Newly-produced cars are parked in a parking lot in SGMW’s manufacturing base in Qingdao, east China’s Shandong province on April 16, 2014. (AFP Photo)

Sydney. China’s mammoth manufacturing sector showed some tentative signs of stabilizing in June, according to a non-official survey, without finding the momentum needed for a lasting recovery in the world’s second-largest economy.

Optimism appeared in short supply as firms surveyed by HSBC/Markit reported the sharpest reduction in hiring intentions for six years, regardless of Beijing’s efforts to kick-start activity through policy stimulus.

“After a decade of pell-mell growth in both capacity and leverage, this situation is symptomatic of excess supply capability in manufacturing amidst moribund demand,” analysts at Westpac said in a research note issued after the survey’s release.

“This nexus of low confidence and weak demand for credit is an obvious impediment to growth.”

With factory activity apparently shrinking for three straight months, it is becoming mathematically harder and harder to avoid economic growth falling below 7.0 percent in the second quarter for the first time since the Global Financial Crisis.

The news from Japan wasn’t any better. The factory sector actually went backwards in June, as a recovery in the world’s third largest economy continued to struggle after a recession in the middle of last year.

That left the onus on factory surveys in Europe and the United States to offer any evidence of a much-needed pick up in global growth.

Fortunately for financial markets hopes of progress in the Greek debt saga provided a timely boost to risk appetites and lifted Japanese shares to their highest in 15 years.

Yet more stimulus likely

The headline flash measure of Chinese manufacturing (PMI) did edge up to a three-month high of 49.6 June, from 49.2 in May, but remained below the 50 mark which separates contraction from expansion.

New orders returned to positive territory at 50.4 and new export orders fell at a slower pace, but companies stepped up layoffs. Factories were also forced to cut prices for their products at a faster rate.

“This suggests companies have relatively muted growth expectations…. and suggests that authorities may step up their efforts to stimulate growth and job creation in the second half of the year,” said Annabel Fiddes, an economist at Markit.

The Markit/JMMA version of the PMI for Japan fell to 49.9 in June, from a final 50.9 in May, adding to evidence the economy had slowed after a brisk first quarter.

Many economists hope this pullback will be temporary as consumer spending, exports and capital expenditure show signs of driving future growth.

Yet, they still suspect the Bank of Japan will ease policy again later this year to spur activity further and push inflation to its 2 percent target.

Reuters

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Sydney. Australian retail sales went flat in April in a blow to hopes for a sustained pick up in consumer demand while the country’s trade deficit blew out to a record as exports sagged, a double whammy that sent the local dollar sliding.

The unchanged reading for retail spending confounded forecasts for a 0.4 percent increase and will be a particular disappointment to the Reserve Bank of Australia (RBA) which had recently talked up the chances of a revival.

The retail industry accounts for A$288 billion of Australia’s A$1.6 trillion of annual economic output, and is the second biggest employer with 1.25 million workers.

“There are still a lot of headwinds facing the consumer, given that wages growth is so lackluster they are having to cut back on savings to keep spending,” said Su-Lin Ong, a senior economist at RBC Capital Markets. “And that’s intertwined with the weakness of commodity prices which is such a drag on national income.”

Prices for many of Australia’s major resources have fallen steeply in the past year or so, taking a big chunk out of profits, investment, wages and tax revenues.

The impact was clear in the trade accounts for April which showed the country’s deficit tripled to A$3.89 billion ($3.0 billion) in April, far above forecasts of A$2.25 billion.

The Australian Bureau of Statistics noted that some of the deterioration was due to bad weather that closed key shipping ports. Yet falling prices still played a major part in the sharp 7.4 percent drop in total exports.

The dive in exports also happened to coincide with an unusually strong month for imports, which climbed 5 percent. Imports of capital goods alone jumped 10 percent which could be viewed as a positive for the investment outlook.

Still, the combination of soft retail numbers and a startling trade deficit wiped away much of the glow left by Wednesday’s surprisingly solid 0.9 percent increase in gross domestic product (GDP).

Investors reacted by knocking the local dollar down half a US cent to $0.7720, while narrowing the odds on another cut in interest rates.

It has only been a month since the RBA cut rates to an all-time low of 2 percent, so the market sees only a modest chance of an easing out to August. The implied probability of a move then rises to around 60 percent by Christmas.

Reuters

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