Monday, June 23, 2014
More positive news out of China and another weak reading out of
Europe provide the backdrop for today's trading action. Stocks are
indicated to essentially tread water in today's session, but a
couple of housing and factory sector readings about the domestic
economy could give them a modest directional nudge.
The HSBC Bank's preliminary or flash manufacturing sector PMI for
June came in at a seven month high of 50.8 vs. 49.4 in May - the
first time that the reading has come above the '50' level. This
follows improvement on this front last year when both the HSBC and
official government measures showed gains. The gain in the HSBC
reading is particularly notable as this survey is weighted towards
small and medium sized businesses that are mostly in the private
sector versus the mostly state-owned large enterprises that get
tracked in the official survey. The improvement is likely a
reflection of the government's mini-stimulus measure unveiled a few
months back to prop up the country's growth profile. China's
government authorities have set a +7.5% GDP growth target, while
growth in Q1 came short of that target.
The success of the government's mini-stimulus measure as reflected
in today's data would limit the odds of anything more on the
horizon. But the existing package didn't have much for the property
sector, which has been a notably weak spot for the economy. New
home prices were down in the country on a month-to-month basis for
the first time in over two years, with prices even in big cities
like Shanghai and Shenzhen losing ground. Retrenchment in the
property sector likely still has plenty of room to go and
represents the biggest risk to the country's financial system and
economic outlook. While this week's data is no doubt welcome, but
it doesn't answer all the questions.
The stabilizing Chinese outlook is in contrast to developments in
the Euro-Zone region where the picture is far from satisfactory. We
saw on Monday loss of ground in the region's PMIs, with the
situation particularly dire in France whose downslide appears to be
gaining pace. Data vendor Markit's composite June flash PMI for the
Euro-zone came in weaker than expected at 51.9, with France's
manufacturing PMI coming in at 47.8. Perhaps the recent ECB moves
will be enough to turn things around for France, but the country is
faced with structural rigidities that will need to be tackled by
the country's leadership at some stage. While many of the
peripheral nations like Spain, Italy, Portugal, Ireland and Greece
have gone through years of restructuring reforms, France hasn't
done anything to open up its economy.
In corporate news, unconfirmed press reports indicate
) is planning to announce acquisition of
) for $5 billion, the company's largest purchase since its Sun
Microsystems acquisition for more than $7 billion. Micros which
develops internet-connected cash registers will give Oracle a
foothold in the retail and hospitality spaces. Oracle reported weak
results the other day, but has plenty of cash on hand to pay for
this deal. Incidentally, the Technology sector has largely been
absent from the recent surge in M&A activities which have
mostly been in the pharma, telecom and med sectors.
Director of Research
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