U.S. consumer spending softens; savings hit three-year high

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Lucia Mutikani, Reuters
10:06 AM, E.T. | February 1, 2016
Retail

Tags: Consumer Spending

 

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U.S. consumer spending was unchanged in December, but a jump in savings to a three-year high suggested consumption could rebound in the months ahead.
The Commerce Department said on Monday the unchanged reading in consumer spending followed an upwardly revised 0.5 percent increase in November. Spending on long-lasting manufactured goods such as autos dropped 0.9 percent. Purchases of nondurable goods also declined 0.9 percent.
Economists polled by Reuters had forecast consumer spending, which accounts for more than two-thirds of U.S. economic activity, edging up 0.1 percent in December after a previously reported 0.3 percent gain in November.
ADVERTISINGWhen adjusted for inflation, consumer spending edged up 0.1 percent after a 0.4 percent gain in November.
Consumer spending increased 3.4 percent in 2015 after advancing 4.2 percent in 2014.
That data was included in last Friday's fourth-quarter gross domestic product report, which showed consumer spending growth slowed to a 2.2 percent annual rate from the third quarter's brisk 3 percent pace.
Moderate consumer spending, weak export growth and ongoing efforts by businesses to reduce unsold merchandise piled up in warehouses helped restrict economic growth to a 0.7 percent pace in the fourth quarter. More cutbacks in investment by energy firms struggling with lower oil prices also hurt GDP growth.
The dollar slightly pared losses against a basket of currencies after the data, while U.S. stock index futures were trading lower. Prices for shorter-dated U.S. Treasuries fell.
ROBUST SAVINGS
In December, income rose 0.3 percent after a similar gain in November. Wages and salaries increased 0.2 percent after shooting up 0.5 percent in November. Income in 2015 was up 4.5 percent, the largest increase since 2012, after rising 4.4 percent in 2014.
Income at the disposal of households after accounting for inflation in 2015 recorded its biggest increase since 2006.
With income outpacing spending in December, savings surged to $753.3 billion, the highest level since December 2012, from $717.8 billion in November.
Higher savings and rising house prices should help to soften the blow to household wealth from a recent stock market sell-off and drive spending in early 2016.
With consumption soft, inflation retreated in December.
A price index for consumer spending slipped 0.1 percent after ticking up 0.1 percent in November. In the 12 months through December, the personal consumption expenditures (PCE) price index, however, rose 0.6 percent after increasing 0.4 percent in November.
That was the largest increase since December 2014. Year-over-year inflation rates are rising as the weak readings during the year drop out of the calculation.
Excluding food and energy, prices were unchanged after rising 0.2 percent in November. The so-called core PCE price index increased 1.4 percent in the 12 months through December after a similar gain in November.
Core PCE is the Federal Reserve's preferred inflation measure and remains well below the U.S. central bank's 2 percent target.

Global factories parched for demand, need stimulus

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Jonathan Cable and Wayne Cole, Reuters
7:36 AM, E.T. | February 1, 2016
Economy

Tags: Manufacturing

 

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January surveys of global factory activity released on Monday showed the new year began much as the old one ended - with too much capacity chasing too little demand.
China was again the epicentre of Asian disappointment. The official measure of manufacturing fell to its lowest since mid-2012. The weakness also encompassed such bellwethers of high-tech trade as South Korea and Taiwan.
Manufacturing growth also slowed in the euro zone at the start of 2016. Incoming orders showed no meaningful increase, even though companies cut prices at the deepest rate for a year.
British factories did enjoy a faster start to the year than expected, but companies cut staff at the fastest rate in three years and export orders fell despite a weaker sterling.
"It wasn't the best start to the year, but it wasn't awful. Markets are pricing in a worst-case scenario and we are not seeing that yet," said Peter Dixon, an economist at Commerzbank.
Stock markets, commodities and oil prices have been battered since the start of the year by concern the Chinese economy, the world's second largest, is struggling.
Such concern has eroded expectations for how fast the Federal Reserve will raise U.S. interest rates, after its first increase in almost a decade in December. Forecasts for Bank of England tightening have also been pushed well back.
A dearth of demand and resulting downward pressure on inflation was why the Bank of Japan felt moved enough to cut interest rates below zero last week.
Meanwhile, having failed to get inflation anywhere near its target - and with demand so low - the European Central Bank is likely to cut its deposit rate in March, and possibly increase its monthly asset purchases.
"It's less to do with what is happening with the real economy and more to do with inflation. It's more of an inflation story than a growth one," Dixon said.
Markit's manufacturing Purchasing Managers' Index for the euro zone will bolster those expectations. It sank to 52.3 from December's 53.2, in line with an earlier flash estimate and above the 50 mark that separates growth from contraction.
January's weakening came as companies offered steep discounts on their goods. A sub-index measuring output prices plummeted to its lowest reading since January 2015.
Consumer prices rose just 0.4 percent last month on a year earlier, official data showed on Friday, nowhere near the ECB's target of close to but just below 2 percent.
Monday's data foreshadow a U.S. survey later in the day. A contraction in manufacturing is expected, although a strong outcome from the Chicago region last week suggests the result may beat forecasts.
Markets got February off to a cautious start after a rocky January, as expectations of more cheap money from some of the world's top central banks were validated by the fresh signs of weak global growth.
ASIAN WOES
The official version of China's PMI survey for manufacturing slipped to 49.4 in January from 49.7 the month before, missing forecasts of 49.6. The services index also disappointed, challenging hopes consumption would take over from industry as the driving force.
A private survey, the Caixin/Markit China Manufacturing PMI, underscored the trend by showing factory activity shrinking for an 11th month.
Japan's results were more encouraging. Its factory barometer slipped only a tick to 52.3 in January as exports picked up. The gains in exports relied on a weak yen, hinting at another reason the BOJ acted so boldly when easing policy last week.
India also recorded an unexpected return to growth. Its erratic PMI jumped to a four-month high after slumping to a 28-month low in December.
Other countries in the region were not so fortunate. South Korea's manufacturing index slipped into contraction. Its exports suffered their sharpest annual fall since August 2009.
China is South Korea's largest market, taking about a quarter of its exports. Smartphones, cars, semiconductors and flat-screen displays all fell in January, boding ill for the companies that usually prop up the economy.
The story was much the same for another electronics hub, Taiwan, where factory growth slowed amid lacklustre demand.
Steep falls in selling prices and input costs also underlined the risks of deflation across the region and the need for yet more stimulus.
"Shipments being this weak means a recovery in consumption is urgently needed. If you look at the economy as a whole, this might boost the need for policy easing," said Lee Sang-jae, chief economist at Eugene Investment & Securities.

China arrests 21 in suspected $7.6 billion Ponzi scheme

• Lianna Brinded
 

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ReutersA Chinese acrobatic troop.

Chinese authorities have arrested 21 people involved with the country's largest peer-to-peer lending service, Ezubao, which is accused of conducting a Ponzi scheme.

A Ponzi scheme is basically a pyramid scheme in which an investment operation pays returns using money from new investors. To attract investment, the returns are normally unusually high.

The Xinhua newspaper, the mouthpiece for the Chinese government, reported that the fintech company was suspected of conning 900,000 investors out of about 50 billion yuan (£5.3 billion, $7.6 billion).

Peer-to-peer lending in China is like the Wild West right now. Most of the malpractice happens on a small scale at the bottom of the market, which partly explains why it has failed to generate big headlines.

Despite the huge number of platforms going bust there are still an estimated 2,000 online lenders in China, with just 50 representing about half of the market. And online lending remains a tiny fraction of China's financial services overall.

But this would be the largest scam to emerge from the country yet. According to the Xinhua report, the police used two excavators to "uncover some 1,200 account books that had been buried deep below ground."

The Xinhua report said Ding Ning, the chairman of the holding firm Yucheng Group, which launched Ezubao in 2014, used money from new investors to fund his own real-estate projects and to pay off existing investors. It also mentioned that state investigations revealed that more than 95% of the investment offerings on the site were fake.

Investors have already lost a whole heap of money on P2P lending services in China.

In October, Henry Yin, managing director of CreditEase, one of China's biggest platforms, said Chinese investors, most of them unsophisticated individuals playing with savings, have lost an estimated $1.2 billion (£780 million) putting money into Chinese P2P lending platforms, largely over the past 18 months.

In late summer last year, the Chinese government pledged to crack down on the industry.

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Credit Suisse and Barclays will pay $154.3 million over 'dark pools'

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REUTERS/Toby MelvilleA Barclays sign hangs outside a branch of the bank in the City of London July 30, 2014.

Washington (AFP) - Barclays and Credit Suisse will pay $154.3 million combined to settle charges that they violated federal securities laws over their so-called "dark pools," the US Securities and Exchange Commission said Sunday.

They agreed to record individual settlements for operating alternative trading systems, known as "dark pools," the SEC said in a statement. 

Barclays admitted wrongdoing and will pay a total of $70 million, while Credit Suisse will pay a total of $84.3 million.

Dark pools allow clients to trade large volumes of shares anonymously with prices posted only after the transaction is finished, avoiding the open reporting of ongoing bid and offer prices required on public exchanges.

"Dark pools have a significant role in today's equity marketplace and the firms that run these venues must ensure that they do not make misstatements to subscribers about their material operations," said Andrew Ceresney, director of the SEC's Enforcement Division.

"These largest-ever penalties imposed in SEC cases involving two of the largest ATSs show that firms pay a steep price when they mislead subscribers."

Regulators say more oversight is needed for trading venues like dark pools, which have captured an increased share of overall share trading in recent years.

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CHINA PMI MISSES

• David Scutt, Business Insider Australia
 

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China’s official performance of manufacturing index (PMI) for January is out, and it’s a miss.

The index printed at 49.4, down from 49.7 in December and missing market expectations of a read of 49.6.

It was also the sixth month in succession that the index came in below the 50 level that separates expansion from contraction, and marked the steepest decline in activity seen since August 2012.

As the chart below reveals, the stretch of sub 50 readings is unprecedented.Business Insider Australia

Keeping with the trend established in 2015, the nation’s services sector continued to outperform, although the improvement in activity levels also cooled compared to a month earlier.

The NBS’ non-manufacturing PMI gauge fell to 53.5, down on the 54.4 level seen in December.

While activity levels continued to expand, the 0.9 point decline indicates that the pace of growth decelerated in January.Business Insider Australia

Market attention will now turn to the separate Caixin-Markit manufacturing PMI report for January that will be released at 12.45pm AEDT.

It is focused on smaller manufacturing firms, and is a private sector survey.

Read the original article on Business Insider Australia. Copyright 2016.

Inside the complex process that decides who wins the first big victory of the 2016 elections

• Maxwell Tani
 
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AP Photo/Andrew HarnikDonald Trump.

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German magazine features striking photo of Donald Trump in front of flames and the US flag

TRUMP: Wow, Ted Cruz got beat up at the debate — 'glad I wasn't there'

Donald Trump cast a gigantic shadow over the Fox News debate — without even being there

On Monday, more than a year of bluster and posturing will come to a head, as the first votes in the presidential-primary process are cast and the first delegates are allotted in Iowa.

Almost 20 presidential candidates have cooked pork chops with state lawmakers. They've blanketed the airwaves with advertisements. And they've made a few ideological concessions that happen to appease in-state voters.

But behind the scenes, the campaigns understand that Iowa's complex nominating process means that simply winning a voter's support before the caucus is only the first step.

That's because Iowa's caucus system, the first nominating contest in the nation, is a fairly complicated process. The state will be followed by Nevada, Alaska, Maine, and Wyoming, among others, which all hold closed caucuses within the first six weeks of voting this year.

But in the minds of many, the system is not particularly democratic.

"This event is a party run, party administered affair. No voting equipment is being used, and professional election administration officials are not managing the process," The Associated Press said in a disclaimer about its 2012 coverage.

In Iowa's case, the state allows anyone who will be at least 18 years old on Election Day to caucus in February at one of Iowa's 1,682 precincts, starting at 7 p.m local time. The vast majority will caucus with either the Democratic or Republican parties, which run quite different processes.

Democrats

Democrats have a much more complicated caucus that focuses on a concept called "viability."

Once caucus-goers have arrived, precinct chairs determine a threshold for the amount of support that a candidate — this time, former Secretary of State Hillary Clinton, Sen. Bernie Sanders (I-Vermont), or former Maryland Gov. Martin O'Malley — needs to be considered "viable." Viability is calculated based on a formula that considers how many delegates that precinct awards.

For example, viability for a caucus with two delegates is the number of attendees multiplied by 25%. Caucuses with a single delegate award the delegate based on which candidate achieves a majority support.

Attendees then divide themselves into "presidential preference groups." If a candidate doesn't meet the viability threshold, supporters can then join another group or attempt to lobby supporters from viable candidates to defect. Once the groups are solidified, the precinct awards its delegates proportionally.

REUTERS/Jim BourgCaucus precinct chairman Greg Nichols calls the caucus to order with a Hillary Clinton campaign megaphone in 2007.

Republicans

The Republican process is somewhat more straightforward, as the race in Iowa looks to come down to real-estate magnate Donald Trump and Sen. Ted Cruz (R-Texas).

After campaign surrogates are given the chance to speak briefly in support of their candidate, caucus-goers vote by paper ballot or by show of hands, and the tallies are sent to the party's state headquarters and relayed to the media.

Though the process commits delegates to different candidates, the delegates are by no means prevented from switching to other candidates.

Though individual state-delegate counts do not matter if there is an overwhelming favorite for the nomination, the fact that delegates are not committed could become important if the race on either the Republican or Democratic side is close come each party's convention.

Criticism

Critics assert the system is unorganized and not especially democratic.

Voting is not anonymous in many cases, which studies have shown can influence voters to gravitate away from their original choice if pressured by neighbors and friends.

With no absentee-voting option, turnout is also low. As Politico noted during the last presidential-election cycle, of the 120,000 Iowa Republicans who showed up in 2008, many were older and wealthier than the average Iowan.

The results weren't much better in 2012: Only just more than 147,000 of the state's 2,250,000 eligible voters actually showed up, according to The Huffington Post.

Some caucus-goers also find the system confusing.

Writing for Slate, Christopher Hitchens noted in 2007 that then-Sen. Hillary Clinton dispatched campaign staffers to supporters' homes with DVDs explaining how the caucuses worked, because some of her potential supporters found the process to be "intimidating or baffling."

And in 2012, former Massachusetts Gov. Mitt Romney (R) and then-Rep. Michele Bachmann (R-Minnesota) offered explainers of how the system worked on their campaign sites.

Defenders of Iowa's system say the caucuses allow for discourse that serves as a check on candidates with high name recognition.

"I think the caucuses are what democracies are built on. The idea that a group of neighbors will get together to talk and debate and decide who they want to be our next president or our next nominee in this case gets at the very essence of what America is built on," Charlie Szold, theIowa GOP's communications director, told Business Insider late last year.

He added: "They ensure that these campaigns aren't just about name recognition or TV ads or radio spending. It's about meeting people, and convincing them and organizing them to come out at a specific time."

But a larger issue in recent years has been the disorganization of the system itself.

In 2012, former Sen. Rick Santorum (R-Pennsylvania) ended up defeating Romney in Iowa — but only after the state-party chair reversed his original call following the discovery of massive amounts of miscounted ballots at more than 130 precincts.

According to The New York Times, several precincts were not certified and misrepresented the percentage of votes picked up by the two candidates.

REUTERS/John GressRick Santorum looks at Iowa Caucus voting results with aides and staff.

'Upgrades'

Iowa officials caution that the caucus shouldn't be held to the same standard as an official primary. They argue that it should instead be treated as a bellwether for where voter sentiment lies in the state.

In 2012, Iowa Gov. Terry Branstad (R) commended the process, noting that the caucus is staffed by volunteers, not government officials with training and experience overseeing elections.

“I think they generally did a good job,” Branstad said, according to The New York Times. “Remember this is a caucus, not a primary. So you don’t have all the professionalism that you have with the county auditors and all of those people handling it. You have volunteers.”

Nevertheless, Republicans are working to ensure that this is not a problem in 2016.

"We've made some serious upgrades to the process this time around," Szold said.

Instead of reporting their results via telephone, the Republican and Democratic parties in Iowa are both using a Microsoft-supported mobile application to report precinct results. The tallies will be reported in real time as they're submitted.

Szold said the app includes functions to input the number of votes cast and the number of votes each candidate garnered, and prevents precinct captains from submitting results unless the numbers reconcile. He argued that this counts as a major improvement over the automated phone system that was used in 2012, because precinct captains can actually see the results they report.

"In 2012, the way that people reported results was they would call a number and they would literally tap in the results on a keypad in their phone. So a voice would say 'Mitt Romney,' and you would have to look at your phone and physically tap in 34 votes or whatever it was," Szold said.

"The app works very similarly. The huge difference is that you can actually see what you're typing in."

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Macau gambling revenue drops in Jan, analyst say worst may be over

FEB 1, 20161:43 PM

[HONG KONG] Gambling revenues for the Chinese territory of Macau dropped 21.4 per cent in January, ahead of a Lunar New Year week-long holiday which is expected to boost the number of visitors to the world's largest casino hub.

Revenue in the former Portuguese colony fell for the 20th consecutive month to 18.7 billion patacas (S$3.31 billion), government data showed on Monday, in line with analysts'expectations of an 18-26 per cent decline.

Macau, which relies on the casinos for revenue, has been battered by a two-year-old anti-corruption campaign and slowing growth in China's broader economy.

Gambling revenues are hovering around five-year lows but there are signs the worst may be over.

Casinos operated by Las Vegas magnates Las Vegas magnates Steve Wynn and Las Vegas Sands Corporation's Sheldon Adelson reported stronger-than-expected fourth quarter revenues, largely due to an increase in the more middle class, so-called mass market gamblers.

Appealing to these gamblers has become a priority for casinos that once relied on the wealthier VIP gamers for most of their revenues - a category that has been the hardest hit by the crackdown on corruption and illicit money flows out of China.

New casino resorts set to open this year, will include features such as a miniature Eiffel Tower and large lake fronted with a gondola ride, to draw in China's burgeoning middle class.

On Monday, Chinese gamblers milled around the huge gaming room of the Sands China Venetian casino while families shopped and ate at the resorts' multiple restaurants and boutiques.

Analysts and executives expect the Lunar New Year holiday, which starts on Feb 7, to further boost the number of mass market gamblers to Macau from China, which accounts for up to two-thirds of overall visitors.

Billy Ng, analyst at Bank of America Merrill Lynch, forecast total revenue growth to remain flat this year, compared to 2015 when revenues dropped 34 per cent on the year. Other analysts have forecast revenues to fall by up to 10 per cent or rise by up to 1 per cent.

REUTERS

    
 

Yen loses further ground after surprise BoJ stimulus move

FEB 1, 20161:42 PM

[TOKYO] The yen sank again Monday, extending losses after the Bank of Japan unveiled shock stimulus last week, while emerging currencies took a hit as weak China manufacturing figures stirred worries about the world's number two economy.

Japan's central bank on Friday announced it would adopt a negative interest rate policy, meaning it would effectively start charging commercial lenders to park their cash with it.

The move - intended to ramp up lending in order to kickstart the economy and fend off deflation - spurred a rally across world markets and sent the yen tumbling.

"The BoJ decision will have a lasting negative impact on yen because speculative positioning was the wrong way," Sean Callow, a Sydney-based foreign-exchange strategist at Westpac Banking, told Bloomberg News.

He added that expectations that it would make even more cuts in the coming months would weigh on Japan's currency.

In Tokyo, the dollar advanced to 121.27 yen from 121.12 yen Friday in New York. The greenback was trading around 118.60 yen on Friday before the announcement.

The euro strengthened to 131.51 yen from 131.19 yen in US trade, while it also advanced to US$1.0844 from US$1.0831.

On Monday, an official index of Chinese manufacturing activity fell to a more than three-year low in January.

The news follows a string of data indicating that the once-mighty growth rates in the Asian giant - the world's number two economy and a key driver of global growth - are fading fast.

The weak reading weighed on the commodity-linked Australian dollar, which declined 0.24 per cent against the greenback, while other emerging currencies also fell.

South Korea's won slumped after data showed the country's exports, the main driver of the economy, suffered their steepest decline since August 2009, extending what is now a 13-month losing streak.

The won weakened 0.48 per cent, while the oil-linked Malaysian ringgit was down 0.14 per cent.

Taiwan's dollar ticked down 0.08 per cent and the Singapore dollar lost 0.04 per cent.

However, the Indonesian rupiah surged 1.15 per cent on speculation that the BoJ move and more possible easing by the European Central Bank will push investors into higher-yielding, riskier assets.

AFP