* UK PMI shows manufacturing sector continues to expand
* European Central Bank delays exit from emergency liquidity measures and leaves rates at 1%
* US data suggests recovery with Beige Book showing economic strength across much of the nation
* ABB agrees to $4.2bn bid for Balder Electric Company
Review of global marketsWeek ending Friday 3 December 2010
UK PMI SHOWS MANUFACTURING EXPANSION CONTINUING
The UK purchasing managers´ index (PMI), based on a survey of manufacturing companies, reached a level of 58 in November, up from 55.4 in October and the highest since September 1994. A figure above 50 indicates that companies are reporting a rise in new business. The survey pointed to particularly strong hiring, with employment rising at the highest rate since records began in 1992. Surveyed businesses attributed their willingness to create jobs to the continuing UK economic recovery.
Separate Bank of England figures showed that UK lending to private non-financial companies fell modestly by £200m in October. The data also showed that loans to Britain’s manufacturing sector rose by £1.2bn. This contrasts with the services sector where lending fell in October. Home loan approvals slipped to 47,185, the lowest since January and below the previous six-monthly average of 48,503. However, the decline was less than had been forecast and net mortgage lending – new loans minus repayments – rose by £1.2bn. Lending data from the Building Societies Association showed that mortgage approvals by mutually-owned institutions slipped in October although the sector is generating more mortgages now than earlier in the year. Consumer credit rose by £287m, the biggest monthly jump since May 2010. Meanwhile, the bank’s closelywatched measure of money supply growth – quarter-on-quarter growth in M4, minus monies held by other financial companies - rose by 2.9%. The increase suggests that the central bank’s quantitative easing undertaken so far has had some success.
ECB DELAYS EXIT FROM EMERGENCY LIQUIDITY MEASURES
As expected, this week saw the European Central Bank (ECB) Governing Council vote to leave the Refi rate unchanged at 1%. The ECB aggressively bought government bonds in its biggest intervention in the markets since the end of May. The buying started as central bank President Jean-Claude Trichet said that the central bank will keep buying government bonds and delay the exit from its emergency liquidity measures to help relieve tensions in the Euroland bond markets. The President warned market participants not to underestimate the bank’s determination to resolve the escalating Euroland sovereign debt crisis. Portuguese bond yields fell 0.5% to 5.92% (and prices rose) while Irish yields dropped 0.25% to 8.43%. Meanwhile, the European Financial Stability Facility will raise between Euros 5bn and 8bn in bonds in a triple A rated deal - the first bond issue by Euroland as one entity - to fund aid to Ireland.
Separately, Eurostat, the European Commission’s statistical arm said that the jobless rate in the Euro area reached a record 10.1% in October, up 0.1% on revised September figures. By contrast, joblessness in the region’s largest economy continued to fall. German unemployment in October fell by 14,300 to 2.9m, keeping the jobless rate steady at 7.5%. Compared with September, French unemployment was down 0.1% to 9.8% while Italy’s jobless rate rose 0.3% to 8.6%.
The latest Purchasing Managers’ Index for Euroland manufacturers showed strong growth in Germany and France. Greek manufacturing continued to contract and Italian and Irish industry suffered weak growth. Spanish production declined for the first time in nine months. In other news, Spain’s Finance Minister, Elena Salgado said that the nation would cut its sovereign debt issuance by about a third next year compared with its original plans by privatising parts of the state lottery system and the airports authority. The measures are aimed at restoring international confidence in Spain.
US DATA POINTS TO ECONOMIC RECOVERY
This week’s US newsflow pointed to an economic recovery. The Institute of Supply Management’s purchasing manager’s index slipped from 56.9 in October to 56.6 in November. The modest slowdown in growth was in line with the figure that had been expected and manufacturing activity stayed positive for the 16th consecutive month – a figure above 50 signals expansion. The Federal Reserve’s Beige Book report, based on anecdotal information, showed that the economy gained strength across much of the nation as hiring improved, manufacturing expanded and retailers anticipated a stronger holiday season. The National Association of Realtors said that pending home sales, which reflect transactions that have been signed but not yet closed, surged by 10.4% from September to October. Meanwhile, the Conference Board said that its index of consumer confidence rose from 49.4 in October to 54.1 in November. The measure, which was stronger than had been predicted, leaves confidence at its highest since May. Confidence is a key measure that foreshadows consumer spending. Consumer spending in the USA accounts for around 70% of economic activity.
EMERGING MARKET NEWS
Official figures this week showed that India’s economy accelerated by a stronger-than-expected 8.9% in the third quarter. By contrast, GDP contracted on a seasonally-adjusted quarter-on-quarter basis in Singapore, Malaysia, the Philippines and Thailand. Both India and China are expected to grow by more than 8% this year. This was underlined by the manufacturing sector. Purchasing manager survey data released this week showed manufacturing growth surging in China and India - China’s Logistics Federation purchasing managers’ index (PMI) rose to 55.2 in November from 54.7 the previous month. The unofficial HBSC Markit China PMI rose to 55.3 from 54.8 a month earlier. (A reading above 50 indicates expansion.) Figures published with the surveys suggest that output and export prices continue to rise but are being outpaced by input prices - a measure of input costs rose to 73.5, the most since 2008 and higher than the 69.9 measure in October. The HSBC PMI for India’s manufacturing rose to 58.4 in November from 57.2 in October. Manufacturing in Japan remained relatively flat while South Korea’s PMI moved to 50 from a 20-month low of 46.7 in October, pointing to a potential rebound in growth. The HSBC Taiwan index told a similar story, rising to 51.7 in November. Elsewhere, South Africa’s PMI rose to 52.9 in November from 49.8 the previous month. The index had been below 50 for the past two months.
COMPANY NEWS
Merger and acquisition news this week was dominated by a report that Swiss-Swedish electrical engineering group ABB intends to expand its presence in the USA with an agreed $4.2bn bid for Arkansas-based Balder Electric Company, a leading maker of industrial motors. ABB said that the deal will boost combined sales by about $100m a year and would allow annual cost synergies of $100m, principally through cheaper purchasing. ABB expects to still have more than $1bn in net liquidity after the transaction. The Balder acquisition will be ABB’s largest since its recovery earlier this decade. Separately, Walmart, the world’s largest retailer by sales scaled back its initial plan to acquire 100% of Massmart, the South African retailer, with a new $2.4bn offer for a 51% stake. The majority stake will leave Massmart listed in Johannesburg.
