur consumer spending. The Ministry of Finance said yesterday it will offer consumers subsidies for purchases of energy-saving home appliances including washing machines, water heaters and refrigerators.

“This should reduce the fears of a sharp growth slowdown,” Qu Hongbin, a Hong Kong-based economist for HSBC, said of the PMI reading.

The Shanghai Composite Index rose 0.4 percent as of 10:47 a.m. local time after sliding 2.7 percent yesterday.

China Notes

>   
>   (email exchange)
>   
>   Attached is an interesting article from the FT discussing the investment slowdown in China.
>   While the official picture remains one of a gradual slowdown, more anecdotal data on
>   electricity production and bank loans suggests that the slowdown is much more severe – this
>   is likely to negatively impact the EM and the Asian suppliers to China such as Australia and
>   Korea.
>   

Full article: China Investment Boom Starts to Unravel

CH Daily | China to lower reserve requirement ratio

The discount rate cut doesn’t actually do anything for the economy- growth or inflation- but does show their concern.

And the relatively low Q1 state lending is showing the actual continuing policy constraint.

As previously discussed, China has what they consider an inflation problem, and there are precious few, if any, examples of inflation fights that didn’t cause hard landings.

Ch Headlines:

China to lower reserve requirement ratio
Q1 GDP slows in 29 provinces, regions
China 2012 Growth Forecast Cut to 8.1%, Citigroup Says
China 2012 Growth Outlook Revised to 8% From 8.2%, JPMorgan Says
China Growth Seen at 13-Year Low by Pimco as Banks Cut Forecast

CIC Stops Buying Europe Government Debt on Crisis Concern

CIC Stops Buying Europe Government Debt on Crisis Concern

By Andres R. Martinez

May 10 (Bloomberg) — Gao Xiqing, president of China Investment Corp., said the nation’s sovereign wealth fund has stopped buying European government debt on concerns about the region’s financial turmoil.

CIC will continue to look for new investments in Europe as part of its strategy to boost allocations to infrastructure, private-equity assets as well as emerging markets to help boost returns, Gao said. CIC, with an estimated $440 billion in assets, is the world’s fifth-largest country fund, according to Sovereign Wealth Fund Institute.

“What is happening in Europe right now is of course of concern,” Gao said in an interview in Addis Ababa, Ethiopia, during the World Economic Forum on Africa. “We still have our people looking at opportunities in Europe, even though we don’t want to buy any government bonds.”

Europe’s turmoil is reigniting on the second anniversary of policy makers’ first attempt to prevent Greece’s woes from spreading. That raises fresh doubt over the strategy just as Greece’s election spurs concern that the country may not meet the terms of its international rescues and will seek a solution outside the euro.

U.K. Factory Index Falls More Than Forecast on Export Slump

As expected, the export channel doesn’t look to be able to save Europe this time around. That leaves only domestic demand and net public sector spending via ‘borrowing to spend’ to do the trick, which doesn’t look all that promising either.

U.K. Factory Index Falls More Than Forecast on Export Slump

By Scott Hamilton

May 1 (Bloomberg) — A U.K. factory index fell more than economists forecast in April and U.S. manufacturing probably slowed as the world economy stayed reliant on China to drive economic growth.

The gauge of British factory output dropped to 50.5 from 51.9 in March, London-based Markit Economics said today. The median forecast of 27 economists in a Bloomberg News survey was for a decline to 51.5. The Institute for Supply Management’s U.S. index probably eased to 53 last month from 53.4, according to the median of 77 forecasts. A Chinese purchasing managers’ index rose to 53.3 from 53.1. A level above 50 indicates growth.

Pound Strength Is ‘Crippling’ Britain’s Recovery, Civitas Says

Actually just another symptom of overly tight fiscal policy:

Pound Strength Is ‘Crippling’ Britain’s Recovery, Civitas Says

By Svenja O’Donnell

April 12 (Bloomberg) — Britain’s exchange rate is “crippling” the economic recovery, and devaluing the pound by as much as 25 percent could push growth back to an annual 4 percent, research group Civitas said.

The pound’s “significant” drop since 2008 hasn’t been enough to make U.K. exports competitive on world markets, and a future decline in the currency is inevitable, according to John Mills, the author of the Civitas report published in London today. A devaluation of as much as 15 percent would balance the U.K.’s trade deficit, he said.

“The exchange-rate policy which we have pursued for decades has made it much more expensive to run most manufacturing operations here than in other parts of the world,” Mills said. “Getting the exchange rate down is a matter on which, in the end, we will have no choice.”

Data yesterday showed the U.K. trade deficit widened to the most in three months in February as exports of cars and heavy machinery fell, especially to the U.S., China and Russia. British manufacturing has become less competitive as some Asian countries devalued their currencies, boosting their competitiveness and hurting the U.K. economy, Mills said.

Claims/Trade Data


Karim writes:

Claims:
Initial claims was unambiguously weak, rising to 380k, the highest level since January. The prior week was also revised higher, from 357k to 367k.

The labor department cited no special factors despite it being Easter week; the USVI was the only locale where claims were estimated for the holiday.

Trade Balance:
The trade deficit fell to its lowest level since October, largely due to an 18% drop in imports from China (Lunar New Year effect) and a drop in oil imports.

The data may push Q1 GDP estimates to as high as 3% but that should not be confused with a pick-up in the underlying strength of the economy.

The stalling out in the claims data last month did a good job of predicting the slowdown in payrolls. Today’s data throws further job market improvement into greater question.