Global News - Sep 3 2010

US manufacturing sector grows unexpectedly

Manufacturing sector growth in the United States accelerated in August. The US PMI grew faster than expected, offering a positive note amid worries about the state of the economic recovery. Economists had expected US manufacturing to slow further in August, but the closely watched figures from the Institute of Supply Management (ISM) pointed to an acceleration of output growth even as separate regional surveys painted a more downbeat picture. The US purchasing managers’ index rose to 56.3 from 55.5 in July. A reading above 50 indicates growth and a figure below it points to contraction. The US sector expanded for its 13th straight month in August, according to the ISM. Stock indexes surged across the globe after an unexpectedly strong US manufacturing survey further eased tensions about the global economic recovery. Across the world, the global manufacturing PMI indicated manufacturing activity continued to rise for the 15th month in a row although the data indicated that the most rapid phase of the recovery was over. The big question is whether the economic momentum can be sustained going ahead.



US loses less jobs than forecast; private hiring up

The US economy lost less than expected jobs in August and hiring by the private sector surpassed expectations even as the unemployment rate inched higher, data released by the Labour Department showed. The widely followed report boosted stock futures on Wall Street and the advance in European stocks accelerated. Crude oil futures rose while gold and Treasuries fell as investors pared their holdings of safe haven assets. The dollar index inched lower but the greenback gained versus the yen. The US economy shed 54,000 non-farm jobs in August, the Labor Department reported today. The decrease reflected a 114,000 decline of temporary workers hired by the government to conduct the decennial population count. The report said that 121,000 government jobs were lost, including temporary Census workers, leaving 82,000 still on the payroll.

Private payrolls, excluding government agencies climbed 67,000, after a revised 107,000 increase in July that was more than initially estimated, Labor Department figures in Washington showed. The median estimate of economists had projected a gain of 40,000 in private payrolls. The overall payrolls count in June and July was revised higher by a cumulative 123,000. Payrolls fell by a revised 175,000 in June and by 54,000 in July. Meanwhile, the unemployment rate ticked higher to 9.6% in August from 9.5% in the previous month. Economists had expected the increase. Though the overall report still points to a sluggish economic recovery in the world's largest economy the fact that the decline in payrolls in August was not as steep as the 105,000 reduction expected boosted the sentiment in financial and other markets.

China's manufacturing PMI improves in August

China's manufacturing output increased at a faster pace in August after the weakest performance since early 2009, signaling that the ongoing slowdown in the world's fastest growing major economy is not deepening. China's official purchasing managers' index (PMI) rose to 51.7 in August from 51.2 in July, according to figures released by the China Federation of Logistics and Purchasing. The reading was a tad lower than the 51.8 measure expected by economists. A reading over 50 indicates expansion in manufacturing activity while anything below that threshold means contraction. A separate PMI released by HSBC Holdings Plc and Markit Economics gained to 51.9 from 49.4. In July, the HSBC PMI had showed the first shrinking in manufacturing in 16 months, and the government gauge was the weakest since February 2009.

Manufacturing activity slows in UK, euro-zone

Growth in manufacturing activity slowed in the UK and the euro-zone in August, separate reports released showed, adding to concerns that the worldwide economic recovery is losing momentum. Manufacturing sector output in the UK grew at its slowest pace in nine months, according to a survey of purchasing managers.

The August CIPS/Markit purchasing managers index (PMI) fell to 54.3 from a downwardly revised 56.9 in July, according to data released. The August reading was the lowest since November and fell short of expectations for a reading of 56.7. A reading of more than 50 indicates an expansion in business activity, while a figure of less than 50 signals a contraction.

Meanwhile, the final manufacturing PMI reading for the 16-nation euro zone confirmed that the pace of growth in the single-currency region also slowed. The PMI fell to a six-month low of 55.1 from 56.7 in July, but was slightly above a preliminary reading of 55.0. Germany’s manufacturing PMI slipped to 58.2 in August from 61.2 in July, matching an initial estimate, while the gauge for France rose to 55.1, higher than estimated. Italy’s PMI fell to 52.8, lower than economists had forecast.

ECB extends bank lending program, leaves rates steady

The European Central Bank (ECB) extended its program of emergency loans to the region's banks into early 2011, while the central bank staff raised their estimates for economic growth. ECB President Jean-Claude Trichet said the central bank will continue to conduct its main refinancing operations as fixed-rate tender procedures with full allotment for as long as necessary, and at least into January. That means the central bank will fully meet demand for the collateralized one-month and one-week loans at an interest rate of 1%. Three-month refinancing operations will also be provided with full allotment, although the interest rate will be set according to the average of the ECB's benchmark rate.

In addition, the central bank decided to carry out three additional fine-tuning operations when the central bank's 6-month and 12-month refinancing operations mature. The ECB previously discontinued the 6- and 12-month measures. Earlier, the ECB's the Governing Council kept its benchmark interest rate unchanged at a record low 1% at a meeting in Frankfurt, as expected. The central bank also revised higher its euro-zone growth estimates, with forecasts of 1.4% to 1.8% for 2010 and a range of 0.5% to 2.3% for 2011. That raised the midpoint of the staff projection for this year to 1.6% from a previous estimate of 1%, while the midpoint of the 2011 forecast now stands at 1.4% versus 1.2%.



3G Capital to acquire Burger King for US$4bn

Burger King agreed to be bought by Brazil-based investment firm 3G capital in a deal valued at US$4bn, including the assumption of debt. The deal is the largest leveraged buyout of a fast-food chain ever, according to the market researcher CapitalIQ, and the second for Burger King in the last eight years. Burger King’s potential new owner, 3G Capital, is backed by wealthy Brazilians, including a billionaire and a former tennis champion. The investment firm plans to expand Burger King’s presence internationally, especially in Latin America and Asia. 3G will pay US$24 a share for Burger King, or US$3.26bn, a 46% premium to Burger King’s share price before reports emerged that the fast-food giant was in sales talks. Shares in Burger King jumped more than 25% on Thursday, closing at US$23.59. 3G expects to begin its tender offer no later than Sept. 17 and to close the deal in the fourth quarter this year. Burger King has the right to solicit higher offers through Oct. 12 under what is known as a go shop period.