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Markets are called lower this morning. This is what's happening today:
China’s manufacturing may contract for a sixth month in April, maintaining pressure on officials to adopt more policies to stimulate economic growth. The 49.1 preliminary reading of the purchasing managers’ index from HSBC Holdings Plc and Markit Economics today compares with a final 48.3 in March. A number below 50 points to a contraction. China’s economy expanded 8.1% in the first three months from a year earlier, the least in almost three years and the fifth straight slowdown, as export growth slumped and Wen Jiabao waged a campaign to cool consumer and property prices. The central bank lowered lenders’ reserve requirements in February for the second time in three months to spur lending and boost growth. Banks including Morgan Stanley and Deutsche Bank AG have raised their China growth forecasts partly on anticipation that authorities may further ease policies to prop up economic expansion. Today’s report showing a smaller contraction reinforces the view that economic growth bottomed in the Q112. Still, the figure indicates a rather moderate recovery, and analysts are forecasting looser monetary and fiscal policy this quarter, including a reserve-requirement ratio cut in May.
European Central Bank officials led by President Mario Draghi resisted calls from the International Monetary Fund and U.S. Treasury to do more to stem the debt crisis roiling the euro-area economy. As talks of global finance chiefs ended yesterday in Washington, euro-area central bankers from Draghi to Bundesbank President Jens Weidmann argued they have done enough by cutting interest rates and issuing more long-term bank loans. Officials in Europe and around the world are bickering about additional crisis-calming steps, as turmoil returns to the continent’s bond market amid concern that Spain may need a bailout. While Draghi says Spain and Italy need to agree further action, Prime Minister Mariano Rajoy’s government wants the ECB to reactivate its bond-buying program. The ECB is drawing a line to keep pressure on governments to make the necessary adjustments. If push came to shove the ECB would step in, but they’ll hold the line for now.
Even before the IMF used the Washington meeting to win more than $430b in fresh funds to help safeguard the world economy from Europe’s woes, the ECB was lobbied to consider additional steps. The IMF suggested last week that the ECB lower its benchmark interest rate and keep its crisis-fighting liquidity measures in place to support banks.
Since Draghi took office in November, the ECB has returned its key rate to a record low of 1% even as its balance sheet has ballooned by almost 30% with unprecedented three-year loans to banks totalling more than E1t. While the ECB’s steps helped calm financial markets their effects may be wearing off, with Spain’s 10-year bond yield this month nearing levels which triggered bailouts of Greece, Ireland and Portugal. Since March 2, Spanish bond yields have surged above those of Italy, igniting speculation that the Iberian nation may be the next to require a financial lifeline. Italian borrowing costs have also risen. Italian bill and bond sales this week include a E2.5b bond sale tomorrow and an E8.5b treasury bill sale on April 26, while Spain will sell three- and six- month bills tomorrow.
Political considerations may dominate in the euro area this week. France held the first round of its two-part presidential election yesterday, with the process scheduled to reach a conclusion on May 6. A defeat for the incumbent, Nicolas Sarkozy, would mirror the fate of governments in Ireland, Portugal, Greece, Italy, Spain, Slovenia and Slovakia that have been ousted since the onset of crisis in the 17-nation currency group.
In the Netherlands, Prime Minister Mark Rutte today meets his cabinet to discuss a strategy for passing a budget that meets European Union targets. Early elections will probably be called after Geert Wilders’s Freedom Party withdrew its support for the minority government on April 21 over how to narrow the deficit.
Apple reports results tomorrow after the closing bell. The weakness in Apple came after a report that suggested Apple may face a shortfall in supply of certain components. Qualcomm Inc. (QCOM), the largest maker of chips that connect mobile phones to cellular networks, said last week that it can’t get enough of its most advanced chips.
Qualcomm, which already makes chips for some versions of the iPhone, is the leading provider of so-called LTE chips, which enable faster data connections. That means San Diego-based Qualcomm will probably supply that part for the next iPhone version, according to analysts including Munster.
Concerns over the iPhone aside, most analysts are sticking to projections that Apple shares will keep rising. There’s only one analyst – Edward Zabitsky of ACI Research who recommends that investors sell Apple, compared with 48 buy ratings, according to data compiled by Bloomberg.
Some fund managers are also projecting that Apple will rally after tomorrow’s earnings report. The company will probably say net income rose to $9.95 a share, the average analyst estimate compiled by Bloomberg. Except for one case, Apple has released better per-share profit than analysts were predicting in each of the past 28 quarters, data compiled by Bloomberg show.
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Good day and happy trading!
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