Bloomberg News - China Manufacturing Index Unexpectedly Drops

A Chinese manufacturing index unexpectedly fell to a three-month low as output gains eased and employment weakened, suggesting the world’s second-largest economy is vulnerable to a slowdown.

The preliminary reading of 50.5 for aPurchasing Managers’ Index (EC11CHPM) released today by HSBC Holdings Plc and Markit Economics compares with a final figure of 50.8 in November and the 50.9 median estimate in a Bloomberg News survey of 11 analysts. A number above 50 indicates expansion.

Chinese stocks extended losses as the manufacturing report underscored the Communist Party’s warning last week that the economy faces “downward pressure.” Weaker manufacturing may test the President Xi Jinping’s resolve to push through policy changes such as reducing local-government debt and industrial overcapacity.

“The reading confirms our view that Chinese GDP growth is already decelerating,” said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong. He forecasts 7.2 percent gross domestic product expansion in 2014, compared with 7.7 percent this year.

China’s benchmark Shanghai Composite Index (SHCOMP) was down 1.4 percent at the 11:30 a.m. local-time break.

Separately today, large Japanese businesses pared their projections for capital spending in the fiscal year ending March 2014, according to a quarterly Bank of Japan report. Markit will also release PMI gauges for the euro area, France, Germany and the U.S.

Flash PMI

Today’s China report, known as the Flash PMI, is based on 85 percent to 90 percent of responses to surveys sent to more than 420 manufacturers. The final reading will be released on Jan. 2.

The National Bureau of Statistics and China Federation of Logistics and Purchasing will release their own survey of purchasing managers on Jan. 1. The gauge’s November reading was 51.4, the same as October, which was an 18-month high.

Qu Hongbin, HSBC’s chief China economist in Hong Kong, said in a statement today that the December figure is still higher than the average reading in the third quarter, “implying that the recovering trend of the manufacturing sector starting from July still holds up.”

Measures of new orders and export orders strengthened, while input prices increased at a slower rate, according to today’s report. The data were collected from Dec. 5-12, compared with last month’s survey from Nov. 12-19.

Wang Tao, chief China economist at UBS AG in Hong Kong, said the figures shouldn’t be “over-interpreted,” in part because of the earlier dates, as she maintained her forecasts for 7.6 percent GDP growth this quarter and in 2014.

Export Skepticism

Weakness in today’s manufacturing data adds to concerns that November’s official export numbers may have been inflated, said Tim Condon, head of Asia research at ING Groep NV inSingapore, who previously worked for the World Bank. Outbound shipments rose 12.7 percent last month from a year earlier, according to customs data last week.

Top party and government officials held the annual Central Economic Work Conference last week to map out policies for next year. A report issued after the meeting said policy makers will try to stabilize expansion, restructure the economy and promote reforms.

Maintain Continuity

Leaders also pledged to maintain continuity and stability in macroeconomic policies in 2014 and stick to a prudent monetary policy and proactive fiscal policy. They also vowed to tackle local government debt.

Separately, the State Council said it will expand the over-the-counter stock market to ease financing difficulties for small and medium-sized enterprises and expand channels for private investment. Such businesses may find it difficult to get loans from banks who prefer to issue credit to state-owned companies.

Higher costs and wages in China are prompting some companies to set up manufacturing in neighboring Asian economies. Samsung Electronics Co., the world’s biggest smartphone maker, is building a $2 billion plant in Vietnam that may make 120 million handsets a year by 2015, according to two people familiar with the company’s plans who asked not to be identified because the matter is private.

BBC News - Mexico's Congress approves measure to open oil resources

Mexico's Congress has approved a measure to open the state-run oil fields to foreign investment for the first time in 75 years, following a vote by the Senate earlier this week.

Many supporters of the state-run oil firm Pemex have protested the measure

The programme would let private firms explore and extract oil and gas with state-run firm Pemex, and take a share of the profits.

The measure must now be approved by 17 of the country's 32 federal entities.

Mexico nationalised its energy industry in 1938.

Thursday's vote to approve the measure lasted hours and was reported to be heated.

Mexico's President President Enrique Pena Nieto has said the move is necessary to modernise Mexico's energy sector and increase oil production, which has dropped from 3.4 million barrels per day in 2004 to the current rate of 2.5 million barrels per day.

Most observers expected that the signature reform of Mr Pena Nieto's presidency would pass.

However, the left-wing Democratic Revolution Party said it was a submission to US oil companies, and protest camps were set up outside the Senate.

They said the move strikes at the heart of Mexico's identity.

In 1938, then-president Lazaro Cardenas nationalised the oil industry, which had been operated by foreigners up to that point, asserting that Mexico had a right to its mineral wealth.

Reuters News - UK economy set for fastest growth in seven years in 2014 - BCC

A shopper walks past an empty retail unit in Nottingham, central England, June 6, 2013.

CREDIT: REUTERS/DARREN STAPLES

(Reuters) - Britain's economy will expand at its fastest rate in seven years in 2014, thanks to strengthening household consumption, but high household debt will slow growth in 2015, the British Chambers of Commerce (BCC) said on Thursday.

The business group forecast economic growth to rise to 2.7 percent in 2014, an upgrade from the forecasts of 2.2 percent it made as recently as August.

Output should pass its pre-recession peak in the second half of the year, more than six years after the financial crisis began, the BCC said.

The group also raised its estimate of 2013 growth to 1.4 percent from 1.3 percent but reduced the 2015 forecast by 0.1 percentage point to 2.4 percent, saying high household debt would limit consumption.

BCC Director General John Longworth warned that recovery could not come from households and an accelerating housing market alone, echoing comments earlier this week from Bank of England Governor Mark Carney.

"We have to find ways of boosting business investment and exports, as rebalancing oureconomy is critical to our long-term economic future," Longworth said. "Young, growing firms, and many SMEs, continue to struggle with lack of access to available credit, while consumers are getting the support they need to buy homes."

The BCC expects business investment to fall by 5.3 percent in 2013, then recover to rise 5.7 percent in 2014 and a similar amount in 2015, as companies take confidence from a stronger economy.

The BCC also said unemployment would fall to 7 percent - the level at which the Bank of England has said it would start to think about raising interest rates - in the third quarter of 2015, one quarter earlier than previously forecast, but it urged the BoE to make sure the recovery was firmly established.

The group foresees the first BoE rate rise in the fourth quarter of 2015.

BY FREYA BERRY

BBC News - US Congress cross-party budget deal reached

A cross-party Congressional budget committee convened after an October government shutdown has reached an agreement to fund federal services.

Senator Patty Murray (right) and Congressman Paul Ryan (left) were picked to head a cross-party budget committee in the wake of an October government shutdown

The proposed deal finances the government for two years and reduces the federal deficit by $23bn (£14bn).

It also avoids another government shutdown on 15 January when government funding is scheduled to run out.

The new deal "cuts spending in a smarter way," Republican Congressman Paul Ryan said on Tuesday.

'Gridlock'

The budget deal also offsets $63bn in previously enacted automatic military and domestic spending cuts triggered in January when Democrats and Republicans failed to reach a budget compromise.

Mr Ryan and Democratic Senator Patty Murray, the respective chairs of the House and Senate budget committees, were called on to reach a cross-party budget deal in the wake of October's partial government shutdown over federal spending.

"We have broken through the partisanship and gridlock," Ms Murray said of the new deal.

Mr Ryan said he was optimistic the new budget agreement could pass both sides of the highly politically divided Congress.

The measure is expected to come to a vote before the House recesses for several weeks beginning on Friday.

According to the Congressional budget chairs, the new deal does not raise taxes but requires newly hired federal workers to make larger contributions to their pensions.

A federal airport security fee adding $5 to the cost of a typical return flight is also included.

Nature of compromise

Following the announcement on Tuesday, Republican House Speaker John Boehner called the "modest" cross-party deal a "positive step forward".

US President Barack Obama issued a written statement labelling the agreement "balanced" and "designed in a way that doesn't hurt our economy".

"This agreement doesn't include everything I'd like - and I know many Republicans feel the same way. That's the nature of compromise," he said.

But, "because it's the first budget that leaders of both parties have agreed to in a few years, the American people should not have to endure the pain of another government shutdown for the next two years," he added.

Government officials say the deal, totalling an estimated $85bn over the next decade, aims to carve $20bn out of the nation's $17 trillion debt.

Political rancour

The deal is expected to pass both houses of Congress, despite attempts by Conservative groups to persuade Republicans to oppose it.

Democratic lawmakers have also expressed frustration over a failed bid to extend benefits for people unemployed longer than 26 weeks.

That program will expire on 28 December, cutting off benefits to more than one million individuals.

But many have praised the cross-party deal as a crucial step forward after political rancour led to a 16-day government shutdown in October which halted many federal services across the country.

The manoeuvre is said to have cost the US economy $24bn, as projected by financial services company Standard & Poor's.

Under a temporary deal reached to end that political standoff, the newly-formed budget conference committee was given until 13 December to come up with a new deal or face triggering further automatic spending cuts.

Those cuts, estimated at $20bn, would come largely from the Pentagon, according to media reports.

Bloomberg News - Pimco’s El-Erian Sees Faster Global Growth as U.S. Offsets China

The world economy will enjoy faster growth next year, as improvement in the U.S. and the euro area offsets slowdowns in China and Japan, said Mohamed El-Erian, chief executive officer of Pacific Investment Management Co.

The Newport Beach, California-based asset manager said the world economy is likely to expand 2.5 percent to 3 percent in 2014, up from 2.3 percent this year. U.S. growth will accelerate to 2.25 percent to 2.75 percent from 1.8 percent.

“The U.S. economy is healing,” he said in an interview yesterday. “Household balance sheets are in a better place.”

Pimco, which manages $1.97 trillion in assets, sees Chinese growth slowing to 6.75 percent to 7.25 percent from 7.8 percent over the last 12 months, according to El-Erian. Japan’s economy will expand 1 percent to 1.5 percent, down from 2.4 percent in 2013.

He said it’s virtually certain the Federal Reserve will begin moderating its asset purchases by the end of March, with a 50-50 chance of a move next week. He said the Fed is likely to couple any tapering announcement with a cut in the interest rate it pays on banks’ excess reserves and a strengthened commitment to keep monetary policy easy for an extended period.

The euro-area’s economy will expand by 0.25 percent to 0.75 percent in 2014, after contracting 0.4 percent this year, he said.

Job Market

The Pimco executive said he was heartened by the broad-based improvement in the U.S. job market last month. Payrolls increased by 203,000, while the unemployment rate fell to 7 percent from 7.3 percent in October, the Labor Department reported on Dec. 6. The employment-to-population rate also rose while hourly earnings increased.

“The breadth of improvement was notable,” El-Erian said.

The Fed’s “hyperactive” monetary policy has given the U.S. economy time to mend after its deepest recession since the Great Depression, according to El-Erian.

The Fed is buying $85 billion of bonds per month. It has also promised to keep its target for the federal funds rate near zero at least as long as unemployment remains above 6.5 percent and forecast inflation is not above 2.5 percent.

“You’re looking at a transition where the Fed will remain engaged but will alter its policy mix,” by gradually reducing its bond buying while strengthening its forward guidance on short-term interest rates, he said.

He said he expects the Fed to cut the 0.25 percent rate it pays commercial banks on excess reserves as part of that transition. While such a move wouldn’t have a “dramatic impact,” it would underscore the Fed’s commitment to keeping rates low, he said.

Mushrooming Reserves

Banks’ reserves have mushroomed as the Fed purchased securities from them in its bid to lower long-term interest rates. Banks currently have more than $2 trillion in extra cash at the Fed, according to data from the central bank.

Even as the economy improves next year, it won’t achieve “escape velocity,” according to El-Erian. The big missing ingredient is stepped-up capital spending by companies.

“We have yet to see business investment really pick up,” he said. “Companies still prefer to use their excess cash for financial engineering” such as buying back shares or boosting dividends.

By Rich Miller

BBC News - European Central Bank keeps rates at record 0.25% low

The European Central Bank (ECB) has kept its benchmark interest rate at a record low of 0.25%.

The ECB's move came as no surprise to analysts

The decision follows its surprise cut from 0.5% in November.

ECB president Mario Draghi said the decision to keep the rate at its current level reflected the fact that the eurozone's economy remained "subdued".

The eurozone - the 17 countries that use the euro currency - grew by 0.1% in the July-to-September period.

This compares with 0.3% growth in the previous quarter.

In a news conference following the announcement, Mr Draghi confirmed the ECB's forward guidance that the interest rate would remain at the same level or lower for the foreseeable future.

Prices remained "subdued", he said, despite the recent increase in the eurozone inflation rate from 0.7% to 0.9%.

"Our monetary policy decisions are taking time to make their influence felt," he said.

The ECB has reduced its benchmark interest rate consistently since 2008, when it stood at 3.75%, in response to the region's sustained debt crisis and contracting economy.

This refinancing rate determines what banks pay to borrow from the ECB and influences borrowing costs for businesses and consumers.

Reuters News - With song and sadness, South Africans mourn Mandela

1 OF 18. File photo of Nelson Mandela smiling at a news conference ahead of the second 46664 concert near the small Southern Cape province town of George.

BY TOSIN SULAIMAN AND PEROSHNI GOVENDER

(Reuters) - South Africans united in mourning for Nelson Mandela on Friday, but while some celebrated his remarkable life with dance and song, others fretted that the anti-apartheid hero's death would make the nation vulnerable again to racial and social tensions.

As the country's 52 million people absorbed the news that their beloved former president had departed forever, many expressed shock at the passing of a man who was a global symbol of reconciliation and peaceful co-existence.

South Africans heard from President Jacob Zuma late on Thursday that the statesman and Nobel Peace Prize laureate died peacefully at his Johannesburg home in the company of his family after a long illness.

Despite reassurances from public figures that Mandela's passing, while sorrowful, would not halt South Africa's advance away from its bitter apartheid past, some still expressed unease about the absence of a man famed as a peacemaker.

"It's not going to be good, hey! I think it's going to become a more racist country. People will turn on each other and chase foreigners away," said Sharon Qubeka, 28, a secretary from Tembisa township as she headed to work in Johannesburg.

"Mandela was the only one who kept things together," she said.

Flags flew at half mast as South Africa entered a period of mourning leading up to a planned state funeral for its first black president next week.

Trade was halted for five minutes on the Johannesburg stock exchange, Africa's largest bourse, out of respect.

But the mood was not all somber. Hundreds filled the streets around Mandela's home in the upmarket Johannesburg suburb of Houghton, many singing songs of tribute and dancing.

The crowd included toddlers carrying flowers, domestic workers still in uniform and businessmen in suits.

Many attended church services, including another veteran anti-apartheid campaigner, former Anglican Archbishop of Cape Town Desmond Tutu. He said that like all South Africans he was "devastated" by Mandela's death.

"Let us give him the gift of a South Africa united, one," Tutu said, holding a mass in Cape Town's St George's Cathedral.

An avalanche of tributes continued to pour in for Mandela, who had been ailing for nearly a year with a recurring lung illness dating back to the 27 years he spent in apartheid jails, including the notorious Robben Island penal colony.

U.S. President Barack Obama and British Prime Minister David Cameron were among world leaders who paid tributes to him as a moral giant and exemplary beacon.

The loss was also keenly felt across the African continent. "We are in trouble now, Africa. No one will fit Mandela's shoes," said Kenyan teacher Catherine Ochieng, 32.

POLITICIANS NOW "NOTHING LIKE MANDELA"

For South Africa, the death of its most beloved leader comes at a time when the nation, which basked in global goodwill after apartheid ended, has been experiencing labor unrest, growing protests against poor services, poverty, crime and unemployment and corruption scandals tainting Zuma's rule.

Many saw today's South Africa - the African continent's biggest economy but also one of the world's most unequal - still distant from being the "Rainbow Nation" ideal of social peace and shared prosperity that Mandela had proclaimed on his triumphant release from prison in 1990.

"I feel like I lost my father, someone who would look out for me," said Joseph Nkosi, 36, a security guard from Alexandra township in Johannesburg.

Referring to Mandela by his clan name, he added: "Now without Madiba I feel like I don't have a chance. The rich will get richer and simply forget about us. The poor don't matter to them. Look at our politicians, they are nothing like Madiba."

The crowd around Mandela's home in Houghton preferred to celebrate his achievement in bringing South Africans together.

For 16-year-old Michael Lowry, who has no memory of the apartheid system that ended in 1994, Mandela's legacy means he can have non-white friends. He attended two schools where Mandela's grandchildren were also students.

"I hear stories that my parents tell me and I'm just shocked that such a country could exist. I couldn't imagine just going to school with just white friends," Lowry said.

Shortly after the news of Mandela's death, Tutu had tried to calm fears that the absence of the man who steered South Africa to democracy might revive some of the ghosts of apartheid.

"To suggest that South Africa might go up in flames - as some have predicted - is to discredit South Africans and Madiba's legacy," Tutu said in a statement on Thursday.

"The sun will rise tomorrow, and the next day and the next ... It may not appear as bright as yesterday, but life will carry on," Tutu said.

MAY HURT ANC IN LONG TERM

Zuma and his ruling African National Congress face presidential and legislative elections next year which are expected to reveal discontent among voters about pervasive poverty and unemployment 20 years after the end of apartheid.

But the former liberation movement is expected to maintain its predominance in South African politics.

Mark Rosenberg, Senior Africa Analyst at the Eurasia Group, said that while Mandela's death might even give the ANC a sympathy-driven boost for elections due next year, it would hurt the party in the long term.

He saw Mandela's absence "sapping the party's historical legitimacy and encouraging rejection by voters who believe the ANC has failed to deliver on its economic promises and become mired in corruption."

Mandela rose from rural obscurity to challenge the might of white minority rule - a struggle that gave the 20th century one of its most respected and loved figures.

He was among the first to advocate armed resistance to apartheid in 1960 but was quick to preach reconciliation and forgiveness when the white minority began easing its grip on power 30 years later.

He was elected president in landmark all-race elections in 1994 after helping to steer the racially divided country towards reconciliation and away from civil war.

Mandela was awarded the Nobel Peace Prize in 1993, an honor he shared with F.W. de Klerk, the white Afrikaner president who released him in 1990. Reacting to his death, the Nobel Committee said Mandela would remain one of the greatest ever prizewinners.

In 1999, Mandela handed over power to younger leaders better equipped to manage a modern economy - a rare voluntary departure from power cited as an example to African leaders.

This made him an exception on a continent with a bloody history of long-serving autocrats and violent coups.