China’s official factory gauge for a third month remained above the dividing line that signals improving conditions, adding to recent evidence of stabilization in the world’s second-largest economy.
The manufacturing purchasing managers index stood at 50.1 in May, the nation’s statistics agency said Wednesday, matching April’s level and compared with a median estimate of 50 in a Bloomberg survey of economists. The non-manufacturing PMI was at 53.1 compared with 53.5 in April. Numbers higher than 50 indicate improving conditions.
A separate manufacturing PMI reading from Caixin Media and Markit Economics fell to 49.2 in May, matching economists’ estimates and down from 49.4 in April.
Fresh signs of resilience will be welcomed by policy makers, after weak April readings raised concerns that a first-quarter stabilization was faltering. Authorities are striving to keep economic growth above 6.5 percent this year while keeping a lid on debt and cutting excess capacity in industries including coal and steel.
“The economy is operating steadily right now, but lacking any upward momentum,” said Tao Dong, chief regional economist for Asia excluding Japan at Credit Suisse Group AG in Hong Kong. “The economy will wane again in the summer, and that will be a key test for the PBOC -- can it maintain stable policy and focus on supply-side management?” he said, referring to the People’s Bank of China.
Abe Postpones Japan's Sales-Tax Hike Until Late in 2019
Prime Minister Shinzo Abe said he’ll delay an increase in Japan’s sales tax until 2019, a move that may help support consumer spending while complicating the government’s efforts to tame the world’s largest debt burden.
The decision marks an about-face for Abe, who had previously said his policies would make the economy strong enough to withstand an increase in the consumption tax.
“Japan will proceed with structural reforms and mobilize fiscal policy to achieve strong growth,” Abe told lawmakers from his ruling Liberal Democratic Party on Wednesday. “I want to fulfill my responsibility by speeding up Abenomics even more. In that context, I decided to postpone the increase in the sales tax to 10 percent by two-and-a-half years.”
The tax hike to 10 percent from 8 percent, previously set to take effect in April 2017, will be pushed back to October 2019. While putting off the increase in the unpopular levy may improve Abe’s prospects in the upper house election, the decision will fan doubts over the government’s ability to rein in a debt burden set to reach almost two and a half times the size of the economy.
Oil prices fall on rising Middle East output, China demand concerns
Oil prices fell early on Wednesday as production from the major Middle East exporters was expected to remain high or even increase just as concerns over the state of China's economy weighed on its fuel demand outlook.
International benchmark Brent crude oil futures LCOc1 were trading at $49.59 per barrel at 0041 GMT, down 30 cents, or 0.6 percent, from their last settlement.
U.S. West Texas Intermediate crude futures CLc1 were down 23 cents, or 0.47 percent, at $48.87 a barrel.
Traders said that the dips were a result of the prospect of rising output from Middle East members of the Organization of the Petroleum Exporting Countries (OPEC), which meets this week in Vienna to discuss its market policy, which most analysts say will continue to focus on defending market share instead of propping up prices by controlling output.
"Many OPEC members ... have plans to grow, so cutting supply now may interfere with those objectives," Morgan Stanley said in a note to clients.
Many Middle East oil producers, including top exporter Saudi Arabia but also Iraq, Iran and the United Arab Emirates have ramped up their supplies to Asia in an aggressive fight for market share.
But on the demand side, Morgan Stanley said that it was worried about China's economic health.
"Our economists worry that April data showed China may be slowing ... The oil demand data from China should reinforce those concerns," the U.S. bank said.
British bank Barclays said that there were also signs of "investor fatigue" in oil markets following months of heavy inflows.
A Reuters poll this week showed that most oil investors expect only limited potential for further price gains this year as production continues to outpace demand.
Despite this, oil prices have risen over 20 percent, or almost $10 dollar per barrel, since early April, largely because of supply disruptions across the globe, and especially in Africa and Canada, and as overall demand remains strong despite China's slowing economy.
In the United States, the world's top oil consumer, demand increased by 2 percent in March, compared to the same month last year, to 19.6 million barrels per day (bpd), the highest seasonal level since 2008, according to Barclays.
Reference: Bloomberg, Reuters
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