Euro-Zone Private Sector Unexpectedly Shrinks on Services
The Composite Purchasing Managers’ Index by S&P Global fell to 49.5 from 50.4 in April, dipping below the 50 threshold separating expansion from contraction, data Thursday showed. Analysts had predicted a slight increase to 50.6. (…)
Momentum is largely coming from beyond the region’s two biggest economies, with Germany’s PMI reading also wrong-footing analysts by plunging below 50 on a similar pullback in services. France’s, meanwhile, held beneath that threshold for a ninth month.
More from S&P Global:
While the overall fall in output in May followed a period of growth, new orders have now decreased on a monthly basis throughout the past year. The latest decline in new business was modest, but the most pronounced since December 2024.
As was the case with activity, the overall reduction reflected service sector weakness, with new business down for the fourth month running. Manufacturing new orders stabilised, ending a three-year period of decline.
Alongside the fall in total new orders, new business from abroad (which includes intra-Eurozone trade) was also down modestly, with the pace of contraction little changed from that seen in April.
Manufacturing input costs decreased for the second consecutive month, and to the largest extent since March 2024. On the other hand, services input prices were up sharply again, with the pace of inflation slightly stronger than in April. Overall, input costs increased at a broadly similar pace to that seen in the previous month, with inflation just below the series average.
The pace of output price inflation, meanwhile, eased to a seven-month low in May. As was the case with input costs, a rise in services charges contrasted with a fall in manufacturing selling prices, the first in three months. Output prices decreased in France, but continued to rise in Germany and the rest of the Eurozone.
Japan’s private sector slips back into contraction in May
Japan’s private sector fell back into contraction territory for the second time in the past three months in May, according to the latest au Jibun Bank Flash PMI data. While only slight, the reduction in overall output reflected a steeper fall in manufacturing output alongside a weaker expansion of service sector activity.
Demand conditions also looked more fragile, with new business measured across both manufacturing and service sectors falling for the first time in nearly a year, and foreign demand declining for the second straight month.
At the same time, cost pressures, a source of concern for many firms, remained elevated in May. However, there were some tentative signs that input price inflation is cooling, with the latest data showing the slowest rise in operating expenses in over a year. This translated into a softer uptick in selling prices.
Business confidence across Japan’s private sector was meanwhile the second-lowest recorded since the initial wave of the COVID-19 pandemic, with uncertainty around the future trade environment and foreign demand clouding the outlook and dampening output projections for the year ahead.”
OPEC+ Discusses Another Super-Sized Output Hike for July
An output hike of 411,000 barrels a day for July — triple the amount initially planned — is among options under discussion, although no final agreement has yet been reached, said the delegates, asking not to be named because the information is private. A final decision is due to be taken at a gathering on June 1.
The cartel has helped sink crude prices since announcing 411,000-barrel hikes for May and June — equivalent to about 1% of current OPEC+ output — in a historic break with years of defending oil markets. Oil made a fresh plunge on Thursday, dropping 0.9% to $64.31 a barrel as of 9:13 a.m. in London. (…)
While OPEC+ says the supply increases are to satisfy demand, officials have privately proffered a range of motives, from punishing over-producing members to recouping market share and placating President Donald Trump.
Group leader Saudi Arabia warned errant members such as Kazakhstan and Iraq at their last meeting that it could deliver further production increases unless they fall in line with their quotas. Despite some promises of atonement, the Kazakhs have made little effort to rein in international oil companies operating in the country and continue to export near record levels. (…)
Actually, Trump would be happy if oil prices decline further. Putin not so much.
The Fortress That China Built for Its Battle with America Beijing is racing ahead in advanced technology, including in robots, satellites and AI—and in some cases is catching up with the U.S.
The storm clouds for China were gathering when leader Xi Jinping convened the country’s top scientists at the Great Hall of the People in Beijing in May 2018. The U.S. was beginning to clamp down on selling technology to China, with more restrictions on the way.
China must not be forced to beg others for technology, Xi said. Only through self-reliance “can we fundamentally safeguard national economic security,” he said.
Since then, China has raced ahead in many strategic sectors—and in some cases is catching up with the U.S. Its electric-car companies are among the world’s best. Chinese AI startups rival OpenAI and Google. The country’s biologists are pushing the boundaries of pharmaceutical research, and its factories are being filled with advanced robotics.
At sea, Chinese-made cargo vessels dominate global shipping. In space, the country has been launching hundreds of satellites to monitor every corner of the Earth. Beyond frontier technology, Beijing is pursuing greater self-reliance in food and energy, and has bulked up its military. (…)
The advances are making China less dependent on the rest of the world for goods and services. Imports overall fell to less than 18% of gross domestic product in 2023 compared with about 22% a decade earlier. (…)
In 2015, a policy dubbed “Made in China 2025” identified 10 sectors as national priorities, including robotics, aerospace and new-energy vehicles.
Xi took on a more nationalistic tone after Trump launched a trade war against China in 2018. Calls for “self-reliance” became more prominent, especially after the pandemic struck, leading China to largely close its borders. Chinese officials gained confidence that their economy could survive reduced contact with the outside world when it grew 2.2% in 2020, the only major economy to expand that year.
China’s resolve strengthened in the Biden years, as Washington sought to work with European allies to choke off China’s access to advanced technologies such as semiconductors. “Western countries, led by the U.S., have implemented all-around containment, encirclement and suppression against us,” Xi said in 2023. He warned China to prepare for “extreme scenarios,” a thinly-veiled reference to the risk of conflict with the U.S.
Much of China’s success stems from its ability to direct enormous sums of money to prized sectors.
Last year, China invested $500 billion on research and development, triple from when Xi took office in 2012. China spends nearly as much on R&D as the U.S., adjusting for purchasing power parity, according to the Organization for Economic Cooperation and Development.
Investment in AI is a major focus. One study last year found that Chinese government venture-capital funds invested nearly $200 billion across 9,600 AI firms between 2000 and 2023.
Local government investment arms have helped the push, backing companies such as Zhipu AI—one of the Chinese AI firms rivaling U.S. companies. The AI startups are also taking in capital from private venture funds and Chinese companies such as Alibaba and Tencent.
China’s technology push is boosting its manufacturing prowess. Chinese companies have been buying as many industrial robots as the rest of the world combined, enabling some factory owners to experiment with highly automated plants that can operate in the dark. For much of the past decade, three-quarters of the robots installed in China came from foreign manufacturers, such as in Japan or Germany. By 2023, Chinese robot makers captured nearly half of the local market, according to the International Federation of Robotics. (…)
[Shenzhen-based] UBTech says that 90% of its more than 3,000 suppliers in recent years were based in China—a sign of how much China can rely on its own growing ecosystem of suppliers. The company is also incorporating technology from Chinese artificial-intelligence pioneer DeepSeek to help the robots make better decisions.
The self-sufficiency drive extends to highly sensitive areas such as nuclear power. At the Sanmen nuclear power plant, 150 miles south of Shanghai, the first two reactors put under construction in 2009 came from Pennsylvania-based Westinghouse, with key components shipped from the U.S. and American engineers on-site to help get the project online.
The next two reactors were also based on Westinghouse’s technology. Now, a new pair will be totally Chinese. Known as Hualong One, China’s homegrown reactor model allows Beijing to better control costs and construction timelines, while eliminating the danger that the U.S. could one day refuse to sell China more reactors.
Efficient government coordination, readily available financing from state banks and a highly-developed nuclear supply chain means China has already managed to build some Hualong One reactors in about five or six years. The latest Westinghouse reactors in the U.S. took more than a decade to complete, at far higher costs.
In many emerging sectors, China seeks to go beyond government subsidies and other financial support, pushing companies to compete with each other to boost efficiency and innovation.
Two of China’s leading battery makers, Contemporary Amperex Technology and BYD, have disclosed several billion dollars in subsidies between them over the past three years. At the same time, they say they have spent more than $20 billion combined on R&D. (…)
Last year, when a group of U.S. think tanks ranked the world’s best such commercial satellite systems, Chinese firms won five out of 11 gold medals. The U.S. had four. (…)
In its push for self-sufficiency, China now has roughly two-thirds of global corn reserves, despite only having about 17% of the world’s population, and has built massive stockpiles of oil and metals. It is slowly expanding the use of its yuan currency in foreign trade and developing alternatives to Western financial payment systems. The Defense Department estimates that China has tripled its nuclear warhead stockpile to more than 600 in recent years. (…)
Last year, Chinese shipyards delivered 53% of global tonnage, according to shipping-information provider Clarksons Research, compared with 8% in 2002. Those gains reflected decades of state support, including cut-rate prices for land to build shipyards, favorable loans and subsidized steel. The U.S. made up just 0.1% of global commercial tonnage last year.
China’s shipbuilding prowess has helped it to build the world’s largest navy, with more than 370 ships and submarines today. (…)
In 2023, Huawei grabbed U.S. attention when it released a high-end smartphone powered by an advanced processor that industry analysts say was locally produced in China. More recently, it has been gearing up to test a new chip it hopes will be more powerful than Nvidia’s H100 chip, released in 2022.
As China’s chips improve, Morgan Stanley projects the country’s self-sufficiency rate in graphics processing units—essential in creating AI systems—will jump to 82% by 2027 from 11% in 2021. (…)
The inefficient allocation of money has contributed to slowing productivity growth. Absent reforms, China may be able to sustain GDP growth of just 2.8% on average from 2031-2040, according to economists at the International Monetary Fund, compared with an average of around 6% over the past decade. (…)
97% of the article is about smart planning and focused execution, only to conclude that “inefficient allocation of money” could cut growth in half to about 3% per year.
Yet, China spends nearly as much as the US on R&D with a 40% smaller economy on a PPP basis.
US R&D investments totaled $1.1 trillion (21%) more than China’s since 2015. Why did the USA fall behind in so many critical areas? Perhaps less planning, poor execution and less efficient allocation of money.
Meanwhile, China’s debt to GDP, nearly at par with the US 20 years ago is now lower and below the 2010 level:
Annual US corporate pretax profits rose by $1.9T since 2015 thanks to profit margins exploding from 13.9% to 22.3%. Corporate federal taxes rose only $160B.
Since 2015, US corporations distributed an increasing share of profits in dividends. This Ed Yardeni chart shows flat undistributed profits post GFC …
… but actual retained profits to reinvest were even lower after buybacks which almost doubled in the last 10 years, leaving fewer $ to reinvest while boosting consumption … and the trade deficit.
Other Yardeni data reveal that US manufacturers’ profits were flat between 2015 and 2019 but exploded 50% post pandemic. Dividends paid by US manufacturers steadily rose from $250B annualized in 2015 to $350B in 2019 and to nearly $450B in 2024.
BYD sells more electric vehicles in Europe than Tesla for first time Chinese car group has been pushing to expand into overseas markets for past few years
(…) “This is a watershed moment for Europe’s car market, particularly when you consider that Tesla has led the European battery electric vehicle market for years, while BYD only officially began operations beyond Norway and the Netherlands in late 2022,” said Felipe Munoz, global analyst at Jato Dynamics. (…)
BYD and other Chinese groups have expanded their product line-up in Europe, increasing the sales of plug-in hybrids, which are not hit by the EU’s higher tariffs.
Registration of EVs made by Chinese carmakers rose by 59 per cent year-on-year in Europe in April to 15,300 vehicles, while plug-in hybrids increased nearly eight-fold to 9,649 units, according to Jato.
“China has 50% of the world’s AI developers, and it’s important that when they develop on an architecture, they develop on Nvidia, or at least American technology.” (…)
