China’s PMI declined as the nation’s factory economy contracted for the first time in almost three years. The state-sponsored China Federation of Logistics & Planning reported its manufacturing Purchasing Managers’ Index fell to 49.0 on a 100-point scale, falling below the previous month’s 50.4 reading. The news coincides with a poor PMI number for Europe. The index in the eurozone fell to 46.4 from 47.1 in October. That means China must face a slowing of economic activity with its trade partners, which could make its manufacturing base even more vulnerable to future contraction. The only good by-product of the slowing in China is that it may chock down inflation, which has been over 6% in the past year.
The ability of financially troubled EU nations to raise money has gotten worse — again — and shows no sign of improvement. Spain’s treasury sold 3.75 billion euros of three bonds, at the high end of the targeted 2.75 to 3.75 billion euro range. But the average yield on the April 30, 2015, bond was 5.187%, up from 3.639% when it was last sold on Oct. 6. Italy and even France have had similar problems as what they must pay on sovereign paper rises quickly. There is a fair concern that these interest rates cannot be sustained, which means that the ability of these sovereigns to address deficits must come with proof of severe austerity measures. These may take months or longer to put in place, further increasing the skepticism that southern European nations can avoid default.
The process to buy part or all of Yahoo! (NASDAQ: YHOO) has become more confused, at least as it is presented by the media. Some rumors are that private equity firm Bain may set a partnership with Chinese e-commerce company Alibaba and Yahoo! Japan to buy all of Yahoo! This would give Alibaba and Yahoo! Japan the chance to buy back the stakes in their firms that Yahoo! owns. It would leave Bain with Yahoo!’s slow-growing U.S. business. Another possible outcome is that a private equity firm would buy 20% of Yahoo! The money, along with more capital Yahoo! would borrow, would be used to buy its shares, which would increase EPS. That will not turnaround the company’s difficult revenue problems, though. There is also speculation that Microsoft (NASDAQ: MSFT) could finance a purchase of Yahoo! to guarantee its Bing search partnership with the portal company. None of these solutions appears to do much for shareholders, who might have gotten $33 a share from a Microsoft offer in 2008. Yahoo! trades at $16 now.
The Thomson Reuters/PayNet Small Business Lending Index shows borrowing by small businesses rose 20% in October. The level is still below where it was in 2005. Yet, the information is encouraging for two reasons. The first is that banks, until recently too concerned about the economy and their balance sheets to loan to small businesses at all, are willing to take on more risk. The other good sign is that small businesses have begun to grow again. More than half of workers in the U.S. are employed by these small firms. And, economists believe, there can be no jobs recovery without hiring at the small business level.
Douglas A. McIntyre
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