UK growth set to fall back after services sector weakens: PMI

UK companies are facing a declining pool of skilled unemployed and increasingly having to poach staff from other companies, in a trend that points to rising wage pressures. 

PHOTO: BLOOMBERG

SEP 3, 20154:55 PM

[LONDON] Britain's services sector recorded its weakest growth in more than two years last month, mirroring signs of economic weakness in the United States and China, a closely watched survey showed on Thursday.

Financial data company Markit, which compiled the figures, said Britain's overall economic growth rate was likely to slow to 0.5 per cent in the three months to September from an above-average 0.7 per cent in the second quarter.

"Even after allowing for usual seasonal influences, August saw an unexpectedly sharp slowing in the pace of economic growth," Markit's chief economist Chris Williamson said.

The Markit/CIPS Purchasing Managers' Index (PMI) for Britain's services industry - which does not cover retailers or the public sector - dropped in August to its lowest since May 2013 at 55.6, down from 57.4 in July.

That was below all forecasts by economists in a Reuters poll that predicted a modest rise but still slightly above the index's long-run average.

Uncertainty about the scale of China's slowdown has caused share prices to slump in recent weeks, and has triggered broader worries about world growth which may delay the United States'first increase in interest rates since the financial crisis.

Many economists think the US Federal Reserve could move as soon as next week, though figures on Tuesday showed the weakest growth for more than two years at Chinese and U.S. factories, as well as a softening in China's services sector.

The Bank of England is also considering when to start to raise interest rates although financial markets do not expect it to act until next year.

British inflation is barely above zero and Thursday's survey suggested it was unlikely to rise fast, with the second-smallest rise in input costs for British services companies since 2009.

"The inflation outlook is benign and is therefore likely to help tip the argument towards postponing any rate hikes until the wider global economic picture becomes clearer," Mr Williamson said.

A broader Markit index - which wraps in construction firms and factories - also fell to its lowest since May 2013, and pointed to a return to more average annual rates of growth of around 2 per cent after a rapid expansion in 2014 and early 2015.

Markit did not mention China's troubles, but Britain's main manufacturers' lobby said on Sunday that almost half its members feared they would be hit by a sharp slowdown in the economy of the Asian powerhouse.

REUTERS

    
 

UK wage pressure signal seen in increase in staff poaching

UK companies are facing a declining pool of skilled unemployed and increasingly having to poach staff from other companies, in a trend that points to rising wage pressures. 

PHOTO: BLOOMBERG

SEP 3, 20156:40 PM

[LONDON] UK companies are facing a declining pool of skilled unemployed and increasingly having to poach staff from other companies, in a trend that points to rising wage pressures.

In a new report, the Office for National Statistics said the number of unemployed has fallen since 2014 while job-to-job moves have risen. That follows a drop in the unemployment rate to 5.6 per cent from 8.5 per cent almost four years ago. The employment rate has risen to the highest in the past 40 years.

"This may suggest that employers are finding it increasingly difficult to hire skilled workers from the unemployed," the ONS said on Thursday. Unless the supply of labor increases, the increase in job moves "can be associated with greater pressure on wage inflation," it said.

Labor-market tightness, spare capacity and wage-growth pressures are key metrics for Bank of England policy makers as they consider when to begin removing emergency policy settings and raising the key interest rate from a record low. Governor Mark Carney and his eight colleagues on the MPC will digest a mixed economic picture as they prepare for their decision on interest rates next week. While wage inflation has picked up this year, a survey Thursday showed that services - the largest part of the economy - grew at the slowest pace in more than two years in August.

The ONS noted that calculating the degree of spare capacity in the economy is complicated by the shift in the composition of employment between the start of the recession and the most recent data.

One major change has been an increase in self-employed workers. That may reflect a shift in working patterns and the degree of slack may be reduced, putting upward pressure on wages; or, if self-employed workers prefer full-time employment, there could be more slack than headline figures suggest.

BLOOMBERG

      

Draghi unveils revamped QE program as ECB cuts economic outlook

Mario Draghi unveiled a revamp of his quantitative-easing program that allows officials to buy higher proportions of each euro area member's debt. 

PHOTO: BLOOMBERG

SEP 3, 20159:47 PM

[LONDON] Mario Draghi unveiled a revamp of his quantitative-easing program that allows officials to buy higher proportions of each euro area member's debt.

Acknowledging a "somewhat weaker economic recovery," the European Central Bank president said in Frankfurt on Thursday that the Governing Council has now set a purchase limit of 33 per cent of a country's debt stock, up from 25 per cent previously. Officials also cut forecasts for economic growth and inflation, citing the emerging-market rout as a threat to global expansion.

Mr Draghi's move gives the ECB's stimulus program more flexibility as officials prepare to continue bond purchases at least until September 2016. Weaker commodity prices, slowing trade and volatility in global equities have fueled speculation that more stimulus is on the way.

"Taking into account the most recent developments in oil prices and recent exchange rates, there are downside risks to the September projections," Mr Draghi told reporters.

"A cross- check of the outcome of the economic analysis with the signals coming from the monetary analysis indicates the need to firmly implement the Governing Council's monetary policy decisions."

The ECB cut its outlook for inflation and growth through 2017. Officials see consumer prices barely growing this year with an increase averaging 0.1 per cent. Inflation will then accelerate to 1.1 per cent in 2016 and 1.7 per cent the next year, Mr Draghi said. The economy will grow 1.4 per cent in 2015 and reach a pace of 1.8 per cent two years later, he said.

BLOOMBERG

    
 

Eurozone inflation could turn negative temporarily: ECB chief

European Central Bank president Mario Draghi said Thursday that inflation in the euro could turn negative in the coming months, even if only temporarily. 

PHOTO: AFP

SEP 3, 20159:30 PM

[FRANKFURT] European Central Bank president Mario Draghi said Thursday that inflation in the euro could turn negative in the coming months, even if only temporarily.

"We could see negative inflation (numbers) in the coming months," but this would be transitory and linked to falling oil prices, Mr Draghi said after the ECB cut its inflation forecast for this year to 0.1 per cent, to 1.1 per cent in 2016 and 1.7 per cent in 2017, all below the ECB's target of around 2.0 per cent

AFP

ECB leaves rates unchanged as expected

The European Central Bank left interest rates unchanged on Thursday, holding them at record lows as it prints money to lift the economy and raise inflation. 

PHOTO: AFP

SEP 3, 20157:55 PM

[FRANKFURT] The European Central Bank left interest rates unchanged on Thursday, holding them at record lows as it prints money to lift the economy and raise inflation.

The decision to leave the cost of borrowing unchanged was widely expected after the ECB cut rates to rock-bottom levels a year ago and repeatedly said they had hit "the lower bound".

At Thursday's meeting, the ECB left its main refinancing rate, which determines the cost of credit in the economy, at 0.05 per cent.

It also kept the rate on bank overnight deposits at -0.20 per cent, which means banks pay to park funds at the central bank, and held its marginal lending facility - or emergency overnight borrowing rate for banks - at 0.30 per cent.

Markets now turn their attention to ECB President Mario Draghi's 1230 GMT news conference, where he will also unveil the ECB staff's new inflation and GDP growth forecasts.

REUTERS

    
 

US trade deficit smallest in five months

The US trade deficit fell in July to its lowest level in five months as exports rose, signaling underlying strength in the economy amid concerns about a global growth slowdown. 

PHOTO: BLOOMBERG

SEP 3, 20158:46 PM

[WASHINGTON] The US trade deficit fell in July to its lowest level in five months as exports rose, signaling underlying strength in the economy amid concerns about a global growth slowdown.

The Commerce Department said on Thursday the trade gap narrowed 7.4 per cent to US$41.9 billion, the smallest since February. June's trade deficit was revised to US$45.2 billion from the previously reported US$43.8 billion.

Economists had forecast the trade gap shrinking to US$42.4 billion. When adjusted for inflation, the deficit fell to US$56.2 billion in July from US$59.0 billion in the prior month.

The smaller deficit implied a modest contribution to gross domestic product from trade early in the third quarter. Trade contributed 0.3 per centage point to the economy's 3.7 per cent annualized growth rate in the second quarter.

Data ranging from consumer spending to employment and housing have suggested the economy retained much of its momentum from the second quarter and was on solid footing when global financial markets were rocked by turbulence triggered by worries over China's economy.

In July, exports increased 0.4 per cent to US$188.5 billion. While that was the first increase since April, exports remain constrained by a strong dollar. The dollar has gained 16.8 per cent against the currencies of the United States' main trading partners since June 2014.

There were increases in exports of food, industrial supplies and materials, and capital goods in July. Automobile exports also rose.

Imports fell 1.1 per cent to US$230.4 billion. However, automobile imports were the highest on record. Imports of consumer goods fell in July.

Exports to China fell 1.9 per cent and imports from that country dipped 0.2 per cent. That left the politically sensitive US-China trade deficit at US$31.6 billion, up 0.4 per cent from June. The trade deficit with China will be closely watched in the coming months after that country devalued its currency in August.

Exports to Canada fell 8.3 per cent in July and could come under more pressure after the Canadian economy slipped into recession in the second quarter. Exports to recession-hit Brazil were the lowest since February 2010.

Exports to the European Union fell 5.3 per cent.

REUTERS

      

US jobless claims rise; trend shows labour market still strong

The number of Americans filing new applications for unemployment benefits rose more than expected last week, but the underlying trend remained consistent with a strengthening labor market. 

PHOTO: AFP

SEP 3, 20158:49 PM

[WASHINGTON] The number of Americans filing new applications for unemployment benefits rose more than expected last week, but the underlying trend remained consistent with a strengthening labor market.

Initial claims for state unemployment benefits increased 12,000 to a seasonally adjusted 282,000 for the week ended Aug. 29, the Labor Department said on Thursday.

Claims for the prior week were revised to show 1,000 fewer applications received than previously reported. Economists had forecast claims rising to 275,000 last week.

A Labor Department analyst said there were no special factors influencing the data and no states had been estimated.

The claims data has no bearing on Friday's closely watched employment report for August as it fell outside the survey period. According to a Reuters survey of economists, nonfarm payrolls likely increased by 220,000 last month after rising 215,000 in July.

But job gains could come in below expectations as the first reading of August payrolls has tended to be weaker in the last several years before being revised higher.

The August employment report will be released less than two weeks before the Federal Reserve's Sept 16-17 policy-setting meeting. There is speculation the US central bank could raise interest rates at that meeting.

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 3,250 to 275,500 last week.

It was the 23rd straight week that the four-week average remained below the 300,000 threshold, which is usually associated with a strengthening labor market.

Thursday's claims report showed the number of people still receiving benefits after an initial week of aid fell 9,000 to 2.26 million in the week ended Aug 22.

REUTERS

    
 

BOJ's Kiuchi warns Japan won't hit inflation goal for another 2-1/2 yrs

Hiroshi Nakaso, deputy governor of the Bank of Japan (BOJ), attends the the International Monetary Fund (IMF) conference in Jakarta, Indonesia, on Wednesday, Sept. 2, 2015. 

PHOTO: BLOOMBERG

SEP 3, 201511:32 AM

[AOMORI] Japan is unlikely to see inflation hit the central bank's two per cent target over the next 2-1/2 years as consumer spending remains weak and China's slowdown hurts exports, Bank of Japan board member Takahide Kiuchi said on Thursday.

The former market economist also warned that Asian economies may see growth slow significantly as China suffers from huge slack and US consumer spending remains soft, keeping any rebound in Japan's economy modest.

But Mr Kiuchi, among those in the nine-member board wary of the rising costs of the BOJ's radical stimulus, stuck to his lone proposal to taper the bank's asset purchases and allow itself more time to hit its two per cent price target. "Consumer inflation ... is unlikely to reach two per cent even in fiscal 2017" ending in March 2018, Mr Kiuchi told business leaders in Aomori, northern Japan. "I think the price target of two per cent is well above the level consistent with Japan's current growth potential," he said, adding that it was difficult to hit the price target unless the BOJ's monetary efforts were accompanied by structural reforms to boost the country's productivity.

Japan's economy is in a lull and will rebound only modestly ahead given sluggish exports to Asia, Mr Kiuchi said.

Private consumption will also lack momentum as households, hit by rising grocery costs and tame wage gains, curb spending, he said.

The world's third-biggest economy slipped into a contraction in April-June and inflation has ground to a halt, keeping the BOJ under pressure to expand stimulus to meet its pledge to accelerate inflation to two per cent by around September next year.

BOJ Governor Haruhiko Kuroda has voiced confidence that Japan is on track to hit the price target. But some board members, including Mr Kiuchi, share doubts held by private analysts on whether the ambitious target can be met so soon and with monetary stimulus alone.

Mr Kiuchi has been the lone board member to advocate tapering the BOJ's massive asset purchases on concern the cost of the programme, such as drying up bond market liquidity, was already exceeding the benefits.

REUTERS

    
 

Update: PUB calls tender to build Singapore's fourth desalination plant

By

Angela Tanangelat@sph.com.sg

Two spaceship-like water towers situated near Tampines Link, pictured on 21 July 2013. 

ST PHOTO: MARK CHEONG

SEP 3, 201511:56 AM

NATIONAL water agency PUB said on Thursday that it would call a tender to build Singapore's fourth desalination plant at Marina East.

Planned with a capacity of 30 million imperial gallons per day, the plant will help meet future water demand in the city area and strengthen Singapore's drought resilience.

Located near water demand zones in the city and eastern Singapore, the Marina East desalination plant will also have the capability to treat freshwater from Marina Reservoir.

The tender will include the engineering design for the development of the plant under a Design-Build-Own-Operate (DBOO) arrangement.

Desalination is one of the citystate's "Four National Taps", which also include rain water from local catchments, imported water from Malaysia and reused wastewater, known as NEWater.

Singapore's first desalination project, the SingSpring Desalination Plant, is operated by Hyflux and produces 30 million gallons of water a day for PUB.

Tuaspring, the second and larger plant with a capacity of 70 million gallons of water, is also operated by Hyflux.

A third plant is being built at Tuas. With it, Singapore will be able to produce up to 130 million gallons of water a day from seawater, up from the current maximum of 100 million gallons a day.

Desalinated water, or treated seawater, now meets up to 25 per cent of current water demand and is expected to continue to meet up to 25 per cent of demand by 2060.

NEWater, which is treated used water, is slated to meet up to 55 per cent of Singapore's water demand by 2060, up from 30 per cent now.

PUB is a statutory board under the Ministry of the Environment and Water Resources. It is the water agency that manages Singapore's water supply, water catchment and used water in an integrated way.

    
 

Xi says China no threat, announces military cuts at parade

Chinese President Xi Jinping reviews troops on a car on Tiananmen Square during the military parade marking the 70th Anniversary of the Victory of Chinese People's Resistance against Japanese Aggression and World Anti-Fascist War at Tiananmen Square in Beijing, China, 03 September 2015.

PHOTO: EPA

SEP 3, 201512:38 PM

[BEIJING] As fighter jets streaked through the skies of Beijing and tanks rolled through Tiananmen Square to commemorate the end of World War II, Chinese President Xi Jinping told the world that China was committed to peace and announced the biggest cuts to the army in almost two decades.

"Chinese love peace," Mr Xi said in a televised speech. "No matter how much stronger it may become, China will never seek hegemony or expansion. It will never inflict its past suffering on any other nation." Mr Xi said that army personnel would be reduced by 300,000, the largest reduction to the 2.3 million-strong military since 1997. The announcement foreshadows the most sweeping overhaul of the military in at least three decades, moving it closer to a US-style joint command structure, people familiar with the matter said.

The parade offered Xi a global platform to present his vision of a "Chinese Dream" of national rejuvenation and military strength. Still, his message of peace may not resonate in the capitals of his neighbors. The country has been flexing its military muscle from the East China Sea, where it disputes territory with Japan, to the South China Sea, where its island- building has given impetus to military budget increases among Southeast Asian nations.

"The cuts announcement is to complement the show of force. It helps soften the perceived power display impact," said Zhang Baohui, director of the Center for Asian Pacific Studies at Lingnan University in Hong Kong. "The cuts won't hurt the PLA fighting capabilities. It's part of the reform package to streamline the PLA to make it more combat effective."

The decision to hold a parade to mark the 70th anniversary of the "Victory of the Chinese People's Resistance Against Japanese Aggression and the World Anti-Fascist War" was a sign of how Xi has become one of the country's most powerful leaders since Mao Zedong. China traditionally puts on a military pageant every 10th anniversary of its founding in 1949. The war anniversary gave Xi the opportunity to have one four years early.

"It reinforces Xi's undisputed position as the paramount leader of the country," said Oh Ei Sun, an analyst at the S. Rajaratnam School of International Studies in Singapore. "It represents the accumulation of everything he's done over the past few years." The pageant featured 12,000 soldiers, almost 200 of China's latest aircraft and mobile ballistic missile launchers capable of delivering nuclear warheads to the continental US.

Russian President Vladimir Putin and South Korean President Park Geun Hye were among world leaders and dignitaries to attend. Many others declined invitations or sent lower-ranking officials to represent them.

Mr Putin, who hostedMr Xi at his own WWII victory parade in May, is the only state leader representing China's wartime allies. US President Barack Obama, British Prime Minister David Cameron and French President Francois Hollande stayed home over concerns over the militarism on display and the potential for the event to stoke anti-Japanese sentiment. No Japanese official attended.

For Mr Xi, the parade was also an opportunity to offer a distraction from a flood of bad news weighing on the Chinese public from a slowing economy to a stock-market rout that's erased $5 trillion of value and the warehouse explosions in nearby Tianjin last month that killed at least 158.

Authorities left nothing to chance ahead of the parade, ordering cars off the road and halting factories to limit pollution, and even deploying monkeys, falcons and dogs to scare birds from the flight path of the planes that will fly over the capital. To make sure the message got across, the government curtailed TV programming that didn't conform to theme of the parade or China's victory in World War II. State media highlighted the event as a historic occasion.

"The party's grip on power is potentially very fragile and the leadership is acutely aware of how quickly things came unstuck in the Soviet Union," said Nick Bisley, a professor of international relations at La Trobe University in Melbourne.

"The party has really got to justify its existence in a more complex society and its has to deliver not just economic growth," he said. "It has got to have people buy into the message and one of the crucial messages central to the party has been: We're the only people keeping this show together."

BLOOMBERG