China's factory activity shrinks again, weak demand hobbles economy


 China's manufacturing activity contracted for the fourth straight month in January, an official factory survey showed on Wednesday, suggesting the sprawling sector and the broader economy were struggling to regain momentum at the start of 2024.

The official purchasing managers' index (PMI) rose to 49.2 in January from 49.0 in December, driven by a rise in output but still below the 50-mark separating growth from contraction. It was in line with a median forecast of 49.2 in a Reuters poll.
The data provides the first official snapshot of how the world's No.2 economy has started off the new year after a shakier-than-expected post-COVID recovery.
The latest figure is also affected by the Lunar New Year which will fall on Feb. 10 this year, as factories may shut earlier and send workers back home ahead of the holiday.
"Economic momentum remained muted as the deflationary pressure persists," said Zhiwei Zhang, chief economist at Pinpoint Asset Management, and expects China's central bank to cut rates in the first half of the year to boost domestic demand.
January's new orders sub-index was at 49.0, contracting for the fourth month, according to the NBS survey. Weak external demand also dragged on manufacturing activity, with the new export orders index registering at 47.2, contracting for the 10th straight month.
To spur growth, China's central bank governor Pan Gongsheng unexpectedly announced a cut to banks' reserve requirement ratio at a press conference last week. Authorities face a daunting task as they try to revitalize the economy in the face of a property downturn, local government debt risks, deflationary pressures, and weak global demand.
The official non-manufacturing purchasing managers' index (PMI), which includes services and construction, rose to 50.7 from 50.4 in December, the highest since September last year, according to the NBS.
The sub-index of services PMI returned to growth following two months of contraction, but construction PMI grew at a significantly slower pace.
The composite PMI, which includes manufacturing and services, was at a four-month high of 50.9 in January compared with 50.3 the previous month.
Reuters Graphics
Reuters Graphics
"It is not clear if the latest rise in the PMIs reflects a further improvement in January or simply the easing of sentiment effects that have been weighing on the surveys," said Julian Evans-Pritchard, head of China economics at Capital Economics.
"Either way, it adds to evidence that growth momentum in China is in the midst of a renewed recovery, albeit one that remains on shaky foundations and is unlikely to be sustained once current policy support is pared back."
The International Monetary Fund on Tuesday lifted China's growth forecast this year to 4.6% from 4.2% in October, thanks to the significant fiscal support from the authorities and a less-severe-than-expected slowdown in the property sector.
China won't release its 2024 growth target till March, but policy insiders expect Beijing to maintain a similar growth target to last year of around 5%.
Alphabet (GOOGL.O), opens new tab disappointed Wall Street on Tuesday as holiday-season advertising sales came in below expectations and the company said its spending on items such as servers to power artificial intelligence would jump this year.
Alphabet shares fell 6% in after-hours trade.
Against a backdrop of mixed U.S. economic signals, Alphabet's powerhouse units Google and YouTube have faced competition for ad budgets from other online platforms, including Facebook, Instagram, TikTok, and
With retail sales a bright spot, the company's fourth-quarter ad revenue rose to $65.5 billion from $59.0 billion a year prior. That was short of analysts' average expectation of $66.1 billion according to LSEG data.
"Alphabet's disappointing ad revenue numbers suggest that corporations worldwide are still uncertain about the pace of interest rate cuts from global central banks," said Thomas Monteiro, an analyst at
Google, inventor of foundational technology for today's AI boom, is also locked in battle with two industry players that have captured the business world's attention, ChatGPT's creator OpenAI and its backer Microsoft (MSFT.O), opens new tab.
While Google Cloud's revenue topped Wall Street targets and growth rebounded with a boost from AI, Microsoft's Azure grew faster in the same period.
Powering such AI requires heavy investment in servers, data centers, and research. Alphabet's capital expenditure shot up 45% to $11 billion, the highest in years, and Chief Financial Officer Ruth Porat told analysts on a conference call that capital expenditures would be notably larger this year than in 2023.
To restrain costs, technology giants have been winding down non-priority projects and cutting jobs. Alphabet expects $700 million in severance-related expenses in the first quarter, Porat said.
Google is bringing a powerful suite of models called Gemini to its ChatGPT rival Bard. It also struck a deal to invest up to $2 billion in high-profile AI startup Anthropic as it courts customers from larger cloud rivals Microsoft and Amazon (AMZN.O), opens new tab. And it is putting Gemini into advertisers' hands to keep their dollars flowing to Google's search business.
Still, AI's advertising boost may remain far off as geopolitical and economic uncertainty could discourage ad buyers. The U.S. has started probing AI investments including Alphabet's, and Google is gearing up to appeal a major antitrust case it lost.
Alphabet posted a fourth-quarter profit of $20.7 billion.


In the call with analysts, CEO Sundar Pichai touted progress with AI across Alphabet's business, for instance opening up new questions Google can deftly answer.
Frenzy has gripped the technology sector since OpenAI's November 2022 launch of ChatGPT, which showed the public how so-called generative AI can conjure new text and images on a simple command. Advances have also raised the prospect of AI "agents" handling humans' requests with greater autonomy.
Asked about the company's digital aide known as Google Assistant, Pichai said AI "allows us to act more like an agent over time" and "go beyond answers and follow through for users even more."
As Alphabet focuses on AI, investors have grown increasingly interested in Google Cloud. Last year the division earned its first-ever quarterly profit, but revenue growth had slowed as customers streamlined cloud spending.
Microsoft has been a fierce competitor, adding AI to its cloud and productivity suite long embraced by enterprises, while Google has marketed rival tools.
Pichai told analysts that generative AI was boosting cloud growth. Google Cloud revenue in the latest quarter of $9.2 billion beat expectations for $8.9 billion. That marked a re-acceleration of cloud revenue growth from the previous quarter to 25.7% but was slower than the 32% growth in the year-ago quarter.
Microsoft on Tuesday reported that sales of its cloud platform, Azure, grew 30%.
Overall Alphabet's revenue for the quarter that ended Dec. 31 stood at $86.3 billion, compared with estimates of $85.3 billion according to LSEG data.
 Walmart has recently introduced a three-for-one stock split, a move inspired by the company's commitment to making stock ownership accessible to its employees. The decision was further influenced by the company's ongoing assessment of the most favorable trading and spread levels. This marks Walmart's 12th stock split overall and its first since 1999.  
- A senior United Airlines (UAL.O), opens new tab executive highlighted the widespread loss of experience in the aviation industry since the COVID-19 pandemic and said it may have contributed to recent problems at Boeing (BA.N), opens new tab.
"Experience counts and they need to have a good experienced team righting the ship," Executive Vice President Finance Gerry Laderman told the Airline Economics conference in Dublin.
"Part of the problem for lots of industrial companies is nobody realized the difficulties that we were all going to get hit with as we came out of COVID," Laderman said.
"Principally the supply chain but also a lack of senior people and a lot of retirements: the knowledge base. That impacts everybody, and I think that is part of what happened at Boeing, and ... it will take time."
Laderman said he would not comment on whether there should be management changes at the planemaker.
Boeing said on Monday it was withdrawing a request for a key safety exemption that could have allowed regulators to speed up certification of its coming 737 MAX 7.
Lawmakers had been pressuring the planemaker to withdraw the petition following a mid-air cabin blowout on Jan. 5 on a 737 MAX 9 that has exposed numerous safety and quality control concerns at one of the world's two major jetmakers.
Investigators are examining whether bolts were missing or incorrectly installed on the Alaska Airlines jet.
The reactions of influential executives like Laderman, who is seen as one of the most prolific buyers of Boeing jets having started at Continental before it merged with United in 2010, are being watched closely at this week's air finance gathering.
Conference delegates said Boeing's decision raised questions about the timing of the larger and more widely sold MAX 10, whose certification had been expected a year after the MAX 7.
United is a leading operator of the MAX 9, which was partially grounded for three weeks following the blowout.
It has also ordered 277 of the larger MAX 10, for which Boeing has also been expected to ask for an exemption.
Laderman deflected a question on efforts by United to secure more competing A321neos after Reuters reported that CEO Scott Kirby had recently visited Airbus to open negotiations.
"I don't keep track of his travel anymore ... I do know that he's in the (United) leadership conference today," said Laderman, who is shortly due to retire after recently stepping down as chief financial officer.
The A321neo is in strong demand with few available soon. Laderman said Airbus also has its share of delivery problems.
"Yes, there's a Boeing issue. But keep in mind, for very different reasons, Airbus has issues too, related mostly let's say to the supply chain.
Microsoft (MSFT.O), opens new tab to beat market estimates for quarterly profit and revenue on Tuesday, as new artificial intelligence features helped attract customers to its Azure cloud service as it built out its own AI services.
But Microsoft shares were down 1% after-hours as investors absorbed news about rising costs to develop these AI features.
The company forecast operating expenses of $15.8 billion to $15.9 billion in the current quarter, up from $15.4 billion in the previous one. It also said it expects capital expenditures to "increase materially" on a sequential basis.
Microsoft, in collaboration with ChatGPT creator OpenAI, has pushed chatbots into its core products such as its Office software and Bing search engine over the past year, attracting business customers eager to try the tech industry's next breakthrough. Investor buzz over AI helped Microsoft's shares rise by 57% in 2023.
But this has also increased Microsoft's costs, and investors are watching the growth in its Azure and Office business closely to see if that keeps up with the massive investments it plans to pour into data centers this year to deliver generative AI.
"We've moved from talking about AI to applying AI at scale," CEO Satya Nadella said in a statement. "By infusing AI across every layer of our tech stack, we're winning new customers and helping drive new benefits and productivity gains across every sector."
Brett Iversen, Microsoft's vice president for investor relations, told Reuters that 6 percentage points of the growth rate of cloud-computing platform Azure in the second quarter was attributable to AI. That is double the 3 percentage points in the first quarter.
There are now 53,000 Azure AI customers, a third of whom were new to the service in the past 12 months, Nadella told analysts on a conference call.
"Overall, we are seeing larger and more strategic Azure deals with an increase in the number of billion-dollar plus Azure commitments," he said, without giving a time frame.
Total revenue grew 18% to $62 billion in the quarter ended Dec. 31, compared with the average analyst estimate of $61.12 billion, according to LSEG data. Adjusted profit of $2.93 per share beat an average estimate of $2.78 per share.
Revenue at Microsoft's Intelligent Cloud unit, which houses the Azure cloud computing platform, grew 20% to $25.9 billion. Sales of Azure grew 30% - its best growth rate in four quarters - compared with a 27.7% consensus estimate from Visible Alpha, and outstripping a 25.7% growth in Google Cloud.
Sales at Microsoft's More Personal Computing segment, which includes its Windows operating system and gaming business, grew 19% to $16.9 billion, powered in part by the close of its $69 billion purchase of "Call of Duty" maker Activision Blizzard. Analysts had expected $16.8 billion.
Microsoft's Productivity and Business Process segment, which contains the LinkedIn social network in addition to Office sales, reported that sales rose 13% to $19.2 billion, just beating estimates.
"The software giant has delivered a healthy set of results, but not in a strong enough dose to appease the market," said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
AI-related companies lost $190 billion in stock market value late on Tuesday after Microsoft, Alphabet (GOOGL.O), opens new tab and Advanced Micro Devices (AMD.O), opens new tab delivered quarterly results that failed to impress investors who have sent their stocks soaring.


While analysts have said that any meaningful gains from AI may not come before next year, investors have rewarded the company's push into AI and strategic partnership with Silicon Valley startup OpenAI.
In November, Microsoft started selling Copilot, an AI assistant that can summarize an email inbox or craft a slide show, for $30 per month, which analysts say is a premium price.
Early sales of the product showed up in the firm's commercial sales of Office software, where revenue grew 17%, compared with analyst expectations of commercial Office sales growth of 14.2%, according to data from Visible Alpha. Microsoft does not provide an absolute dollar figure for the sales.
Microsoft's Iversen said on Tuesday that Office's commercial offerings, where Copilot is being sold, now stand at 400 million paid seats, up from 382 million in April 2023.
The company's capital expenditures grew by $300 million from the previous quarter to $11.5 billion, putting the company on track to spend more than $46 billion this fiscal year.
"That's a sign of the customer demand that we're seeing," Iversen said.
Microsoft's stock surge has helped it topple Apple (AAPL.O), opens new tab as the world's most valuable listed company in the past few trading sessions. That was undented by a power struggle within OpenAI that highlighted the software giant's lack of direct control over its important partner. Microsoft also faces some legal and regulatory challenges.
AI-related companies lost $190 billion in stock market value late on Tuesday after Microsoft (MSFT.O), opens new tab, Alphabet (GOOGL.O), opens new tab and Advanced Micro Devices (AMD.O), opens new tab that delivered quarterly results that failed to impress investors who had sent their stocks soaring.
The selloff following the tech giants' reports after the bell underscored investors' elevated expectations following an AI-fueled stock market rally in recent months that propelled their shares to record highs with the promise of incorporating the technology across the corporate landscape.
Alphabet dropped 5.6% after the Google parent's December-quarter ad revenue missed expectations.
Alphabet also said its spending on data centers to support its AI plans would jump this year, highlighting the costs of its fierce competition against AI rival Microsoft.
While Google Cloud revenue growth slightly topped Wall Street targets, boosted by interest in AI, Microsoft's Azure grew faster.
Microsoft beat analyst estimates for quarterly revenue as new AI features helped attract customers to its cloud and Windows services. However, its stock fell 0.7% in extended trade after briefly hitting an intra-day record high earlier on Tuesday.
Optimism about AI pushed Microsoft's stock market value above $3 trillion this month, eclipsing Apple (AAPL.O), opens new tab.
Chipmaker Advanced Micro tumbled 6% after its forecast for first-quarter revenue missed estimates, even as it projected strong sales for its AI processors.
Shares of Nvidia (NVDA.O), opens new tab, which surged 27% in January after more than tripling last year on AI optimism, also gave back some of those gains in extended trade, lasting down over 2%.
Server maker Super Micro Computer, another company that has benefited from AI-related demand, dropped over 3%. Earlier on Tuesday, it had climbed to a record high after delivering blowout quarterly results the day before.

 Elon Musk is not entitled to a landmark compensation package awarded by Tesla’s board of directors that is potentially worth more than $55 billion, a Delaware judge ruled Tuesday.

The ruling by Chancellor Kathaleen St. Jude McCormick comes more than five years after a shareholder lawsuit targeted Tesla CEO Musk and directors of the company. They were accused of breaching their duties to the maker of electric vehicles and solar panels, resulting in a waste of corporate assets and unjust enrichment for Musk.

The shareholder’s lawyers argued that the compensation package should be voided because it was dictated by Musk and was the product of sham negotiations with directors who were not independent of him. They also said it was approved by shareholders who were given misleading and incomplete disclosures in a proxy statement.

Defense attorneys countered that the pay plan was fairly negotiated by a compensation committee whose members were independent, contained performance milestones so lofty that they were ridiculed by some Wall Street investors, and blessed by a shareholder vote that was not even required under Delaware law. They also argued that Musk was not a controlling shareholder because he owned less than one-third of the company at the time.

An attorney for Musk and other Tesla defendants did not immediately respond to an email seeking comment.

But Musk reacted to the ruling on X, the social media platform formerly known as Twitter that he owns, by offering business advice. “Never incorporate your company in the state of Delaware,” he said. He later added, “I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters.”

Musk, who as of Tuesday topped Forbes’ list of the world’s richest people, had earlier this month challenged Tesla’s board to come up with a new compensation plan for him that would give him a 25% stake in the company. On an earnings call last week, Musk, who currently holds 13%, explained that with a 25% stake, he can’t control the company, yet he would have strong influence.

In trial testimony in November 2022, Musk denied that he dictated terms of the compensation package or attended any meetings at which the plan was discussed by the board, its compensation committee, or a working group that helped develop it.

McCormick determined, however, that because Musk was a controlling shareholder with a potential conflict of interest, the pay package must be subject to a more rigorous standard.

“The process leading to the approval of Musk’s compensation plan was deeply flawed,” McCormick wrote in the colorfully written 200-page decision. “Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf.”

McCormick specifically cited Musk’s long business and personal relationships with compensation committee chairman Ira Ehrenpreis and fellow committee member Antonio Gracias. She also noted that the working group working on the pay package included general counsel Todd Maron who was Musk’s former divorce attorney.

“In fact, Maron was a primary go-between Musk and the committee, and it is unclear on whose side Maron viewed himself,” the judge wrote. “Yet many of the documents cited by the defendants as proof of a fair process were drafted by Maron.”

McCormick concluded that the only suitable remedy was for Musk’s compensation package to be rescinded. “In the final analysis, Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit,” she wrote. “The process arrived at an unfair price. And through this litigation, the plaintiff requests a recall.”

Greg Varallo, a lead attorney for the shareholder plaintiff, praised McCormick’s decision to reverse the “absurdly outsized” Musk pay package.

“The fact that they lost this in Delaware court, it’s a jaw dropper,” said Wedbush Securities analyst Dan Ives. “It’s unprecedented, a ruling like this. I think going in investors thought it was just typical legal noise and nothing was going to come out about it. The fact that they went head to head with Tesla and Musk and the board and voided this, it’s a huge legal decision.”

During his trial testimony, Musk downplayed the notion that his friendships with certain Tesla board members, including sometimes vacationing together, meant that they were likely to do his bidding.

The plan called for Musk to reap billions if Tesla, which is based in Austin, Texas, hit certain market capitalization and operational milestones. For each incidence of simultaneously meeting a market cap milestone and an operational milestone, Musk, who owned about 22% of Tesla when the plan was approved, would get stock equal to 1% of outstanding shares at the time of the grant. His interest in the company would grow to about 28% if the company’s market capitalization grew by $600 billion.

Each milestone included growing Tesla’s market capitalization by $50 billion and meeting aggressive revenue and pretax profit growth targets. Musk stood to receive the full benefit of the pay plan, $55.8 billion, only by leading Tesla to a market capitalization of $650 billion and unprecedented revenues and earnings within a decade.

Tesla has achieved all twelve market capitalization milestones and eleven operational milestones, providing Musk nearly $28 billion in stock option gains, according to a January post-trial brief filed by the plaintiff’s attorneys. The stock option grants are subject to a five-year holding period, however.

Defense attorney Evan Chesler argued at trial that the compensation package was a “high-risk, high-reward” deal that benefitted not just Musk, but Tesla shareholders. After the plan was implemented, the value of the company climbed from $53 billion to more than $800 billion, having briefly hit $1 trillion.

Chesler also said Tesla made sure that the $55 billion compensation figure was included in the proxy statement because the company wanted shareholders to know that “this was a heart-stopping number that Mr. Musk could earn.”

 America’s employers posted 9 million job openings in December, an increase from November and another sign that the U.S. job market remains resilient despite the headwind of higher interest rates.

The number of openings was up from November’s 8.9 million, which itself was revised up in Tuesday’s report from the government. Job openings have gradually but steadily declined since peaking at a record 12 million in March 2022. But they remain at historically high levels: Before 2021, monthly openings had never topped 8 million.

Still, in a cautionary sign, layoffs rose in December. And the number of Americans quitting their jobs — a sign of relative confidence in their ability to find a better position — dipped to the lowest level since January 2021.

The U.S. economy and job market have remained surprisingly durable despite sharply higher interest rates, which have led to higher borrowing rates for consumers and businesses. The Federal Reserve’s policymakers raised their benchmark interest rate 11 times between March 2022 and July 2023, bringing it to a 23-year high of around 5.4%.

The Fed wants to see the job market cool from the red-hot levels of 2021 and 2022, thereby reducing pressure on businesses to raise pay to attract and keep staff — and to pass on those costs to customers through higher prices.

Higher rates have contributed to a slowdown in hiring, though the pace of job growth remains relatively healthy: U.S. employers added 2.7 million jobs last year, down from 4.8 million in 2022 and a record 7.3 million in 2021. When the government issues the January employment report on Friday, it is expected to show that employers added a solid 177,000 jobs, according to a survey of forecasters by the data firm FactSet.

The job market is cooling in a mostly painless way — through fewer openings. Despite a wave of high-profile layoffs, the number of job cuts across the economy remains relatively low.

The unemployment rate has come in below 4% for 23 straight months, the longest such streak since the 1960s. And the number of people applying for unemployment benefits — a proxy for layoffs — has remained unusually low.

At the same time, while inflation has sharply slowed after peaking in mid-2022, it remains above the central bank’s 2% target.

The Fed has signaled that it expects to reverse course and cut rates three times this year, though it’s set to leave rates unchanged after its latest policy meeting ends Wednesday. Financial markets have been anticipating the first rate cut as early as March, though continued strength in the job market might make the Fed’s policymakers wary of acting before mid-year.

“These data — which show demand for workers remains robust — do not support imminent rate cuts,’' said Rubeela Farooqi, chief U.S. economist at High-Frequency Economics. “They support a cautious approach going forward so that policymakers can be sure that inflation” will reach their 2% target.

Starbucks on Tuesday reported record revenue in its fiscal first quarter but the results fell short of Wall Street’s expectations as customer spending slowed in some key markets.

The Seattle coffee giant said its revenue rose 8% to $9.43 billion for the October-December period. That was lower than the $9.6 billion analysts had forecast, according to FactSet.

Same-store sales, or sales at stores open at least a year, also fell short of Wall Street’s expectations. Starbucks said global same-store sales rose 5%; analysts had forecast a 7% increase.

In the U.S., same-store sales rose 5% in the quarter. Customer transactions rose 1% and consumers spent more per order. But in China — Starbucks’ second-largest market — results were mixed. Transactions were up 21% but average spending per order fell 9%.

Starbucks said its net income rose 20% to just over $1 billion, or 90 cents per share. Analysts had forecast earnings of 93 cents per share.

Starbucks faced multiple headwinds in the quarter. On Nov. 16, workers at more than 200 U.S. stores walked off the job to protest the lack of progress in negotiating union contracts with the company. It was the largest strike yet in the 2-year-old effort to unionize Starbucks’ company-owned U.S. stores.

It also faced boycotts around the world after it sued Workers United — the union organizing its workers — after a union social media account posted a pro-Palestinian message.

Starbucks said it was trying to get the union to stop using its name and likeness, since it was also facing protests from pro-Israel demonstrators. However, some boycotters felt the company wasn’t adequately supporting the people of Gaza. Starbucks and Workers United plan to try to resolve the lawsuit in mediation sessions next month, according to court filings.

In December, Starbucks CEO Laxman Narasimhan tried to allay tensions in an open letter to employees, saying Starbucks condemns “violence against the innocent, hate and weaponized speech and lies.”

“Our stance is clear. We stand for humanity,” he wrote.

Post a Comment

Previous Post Next Post