PMI For Smaller Companies in China Continues to Fall Further into Recessionary Territory

“Chinese manufacturing indexes showed small businesses struggling, sapping momentum in the economy and underscoring the need for the government to shift support away from larger, state-backed companies.

The official Purchasing Managers’ Index for smaller companies fell to 47.3 in May from 47.6 the previous month, even as the broader gauge rose to 50.8 from 50.6, the government said June 1. A private manufacturing index today that includes small enterprises fell more than forecast to 49.2, an eight-month low, from 50.4. Levels below 50 signal contraction.

The reports illustrate Premier Li Keqiang’s challenges in achieving sustainable growth across the world’s second-biggest economy while increasing consumption and reducing reliance on exports and investment. Declines in manufacturing gauges today in India, South Korea, Vietnam and Taiwan add to risks that Asian and global expansion will slow.

“It is too early to conclude that an economic rebound has begun” in China, Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong, said in a report today. “There is still a strong bias towards larger enterprises and coastal areas in terms of fiscal and credit policy implementation,” and small and mid-sized companies appear to “operate with minimal policy support,” Shen wrote.

Divergences in the manufacturing indexes are common given their different focus and coverage, said Wang Tao, chief China economist at UBS AG in Hong Kong. The decline in the official PMI’s gauge for smaller companies is consistent with the HSBC index, Wang said before today’s release.

Stock Indexes…”

Full article

“Building the $5.3 billion Keystone XL oil pipeline across the middle of the U.S. will require thousands of workers and millions of pounds of steel.

It will also require a lot of smelly dead rats.

The U.S. Fish & Wildlife Service this month said that Keystone’s proposed route across Nebraska put the endangered American burying beetle at risk. The agency said the black and orange-spotted insect could be spared, and the project move forward, if proper procedure is followed.

That means pipeline builder TransCanada Corp. (TRP) will have to trap and relocate the one-inch beetles, using frozen rats that have thawed for at least three days for maximum pungency, according to detailed protocols U.S. authorities have drawn up to protect the burrowing bug.

“It’s amazing that you have to go through all this time and effort to protect a beetle, but they do,” said Michael Whatley, executive vice president of the Consumer Energy Alliance, an industry-backed group based in Washington that promotes low energy costs and supports Keystone. “The take away is that no matter what t’s have to be crossed or i’s dotted, they are doing it.”

The State Department is still reviewing the Calgary-based TransCanada’s application to build the pipeline linking Alberta’s oil sands to refineries along the U.S. Gulf Coast, and a decision on whether it’s in the national interest is expected in the fall. The department has jurisdiction because Keystone would cross the border with Canada.

Birds, Squirrels…”

Full article

“Australia’s dollar and government bond yields climbed amid signs that a slowdown in China is bottoming out, easing concern demand for commodities will decrease in Asia’s biggest economy.

The Aussie gained against all of its 16 major peers after official Chinese data over the weekend showed manufacturing accelerated and as a technical indicator signaled a recent decline in the currency was overdone. Local 10-year bond yields rose before a Reserve Bank of Australia policy meeting tomorrow, when the central bank will probably keep the benchmark rate at a record-low 2.75 percent, economists forecast.

The manufacturing report published June 1 was “the first seemingly positive bit of economic news that we’d had from China for some time,” said Ray Attrill, the global co-head of currency strategy at National Australia Bank Ltd. in Sydney. “There’s a chance that we can push a little bit higher,” he said, referring to the Aussie.

Australia’s dollar added 0.8 percent to 96.49 U.S. cents as of 4:36 p.m. in Sydney after posting a 7.7 percent tumble in May, the biggest monthly slump since September 2011. New Zealand’s dollar rose 0.4 percent to 79.75 U.S. cents following a 7.2 percent decline last month.

The 14-day relative-strength index for the Aussie against the U.S. dollar slid to as low as 19.5 last month, a level unseen since May 2010, and was at 25.5 on May 31. Readings below 30 indicate an asset’s price has fallen too rapidly and is set for a rebound.

Chinese Economy

The Purchasing Managers’ Index of Chinese manufacturing advanced to 50.8 in May from 50.6 the prior month, the National Bureau of Statistics and China Federation of Logistics and Purchasing said on June 1. Economists in a Bloomberg News survey had forecast 50, which marks the dividing line between expansion and contraction….”

Full article

“Rio Tinto Group (RIO) is pursuing an initial public offering of its gem unit, the world’s largest supplier of natural colored diamonds, after failing to find a buyer, according to a person familiar with the matter.

Rio hired Morgan Stanley (MS) to oversee an IPO in London, the person said, asking not to be identified because the process is private. The London-based company is still open to offers for the operations, the person said. Rio has been considering divesting the assets since March last year, saying they no longer fit with its strategy….”

Full article

“Seven & I Holdings Co. (3382), the operator of 7-Eleven convenience stores, plans more acquisitions in the U.S. and may more than double North America outlets as consumer spending improves in the largest economy.

In North America the company “could increase our store number to 20,000 or even 30,000,” Chairman Toshifumi Suzuki said in a May 30 interview at the company’s Tokyo headquarters. It currently has more than 8,000 outlets in the region and Suzuki didn’t provide a timeframe for the planned expansion….”

Full article

“Japanese companies’ capital spending fell 5.2 percent in the first quarter from a year earlier, underscoring the challenge the government faces in sustaining momentum in the world’s third-biggest economy.

The decline in spending excluding software compared with a 7.2 percent slide in the previous quarter, a Ministry of Finance report showed in Tokyo today. The median forecast of six economists surveyed by Bloomberg News was for a 5.5 percent decrease. Investment fell 0.9 percent from the prior quarter, according to the report.

Campaigning to boost company outlays and wages through fiscal and monetary stimulus and a loosening of business regulations, Prime Minister Shinzo Abe needs to sustain confidence amid weakness in the global economy and volatility in Japanese stock and bond markets. Abe has pledged to restore annual private investment to the 70 trillion yen ($695 billion) level before the 2008 financial crisis.

“Companies are not confident in the economic outlook as we haven’t seen a clear signal of a solid global recovery,” Daiju Aoki, a Tokyo-based economist at UBS AG. said. “This will pressure the Abe government to come up with measures to support businesses in the growth strategy” due this month, he said….”

Full article

“Japanese shares fell, with the Topix index (TPX) deepening its correction, as Nomura Holdings Inc. paced declines among brokerages and a stronger yen weighed on exporters’ earnings outlook.

The Topix lost 3.4 percent to 1,096.95 at the close of trading in Tokyo, with all of its 33 industry groups falling. The gauge is down 14 percent from its recent high on May 22. The index sank 2.5 percent in May, its first monthly drop since August. Measures of real estate companies and brokerages, the two Topix industry groups that led the rally from November, have fallen more than 25 percent from recent highs.

“Japan is somewhat of an overcrowded trade since a lot of investors have been buying in,” said Khiem Do, Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management Ltd., which manages about $51 billion. “Hedge funds probably needed to lock in profits. We’re still overweight on Japanese equities.”

Nomura tumbled 8.4 percent as brokerages dropped the most on the Topix. SoftBank Corp. slid 4.8 percent after a shareholder advisory firm opposed the carrier’s takeover of Sprint Nextel Corp. Toyota Motor Corp., the world’s largest carmaker, lost 3.3 percent as the yen traded near its highest level since May 9. Mitsubishi Estate Co., the country’s biggest developer, slid 7.5 percent to pace a decline among property stocks….”

Full article

“Global bond markets posted their biggest monthly losses in nine years in May as the U.S. dollarrallied and stocks reached record highs amid speculation a strengthening U.S. economy will allow the Federal Reserve to reduce its monetary stimulus.

The over $40 trillion of bonds in the Bank of America Merrill Lynch Global Broad Market Index fell 1.5 percent on average, led by a 2 percent drop in Treasuries. The MSCI World Index lost 0.3 percent while the Standard & Poor’s 500 reached a record high. The U.S. Dollar Index jumped 2 percent as the greenback gained versus all its major peers. The S&P GSCI Total Return Index of metals, fuels and agricultural products dropped 1.5 percent a month after falling the most since May 2012.

Employment gains and increases in housing and consumer confidence suggested the recovery in the U.S. economy, the world’s largest, is gaining momentum, prompting traders to increase bets the Fed will scale back its $85 billion in monthly debt purchases later this year. The Organization for Economic Cooperation and Development predicts faster global economic growth, led by the U.S. and Japan.

“Investors’ attempt to access what the Fed will do with its bond-buying program has been pretty central to the performance of all asset classes,” Neil Mackinnon, a global macro strategist at VTB Capital Plc in London, said May 30 in a telephone interview. “The markets are very sensitive to the idea that the Fed might ease back on their debt purchases.”

Bernanke Testimony….”

Full article

World Markets

Currencies

Commodities

USD Libor

Euribor

Yields for Italy, Spain, France,  and Germany …

Dodge the tax man…..

Play game

Cheers on your weekend !

Consuming Kids throws desperately needed light on the practices of a relentless multi-billion dollar marketing machine that now sells kids and their parents everything from junk food and violent video games to bogus educational products and the family car. Drawing on the insights of health care professionals, children’s advocates, and industry insiders, the film focuses on the explosive growth of child marketing in the wake of deregulation, showing how youth marketers have used the latest advances in psychology, anthropology, and neuroscience to transform American children into one of the most powerful and profitable consumer demographics in the world.

Try your hand at monetary policy….

The Federator Game

“A selloff in junk bonds is fueling fears among some investors that the best days of the bond boom may be in the past.

The spread between the yields on low-rated corporate debt and comparable U.S. Treasurys jumped 0.18 percentage point Wednesday to 4.39 points, its highest level since April.

The action is unusual because junk bonds tend to outperform higher-rated debt such as Treasurys and high-rated corporate bonds when interest rates rise. The yield on the benchmark 10-year Treasury note has risen 0.5 percentage point over the past month.

“The salad days for risk assets might be drawing to a close,” said Thomas Byrne, director of fixed income at Wealth Strategies & Management LLC. He said the selloff has been driven by investors fleeing from bonds amid chatter that the Federal Reserve might soon begin reducing the scale of its $85 billion monthly bond-purchase program known as quantitative easing.

Typically, the spread between Treasurys and junk bonds narrows as Treasury yields rise, as investors bet that an improving economy will mean fewer defaults on bonds issued by low-rated companies.

But in the past four weeks, not only did premiums on junk bonds not improve much, they recently worsened. Some see that break in the pattern as a potential inflection point in the debt markets…..”

Full article

“It’s been ten years since prosecutors announced a $1.4 billion settlement with the Wall Street’s biggest investment banks and two individual stock analysts over accusations that the firms and analysts had duped investors to curry favor with corporate clients. Under the terms of the settlement, twelve investment banks agreed to separate their securities analysis from their investment banking business.

One of the key reforms put in place in the settlement was the bar on basing the compensation of stock analysts on their contribution to investment banking revenue. This was meant to prevent analysts from becoming shills for the corporate clients that were paying fees to the investment banks for stock and bond underwriting deals.

A new study suggests that this part of the settlement may have fallen by the wayside.

Four researchers—Lawrence Brown of Temple University, Andrew Call of Arizona State University, Michael B. Clement of the University of Texas at Austin and Nathan Y. Sharp of Texas A&M University—surveyed 365 sell-side analysts to see how the business of stock analysis is conducted these days. Startlingly, they found that 44 percent of the analysts indicated that their success at generating underwriting business or trading commissions is “very important” to their compensation.

Only 20 percent indicated that underwriting and commissions were “not important” to their compensation. Which means that another 36 percent said these things—supposedly walled off ten years ago—were somewhat important. That’s a total of 80 percent who said that generating underwriting business and trading commissions play some role in their compensation.

In other words, the so-called Chinese walls between analysis and investment banking appear to have come crashing down—and almost no one has noticed….”

Full article

After being stuck at $19.17 a share in early 2009, Dow earnings jumped to a peak of $36.15 in 2012.

But they’ve stayed in that range over the past two quarters, hovering around $35 and most recently at $34.84 in the first quarter.

A similar situation has happened on the Standard & Poor’s 500, which saw first-quarter earnings increase 5.1 percent on revenue growth of just 1.1 percent.

At one point not long ago, earnings for S&P 500 and the price surge from the 2009 lows were nearly identical, but that relationship also has begun breaking down….”

Full article

“DETROIT (AP) — Electric car maker Tesla Motors Inc. promises to boost the number of fast-charging stations in the U.S. and Canada to make cross-country travel by electric car possible in the next year.

The company said Thursday that by the end of next month, it will triple the number of charging stations it runs from the current eight, and the number will go to around 100 in the coming year, putting stations within reach of almost the entire populations of both countries.

The pace of construction is about twice as fast as the company had previously announced.

The expanded “supercharger” network will allow owners of Tesla’s $70,000 Model S sedans to travel from Los Angeles to New York, probably by the coming winter, as well as make other long-distance trips. The Model S can travel about 200 miles, or for about three hours, when fully charged. With the network, it can be recharged to 50 percent of its battery capacity in 20 to 30 minutes, allowing drivers to make quick stops before driving on.

The supercharging stations are about 10 times as faster than most public charging stations, Tesla said on its website.

Currently Tesla has eight supercharger stations in California and on the East Coast. It has plans to add four stations in California this summer. Stations also will be added during the summer so drivers can go from Vancouver, British Columbia, to Seattle and Portland; and from Austin, Texas, to Dallas. They also will come on-line quickly in Illinois and Colorado.

In addition, the company intends to add four stations this summer in the densely populated Eastern Seaboard, where it currently has two.

Elon Musk, who leads the company, said Thursday that the stations will always be free for owners of the large-battery version of the Model S. Owners of the brand’s smaller-battery version will have to pay for the option of using the stations….”

Full article

“SINGAPORE/PARIS (Reuters) – Singapore Airlines Ltd agreed to spend $17 billion to buy 30 Airbusand 30 Boeing Co. aircraft, underscoring the airline’s bet on a pick-up in the struggling premium class market.

The significant orders announced on Thursday make Singapore Airlines (SIA) the long-awaited launch customer for a proposed stretched version of the 787 Dreamliner, boosting Boeing’s plans to offer a 320-seat aircraft designed in large part for crowded intra-Asian routes.

The move comes as SIA attempts a big strategy overhaul, pushing into the budget airlines segment and expanding its regional network.

“They demonstrate our commitment to the Singapore hub and our confidence in the future for premium full-service travel,” SIA Chief Executive Goh Choon Phong said in a statement.

“Today’s aircraft orders are among the biggest in Singapore Airlines’ history, helping to ensure that we retain our industry leading position.”

This month, SIA reported weaker-than-expected full-year results and warned of a deteriorating environment as it struggles to cope with the rapid emergence of Gulf carriers and low cost Asian rivals such as Malaysia’s AirAsia Bhd and Indonesia’s Lion Air.

State-backed Emirates Airline, Etihad Airways and Qatar Airways are stitching deals, while Gulf states race to become regional hubs linking Asia-Pacific and Europe.

Boeing has been talking up the possibility of a third model of its newest passenger plane for over a year. But the project took a back seat as Boeing grappled with a three-month grounding of the 787 fleet due to battery problems earlier this year….”

Full article

“WASHINGTON (Reuters) – A drop in government spending dragged more on the U.S. economy than initially thought in the first three months of the year, although consumer spending looked relatively resilient to Washington’s austerity drive.

Other reports on Thursday showed the number of new jobless claims rose modestly last week while contracts on previously owned homes climbed to a three-year high in April.

Together, the reports pointed to an economy that has held up reasonably well despite government constraints, but nevertheless faced headwinds severe enough to dissuade the U.S. Federal Reservefrom trimming its monetary stimulus in the immediate future.

“(The reports) paint the picture of an economy with strengthening fundamentals that is facing significant fiscal drag,” said Ellen Zentner, an economist at Nomura in New York.

Gross domestic product, a measure of the country’s total economic output, expanded at a 2.4 percent annual rate during the first quarter, down a tenth of a point from an initial estimate, the Commerce Department said.

Analysts had forecast a 2.5 percent gain.

Government spending tumbled at a 4.9 percent annual rate, which was faster than the 4.1 percent rate initially estimated. Also holding back growth during the quarter, businesses outside the farm sector stocked their shelves at a slower pace.

Washington has been tightening its belt for several years but ramped up austerity measures in 2013, hiking taxes in January and slashing the federal budget in March.

“We are dramatically under-spending in Washington,” said Michael Strauss, a market strategist at Commonfund in Wilton, Connecticut.

U.S. stocks rose and the dollar weakened as some investors bet the data could dissuade the Fed from rushing to taper a bond buying program that has acted as a bulwark against government belt tightening. Prices for U.S. government debt pared losses.

Despite the signs of a substantial fiscal drag, the GDP report also highlighted a resilience that has surprised many economists.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity. rose at a 3.4 percent annual rate, up two tenths of a point from the government’s previous estimate.

Excluding the volatile inventories component, GDP rose at an upwardly revised 1.8 percent rate, slightly higher than analysts had forecast. This suggests that an improvement in hiring and incomes over the last year has helped keep economic momentum intact.

“(It’s) steady as she goes,” said Stephen Stanley, an economist at Pierpont Securities in Stamford, Connecticut

HOUSING RECOVERY….”

Full article

U.S. equities managed not to have follow through after a down Wednesday. Circle jerk action in true fashion.

Currently the DOW is up 85 with WTI up a bit and Brent remaining negative. Gold is up nicely today, and the 10 year treasury is currently hugging the flat line after being in negative territory.

The dollar failed to have upside follow through and is currently down .73%

Market Update

The Story

[youtube://http:///wwww.youtube.com/watch?v=jnnlSsAnLxA 450 300] [youtube://http://www.youtube.com/watch?v=8ZK5gRLJ9h0 450 300]