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China’s official PMI seen edging down to 50.6 in November

BEIJING (Reuters) – Growth in China’s manufacturing sector likely slowed slightly in November as demand remained sluggish, a Reuters poll showed.

The median forecast from 12 economists in the poll was that the official manufacturing Purchasing Managers’ Index (PMI) for November will be 50.6, slightly lower than October’s 50.8.

The survey will be released on Monday.

A reading above 50-point level indicates an expansion in activity while one below that points to a contraction on a monthly basis.

If the survey shows a slower pace of expansion in November, that may keep investors worried that the Chinese economy, which has stumbled this year, may not recover soon.

Industrial Bank Co. Ltd, in a research note, said consumption only showed good signs at an online “singles’ day” promotion by Alibaba Group Holding on Nov. 11 and steel production fell nearly 10 percent this month as mills near Beijing halted operations for the Asia-Pacific Economic Cooperation (APEC) summit.

Hurt by unsteady exports, a housing downturn and cooling investment growth, the Chinese economy is in danger of missing the government’s growth target of about 7.5 percent this year. Third-quarter growth of 7.3 percent was the weakest since the global financial crisis.

China cut interest rates unexpectedly on Nov. 21, stepping up efforts to support the world’s second-biggest economy as it heads towards its slowest expansion in nearly a quarter of a century, saddled under a mountain of debt.

“I don’t think the interest rate cut will have a huge impact on the real economy. The biggest problems are still weak demand and tight credit,” said Zhou Hao, ANZ economist in Shanghai.

A preliminary PMI survey released last week by HSBC/Markit showed the manufacturing sector stalled in November, with output contracting for the first time in six months.

The official PMI is focused on larger, state-owned factories, as opposed to the HSBC/Markit PMI which focuses more on smaller manufacturers in the private sector.


China Merchants Securities 50.6

China Minzu Securities 50.9

Barclays     50.6

Guangfa Bank 50.6

ANZ 50.6

Hwabao Trust 50.5

Shenyin Wanguo               50.3

Shanghai Securities 50.1

Bank of China 50.5

Industrial Bank 50.6

Credit Suisse 50.4

Action Economics 50.3

Prior                          50.8             

Median                         50.6               

Highest                        50.9                

Lowest                         50.1               

No. Of Forecasts 12                

(Reporting by Judy Hua, Shao Xiaoyi and Koh Gui Qing in BEIJING and Polling team in BANGALORE; Editing by Richard Borsuk)

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After zero rates, Sweden ponders next steps to avoid deflation

STOCKHOLM (Reuters) – What should a central bank do next when it already has zero interest rates and arguably still faces the threat of Japanese-style deflation? If it’s the Swedish Riksbank, it should keep cutting, and do so soon, says Lars Svensson.

Svensson no longer has a say; he quit as a deputy Riksbank governor last year after failing to persuade fellow board members to cut rates aggressively. Last month, they heeded his advice, lowering the repo rate to 0 percent and pushing back the official forecast for when the Riksbank will start tightening monetary policy again to mid-2016.

After years of tense, polarized meetings that eventually led to Svensson’s resignation, a united Riksbank now sees zero rates as enough to push inflation up toward its 2 percent target.

Svensson disagrees, saying Sweden should go into negative rates – effectively charging banks to deposit funds at the central bank – to avoid the deflation which has trapped Japan in low economic growth punctuated by periodic recessions for more than a decade.

“From this point it is unlikely that the current policy at zero is enough,” he told Reuters. “They should lower to -0.25 or even -0.50. The next meeting would be the natural time.”

The Riksbank’s next policy meeting is on Dec. 15, with its decision announced the following morning.

Rate-setters have not ruled out negative rates, but Riksbank Governor Stefan Ingves has rejected the comparison with Japan, pointing to expected Swedish growth this year of around 1.9 percent, with the economy moving up a gear again in 2015.

Nevertheless, Swedish consumer prices have been flat or falling for most of the last two years on an annual basis. Underlying inflation, the Riksbank’s preferred measure which excludes interest rate effects, was 0.6 percent in October.

Some fear the bank may have again underestimated how weak price pressures are, especially with economic problems in the euro zone and China, and it needs to do more..

“For Sweden, it all hinges on international demand picking up,” said Roger Josefsson, chief economist at Danske Markets. “We are afraid to admit it, but I think there are a lot of similarities between Sweden and Japan.”

Should inflation fail to rise, the Riksbank’s first line of defense will be to push back its mid-2016 forecast for when rates will start going up.

The bank could also repeat measures it took in 2008-9 during the global crisis, when it pumped liquidity into the financial system, offering long loans and loans in currencies other than the Swedish crown. It also accepted a wider range of collateral for this funding.

Another tool could be adopting the kind of quantitative easing (QE) used by the United States, Japan and Britain – and now being contemplated by the European Central Bank. That could involve printing money to buy up government or mortgage bonds.

But with Swedish economic growth and access to credit not a problem, such measures may fail to move inflation much.

“Swedish banks are well capitalized and our judgment is that companies and households are getting the loans they require, so we don’t see a need there,” Riksbank First Deputy Governor Kerstin af Jochnick said in a recent speech.

She added that the Riksbank would not achieve much if it bought government debt; yields on 10-year Swedish bonds are already at historic lows at around 1 percent..


Another option would be a currency floor, like that adopted by the Swiss National Bank, to stop the crown appreciating.

“If the Riksbank is serious about inflation they have to do something about the currency,” said Danske’s Josefsson. “QE in Sweden is very difficult because we have very shallow markets.”

The crown has already eased around 4.5 percent against the euro this year. A further drop would help Swedish exporters, a backbone of the economy but who are struggling with stagnant demand in the euro zone.

It would also avoid stoking already worryingly high levels of household debt – the risk of other measures such as QE.

But with the relatively strong economy, a large current account surplus and a currency that may be undervalued in a longer term perspective, action on the crown could upset European neighbors. They could accuse Sweden of engineering a devaluation to gain an unfair advantage in export markets.

Ingves said recently that intervention to weaken the crown was “not an option currently”.

Much blame for the low inflation has been laid at the central bank which raised rates in 2010 and 2011 to 2 percent, and kept policy relatively tight even as the global recovery stuttered, fearing easy money could stoke a housing bubble.

Nobel Prize-winning economist Paul Krugman said in the New York Times that the Riksbank had been “awesomely wrongheaded”.

New European Commission President Jean-Claude Juncker wants to kick start EU investment but in Sweden the government has said higher spending will have to be offset by higher taxes.

That leaves the Riksbank to fight the Swedish deflation threat alone, and for the moment it is relying on zero rates. “Rate cuts take time before they reach the economy,” af Jochnick said. “We should feel the effects of the rate cuts and our judgment is that this will be enough to push up inflation.”

(Editing by Alistair Scrutton and David Stamp)

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Barclays says its Swiss private bank drops out of U.S. tax deal

ZURICH (Reuters) – Barclays’ private bank in Switzerland has dropped out of a U.S. program aimed at cracking down on wealthy Americans evading taxes through hidden offshore accounts, the British bank’s market head for Switzerland said on Thursday.

“We have recently exited the program,” Barclays executive Francesco Grosoli said at an event in Zurich, adding that the bank had done so “three or four months ago” after evaluating its options and seeking advice. Grosoli did not elaborate.

A host of Swiss banks have come forward to join the program, which requires them to hand out some previously hidden information and potentially face penalties of up to 50 percent of assets they managed on behalf of U.S. clients.

(Reporting By Oliver Hirt; Writing by Katharina Bart)

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Banking tricks blunt China’s drive to increase lending

SHANGHAI (Reuters) – China hopes that last week’s interest rate cut will increase lending into the economy to shore up flagging growth, but measuring any rise will be impeded by a number of tricks the country’s bankers use to manipulate the figures.

Chinese banks, which are heavily controlled by the government, are often instructed to match their lending practice to further official policy, and when the People’s Bank of China cut rates for the first time in two years on Friday, it made clear that helping smaller firms gain access to credit was among its goals.

Outstanding yuan loan growth slipped to its slowest in almost nine years in October, and the PBOC’s efforts might well succeed in raising the headline figures, but bankers say it is commonplace to game the statistics to hit targets.

One trick is to extend a loan but then ask the borrower to use a portion of the fund to purchase wealth-management products sold by the bank, helping to hit both loan goals and sales targets.

Another technique is to require a portion of the money lent – anywhere between 30 and 40 percent, according to bankers – returned as deposits, so it can earn interest on the whole loan, while effectively retaining part of it.

“It’s just internally generated business through a dummy counterpart,” said Jimmy Leung, banking and capital markets leader and partner at PwC China.

The banking regulator has said these practices are illegal but say only “some commercial banks” engage in them. Bankers say manipulation is still rampant.

“It’s very common,” said a banker at a major state-owned bank who declined to be identified.


As the world’s second-biggest economy heads for its slowest yearly growth in 15 years, authorities have been stepping up efforts to reduce the cost of financing for small and medium-sized enterprises, which included instructions from China’s cabinet to “prevent the illegal diversion of loans and ensure that loan funds flow directly to the real economy”.

In early September, the China Banking Regulatory Commission posted a notice asking banks not to “use underhand measures to illegally attract and falsely increase deposits”.

But bankers say the efforts are slow and ineffective and have done little to curb the practices.

Another banker said agreements to return some of the loan as deposits have now become verbal, as opposed to being written into loan documents previously.

“The CBRC is feeling the stones to cross the river … but bankers have already reached the other side,” he said.

(Additional reporting by Kazunori Takada and Jake Spring; Editing by Will Waterman)

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Indonesia’s Lion Group buying ATR planes worth $1 billion in Asia expansion

SINGAPORE (Reuters) – Indonesia’s Lion Group is buying an additional 40 aircraft from ATR for $1 billion at list prices, the companies said, in a move that will make Lion the biggest customer of the European manufacturer.

The purchase order will be signed on Thursday in Rome by Lion’s co-founder Rusdi Kirana and ATR’s CEO Patrick de Castelbajac in the presence of Italian Prime Minister Matteo Renzi, Lion said in a statement.

Kirana’s Lion Air, Indonesia’s biggest and one of the world’s fastest-growing airlines, has captured global attention with record purchases of jets from Boeing and Airbus over the past few years. Airlines usually get large discounts from manufacturers on list prices.

Despite rival airlines deferring orders, Kirana is pushing forward with Lion’s expansion plans and buying new planes to tap Indonesia’s rapidly growing consumer class, as well as to compete with Malaysia’s AirAsia.

“These additional 40 ATR 72-600s will be used to meet the growing demand forecast over the next five years both within the Group’s existing operators’ networks and to develop other opportunities for ATR operations throughout Asia and developing markets worldwide,” Lion said.

ATR is co-owned by Airbus group and Italian industrial conglomerate Finmeccanica.

So far, Lion has taken deliveries of over 40 ATRs. The turboprop aircraft fly more slowly than jets, but their lower fuel consumption means they are increasingly popular in growth markets such as Southeast Asia and Latin America.

Operating turboprops is part of Lion’s strategy to fly in remote locations in Indonesia and Malaysia and it also uses one ATR in Thailand. Deliveries of the turboprops from Thursday’s order will start in 2017 and run into 2019. The latest deal boosts Lion’s total ATR orders to 100.

(Editing by Stephen Coates and Muralikumar Anantharaman)

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SABMiller, Coca-Cola and local firm to create African bottler

LONDON/JOHANNESBURG (Reuters) – SABMiller Plc, The Coca-Cola Company and Gutsche Family Investments (GFI) are combining their soft drinks bottling operations in South and East Africa to create a group with $2.9 billion in revenue across 12 fast-growing markets.

The new company, which will be headquartered in South Africa, will be 57 percent owned by the brewer, 31.7 percent by GFI, which is the majority owner of South Africa-based bottler Coca-Cola Sabco, and 11.3 percent owned by The Coca-Cola Company, the groups said on Thursday.

As part of the deal, Coca-Cola will also acquire SABMiller’s sparkling soft drink Appletiser brands globally, and buy or be licensed for a further 19 non-alcoholic names in Africa and Latin America for about $260 million.

“The opportunity is significant, with favorable demographics and economic development pointing to excellent growth prospects,” said Alan Clark, SABMillerChief Executive.

“This also signifies a strengthening of our strategic relationship with The Coca-Cola Company.”

Households in fast-growing African economies are finding themselves with much more disposable income, which they are spending on what previously would have been considered luxuries.

Management consultancy McKinsey says that Africa’s consumer spending on shopping, banking, telecoms and tourism could grow to $978 billion by 2020, from $570 billion in 2010.

The new firm, Coca-Cola Beverages Africa, will have more than 30 bottling plants when the deal is completed, bringing together brands such as Appletiser and spring water Valpre in countries such as South Africa, Kenya, Ethiopia, Mozambique and Tanzania.

Others are Uganda, Namibia, Comoros and Mayotte. At a later date, operations in Swaziland, Botswana and Zambia will be included in the transaction.

Nomura and NLA advised Coca-Cola Sabco and Rothschild advised SAB Miller on the deal.

(Reporting by Paul Sandle and Helen Nyambura-Mwaura; Editing by Vincent Baby)

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Toyota recalls more cars for dangerous Takata air bags

TOKYO (Reuters) – Toyota Motor Corp said on Thursday it would recall 57,000 vehicles globally to replace potentially deadly air bags made by Takata Corp, as a safety crisis around the Japanese auto parts maker looks far from being contained.

Toyota’s action follows a recall by rival Honda Motor Co for the same problem two weeks ago after revelations of a fifth death, in Malaysia, linked to Takata’s air bag inflator. More than 16 million vehicles have been recalled worldwide since 2008 over Takata’s air bag inflators, which can explode with too much force and spray metal fragments into the car.

Toyota is recalling some Vitz subcompacts, called Yaris in some markets, and RAV4 crossover models made between December 2002 and March 2004. About 40,000 are in Japan, 6,000 in Europe and the rest in other markets outside North America. Toyota said it was not aware of any injury or death related to the recall.

Separately, Toyota’s small-car subsidiary Daihatsu Motor Co also issued a recall, in Japan, of 27,571 Mira minivehicles produced between December 2002 and May 2003 for the same reason – its first recall involving Takata inflators.

About 2.6 million vehicles have been recalled in Japan so far for Takata’s air bag inflators, a transport ministry official said.

Takata-related recalls are almost certain to balloon after U.S. safety regulators on Wednesday ordered the company to expand a regional recall of driver-side air bags to cover the entire United States, not just hot and humid areas where the air bag inflators are thought to become more volatile.

Takata has so far resisted expanding the recall, saying that could divert replacement parts away from the high-humidity regions that need them most.


The U.S. National Highway Traffic Safety Administration (NHTSA) has given Takata until Tuesday to issue a nationwide recall, and could fine it up to $7,000 per vehicle if it doesn’t comply. It remains unclear how many more vehicles that would add, but it could be in the millions, affecting five automakers: Ford Motor Co, Honda, Chrysler Group LLC, Mazda Motor Corp and BMW AG.

A U.S.-wide recall of driver-side air bags could cost an estimated 70 billion yen ($600 million), Nomura Credit Research analyst Shintaro Niimura wrote in a Nov. 26 report.

“Takata could need nearly 200 billion yen ($1.7 billion) of reserves in the event of a U.S. nationwide recall (including passenger-side air bags), and the company’s cash-on-hand would be tightly squeezed,” he wrote, noting Takata had just 8.33 billion yen of cash and deposits.

“If the company makes any missteps, we cannot say that there is ‘zero’ chance of the company dying a sudden death – that is, being hit with excessive debt or facing a cash-insolvency bankruptcy,” Niimura added.


NHTSA’s action and the latest recalls come on the heels of an announcement by Japan’s transport ministry on Wednesday that it received a report of an “unusual deployment” of a Takata air bag as it was being removed from a scrapped car on Nov. 6. The inflator was manufactured in January 2003 at Takata’s Monclova, Mexico factory, and had not been subject to recalls, at least in Japan, raising the prospect of an expanded recall, the ministry said.

A Toyota spokesman said the scrapped car was a 2003 Will Cypha, a Japan-only compact model that is no longer in production. Toyota said it was investigating the issue as part of its wider probe into Takata’s air bag inflators. “We will take prompt and appropriate action if we find there is a need for a recall as a result of the investigation,” it said.

Takata shares dropped as much as 7.9 percent in Tokyo on Thursday, closing down 4.8 percent. Toyota shares eased 0.5 percent and Daihatsu shares slipped 1.2 percent, roughly in line with the broader market. Shares of Honda, Takata’s top customer, underperformed other auto stocks, falling 3.3 percent.

Honda had said the Takata air bag inflator that failed in the Malaysia crash had likely been exposed to excessive moisture at the supplier’s now-shuttered plant in LaGrange, Georgia. A transport ministry official said no further recalls are expected in Japan related to the problem identified at the LaGrange line between November 2001 and November 2003.

A second U.S. congressional hearing is scheduled for Wednesday, where representatives from Takata, NHTSA and several automakers will testify.

($1 = 117.3600 yen)

(Reporting by Chang-Ran Kim; Editing by Ian Geoghegan)

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Lion Group set to buy ATR planes in nearly $1 billion deal

SINGAPORE (Reuters) – Indonesia’s Lion Group is expected to sign a deal on Thursday to buy about 40 ATR 72-600 aircraft for nearly $1 billion at list prices, a source familiar with the matter said on Thursday.

The order is part of a strategy by Lion Air, one of the world’s fastest-growing airlines, to use turboprop planes in remote locations in Indonesia and Malaysia.

Despite rival airlines deferring orders, Lion co-founder Rusdi Kirana is pushing forward with expansion plans and placing new plane orders to serve Indonesia’s rapidly growing consumer class, as well as to compete with Malaysia’s AirAsia.

The former travel agent captured international attention when he announced record purchases of jets from Boeing and Airbus over the past few years. Airlines usually get large discounts from manufacturers at list prices.

The source declined to be identified as he was not authorized to talk about the order. Officials from ATR and Lion Group had no immediate comment.

ATR is co-owned by Airbus group and Italian industrial conglomerate Finmeccanica. It competes for turboprop sales with Canada’s Bombardier.

Lion previously ordered 60 ATR aircraft and has taken deliveries of just over 40 planes. Turboprop aircraft fly more slowly than jets, but their lower fuel consumption means they are increasingly popular in growth markets such as Southeast Asia and Latin America.

(Editing by Stephen Coates)

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Asia shares edge higher, oil tumbles to four-year low

TOKYO (Reuters) – Asian stocks hit a one-month high on Thursday as investors bet that more central bank stimulus in China and Europe would shore up the global economy, while oil prices tumbled to a four-year low as hopes for output cuts by OPEC faded.

MSCI’s broadest index of Asia-Pacific shares outside Japan advanced 0.3 percent while Shanghai shares hit a three-year high, extending their rally after a surprise interest rate cut last week. They are up 8.2 percent so far this month.

“The rate cut clearly showed the Chinese authorities are very much keen to support the economy. So even though Chinese economic data has been pretty weak, investors are convinced that there will be no hard landing,” said Naoki Tashiro, the president of TS China Research.

Japan’s Nikkei shed 0.8 percent as the yen rebounded mildly but has gained 5.1 percent so far this month to become the second best performing market in the region after China following a surprise easing by the Bank of Japan at the end of October.

European shares are expected to rise with spreadbetters projecting 0.4 percent gains in France’s CAC 40 and 0.3 percent rise in Germany’s DAX, which advanced for a 10th straight session on Wednesday, as investors bet on further monetary stimulus from the European Central Bank.

“I expect a moderate (equities) rally to continue, perhaps led by European shares given signs of recovery there,” said Soichiro Monji, chief strategist at Daiwa SB Investments.

On Wall Street, stocks rose on Wednesday thanks to gains in tech shares, with the SP 500 and Dow industrials closing at records despite disappointing U.S. economic data.

Durable goods orders, a measure of business spending plans, fell for a second straight month, consumer spending rose less than expected and new home sales also unexpectedly fell.

A separate report from the Labor Department showed initial claims for state unemployment benefits last week were above 300,000 for the first time since early September.

All of which helped push down U.S. debt yields, with 10-year notes yield hitting a five-week low of 2.229 percent on Wednesday.

The dollar stepped back further from a 4-1/2-year peak against a basket of currencies hit on Monday. The dollar index stood at 87.634 versus Monday’s peak of 88.440.

The U.S. currency fetched 117.28 yen, off last week’s seven-year high of 118.98 yen while the euro traded at $1.2501, having extended its recovery from a low of $1.23595 on Monday.

Still, the common currency is likely to be hemmed in by expectations that the ECB could start buying sovereign debt, as other major central banks have done.

Vitor Constancio, the central bank’s vice president, said on Wednesday the ECB might decide to do so as early as the first quarter of next year, in the clearest indication yet from an ECB policymaker on the timing of any quantitative easing.

He also suggested the ECB is likely to buy government bonds broadly in proportion to the size of the euro zone’s 18 economies.

While many markets saw subdued trading on Thursday as U.S. financial markets are shut for Thanksgiving Day, oil markets were rattled after OPEC signaled that it would hold off making any major production cuts this week.

OPEC Gulf Arab oil producers have reached a consensus not to cut oil output when OPEC meets on Thursday, a Gulf Arab OPEC delegate told Reuters..

U.S. crude futures fell more than 1 percent to $72.61 per barrel, their lowest since September 2010. Brent crude fell 1.7 percent to $76.49.

(Editing by Kim Coghill Simon Cameron-Moore)

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