Welcome to a topsy-turvy morning: yesterday may have been China’s day, but today weak manufacturing numbers from the country are giving markets a cold, even as Europe’s manufacturing sector appears to perk up.
To keep things in perspective, China is a powerhouse in the midst of a slowdown – the numbers suggest the industry contracted rather than expanded this month – while the eurozone is trying to claw its way back to growth through a massive quantitative easing program. But the signs were particularly marked between China and Germany, close trading partners, as China contracted to 49.2 and Germany trounced expectations with a reading of 52.4 (the number 50 separates growth from contraction). While the bounce wasn’t widespread – France’s numbers disappointed – this can provide a little round of back-patting for Mario Draghi, who has been calling the 1.1-trillion euro program just the magic pill the ailing eurozone needs. Hold onto that optimism for today’s update on Greece. U.K. inflation numbers this morning also saw price increases hit zero, and oil is back above $47.
In the U.S. there will be existing home sales on the agenda, but most of the day’s announcements have already been made. The loonie heads into the day with a spring in its step, after gaining more than half a cent yesterday and edging back above 80 cents, while the TSX barely moved. After the greenback’s party last week, the dollar continues to fall against major currencies this morning. Speaking of China, another round of layoffs for Alberta, as the Chinese-owned CNOOC announced they would shut down Nexen’s oil-trading unit in Calgary. In the mean time, the Chinese-led development bank, the AIIB, said it would give up its veto in order to boost the bank’s members and credibility.
So after a brief recap of China, we’re going to take a little economic-crisis tour around the world.
Chinese manufacturing is on a long slowdown. This in itself is not news – let’s be honest – but more confirmation that the powerhouse of Chinese manufacturing is not keeping up the previous, frenetic pace. The latest reading, which comes via HSBC’s monthly survey, is the lowest in almost a year, but is just one sign among many, as China has lowered its interest rate twice in recent months, lowered capital requirements for banks, and lowered its growth target to around seven per cent. As manufacturing decreases, the real signs to look for are signs that China can’t maintain employment levels. Reuters notes the sub-index for labour is at its lowest since the financial crisis.
Trying to bring civility back between Germany and Greece. The two leaders met yesterday in Berlin, and are trying to inject some good feelings into a negotiation process that has been messy and fraught with confusion, back-stepping, side-stepping, and stereotypes. (The relationship between the two finance ministers has been particularly spiky.) Rather than being an advancement for negotiations, the meeting was largely a symbolic, but badly needed, attempt to shore up Europe’s most fraught relationship. Most recently, Alexis Tsipras told Merkel, as well as other European leaders, that the country doesn’t have the cash to pay their interest payments without their bailout, currently locked up behind structural reforms. Greece still hasn’t released detailed outlines for how they’ll meet those reforms, and past proposals have come up short, but, as ever, time is running out to find the cash for another round of looming payments. Part of the discussion, a politically tense debate over Germany’s war debts for their occupation with Greece, also gained credence from Merkel, who said the claims are likely legitimate, but should be discussed in separate negotiations.
Brazil’s oil company gets a downgrade. Brazil has erupted into protests in recent weeks as the true scale of a corrupt kickback scheme at the state oil company, Petrobras, continues to reverberate. The company, which was chaired by current president Dilma Rousseff until 2010, was embroiled in shady construction deals and payoffs that resulted in profits being creamed off the top to pay for the elaborate lifestyles of executives. Now, the company has been downgraded to negative by S&P – which may result in it being cut from many large institutional portfolios – a month after Moody’s downgraded the company to junk status. Brazil, which is facing austerity cuts and political turmoil, is hanging onto the lowest S&P investment grade, BBB-, but the rating agency said the outlook remained stable.
Shortages in Venezuela are hurting hospitals, cancer patients. The economic crisis in Venezuela has resulted in lots of shortages, some of them strange – french fries, condoms – but the shortages have been so widespread they’ve extended to medical equipment. Doctors are now reporting they’ve resorted to more extreme medical procedures, including mastectomies, for lack of working radiation equipment. The government has blamed the shortages on media hype and delays at ports in Los Angeles, but restrictive currency controls, which have limited imports, and the impact of falling oil prices are two more obvious causes. The lines have even spurred a new job path: professional place-holder.
Swiss Chalet goes public. That is, the company behind Swiss Chalet – and Montana’s, and Kelsey’s, and Milestones – which has more than 800 restaurants across Canada. Vaughan, Ont.-based Cara Operations, the third-largest restaurant company in the country, will be back on the TSX after leaving the listing in 2004. The company said the intention is to raise $200 million, and pay down debt.
Need to know:
TSX: 14,957.21 (+14.80), Monday
Loonie: 80.01 cents (+0.51 cents), Monday
Oil (WTI): $47.78, Tuesday (7:00 a.m.)