(AFR) China manufacturing slumps to six-year low


China manufacturing slumps to six-year low
2015-08-21 04:41:48.153 GMT


By Angus Grigg and John Kehoe
Aug. 21 (Financial Review) -- China's giant manufacturing
sector has fallen to a 77-month low, a contraction that will
further alarm global markets which are already nervous about
slowing growth in the world's second biggest economy.
The Flash Caixin Purchasing Managers Index for August fell
to 47.1. The result down from July's final reading of 47.8
which was the worst outcome in 44 months.
"The PMI for August has fallen further from July's
two-year low, indicating that the economy is still in the
process of bottoming out," said He Fan, chief economist at
Caixin Insight Group.
The August reading showed a worsening in all the major
indicators including new orders from domestic and foreign
buyers. Analysts had been expecting a pick-up in the PMI from
July's surprising weak reading.
A reading below 50 indicates the sector is operating below
its long run average. The data is compiled by independent
research firm Markit and sponsored by Caixin, a privately owned
Chinese media group.
The PMI data came after markets in the United States on
Thursday tumbled to their worst loss of the year, over fears
the Chinese economy was slowing faster than expected.
"It's all about China. Fears are really starting to
increase almost like a forest fire," said Daniel Ives, a
managing director at FBR Capital Markets in the US.
The Chinese economy is forecast to grow at around 7 per
cent this year, but markets now fear this number is unreachable
without significant government stimulus.

One sign that Beijing is unwilling to let the economy slow
significantly has been a recent pick-up in credit growth, often
regarded as the single most important factor in China's
economic performance.
It hit a 31 month high in July and has increased by 20 per
cent over the last three months, suggesting activity will
rebound later in the year.

Click here to see the story as it appeared on Financial Review
web site.

Financial Review
Copyright © (2015) Fairfax Media Publications Pty Limited.
www.afr.com. Not available for re-distribution.

-0- Aug/21/2015 04:41 GMT

>>> US After Hours Summary: UEPS +9.0%, CRM +4.7%, HPQ +0.2%, TF

After Hours Summary: UEPS +9.0%, CRM +4.7%, HPQ +0.2%, TFM -11.5%, ROST -9.5%, CRMT -6.4%, INTU -2.9% following earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings: UEPS +9.0%, ARAY +7.0%, BRCD +7.0%, CRM +4.7%, AVNW +3.6%, RPTP +2.8%, MSON +1.7%, HPQ +0.2%

Companies trading higher in after hours in reaction to news: AAC +5.6% (Deerfield Mgmt disclosed 6.43% passive stake in 13G filing), SD +3.4% (S&P upgraded SandRidge Energy to 'CCC+' from 'SD', Outlook Negative; New Senior Unsecured convertible notes rated 'CCC-'), RPTP +2.8% (to acquire Quinsair from Tripex Pharmaceuticals for $68.4 mln upfront; co reaffirmed FY15 guidance), IOSP +1.6% (to replace BRLI in the S&P SmallCap 600), IACI +1.5% (announced that Gary Swidler has been appointed as Chief Financial Officer of its Match Group subsidiary)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings: TFM -11.5%, ROST -9.5%, CRMT -6.4%, NDSN -5.8%, INTU -2.9%

Companies trading lower in after hours in reaction to news: XON -2.3% (announced a public offering of common stock; size and terms not disclosed), NE -0.9% (provided its monthly fleet contract status update), CSTM -0.7% (announced West Virginia Economic Development Authority approval for a partial financing of its $35 million investment in its Ravenswood plant)

>>> Brocade beats by $0.05, reports revs in-line; guides Q4 EPS in-line, revs in

Brocade beats by $0.05, reports revs in-line; guides Q4 EPS in-line, revs in-line 

Reports Q3 (Jul) adj earnings of $0.27 per share, $0.05 better than the Capital IQ Consensus Estimate of $0.22; revenues rose 1.2% year/year to $551.8 mln vs the $550.53 mln consensus. Co reported Q3 Non-GAAP gross margin of 68.6% vs 67.2% last year. 

Co issues in-line guidance for Q4, sees EPS of $0.23-0.25 vs. $0.24 Capital IQ Consensus Estimate; sees Q4 revs of $565-585 mln vs. $573.73 mln Capital IQ Consensus Estimate. 
Guidance: "For Q4 15, we expect SAN revenue to be up 1% to 5% Qtr./Qtr....We typically see stronger buying patterns from our OEM partners in our fiscal Q4....We expect our Q4 15....IP Networking revenue to be up 6.5% to 11% Qtr./Qtr., principally driven by our IP growth initiatives....We expect our Global Services revenue to be flat to up 1% Qtr./Qtr....We expect Q4 15 non-GAAP gross margin to be between 67.5% to 68.5%"

>>> Hewlett-Packard beats by $0.03, reports revs in-line; guides Q4 EPS below co

Hewlett-Packard beats by $0.03, reports revs in-line; guides Q4 EPS below consensus; separation on track 

Reports Q3 (Jul) earnings of $0.88 per share, excluding non-recurring items, $0.03 better than the Capital IQ Consensus of $0.85; revenues fell 8% YoY (-2% ex-FX) to $25.35 bln vs the $25.45 bln consensus.
Personal Systems revenue was down 13% YoY with a 3.0% operating margin. Commercial revenue decreased 9% and Consumer revenue decreased 22%. Total units were down 11% with Notebooks units down 3% and Desktops units down 20%.
Printing revenue was down 9% YoY with a 17.8% operating margin. Total hardware units were down 2% with Commercial hardware units down 6% and Consumer hardware units flat. Supplies revenue was down 6%.
Enterprise Group revenue was up 2% YoY with a 13.0% operating margin. Industry Standard Servers revenue was up 8%, Storage revenue was down 2%, Business Critical Systems revenue was down 21%, Networking revenue was up 22% and Technology Services revenue was down 9%.
Enterprise Services revenue was down 11% YoY with a 6.0% operating margin. Infrastructure Technology Outsourcing revenue was down 13%, and Application and Business Services revenue declined 7%.
Software revenue was down 6% YoY with a 20.6% operating margin. License revenue was down 11%, support revenue was down 3%, professional services revenue was down 8% and software-as-a-service (SaaS) revenue was down 4%.
Co issues downside guidance for Q4, sees EPS of $0.92-0.98, excluding non-recurring items, vs. $1.00 Capital IQ Consensus. 
"I am very pleased that we have continued to deliver the results we said we would, while remaining on track to execute one of the largest and most complex separations ever undertaken."

>>> Salesforce.com beats by $0.02, beats on revs; guides Q3 EPS in-line, revs ab

Salesforce.com beats by $0.02, beats on revs; guides Q3 EPS in-line, revs above consensus; guides FY16 EPS in-line, revs above consensus 

Reports Q2 (Jul) earnings of $0.19 per share, excluding non-recurring items, $0.02 better than the Capital IQ Consensus Estimate of $0.17; revenues rose 23.5% year/year to $1.63 bln vs the $1.6 bln consensus.
Cash generated from operations for the fiscal second quarter was $304 million, an increase of 24% year-over-year. Total cash, cash equivalents and marketable securities finished the quarter at $2.07 billion.
Deferred revenue on the balance sheet as of July 31, 2015 was $3.03 billion, an increase of 29% year-over-year, and 33% in constant currency. Unbilled deferred revenue, representing business that is contracted but unbilled and off balance sheet, ended the quarter at approximately $6.2 billion, up 24% year-over-year.
Billings were +19.4% y/y
Co issues mixed guidance for Q3, sees EPS of $0.18-0.19, excluding non-recurring items, vs. $0.18 Capital IQ Consensus Estimate; sees Q3 revs of $1.69-1.70 bln vs. $1.68 bln Capital IQ Consensus Estimate. Co issues mixed guidance for FY16, sees EPS of $0.70-0.72, excluding non-recurring items, vs. $0.71 Capital IQ Consensus Estimate; sees FY16 revs of $6.660-6.625 bln (Prior $6.52-6.55 bln) vs. $6.55 bln Capital IQ Consensus Estimate.

>>> Bank Of America: "The Only Reason To Be Bullish Right Now Is There Are N

Bank Of America: "The Only Reason To Be Bullish Right Now Is There Are No Reasons To Be Bullish”


The latest research report by BofA's Michael Hartnett, from the very start where we see a chart of CDS levels of Glencore andNoble Group...

... a credit event in commodities (note CDS is widening sharply for resources companies – front page chart) may be necessary to cause policy-makers to panic.
... to his comments about the launch of the Chinese currency war, predicted here 2 days before its start:
Stocks have meaningfully underperformed bonds in the past few months as global growth concerns have caused assets related to Emerging Markets, commodities and the resources sector to lurch lower, and the US dollar is threatening an overshoot (it is just 2% from all-time highs as measured by the effective exchange rate), while the China devaluation has sparked renewed concerns over an FX war.

... to his warning that absent QE there is simply no more upside to stocks or earnings:
EPS growth has turned negative everywhere bar Japan. The first half of 2014 saw double-digit gains in EPS, in all except EM. But second quarter 2015 EPS was -5.3% YoY in the US, -3.1% YoY in Europe, -5.8% YoY in EM and up 15.8% YoY in Japan. Simply put, the end of excess liquidity and the end of excess profits have engendered the end of excess returns in 2015.

... to his admission that excess debt and demographics are crushing global growth:
Excess debt, aging demographics, and tech disruption have all conspired to create a very deflationary recovery in recent years. That is why growth continues to outperform value.
... to his warning that the US may have already entered a recession based on inventory vs sales:
China’s deflation concerns exacerbate the precarious position of US manufacturing. Inventories are running far ahead of sales which in the absence of stronger demand, will necessitate further production cuts, and be a negative for profits. Should a manufacturing recession become visible via the NAPM slicing decisively through 50, this would not be positive for stocks, in our view.
... to a rehash of a chart we have shown countless times in just the past month: namely the epic divergence between debt and equity:
Compounding the summer woes of stocks…weakness in the HY market. While the weakness in HY is very concentrated (see quiz – page 8), risk reduction in credit has not been reflected in the S&P500 index.

 

... the entire thing reads like a rehash of recent Zero Hedge posts.
In fact, the only original point made by Hartnett is his summary, which is as follows: "Arguably the only reason to be bullish risk assets right now is there are no reasons to be bullish."
We couldn't agree more, however we should add that this is indeed bullish if and only if central banks still retain the credibility and potency. The market's negative reaction to the Fed's clearly dovish minutes yesterday has finally shed doubt on this fundamental principal that pushed the market to all time highs since the March 2009 lows.

NY Post : Stocks beat earnings estimates thanks to declining tax rates

Fifteen of the 30 companies whose stocks make up the Dow Jones industrial average beat the earnings estimates of Wall Street analysts in the recently completed second quarter.
But of those 15, many accomplished that feat only because their tax rates suddenly declined.
I started looking into this issue a few weeks ago with the help of David Aurelio, a research analyst at Thomson Reuters, which tracks corporate earnings. We waited to finish examining the issue until all 30 Dow companies had disclosed earnings, a goal that was reached when Home Depot and Walmart reported on Tuesday.
Of the Dow 30, Intel was the company that had the biggest tax cut in the second quarter of 2015, according to Thomson Reuters, with its rate declining by 19.4 percentage points — from 28.7 percent to just 9.3 percent.
When Intel reported earnings of 55 cents a share, it beat analyst estimates by 5 cents a share.
Visa, the credit card giant, saw its tax rate decline by 11.3 percentage points to 21.7 percent. It had fully reported earnings in the quarter of 69 cents, compared with the 59 cents that analysts expected.
Neither likely would have made analysts happy without the tax cut.
Companies go to great lengths to do better than what Wall Street is expecting. And there are a lot of accounting tricks that can be employed.
Sales can be accelerated or delayed depending on whether a company was legitimately beating Wall Street’s revenue expectations or not.
Per-share earnings — the shorthand way of determining how a company is doing — can be manipulated simply by reducing the amount of stock in the public’s hands. Firms have been aggressively buying back their own stock in recent years for this very reason.
In fact, the American Accounting Association, an industry group, put out a shocking report this week saying that companies prize employees who will help them manipulate profits.
In a paper that was delivered at its annual meeting, the group said it found that “when presented a choice between two candidates for a senior corporate accounting position who were similar in background and credentials, 87.5 percent of accounting and finance executives chose the candidate who was clearly more congenial to earnings management.”
Getting a more “congenial” tax rate is one way that corporate profits are managed. And, generally, there is nothing illegal about it. Tax credits can be used whenever companies want to use them.
Assets can be written off on a whim. Plus, foreign subsidiaries offer a wonderful way to change the tax bite.
And if — as usually happens — investors are reacting merely to an earnings number that flashes quickly on their screen and before the figures are fully analyzed, tax changes are an effective way to also “manage” the stock price of a company.
Nike’s stock has been doing nicely lately. In late June the company reported earnings of 98 cents a share for the second quarter. That handily beat expectations of just 84 cents.
But that result was achieved only after the shoe maker’s tax rate declined by 5.8 percentage points, according to calculations from Thomson Reuters.
Of the Dow 30, JPMorgan Chase saw a decline of 5.2 percentage points in its tax rate. It beat analysts’ estimates by 10 cents share for the quarter. McDonald’s beat expectations by 1 cent. Its performance would have been worse if the company’s tax rate hadn’t fallen by 3.3 percentage points.
Johnson & Johnson, 3M and Disney all saw their tax rates fall and their earnings top expectations.
Among those companies reporting higher tax rates, Home Depot and ExxonMobil both saw their rates go up by 3.1 percentage points. Home Depot beat estimates by 3 cents a share. Exxon Mobil came in right on target.
The Accounting Association study indicates that people shouldn’t be surprised that earnings are coming in better than they should be, even as the economy continues to slump.
The study was conducted by Scott Jackson of the University of South Carolina’s Darla Moore School of Business, along with colleagues Ling Harris and Joel Owens.
“We couldn’t help but be surprised by the overwhelming consensus in favor of a candidate [for an accounting job] whom study participants considered inferior in just about every aspect of management except the ability to remove roadblocks to reporting a profit,” Jackson said.
The Federal Reserve can’t even release the minutes of its meetings without screwing up. The summary of its July meeting, which was supposed to be released at 2 p.m. New York time, leaked nearly half an hour early on Wednesday after Bloomberg News inadvertently broke the embargo.
The stock market, which fell sharply early in the day, looks like it knew what the Fed was going to say even before Bloomberg’s premature headline hit at 1:36 p.m. Was there a leak?
In the minutes, the Fed hedged by saying economic conditions were “approaching” the point where a rate hike was warranted.
It won’t feel that way after more economic news comes out. The next two job reports, in particular, should stop the Fed dead in its tracks.

>>> Visa In $21bn Bid To Merge US, European Units

Visa In $21bn Bid To Merge US, European Units

British banks are in line for a big windfall after the US firm offered more than £13bn to acquire Visa Europe, Sky News learns.

The American payments giant Visa has tabled a $21bn (£13.4bn) offer to acquire its European sister company in a deal that would crystallise huge windfalls for some of Britain's biggest banks.

Sky News has learnt that Visa Inc has proposed the outline of a takeover which would include a substantial up-front payment.

A substantial element of the $21bn headline price tag would be deferred and payable according to a range of performance-related conditions, according to people close to the situation.

News of the likely terms of a deal comes just weeks after Visa Inc confirmed that it was in discussions with Visa Europe about a combination of their businesses, saying that it hoped to agree a transaction by the end of October.

Talks between the two Visa entities are continuing, with banking sources close to the discussions saying on Thursday that many of Visa Europe's largest shareholders are inclined to accept a deal on the proposed terms.

Under a long-standing agreement between them, Visa Europe has a put option which would oblige Visa Inc to acquire it at a price calculated by a detailed formula.

However, while Visa Inc does not have a formal call option, it is free to make an offer for its European sister at any time and at any price, and it is on this basis that the takeover negotiations are understood to be proceeding.

A $21bn offer would exceed Wall Street's expectations of the price that New York-listed Visa Inc would have to pay to reunite its transatlantic operations.

The company said in April that the likely cost of doing so would be more than $10bn, meaning that if a deal is struck on the terms currently under discussion, it would be valued at more than double the originally envisaged sum.

Last month, the US-based company confirmed that talks were underway.

"Visa Inc. believes there is compelling logic for both Visa Inc. and Visa Europe to consummate a business combination and therefore regularly engages in such discussions and is currently in such discussions with Visa Europe," it said.

A deal worth more than £13bn would represent positive news for UK banks such as Barclays and Lloyds Banking Group, which have been pressing Visa Europe's board to hold out for a bumper price.

Sources indicate that if a takeover of Visa Europe valued it at £13.4bn, Barclays' stake would be worth well over £1bn, with Lloyds' interest worth hundreds of millions of pounds.

Each of the roughly 3,000 lenders which are shareholders in Visa Europe owns a single share in the company, but the economic value of that stake is determined by the volume of business that they conduct through its network.

Previous negotiations about a takeover have met opposition from French bank members of Visa Europe, with their priority being to keep the company independent.

Many European countries have their own domestic debit payment networks, while in the UK the vast majority of debit transactions are handled by Visa.

Lloyds' substantial stake in Visa Europe is partly a consequence of its takeover of HBOS during the 2008 financial crisis, a rare example of a beneficial legacy from that deal.

It is unclear whether British banks and other Visa Europe members will be required to negotiate new fee arrangements with Visa Inc if a deal is completed.

Visa Inc is keen to reunite its US and European operations for the first time since 2007 in an effort to compete more effectively with rival Mastercard amid a fast-changing payments industry landscape.

Visa Inc was itself part of a global bank-owned association before it became a listed company in 2008.

Buying Visa Europe, which processed more than 16bn transactions last year, would strengthen its position as the world's biggest payments group at a time when its industry is undergoing radical technology-driven shifts.

Visa Inc is one of several FIFA World Cup sponsors to have openly criticised world football's governing body over its ongoing corruption scandal.

JP Morgan and Goldman Sachs are advising Visa Inc on the talks, while its European counterpart is being advised by Morgan Stanley.