Good morning! Here’s what you need to know.
— Chinese manufacturing unexpectedly contracted in January, with flash PMI falling to a six-month low of 49.6. That’s down from 50.5 in December and lower than the 50.3 economists expected (any print below 50 represents a contraction). HSBC’s Hongbin Qu said that the contraction was “dragged down by cooling domestic demand conditions.” But Bill Adams of PNC Financial Services wrote that he is reluctant to read too deeply into the figure. “Chinese statistics, even ones as ably adjusted for seasonal variation as the HSBC PMI, tend to get a little fuzzier around the Lunar New Year holiday which falls on January 31 this year.”
— Meanwhile, economic activity in the Eurozone chugged along in the preliminary reading, reaching its highest level since June 2011 (at 53.2). “The euro zone’s recovery gained further momentum in January,” Markit economist Chris Williamson said. “The upturn in the PMI puts the region on course for a 0.4-0.5% expansion of GDP in the first quarter, as a 0.6-0.7% expansion in Germany helps offset a flat-looking picture in France. Elsewhere across the region growth has improved to its fastest since early-2011, meaning the periphery is showing clear signs of starting 2014 on a firm footing.” Though, Spain’s unemployment rate did edge up.
— Carl Icahn is at it again. The billionaire “activist” investor has taken a stake in eBay and is trying to get the company to spin off PayPal. eBay “hasn’t done as well as it should have,” Icahn said on Bloomberg TV. “There’s no reason they should be together at this point.” Worth noting: “The context here, as eBay’s Q4 earnings show, is that PayPal is the real economic engine driving the company right now,” explains our Jim Edwards. “Although eBay’s auction biz is healthy, payments — and especially mobile payments — are super hot. PayPal revenue was up 19% to $US1.8 billion in Q4, whereas the company as a whole grew only 13% to $US4.5 billion.”
— After a relatively slow week, today is a busy day of economic data. At 8:30 a.m. ET, we’ll see initial jobless claims. Economists believe weekly claims edged up to 330,000 from 326,000 last week. Furthermore, Citi’s Peter D’Antonio writes that the Polar Vortex could have “kept some filers indoors.” As a result, “we anticipate an above-consensus rise during the reference week as claimants took advantage of warmer temperatures,” he wrote clients.
— At 9:00 a.m., the preliminary U.S. PMI figure will be released. Economists believe the index climbed to 55.0 in January from 54.4 last month. “The Markit PMI has been signaling slower growth than has been borne out in actual manufacturing output figures,” wrote UBS’s Kevin Cummins. “It contrasts with the greater strength of the manufacturing ISM.” The Kansas City Fed manufacturing index will come in at 11:00 a.m.
— Also at 9:00 a.m. comes the FHFA house price index for November 2013. And then at 10:00 a.m., we get more housing data with existing home sales for December 2013. Economists are looking for sales to have climbed 0.7% to an annualized pace of 4.94 million. “Pending home sales ticked higher in November, suggesting some improvement in closed contracts,” wrote the economists at Bank of America Merrill Lynch. “Since existing home sales track closed contracts, weather conditions are unlikely to have as big of an impact on activity (as compared to new or pending home sales which track signed contracts). That said, we would argue the risk is to the downside for this report.”
— In a letter to Congressional leaders, Treasury Secretary Jack Lew warned that the U.S. is likely to exhaust its borrowing authority by late February. Legislators will need to raise the debt ceiling to avoid a possible default, Lew wrote. “The Speaker has said that we should not default on our debt, or even get close to it, but a ‘clean’ debt limit increase simply won’t pass in the House,” a spokesman for House Speaker John Boehner said, previewing the battle that awaits.
— Asian markets were lower in overnight trading. Japan’s Nikkei was down 0.79%, Hong Kong’s Hang Seng fell 1.51%, and Korea’s KOSPI dropped 1.16%. European markets were broadly higher, while U.S. futures pointed slightly lower.
— Lenovo will buy IBM’s low-end server business for $US2.3 billion, which is the largest tech acquisition by a Chinese company, Reuters reports. The deal “underscores the growing clout of the country’s technology firms as they look to expand overseas,” according to Reuters.
— The massive riots in Ukraine have escalated, with live streams showing how the streets of Kiev are literally on fire. After two activists were killed, the protests have intensified in recent days, and the photos depict Kiev as an absolute war zone.
Pantheon’s Ian Shepherdson previews today’s housing data:
As well as the sales numbers, we also are interested to see what’s happening to prices. With inventory still at very low levels, the chance of sustained near-term declines in existing home prices seems quite small, despite the sharp drop in sales in recent months. The rate of increase of single-family home prices has slowed in recent months… but this follows a clear overshoot relative to the inventory position, so a slowdown was always likely at some point. Still, we will be watching these numbers very closely over the next few months, not least because we cannot be sure that the levelling off in the pending sales index marks the end of the adjustment to the increase in mortgage rates.