* Mixed UK economic data as labour market remains a cause for concern
* US services and manufacturing sectors continue to expand
* European Central Bank cuts interest rates
* Economic conditions remain buoyant across much of the MENA region
* New China Life successfully undertakes initial public offerings in Hong Kong and Shanghai
Mixed UK economic data
UK economic data released during the week provided a mixed picture. The Markit/CIPS Construction Purchasing Managers Index ® (PMI) slipped from 53.9 in October to 52.3 in November.
However, the Markit/CIPS survey found that output in the UK’s construction sector had grown thanks to increased new business. In addition, the sector had been supported by the first rise in residential construction activity for six months. Despite this, Halifax noted that the average house price in the UK in November was £161,731 – representing a fall of 0.9% relative to October and of 1.0% relative to November 2010. Halifax’s Housing Economist Martin Ellis noted that ‘overall, housing prices have remained remarkably stable in 2011 despite the difficult and deteriorating economic climate and the substantial pressure on households’ finances.’
The Report on Jobs published by KPMG and the Recruitment and Employment Confederation (REC) showed that the UK’s labour market remains weak. Permanent staff placements fell in November at the fastest rate since July 2009. Agencies’ billings for temporary/contract staff increased marginally. Pay pressures remained subdued. KPMG’s Bernard Brown observed that ‘economic uncertainty is resulting in a number of employers placing jobs on hold and taking longer to make recruitment decisions.’
In a widely expected move, the Bank of England’s Monetary Policy Committee voted to maintain Bank Rate at 0.5% and to keep its asset purchase program at £275bn.
US services sector continues to grow
During the week, the Institute of Supply Management (ISM) released its non-manufacturing index (NMI), a measure of activity in the US services sector. The NMI fell from 52.9 in October to 52% in November. This is the lowest reading since January 2010 – but indicates that a broad range of service industries are, collectively, still expanding. Employment and the backlog of orders contracted, but other aspects – production, new orders, inventories and prices – are rising.
The US Department of Commerce observed that its estimate of revenue of the country’s information technology (IT) sector for the third quarter of 2011 was US$288.6bn – an increase of 0.6% relative to the second quarter of 2011, and a rise of 3.4% relative to second quarter of 2010. Other sectors that are estimated to have grown include professional/ scientific/ technical services and administrative/ support/ waste management/ remediation services. Official data points to modest growth in the US manufacturing sector. Excluding transportation equipment, new orders for manufactured goods rose by 0.2% in October. Shipments, unfilled orders and inventories also increased.
In Canada, the central bank announced that it would maintain interest rates at 1.00%. The central bank noted that Canada’s economy had been slightly stronger than expected in the last six months or so. However, ‘going forward, the weaker external outlook is expected to dampen GDP growth in Canada through financial, confidence and trade channels. The economy also continues to face competitiveness challenges, including the persistent strength of the Canadian dollar.’
ECB cuts rates and promotes bank lending and liquidity. At its meeting on 8 December, the Governing Council of the European Central Bank (ECB) lowered interest rates by 0.25% to 1.00%. ECB President Mario Draghi noted that ‘the intensified financial market tensions are continuing to dampen economic activity in the euro area and the outlook remains subject to high uncertainty and substantial downside risks.’ The Governing Council also decided to undertake four ‘non-standard’ measures which aim to ‘ensure enhanced access of the banking sector to liquidity and facilitate the functioning of the euro area money market.’ The overall objective is to promote the provision of credit to households and non-financial businesses.
Separately, the European Banking Authority (EBA) said that European Union banks need to raise an additional €115bn in fresh capital by the end of June 2012. Previously, the EBA had estimated that the banks needed €106bn in new capital in order to lift their core Tier 1 capital to 9% of risk-weighted assets. The new estimate takes into account the recent volatility in euro area sovereign bond markets.
In terms of the economic data, the Markit Composite Eurozone PMI® rose from 46.5 in October to 47.0 in November – indicating that the combined manufacturing and services sectors are still contracting – if at a marginally slower pace than previously (a reading below 50 represents as decline in activity, above 50 represents an increase). Activity is contracting in France, Italy, Spain and Germany. Markit’s survey found that employment grew in France and Germany, but was stagnant elsewhere. Meanwhile, Germany’s Economics Ministry noted that industrial production in that country rose by 0.8% in October – or by a little more than had been expected by commentators.
Japan’s service sector stagnates
The Markit Japan Services PMI™ slipped from 52.3 in October to 49.5 in November, a level that indicates a very modest reduction in activity (a reading below 50 represents as decline in activity, above 50 represents an increase). Volumes of new business, the level of outstanding business and total staff numbers also dropped slightly. Output prices dropped in a month in which average input prices rose marginally. Markit economist Alex Hamilton noted that service sector firms expressed pessimism regarding the one-year business outlook, with the deteriorating economic climate the dominant theme.
Emerging market news
Much of the newsflow during the week highlighted the resilience of economic activity in Central and Eastern Europe and/or the Middle East and North Africa. For instance, the SABB HSBC Saudi Arabia PMI™ rose from 56.7 in October to a three month high of 58.1 in November. Markit, which compiled the PMI, noted that Saudi Arabian non-oil private sector business conditions continued to improve in November, with activity, new orders and staffing all rising at faster rates. HSBC’s PMI™ for the United Arab Emirates (which slipped slightly from 53.4 in October to 52.5 in November) was indicative of ‘further solid output and new business growth.’
Elsewhere, HSBC’s service sector PMIs were more mixed. In Brazil, the PMI slipped from 53.6 in October to 52.6 in November – implying that activity rose for the 26th consecutive month. Activity has been accelerating in Russia, where the corresponding figures were 53.5 and 54.8. In China, the figures were 54.1 and 52.5 – a result that was a three-month low and well below the long-term trend.
At its meeting on 6-7 December, the Monetary Policy Council of the National Bank of Poland (NBP) decided to keep its key policy rates unchanged at 4.50%. The accompanying comments were upbeat. ‘In Poland, GDP data for the third quarter of 2011 confirmed continuously relatively high and stable growth in that period, running at a rate close to that recorded in second quarter of 2011. GDP growth was mainly driven by expanding domestic demand, supported by rising private consumption and investment growth. Yet, as compared with the previous quarters, contribution of net exports to GDP growth rose considerably.’ The Council is confident that inflation in Poland, which is currently running at 4.3%, will slip back to its target of 2.5%.
Company news
During the week, New China Life Insurance, the third-largest life company in that country in terms of premiums written, raised US$1.9bn in initial public offerings (IPOs) in Hong Kong and Shanghai. Although the shares were priced towards the lower end of the range indicated by the insurer, the success of the IPO – at a time of volatility in global markets – augurs well for large scale raisings by other Chinese insurance companies. Reports indicate that Taikang Life Insurance, People’s Insurance Company (Group) of China and China Reinsurance are also hoping to undertake IPOs. Swiss insurance giant Zurich Financial owns a 15% stake in New China Life.
The Chinese government finally granted approval for the acquisition, by Switzerland’s Nestlé, of a 60% stake in confectionery maker Hsu Fu Chi. The purchase is reported to cost around US$1.7bn. The Hsu family will retain a 40% stake in Hsu Fu Chi. The transaction is an example of a major multi-national company buying brand(s) in China in order to get improved access to that market.
Amgen, the world’s largest biotechnology company, announced that it would buy back around 9.5% of its outstanding stock for US$5bn. This move is a part of a larger US$10bn stock buy-back program. The deal is remarkable for two reasons. One is that it was structured as a Dutch auction, in which the shareholders were given the opportunity to identify the price at which they would tender their stock. The other is the absolute size. Amgen’s total revenues last year amounted to US$15.1bn.
