TheChek News Flow

DAX:

MDAX:

SDAX:

The renewed expansion in manufacturing activity was supported by increasing new orders

A private gauge of China’s manufacturing activity jumped back into expansionary territory in August, rising to a five-month high, though questions linger over whether the rebound can be sustained.

The RatingDog China general manufacturing purchasing managers index rose to 50.5 last month from 49.5 in July, according to data released Monday by S&P Global. A reading above 50 suggests an expansion in activity, while a reading below that level suggests contraction.

The renewed expansion in China’s manufacturing activity in August was supported by increasing new orders, underpinned by improving domestic demand and successful promotional efforts, according to surveyed panelists. Manufacturers were the most upbeat since March on hopes that economic conditions will improve and that their expansion plans will help to drive sales over the next year, according to RatingDog and S&P Global.

But manufacturers remained cautious in hiring, opting instead to cut staff for a fifth straight month in August despite greater capacity pressures and rising business confidence, they noted.

The rebound in Chinese manufacturing activity remains patchy, said RatingDog founder Yao Yu.

“The durability of the improvement depends on whether exports truly stabilize and whether domestic demand can pick up pace,” said Yao.

The pace of decline in new export orders has eased, Yao noted. “That’s encouraging, yet we shouldn’t get carried away, because external demand looks partly pulled forward while domestic demand stays soft, so the upside to output may be limited unless domestic demand firms up,” he said.

“The latest upturn resembled a breath of relief rather than a sustained rally,” said Yao.

Monday’s reading compares with a competing official gauge released Sunday, which showed deterioration in factory activity last month. The official manufacturing PMI for August came in at 49.4, compared with the prior month’s 49.3.

The RatingDog survey, compiled by S&P Global, focuses more on China’s smaller private companies and has often diverged from the official gauge.

Looking ahead, Capital Economics’ Zichun Huang said in a Monday note that she expects slower fiscal spending to continue to weigh on infrastructure activity. “The government’s efforts to tackle overcapacity could dampen manufacturing output by curtailing excess production,” Huang added.

In the latest sign of stress in the Chinese economy, transactions of new home sales from China’s 100 biggest property companies stood at 207 billion yuan, equivalent to $29.03 billion, in August, according to data provider China Real Estate Information Corp. That marked a 17.6% drop from a year earlier and the sixth straight month of decline.

Meet the duo hoping to take a Milanese tailor to international success

Money will fund pioneering UK trial that uses artificial intelligence to map the immune system

Oracle billionaire Larry Ellison’s institute of technology is funding a first-of-its-kind project to use artificial intelligence for research into vaccines that will protect against the world’s most dangerous pathogens, in one of the largest grants that Oxford university has ever received.

The Ellison Institute of Technology is giving £118mn to fund the Oxford Vaccine Group’s five-year project led by Professor Sir Andrew Pollard, who ran the trials of the Oxford/AstraZeneca Covid-19 vaccine. 

The group, part of Oxford university’s paediatrics department, will use the funding for “human challenge” trials — where participants are deliberately infected under controlled conditions — to improve our understanding of how the immune system responds to bacteria that antibiotics sometimes fail to treat. 

Pollard said the grant was a “unique investment in UK universities”, which need commercial enterprises such as biotechnology companies to back their science.

“This is a great example of the recognition by the others, by the Institute, of the type of work that you can do in British universities that we need to encourage for the future of the sector,” he told the Financial Times.

The funding will bolster the UK’s pioneering work in vaccine research to help tackle antimicrobial resistance that scientists forecast will cause 39mn deaths globally in the next 25 years.

The Ellison Institute of Technology is due to fully open its £1bn-plus Oxford campus in 2027. The facility will directly employ thousands of scientists in 30,000 square metres of research laboratories and computing capacity enabled by Ellison’s technology company Oracle. It was first established in late 2023.

It aims to work on “commercially sustainable solutions” to some of the world’s biggest challenges, including in health, clean energy and food security, and will eventually plan to spin off companies.

Daniela Ferreira, a professor who is jointly leading the project with Pollard, said the EIT grant was essential to being able to conduct the studies at an unprecedented scale, recruiting more people than ever to the trials.

EIT’s experts in AI will work alongside the UK’s world-leading specialists in human challenge trials. 

“It’s almost like a 20-year programme in four or five [years] because we can massively accelerate the whole programme by [combining] the expertise together with EIT and Oxford,” she said.  

The project will tackle pathogens such as E. coli, Streptococcus pneumoniae, and Staphylococcus aureus, which scientists have tried and failed for decades to make vaccines to protect against. 

Pollard said only about one in 20 vaccine research projects are successful, even though vaccine candidates often look promising in animal studies, because there are big differences between how the immune systems of mice and humans operate. 

The trials will collect large amounts of data on how human bodies respond as they are exposed to the pathogens, including blood samples and tissue from the lymph nodes, a key part of the immune system.

By using AI to process this data, the scientists hope they will understand more about the best tactics participants’ immune systems employ when battling the bacteria. Those insights will help with selecting the right part of the bacterium to mimic in a vaccine. 

Investors are shying away from vaccine research, after the US appointed Robert F Kennedy, a vaccine sceptic, to oversee health policy. Earlier this month, Kennedy cancelled a £500mn grant for research into vaccines using messengerRNA, a technology used in the bestselling Covid-19 shots. 

Pollard said there was “huge concern” that the “dialogue” in the US was threatening vaccines that protect millions of children’s lives. “One of the greatest tools ever is being undermined by poor science and misinformation,” he added.

Digital tokens perceived as safe assets come with hidden risks for retail investors, says Professor Jean Tirole

Jean Tirole, a Nobel Prize-winning economist, has warned about “insufficient supervision” of stablecoins and the possibility that governments will be forced into multibillion-dollar bailouts should the tokens unravel in a future financial crisis.

In an interview with the Financial Times, the winner of the 2014 Nobel Prize in economics said he was “very, very worried” about supervision of stablecoins and the possibility of a run by depositors if doubts materialised over the underlying reserve assets to which the digital tokens were pegged.

Stablecoins such as those issued by Tether and Circle — which are pegged to real-world assets — are expected to gain further popularity after the US government passed a law in July that paves the way for banks to launch their own digital assets linked to the US dollar and backed by securities such as US government bonds.  

Global use of stablecoins has already risen to around $280bn as US President Donald Trump pushes to establish them as a pillar of mainstream finance.

While they could be regarded by retail users as “a perfectly safe deposit”, stablecoins could become a source of losses and trigger calls for costly government-led bailouts, Tirole, a professor at the Toulouse School of Economics, said.

He warned that the practice of backing stablecoins with US government bonds could become unpopular because of the underlying assets’ relatively low yields, citing previous instances when the returns of Treasury debt were “negative for a number of years” and payouts after inflation were even lower.

Stablecoin issuers could therefore be lured into the “temptation” to invest in different assets that “carry higher returns and are riskier”, he said.

Higher risks increased the odds of a scenario in which a stablecoin’s reserve asset lost value, triggering a run on the asset, he argued in an interview on the sidelines of a meeting of Nobel laureates in Lindau, Germany, last week.

In such a scenario, “the price of the stablecoins might [also] go down,” as they lost their peg to a sovereign currency, warned Tirole.

“If it is held by retail or institutional depositors who thought it was a perfectly safe deposit, then the government will be under a lot of pressure to rescue the depositors so they don’t lose their money,” he said, adding that over the past decades, only a few uninsured depositors of traditional banks ever faced losses.

Such risks could be managed if global supervisors had “sufficient manpower” and were “incentivised to be very careful”. However, Tirole warned this was a “big if”, in particular because “some key members of the [US] administration . . . have a personal financial interest in [cryptocurrency]. And beyond the personal interest, there’s ideology.”

Trump and members of his family have backed several crypto businesses, including one that issues a stablecoin called USD1.

Tirole’s warning comes a month after the European Central Bank cautioned that the rise of US dollar-backed stablecoins threatened to undermine its control over monetary policy.

The Bank for International Settlements said earlier this year that such tokens “perform badly” on requirements for being widely used as money.

French business warns of recession risk as political turmoil deepens

Fiscal discord alarms company chiefs as PM’s confidence-vote gamble rattles markets

Business leaders in France say the country’s latest bout of political chaos threatens serious economic consequences, lamenting the lack of certainty and of political consensus about how to repair the public finances.

The French government is predicted to fall for the third time in just over a year on September 8, when Prime Minister François Bayrou will face a confidence vote on his plan to tackle the widening deficit.

He called the vote himself last week. However, his move appears to have backfired as opposition parties announced their intention to vote him down. The leader of the centre-left Socialists, Olivier Faure, declared on Friday that his party was ready to govern. “We are done with [threats of] Bayrou or the apocalypse,” said Faure.

Patrick Martin, head of the Medef business lobby, warned of a real “recession risk” in France, adding that the country was already “in a very precarious situation”.

“Order books are drying up, tariffs are [weighing on sentiment] and we’re once again adding a French hazard,” he told journalists at a business conference. “This undeniably poses a new risk to growth.”

The political crisis also spooked financial markets, sending France’s benchmark 10-year borrowing costs above 3.5 per cent last week, close to a post-Eurozone debt crisis high.

Alexandre Bompard, chief executive of food retailer Carrefour, echoed Martin’s concerns. “Only consumption is driving French growth right now,” he said. “Uncertainty is the worst for the consumer . . . The more uncertainty there is, the greater the risk of a strong impact.”

Executives reacted with a mix of exasperation and resignation to the latest turmoil, with many criticising politicians for their failure to tackle the country’s growing debt burden and a deficit that is expected to hit 5.4 per cent of GDP this year. 

A senior executive at a Cac 40 company said that while there was an “economic consensus” on the need to address the problems, there remained no “political consensus” on how to do so.

“When there’s uncertainty, people tend to dodge the issue and question their plans,” he said, noting that clients had held back on projects since last year’s snap elections.

“We’ve had instability in government for 18 months,” said Guillaume Borie, head of AXA France, a financial services company. “Business leaders need clarity to be able to plan the necessary investments.”

Bayrou took over in December after Michel Barnier’s government was brought down by a previous no confidence motion. He called the September 8 vote as a way to bolster his mandate and push through a €44bn package of tax rises and spending cuts, in a bid to reduce the deficit in next year’s budget.

But Alexandre Saubot, head of the France Industrie lobby, said the prime minister’s gamble had made already “nightmarish” budget negotiations even worse. “It was a mess before — it’s even more of a mess now,” he said.

Catherine MacGregor, chief executive of energy group Engie, said: “[Businesses need] stability and consistency. I’m sometimes astonished to see the extent to which our elected officials don’t understand how much of a competitive advantage that can represent.”

The upheaval — which could leave President Emmanuel Macron seeking his fifth prime minister since he won a second term in 2022 — comes against a weakening economic backdrop for France and rising pressures from US tariffs.

French real gross domestic output has been falling since the election last year, and output was already expected to drop to 0.6 per cent in 2025, from 1.1 per cent in 2024, according to data from Insee. Unemployment has also risen since the start of 2023.

Meanwhile, the difference between interest rates on the country’s 10-year government bonds and the German equivalent — a measure of market worry about debt — is close to its highest level since 2012.

Bruno Cavalier, chief economist at ODDO BHF, said France risked “lower growth and a larger budget deficit” next year after Bayrou’s decision to call a no-confidence vote.

He is also concerned Macron could be pushed into yet another legislative election as support for a fresh vote gains favour in opinion polls, deepening the political crisis and its knock on effects for the economy.

With the country’s political future and budget negotiations in the balance, the fear among many business leaders is that the uncertainty drags on, or that parliament turns to further tax increases to try to plug the deficit. 

“If we add to our burden, growth will be severely affected. Let us grow, invest, innovate, train, hire and export. This is how we will contribute to the recovery,” said Martin at Medef. 

Amir Reza-Tofighi, head of the small and medium business lobby CPME, added: “In the short term, political instability plunges CEOs into a fog: how can they invest, recruit or innovate when they do not know what tomorrow will look like?”