Economic Calendar

Sunday, June 3, 2012

China’s Non-Manufacturing Industries Grow at Slower Pace

By Bloomberg News - Jun 3, 2012 8:49 AM GMT+0700

China’s non-manufacturing industries grew at a slower pace for a second month, as export demand moderated and new orders in construction and real estate contracted, an official survey indicated.

The purchasing managers’ index fell to 55.2 in May from 56.1 in April, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in a statement today in Beijing. A reading above 50 indicates expansion.

Today’s data adds to evidence that growth in the world’s second-biggest economy is slowing after a government manufacturing report showed the weakest reading since December. Brent crude tumbled below $100 a barrel on June 1 for the first time in almost eight months on concern that China’s industrial expansion is moderating and unemployment in the U.S. is rising.

“Although the index fell slightly in May, it was still at a relatively high level of 55.2 which is in line with the general trend of steady growth in non-manufacturing industries,” Cai Jin, a federation vice chairman, said in the statement. “Market demand remains steady and reflects the structural changes in our country’s economy.”

A manufacturing PMI compiled by the statistics bureau and logistics federation fell to 50.4 in May from 53.3 in April, a June 1 report showed. The reading, barely above the 50 mark that divides expansion from contraction, was the lowest in five months and compares with a 52.0 median estimate in a Bloomberg News survey of 27 economists.

Manufacturing Contracted

A separate gauge from HSBC Holdings Plc and Markit Economics released the same day showed a seventh straight contraction, the longest since the global financial crisis.

The federation’s non-manufacturing PMI is based on a survey of about 1,200 companies covering 27 service industries including construction, telecommunications and leasing. Non- manufacturing industries account for about 40 percent of the economy, according to the agency.

The federation started publishing a seasonally adjusted index from its March survey, and revised readings back to March 2011. A separate gauge for services industries will be released by HSBC and Markit on June 5.

--Zhou Xin, Liza Lin. Editors: Nerys Avery, Jim McDonald.

To contact the reporter on this story: Bloomberg News in Beijing at

To contact the editor responsible for this story: Paul Panckhurst at


Mobile-Phone Makers End Deadlock on Standard for New SIM Cards

By Francois de Beaupuy - Jun 2, 2012 6:50 PM GMT+0700

Mobile-phone makers agreed on a new standard for smaller SIM cards, overcoming a deadlock in which Finland’s Nokia Oyj (NOK1V) and Apple Inc. (AAPL) had competing proposals.

The so-called “fourth form factor” will be 40 percent smaller than the current smallest SIM card design, the European Telecommunications Standards Institute said in a statement on its Web site, following a meeting held May 31 and June 1 in Osaka, Japan. “It can be packaged and distributed in a way that is backwards compatible with existing SIM card designs.”

ETSI agreed to pick Apple’s SIM card standard, beating a proposal from Nokia, MacWorld said on its website, citing cardmaker Giesecke & Devrient. Spokespersons for ETSI and Nokia couldn’t immediately be reached for comment.

In March, a two-day meeting to adopt a format from competing proposals by Apple and Nokia finished without reaching a decision. The smartcards that identify wireless subscribers are standardized to reduce industry costs and give consumers freedom to switch handsets and networks. Smaller versions permit the design of thinner phones.

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To contact the editor responsible for this story: Kenneth Wong at


Fed Will Likely Weigh Rosengren’s Call for Stimulus

By Joshua Zumbrun and Jeff Kearns - Jun 2, 2012 11:00 AM GMT+0700

Some Federal Reserve policy makers may join Boston Fed President Eric Rosengren in backing new stimulus at a meeting this month after unemployment rose to 8.2 percent in May, economists said.

Rosengren said the Fed should further its full-employment mandate and extend beyond June a program known as Operation Twist, which lengthens the average duration of bonds on its balance sheet. He spoke before a report yesterday showed the U.S. added 69,000 jobs in May, the fewest in a year, pushing the yield on 10-year Treasury notes to a record low.

Eric Rosengren, president of the Federal Reserve Bank of Boston. Photographer: Brendan Hoffman/Bloomberg

June 1 (Bloomberg) -- Dean Maki, chief U.S. economist at Barclays Plc, Daniel Fuss, vice chairman at Loomis Sayles & Co., and Matthew McLennan, portfolio manager at First Eagle Funds, talk about the outlook for another round of quantitative easing by the Federal Reserve and the U.S. economy. They speak with Betty Liu and Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

“The May report does significantly raise the odds of further easing from the Fed,” said Dean Maki, New York-based chief U.S. economist at Barclays Plc and a former Fed economist. “There will be a case made at the June meeting for easing.”

Rosengren’s stimulus call aligns with the view of Chicago Fed President Charles Evans. Any job market setback is also a chief concern of Chairman Ben S. Bernanke, who said in April the Fed may provide more accommodation should unemployment fail to make “sufficient progress towards its longer-run normal level.” Fed policy makers plan to meet June 19-20.

Yesterday’s report from the Labor Department “does change the game, certainly in terms of Operation Twist,” said John Silvia, chief economist at Wells Fargo & Co. in Charlotte, North Carolina. “Because the slowdown in the economy has been fairly rapid compared to what they expected, they’ll go ahead and extend Operation Twist.”

Stocks Slump

The yield on the 10-year Treasury note closed at a record low 1.45 percent yesterday, from 1.56 percent on May 31. The yield fell to as low as 1.4387 percent. The Standard & Poor’s 500 Index tumbled 2.5 percent to 1,278.04 in the steepest retreat since November.

Rosengren said low interest rates are not a barrier to further Fed action, and that more easing could help reduce the borrowing costs for types of debt other than Treasuries, including mortgages.

Paul Ashworth, chief U.S. economist for Capital Economics in Toronto, said further Fed stimulus may spur stocks by encouraging investors to seek higher-yielding assets.

“It’s not just about whether it’s going to drive Treasury yields lower, it’s about whether it can provide a boost to other riskier asset classes, including equities,” Ashworth said.

The central bank started Operation Twist in September to reduce longer-term interest rates without expanding its balance sheet. Under the program, the Fed sold $400 billion of Treasury securities with maturities of three years or less and used the proceeds to buy $400 billion of Treasuries with maturities of six years or more.

Fed Leadership

The Fed’s leadership will probably detail its outlook next week, with Vice Chairman Janet Yellen scheduled to speak on monetary policy in Boston on June 6 and Bernanke planning to testify before Congress on the economy on June 7.

The Fed has two options should it decide to take further action with its balance sheet, said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh. It could renew Operation Twist by selling more of its short-term debt and buying more longer-term securities, or it could buy more bonds in a third round of quantitative easing.

Rosengren said in a Bloomberg News interview that he supports the option of extending Operation Twist at the Fed’s June meeting. Another round of quantitative easing would be an option if the Fed wanted to do something “more substantial,” he said.

‘Promote Growth’

“If you were looking for something that would promote growth but didn’t have an impact on our balance sheet, then certainly extending the maturity extension program would be a viable way forward,” Rosengren said. Such a move “would be a positive step that would provide some additional support to the economy and hopefully promote somewhat more rapid growth overall.”

Signs of weakness in the U.S. economy, and the debt crisis in Europe, also have increased the odds the Fed will ease further, Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, said in a note.

“The loss of momentum in the domestic economy and the gathering global storm raise the likelihood of further policy easing at the next meeting,” he said.

The economy has not had two consecutive months of jobs growth under 100,000 since July and August of 2011, a period that prompted the Fed to begin Operation Twist.

“It’s close to a game-changing report,” said Capital Economics’ Ashworth. “We’re not quite at that level of desperation as last summer, but we’re getting pretty close, particularly when you think about the deterioration elsewhere in the world.”

To help reduce unemployment and spur the economy, the Fed cut its benchmark interest rate to near zero in December 2008 and purchased $2.3 trillion of securities in two rounds of large-scale asset purchases.

To contact the reporters on this story: Joshua Zumbrun in Washington at

Jeff Kearns in Washington at

To contact the editor responsible for this story: Christopher Wellisz in Washington at


Merkel Rejects Debt Sharing as Obama Urges End to Crisis Cloud

By Brian Parkin and Ben Sills - Jun 3, 2012 5:00 AM GMT+0700

German Chancellor Angela Merkel hardened her opposition to joint debt sharing in the euro region as President Barack Obama singled out Europe’s leaders for not doing enough to arrest the financial crisis.

With Europe’s debt crisis cited last week for canceled IPOs, weaker-than-expected Chinese manufacturing figures and a rise in the U.S. jobless rate, Merkel rejected joint debt issuance in the 17-nation euro area as a solution, saying “under no circumstances” would she agree to Germany-backed euro bonds.

German Chancellor Angela Merkel at the 2012 Council of Baltic Sea States Summit. Photographer: Sean Gallup/Getty Images

Now, some “come along and ask for euro bonds, saying all we need are equal interest rates and everything will turn out all right,” Merkel said in a speech to members of her Christian Democratic Union in Berlin yesterday. Instead, what’s needed is an economic overhaul to tackle the lack of competitiveness in Europe, she said.

Merkel, the head of Europe’s biggest economy and the largest contributor to bailouts for Greece, Portugal and Ireland, is the pivotal player in efforts to resolve the crisis now in its third year. As Spain struggles to avoid becoming the next country to call for a rescue and the euro slides near a three-year low against the dollar, Obama added to pressure from the European Central Bank, France and Italy to do more to halt the spread of contagion.

European ‘Cloud’

Obama, speaking at a Chicago fundraiser on June 1 as he bids for re-election in November, said that a report showing the slowest month of U.S. employment growth in a year was in large part “attributable to Europe and the cloud that’s coming over from the Atlantic.” The “whole world economy has been weakened by it,” he said.

“Europe is having a significant crisis in part because they haven’t taken as many of the decisive steps as were needed to deal with the challenge,” he said at a separate event in Minneapolis.

The president’s point person for the European crisis, Lael Brainard, Treasury undersecretary for international affairs, ended a three-day tour of Europe’s crisis capitals the same day as work continued on erecting a financial firewall to stem contagion. The European Union is targeting July 9 as the start date for its permanent rescue fund, the 500 billion-euro ($620 billion) European Stability Mechanism, an EU official said.

Spanish Storm

Brainard held closed-door meetings with government officials in Athens, Madrid, Paris, Frankfurt and Berlin in a week when investors flocked to the perceived safety of German and U.S. bonds. The euro fell against the dollar and dropped to an 11-year low against the yen as uncertainty over the outcome of Greek elections on June 17 shifted to take in Spain, where Prime Minister Mariano Rajoy’s government is struggling to shore up banks amid a recession.

Merkel and Finance Minister Wolfgang Schaeuble are urging Rajoy to take an international bailout since Spain cannot solve its banking woes alone, German news magazine Der Spiegel reported yesterday in an advance copy of an article in this week’s edition, without citing a source for the information. Steffen Seibert, Merkel’s chief spokesman, declined to comment on the report when contacted by telephone.

Spain “will emerge from the storm under its own efforts and with the support of our European partners,” Rajoy said in a speech yesterday in Sitges, near Barcelona, calling on analysts and investors to moderate “irrational” views of Spain’s financial situation. “We are not on the edge of a precipice.”

Negative Yields

Spanish 10-year yields ended the week at 6.51 percent, approaching the 7 percent level that triggered previous euro- area bailouts, though below a euro-era record of 6.78 percent on Nov. 17. Germany’s equivalent 10-year bund rate was at 1.17 percent after reaching 1.127 percent, the lowest since Bloomberg began collecting the data in 1989. German two-year yields slid below zero for the first time.

Irish backing for Europe’s fiscal pact failed to halt a decline in European stocks for the fourth week in five, with the Stoxx Europe 600 (SXXP) Index dropping 3.1 percent to 235.09. The benchmark measure has plunged 14 percent from this year’s high on March 16.

Merkel lauded Rajoy’s efforts “for the first time to undertake sweeping labor market reforms,” tackle the real- estate crisis and address Spanish banks, where she said the situation is “fragile.”

“That’s why it’s important to create transparency quickly over what that means for the banks, what the situation is for recapitalization,” she said. Germany and Spain are in close contact over those efforts “as we must tackle the problems of the past and start the future with a clean slate.”

Italian Critics

The German chancellor, who was besieged over her crisis- fighting policy last week by Italian Prime Minister Mario Monti and ECB President Mario Draghi, took aim at Italy as she cited a “missed opportunity” offered by the euro’s introduction for Europe to overhaul uncompetitive economies. The cheaper borrowing that came with the euro meant “countries like Italy became virtually on a par with Germany in terms of interest rates,” she said.

Now “what we have is a situation that we didn’t want,” Merkel said. “The freedom created by this situation wasn’t exploited to improve long-term competitiveness. Instead, the time was used to spend too much money in consumption and too little time in tackling reforms.”

Greece Endgame

In Greece, where the crisis first emerged in late 2009, Alexis Tsipras, head of the biggest anti-bailout party, Syriza, appealed to voters on June 1 to give him the power to cancel the terms of the country’s international bailout, including economic reforms. Moody’s Investors Service lowered Greece’s highest possible credit rating, saying there was an increasing risk Greece may exit the euro region.

Greece is reaching an endgame regardless of the election outcome, Germany’s best-selling Bild newspaper said, underscoring the domestic pressure facing Merkel over her crisis response.

Greece “is unravelling,” and ever-more aid cannot deliver the new beginning that Greece needs, Nikolaus Blome, Bild’s chief political columnist, said in an editorial in yesterday’s edition.

The Greek state “must be rebuilt, like in a developing nation,” Blome said. “Someone among the euro-zone leaders must finally tell the Greeks the truth: this fresh start can only be achieved with a radical first step. And that means leaving the euro.”

-- With assistance from Tony Czuczka in Berlin, Rebecca Christie in Brussels, Maria Petrakis and Natalie Weeks in Athens, Kate Andersen Brower in Chicago, Peter Levring in Copenhagen and Angus Whitley in Sydney. Editors: Alan Crawford, Andrew Clapham

To contact the reporter on this story: Brian Parkin in Berlin at; Ben Sills in Madrid at

To contact the editor responsible for this story: James Hertling at