The Opening Belle - Dollar Down, Oil Pressured, Strong Chinese PMI's

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China’s economic rebound is gathering pace toward the end of the year, with an official gauge of manufacturing rising faster than expected in November, fueled by exports.

The manufacturing purchasing managers’ index rose to 52.1 in November from 51.4 the previous month, according to data released Monday by the National Bureau of Statistics. That was the highest since September 2017 and beat the median estimate in a Bloomberg survey of economists.

The data underlines China’s status as the only major economy to see a sustained and robust rebound from the pandemic-induced slump earlier this year. The pick-up in manufacturing orders was driven by strong domestic demand as consumer sentiment continues to recover -- as well as an export boost ahead of the Christmas holiday period.

The non-manufacturing gauge climbed to 56.4 from October’s 56.2, exceeding the median forecast and well above the 50 level that indicate conditions improved from the previous month.

Some businesses said profits and export orders are coming under pressure because of the stronger yuan, Zhao Qinghe, an economist with the statistics bureau said in a statement released with the data.

But a surging yuan and further lockdowns in many of its key trading partners could pressure Chinese exports, which have been surprisingly resilient so far.

More companies have reported the impact from currency fluctuations, compared with a month ago, said Zhao Qinghe, senior statistician at the NBS.

“Some firms have flagged that as the yuan continues to rise, corporate profits are under pressure and export orders are declining,” said Zhao.

He added the recovery across the manufacturing industry remained uneven. For example, the PMI for the textile industry has stayed below the 50-point threshold, pointing to weak business activity.

In the services sector, activity expanded for the ninth straight month. The official non-manufacturing Purchasing Managers’ Index (PMI) rose to 56.4, the fastest since June 2012 and up from 56.2 in October, as consumer confidence gathered pace amid few COVID-19 infections.

Railway and air transportation, telecommunication and satellite transmission services and the financial industry were among the best performing sectors in November.

A sub-index for construction activity stood at 60.5 in November, improving from 59.8 in October, as China steps up infrastructure spending to revive its economy.

Monday’s data also showed the labour market is still facing strains. Services firms reduced payrolls at a faster clip in November, data showed, while factories slashed staff for the seventh straight month, although at a slower pace.

“The continued recovery reduces the need for further monetary easing, but any shift to tightening is also unlikely given continued labour market pressure,” said Erin Xin, Greater China economist at HSBC.

China’s central bank surprised markets on Monday with an injection of medium-term cash into the banking system, in what traders and analysts viewed as a move to calm nerves rattled by a string of recent bond defaults.

The People’s Bank of China (PBOC) injected 200 billion yuan ($30.4 billion) through one-year medium-term lending facility (MLF) loans to financial institutions on Monday, it said in a statement. The bank kept the rate on the loans unchanged from the previous such injection, at 2.95%.

The PBOC also said it would conduct another MLF operation on Dec. 15 to roll over maturing loans for December, with volume dependent on market demand.

“The PBOC doesn’t want to tell the market that we’re going to have another big liquidity spree, but they don’t want to create a credit crunch either. So it’s kind of the art of policy.”

The Trump administration is poised to add China’s top chipmaker SMIC and national offshore oil and gas producer CNOOC to a blacklist of alleged Chinese military companies, according to a document and sources, curbing their access to U.S. investors and escalating tensions with Beijing weeks before President-elect Joe Biden takes office.

Reuters reported earlier this month that the Department of Defense (DOD) was planning to designate four more Chinese companies as owned or controlled by the Chinese military, bringing the number of Chinese companies affected to 35. A recent executive order issued by President Donald Trump would prevent U.S. investors from buying securities of the listed firms starting late next year.

The list is also part of a broader effort by Washington to target what it sees as Beijing’s efforts to enlist corporations to harness emerging civilian technologies for military purposes.

Reuters reported last week that the Trump administration is close to declaring that 89 Chinese aerospace and other companies have military ties, restricting them from buying a range of U.S. goods and technology.

This month, the White House published an executive order, first reported by Reuters, that sought to give teeth to the list by prohibiting U.S. investors from buying securities of the blacklisted companies from November 2021.

Congress and the administration have sought increasingly to curb the U.S. market access of Chinese companies that do not comply with rules faced by American rivals, even if that means antagonizing Wall Street.

Ant is still in the early stages of reviewing changes needed to appease regulators, who demand that its business comply with a slate of new and proposed guidelines in areas including lending to consumers, the officials said. With so much work needed and some rules not yet spelled out, the officials said the initial public offering may not get done before 2022.

The enormity of the challenge Ant faces restarting its IPO emerged from discussions with officials working across regulators with oversight of financial services and the securities industry. They emphasized that Beijing’s immediate priority was ensuring the fintech giant fall in line with the evolving regulatory environment.

China has set up a joint task force to oversee Ant, led by the Financial Stability and Development Committee, a financial system regulator, along with various departments of the central bank and other regulators, two of the people said, asking not to be identified discussing private matters. The group is in regular contact with Ant to collect data and other materials, studying its restructuring as well as drafting other rules for the fintech industry, they said.

Under the draft rules for micro-lenders issued in early November, Ant would be forced to replenish capital. That could mean the company needs about $12 billion to comply, according to an estimate from Bloomberg Intelligence.

British telecommunications firms must not install new Huawei 5G kit after September 2021, the government said on Monday, as part of a plan to purge the Chinese firm’s equipment from high speed mobile networks.

Britain has already ordered all Huawei equipment to be removed from its 5G network by the end of 2027, falling in line with intelligence allies including the United States who say the firm poses security risks.

China has criticised that decision, while Huawei said last week it was disappointed Britain was looking to exclude it from the 5G roll-out after the publication of new laws that could see firms fined 100,000 pounds ($133,140) if they break the ban.

Monday’s announcement comes ahead of a debate over new telecoms legislation in parliament and fleshes out the timeline for equipment removal.

“I am setting out a clear path for the complete removal of high risk vendors from our 5G networks,” digital minister Oliver Dowden said in a statement.

“This will be done through new and unprecedented powers to identify and ban telecoms equipment which poses a threat to our national security.”

The government also announced a new strategy to diversify the 5G supply chain, consisting of an initial 250 million pound investment, trials in collaboration with Japanese firm NEC and the establishment of new research facilities.

China’s biggest private steel producer, Jiangsu Shagang Group, said on Monday it will invest 14.8 billion yuan ($2.25 billion) in buying up and modernising steel mills in central Henan province in a project to create a high-end manufacturing base.

Beijing has been promoting consolidation in its more than one-billion-tonne steel sector in an effort to enhance major producers’ competitiveness and knock out outdated production capacity. China Baowu Steel Group has completed multiple acquisitions and takeovers across the country this year.

Alibaba Group Holding Ltd and Tencent Holdings Ltd have each held separate talks with Baidu Inc to acquire a controlling stake in video streaming service iQIYI Inc, people with knowledge of the matter told Reuters.

But the discussions have stalled with little hope of recommencing soon as they balk at a valuation of around $20 billion demanded by Baidu and as both companies, which have their own video streaming services, face heightened scrutiny by China’s antitrust regulators, two people said.

Another Chinese tech giant, TikTok owner ByteDance has also internally looked at the possibility of acquiring a controlling stake in iQIYI, three sources said.

Considered China’s equivalent to Netflix Inc, Nasdaq-listed iQIYI has a market capitalisation of $16.4 billion, which values Baidu’s 56.2% stake at about $9.2 billion.

Investing in iQIYI now may be politically difficult for Alibaba and Tencent after Beijing this month unveiled draft guidelines aimed at preventing monopolistic behaviour by internet companies. The draft’s scope ranges from big data to payment services.

Japan’s industrial output rose for the fifth straight month in October and retail sales in the same month grew the most in over a year, signalling the economy was recovering further from the damage caused by the COVID-19 crisis.

The world’s third-largest economy rebounded sharply in the third quarter from a pandemic-induced slump, thanks to surging consumption and exports, though some analysts worry about slowing growth ahead due to a resurgence in coronavirus infections.

“There’s a possibility China-bound exports and output will be sluggish if the United States gets worse, and that would spread to China,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research.

“But if there will be any impact, it’ll be with a bit of a time lag,” he said, adding that Japanese manufacturers could feel it most strongly in the first quarter of next year.

Official data released on Monday showed factory output jumped 3.8% in October from the previous month, mainly due to strength in general machinery production and motor vehicle manufacturing.

The solid increase beat the median market forecast of a 2.1% rise in a Reuters poll of economists, and was in line with the prior month’s 3.9% gain.

Separate data showed retail sales posted their largest gain since September last year in October year-on-year after consumers sharply curtailed spending in October 2019 following a sales tax hike at that time.

Retail sales jumped 6.4% year-on-year in October to rise for the first time in eight months, matching a 6.4% gain expected by economists in a Reuters poll and turning around from an 8.7% drop in the previous month.

Some analysts worry that the economic recovery will lose steam as a resurgence in coronavirus infections at home and abroad is expected to weigh on demand due to slowing corporate and consumer activity.

 Good morning. Opec ministers are due to meet virtually today at 14:00 Vienna time in what looks like a very difficult meeting. Last night's JMMC consultations showed that there's no consensus among the group, as some countries are still seeking an easing of the cuts. #OOTT #Opec— Amena Bakr (@Amena__Bakr) November 30, 2020 

Crude oil prices fell on Monday, amid investor jitters ahead of a meeting of producer group OPEC+ to decide whether to extend large output cuts to balance global markets, but vaccine hopes helped keep them on track to rise more than a fifth in November.

Analysts and traders also expect the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia - the OPEC+ grouping - to delay next year’s planned increase in oil output as a second COVID-19 wave has hit global fuel demand.

OPEC+ previously agreed to raise output by 2 million barrels per day (bpd) in January - or about 2% of global consumption - after record supply cuts this year.

The group held an initial round of talks on Sunday, but has yet to reach consensus on oil output policy for 2021 ahead of key meetings on Monday and Tuesday, four OPEC+ sources told Reuters. Monday’s meeting begins at 1300 GMT.

“While we base-case a 3-month delay to prevent a return to a global oil surplus through 1Q21, not all producers appear onboard,” Goldman Sachs analysts said.

A lack of extension, representing a downside of $5 a barrel from current spot levels in the analysts’ modelling, would further contribute to short-term price gyrations, they added.

Dr. Anthony Fauci said Sunday that he does not foresee current holiday public health restrictions and recommendations being relaxed by the end of the year.

"When you have the kind of inflection that we have, it doesn't all of a sudden turn around like that," said Fauci, the director of the National Institute of Allergy and Infectious Diseases, on ABC's "This Week."

"Clearly in the next few weeks, we're gonna have the same sort of thing," he told "This Week" co-anchor Martha Raddatz, noting that the U.S. "may see a surge upon a surge" of additional new cases due to Thanksgiving gatherings and travel. "We don't want to frighten people, but that's just the reality."