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Friday financial focus

Friday Headlines:
• USA: Fastest factory output hike since 2011
• Europe: French troubles could extend Eurozone crisis
• Europe: ECB profits on its Greek bonds
• China: Direct foreign investment falls for eighth month
• Global Markets: Headlines from key indexes
• Energy: Japan looks to US for shale gas
• Commodities: Gold poised for weekly loss
• Currencies: USD rises as Fed may end QE early
• Friday Focus: Fund manager global allocation survey

USA: Fastest factory output hike since 2011
US manufacturers boosted output at the fastest rate since March
2011, according to data out yesterday. Markit’s manufacturing
purchasing managers’ index (PMI) for output jumped from 56.8 in
January to 58.1 this month, a 23-month high. Since it is further above
50, it suggests a yet faster pace of activity growth in the factory sector.
But the overall PMI, which takes order books, employment, backlogs
and inventories into account, as well as output, inched down from 55.8
to 55.2, signalling slower but still substantial expansion in industry
overall. And consumer prices stayed completely flat between
December and January, according to separate data from the Bureau
of Labor Statistics (BLS). This allowed the annual inflation rate to fall
from 1.7% in December to 1.6% last months, the BLS said. But labour
market numbers did not give such a positive impression of the US
economy. New unemployment insurance claims jumped 20,000 to
362,000 in the week ending 16 February, the Department of Labor
revealed, while total insured unemployment edged up 11,000 to reach
3,148,000 in the previous week.

Europe: French troubles could extend Eurozone crisis
Eurozone business activity sunk further and at a faster pace in
February, as the bloc proved unable to escape from its lengthy crisis.
Markit’s purchasing managers’ index (PMI) for the currency zone
slipped back to 47.3 in the second month of 2013, having risen to 48.6
during January. Since this is further below 50, which indicates no
change in business activity, it suggests output falling at an even faster rate. “A steepening rate of decline in February is a
disappointment, and suggests that the Eurozone is on course to contract for a fourth consecutive quarter in the first three
months of the year,” said Markit chief economist Chris Williamson. Beneath the headline figures there was a sharp
divergence between the bloc’s largest two economies, Germany and France. French private sector output was in free-fall
in February, according to its PMI of 42.3 – a 47-month low – down from 42.7 last month. By contrast Germany enjoyed
continued expansion – though at a slower rate. It posted a PMI of 52.7, some 10 points higher than France, and
indicating expansion, albeit at a slower rate compared to January’s 54.4. “Digging into the data shows increasing schisms
within the Eurozone,” Williamson added. “National divergences between France and Germany have widened so far this
year to the worst seen since the survey began in 1998.” And businesses in France and Germany expect this stark
divergence to go on. German services firms recorded a 20-month high in optimism for the coming year, while French
business confidence was at a three-month low.

Europe: ECB profits on its Greek Bonds
The ECB made €555m in interest income from its Greek bonds, accounts showed yesterday, indicating the whole Euro
system may have made several billion on the emergency purchases. This gain is expected to be divided up among the
Eurozone’s national central banks, added to their own earnings and given to Athens. The ECB made another €553m in
interest on other securities bought under the emergency programme, including those of Spain and Italy.

China: Direct foreign investment falls for eighth month
China’s foreign direct investment fell for an eighth month in January, a sign that the recovery in the world’s secondlargest
economy has yet to revive confidence among overseas companies. Inbound investment dropped 7.3% from a
year earlier to $9.27bn, the Ministry of Commerce said. Non-financial outbound investment rose 12.3% to $4.91bn, the
ministry data showed. China’s economic data in the first two months are distorted by the timing of the weeklong Lunar
New Year holiday, which fell in January last year and February this year. Rising employee and land costs have
diminished China’s attractiveness as a destination for foreign investors, with labour-intensive manufacturers leaving for
other Asian countries, HSBC Holdings Plc said in a report last month. Inbound investment dropped 3.7% last year as
economic expansion was the weakest since 1999. “Foreign enterprises are saying, ‘OK, China’s not growing as fast as in
the past, maybe we should pull back a little bit,’” Dariusz Kowalczyk, senior economist and strategist at Credit Agricole
CIB in Hong Kong, said. “The big picture is that Chinese growth potential is being lowered by less appetite by foreign
businesses to move their operations into China.” At the same time, inflows are likely to rebound by 4.5% this year as
businesses realize growth is improving and the nation won’t have a “hard landing,” Kowalczyk said.

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