Euro Area Faces Capacity Bottlenecks as Recovery Gathers Pace
Euro-area businesses are struggling to hire workers fast enough to meet increasing demand as the recovery strengthens. “Operating capacity is being strained despite the region seeing the best spell of employment growth for a decade,” said Chris Williamson, chief business economist at IHS Markit in London. “Rising demand is also boosting firms’ pricing power, both for goods and services.” Increased staffing, robust inflow of new orders and companies’ ability to ask for higher prices are welcome news for the European Central Bank, where officials are preparing to discuss how to unwind unconventional stimulus. Some policy makers have argued that while an accommodative stance is still warranted, there will soon be room to phase out some of the crisis-induced measures. A Purchasing Managers’ Index for manufacturing and services signals economic expansion of 0.7 percent in the second quarter, despite a slight slowdown in activity in June, IHS Markit said. The gauge dipped to 56.3 from 56.8 in May, exceeding a June 23 estimate of 55.7, according to the report.
China’s $162 Billion of Dealmaker Debt Raises Alarm
China struck deal after deal to acquire companies abroad over the last few years. Now the bill is coming due. The nation’s top corporate dealmakers, including HNA Group Co. and Fosun International Ltd., must pay off the equivalent of at least $11.5 billion in bonds and loans by the end of 2018 — a feat now complicated by government efforts to rein in their aggressive rush overseas. That figure represents just a fraction of the total debt of 1.1 trillion yuan ($162 billion) that the Chinese companies have reported as they projected their money and influence around the world with a record number of acquisitions. The size of their obligations — and whether they will be able to shoulder them — has begun to worry global banks and investors now that Beijing has pressed companies to dial back their ambitions abroad. “Those companies the banking regulator is checking on have very high financing demand for M&A activities,” said Xia Le, chief Asia economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. “But banks will heighten their risk control when lending to them going forward, which could increase their funding costs and hurt the pace of their expansion.”
Wall Street set to open higher ahead of Fed minutes
Wall Street looked set to open higher on Wednesday as investors awaited minutes of the Federal Reserve’s last meeting for more clues on interest rate hikes this year. The Fed, which lifted interest rates and unveiled details of its plan to cut its mammoth crisis-era bond portfolio at its mid-June meeting, will release minutes at 2 p.m. ET (1800 GMT). A recent set of tepid economic data and an inflation rate below the central bank’s 2 percent target may have a bearing on its rate hike plans. “Markets will also be paying very close attention to see if the minutes suggest that the recent fall in inflation is ‘transitory’, with suggestions of higher rates still on the cards, unless the U.S. economy decelerates,” said Lukman Otunuga, analyst with FXTN Research. Adding to investor concerns are weak oil prices. Crude oil was down more than 1 percent on Wednesday as rising OPEC exports turned sentiment more bearish. U.S. factory goods orders are likely to drop 0.5 percent in May, compared with a 0.2 percent decline in April. The data is expected at 10 a.m. ET. Investors will also be keeping an eye on the monthly employment report due Friday for signs on the health of the labour market.