Business

By Devik Jain and Aniruddha Ghosh

(Reuters) -U.S. stock indexes were set to open lower on Monday following a strong rally last week on earnings optimism, with investors awaiting a factory activity data after similar surveys from China and the Eurozone fueled recession worries.

The S&P 500 and the Nasdaq posted their biggest monthly percentage gains since 2020 in July on stronger-than-expected second-quarter results and on hopes the Federal Reserve need not to be as aggressive with interest rate hikes as some had feared.

The upbeat mood faded on Monday as surveys showed factories across Asia and Europe struggled for momentum in July as flagging global demand and China’s strict COVID-19 curbs slowed production.

The Institute of Supply Management’s manufacturing Purchasing Managers Index, due at 10 a.m. ET, is expected to show factory activity slowed in July to 52.0 from 53.0 in June, according to a Reuters poll.

“Manufacturing is a small part of the U.S. economy, but it tends to lead what you will later see in the services data, which is a bigger piece of the overall economy,” said Randy Frederick Managing Director of Trading and Derivatives at Charles Schwab.

The factory activity data will be followed by the monthly U.S. jobs report on Friday, which will be parsed for cues for the Fed’s next moves.

The U.S. central bank has raised interest rates by 2.25 percentage points so far this year and has vowed to be data-driven in its approach toward future hikes.

Worries about a recession have weighed on stock markets this year, with the benchmark index down 13.3% as investors adjust their expectations on economic growth and corporate profits in the face of tightening financial conditions.

However, the earnings season has showed companies were far more resilient in the second quarter than estimated.

Of the 279 S&P 500 companies that have reported results, 77.8% have topped profit estimates, as per Refinitiv data. The long-term average is 66.1%.

Activision Blizzard, Devon Energy and Simon Property Group are scheduled to report quarterly results later in the day.

At 8:26 a.m. ET, Dow e-minis were down 78 points, or 0.24%, S&P 500 e-minis were down 14.75 points, or 0.36%, and Nasdaq 100 e-minis were down 32.25 points, or 0.25%.

Boeing Co gained 4.7% in premarket trading after a Reuters report that the U.S. Federal Aviation Administration approved the planemaker’s inspection and modification plan to resume deliveries of 787 Dreamliners.

Global Payments Inc rose 3.5% after the fintech firm agreed to buy smaller peer EVO Payments Inc for nearly $4 billion, including debt, to expand in the business-to-business (B2B) space.

Shares of EVO Payments jumped 20.7%.

(Reporting by Aniruddha Ghosh and Devik Jain in Bengaluru; Editing by Arun Koyyur)

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SEOUL (Reuters) – South Korea’s exports grew at a faster annual pace in July than a month earlier, trade ministry data showed on Monday, while the trade deficit widened to the biggest in six months.

Exports rose 9.4% in July from a year earlier to $60.70 billion, matching the forecast in a Reuters poll, after a 5.2% rise in the previous month.

The stronger exports growth provides some relief to policymakers as they look to contain rising inflation derailing an economic recovery.

Imports gained 21.8% to $65.37 billion, faster than 19.4% a month earlier and 20.7% seen in the survey.

The result was a $4.67 billion trade deficit, marking the biggest in six months and fourth straight monthly deficit in a row.

Shipments to the United States gained 14.6% from a year earlier, following 12.2% rise in June, to the biggest monthly amount on record. Exports to the European Union also added 14.6%, a welcome sign for Korea’s globe-trotting manufacturers facing pressure from a slowing world economy.

Sales to China, which has been hit by outbreaks of COVID in recent months, fell for a second month by 2.5%.

By products, exports of semiconductors grew 2.1%, petroleum products surged 86.5%, and cars advanced 25.3%.

There were 23.5 working days in June, compared with 24.5 a year earlier.

(Reporting by Jihoon Lee; Editing by Shri Navaratnam)

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By Florence Tan

SINGAPORE (Reuters) – Oil prices dropped early on Monday as investors braced for this week’s meeting of officials from OPEC and other top producers on supply adjustments.

Brent crude futures dropped 63 cents, or 0.6%, to $103.34 a barrel by 0000 GMT. U.S. West Texas Intermediate crude was at $97.87 a barrel, down 75 cents, or 0.7%, after hitting a session low of $97.55 when trading commenced in Asia.

Both contracts rebounded more than $2 a barrel on Friday as risk appetite improved among investors. However, both Brent and WTI ended July with their second straight monthly losses for the first time since 2020, as soaring inflation and higher interest rates raise fears of a recession that would erode fuel demand.

ANZ analysts said fuel sales to drivers in Britain are waning, while gasoline demand remains below its five-year average for this time of the year. Reflecting this, analysts in a Reuters poll reduced for the first time since April their forecast for 2022 average Brent prices to $105.75 a barrel, and to $101.28 for WTI.

The Organization of the Petroleum Exporting Countries (OPEC)and allies including Russia, a group known as OPEC+, will meet on Wednesday to decide on September output.

Two of eight OPEC+ sources in a Reuters survey said a modest increase for September will be discussed at the Aug. 3 meeting, while the rest said output would likely be held steady.

The meeting comes after U.S. President Joe Biden visited Saudi Arabia last month.

“While President Biden’s visit to Saudi Arabia produced no immediate oil deliverables, we believe that the Kingdom will reciprocate by continuing to gradually increase output,” RBC Capital analyst Helima Croft said in a note.

The start of August sees OPEC+ having fully unwound record output cuts in place since the COVID-19 pandemic took hold in 2020.

The group’s new secretary general Haitham al-Ghais reiterated on Sunday that Russia’s membership in OPEC+ is vital for the success of the agreement, Kuwait’s Alrai newspaper reported.

Meanwhile, U.S. oil production continued to climb as the rig count rose by 11 in July, increasing for a record 23rd month in a row, data from Baker Hughes showed. [RIG/U]

(Reporting by Florence Tan; Editing by Kenneth Maxwell)

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By Wayne Cole

SYDNEY (Reuters) – Asian share markets got off to a slow start on Monday as disappointing Chinese economic data fed doubts last week’s rally on Wall Street could be sustained in the face of determined policy tightening by global central banks.

China’s factory activity actually contracted in July as fresh virus flare-ups weighed on demand. The official manufacturing purchasing managers’ Index (PMI) fell to 49.0 in July, missing forecasts for 50.4.

That did not bode well for the raft of PMIs due this week, including the influential U.S. ISM survey, while the July payrolls report on Friday should also show a further slowdown.

At the same time U.S. data out Friday showed stubbornly high inflation and wages growth, while central banks in the UK, Australia and India are all expected to hike again this week.

“We expect the Band of England to step up monetary tightening with a 50bp hike at its August meeting. The increase in energy prices is likely to be the main driver,” warned analysts at Barclays.

“Central banks focus on the still strong inflation momentum and tight labour markets rather than signals of slowing growth. This could upset markets’ recent ‘bad news is good news’ view.”

The caution was evident as MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.1% in sluggish early trade.

Japan’s Nikkei dithered either side of flat, while South Korea dipped 0.1%. S&P 500 futures slipped 0.4% and Nasdaq futures 0.3%.

While U.S. corporate earnings have mostly beaten lowered forecasts, analysts at BofA cautioned that only 60% of the consumer discretionary sector had reported and it was under the most pressure given inflation concerns for consumers.

“Our bull market signposts also indicate it’s premature to call a bottom: historical market bottoms were accompanied by over 80% of these indicators being triggered vs just 30% currently,” BofA said in a note.

“Moreover, bear markets always ended after the Federal Reserve cut, which likely is at least six months away – BofA house view is for a first cut in 3Q23.”

A, NOT-SO, DOVISH PIVOT

Bond markets have also been rallying hard, with U.S. 10-year yields falling 35 basis points last month for the biggest decline since the start of the pandemic. Yields were last at 2.670%, a long way from the June top of 3.498%.

The yield curve remains sharply inverted suggesting bond investors are more pessimistic on the economy than their equity brethren. [US/]

The reversal in yields has taken some heat out of the dollar, which lost ground for a second week last week to stand at 106.010 on a basket of currencies, compared to its recent peak of 109.290.

The biggest decline came against the yen where speculators had been massively short and found themselves squeezed out by the sudden turnaround. The dollar was last down at 132.85 yen, having shed a sharp 2.1% last week.

The dollar fared better on the euro, which has a European energy crisis to contend with, and made hardly any headway last week. The euro was last at $1.0221, and short of stiff resistance around $1.0278.

Jonas Goltermann, a senior markets economist at Capital Economics, was puzzled by the market’s dovish reading of last week’s 75-basis-point Fed hike.

“Our sense is that the risk-on response to the Fed is largely down to a combination of wishful thinking and stretched positioning,” he argued.

“In our view, there was little in Chair Powell’s remarks to suggest policymakers will abandon aggressive rate hikes while inflation remains so far above target,” he added. “If we are right that markets have misread the Fed’s intention, the dollar will probably resume its rally before too long.”

For now, the drop in the dollar and yields has been a relief for gold which is up at $1,762 an ounce after bouncing 2.2% last week. [GOL/]

Oil prices drifted back as the market waited to see if this week’s meeting of OPEC+ produced an increase in supply, even if only minor. [O/R]

U.S. crude eased 87 cents to $97.75 per barrel, while Brent lost 77 cents to $103.20.

(Reporting by Wayne Cole; Editing by Simon Cameron-Moore)

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BEIJING (Reuters) -China’s factory activity contracted unexpectedly in July after bouncing back from COVID-19 lockdowns the month before, as fresh virus flare-ups and a darkening global outlook weighed on demand, a survey showed on Sunday.

The official manufacturing purchasing managers’ Index (PMI) fell to 49.0 in July from 50.2 in June, the National Bureau of Statistics (NBS) said, below the 50-point mark that separates contraction from growth and the lowest in three months.

Analysts polled by Reuters had expected a reading of 50.4.

“The level of economic prosperity in China has fallen, the foundation for recovery still needs consolidation,” NBS senior statistician Zhao Qinghe said in a statement on the NBS website.

Continued contraction in the energy-intensive industries, such as petrol, coking coal and ferrous metals, contributed most to pulling down the July manufacturing PMI, he said.

Sub-indexes for output and new orders fell by 3 points and about 2 points in July, respectively, while the employment sub-index edged down by 0.1 point.

Weak demand has constrained recovery, Bruce Pang, chief economist and head of research at Jones Lang Lasalle Inc, said in a research note. “Q3 growth may face greater challenges than expected, as recovery is slow and fragile,” he added.

The official non-manufacturing PMI in July fell to 53.8 from 54.7 in June. The official composite PMI, which includes manufacturing and services, fell to 52.5 from 54.1.

China’s economy barely grew in the second quarter amid widespread lockdowns, and top leaders recently signalled their strict zero-COVID policy would remain a top priority.

Policymakers are prepared to miss their GDP growth target of “around 5.5%” for this year, state media reported after a high-level meeting of the ruling Communist Party. Beijing’s decision to drop mention of the target has doused speculation that the authorities would roll out massive stimulus measures, as they often have in previous downturns.

Capital Economics says that policy restraint, along with the constant threat of more lockdowns and weak consumer confidence, is likely to make China’s economic recovery more drawn-out. FALTERING RECOVERY After a rebound in June, the recovery in the world’s second-biggest economy has faltered as COVID flare-ups led to tightening curbs on activity in some cities, while the once mighty property market lurches from crisis to crisis.

Chinese manufacturers continue to wrestle with high raw material prices, which are squeezing profit margins, as the export outlook remains clouded with fears of a global recession.

China’s southern megacity of Shenzhen has vowed to “mobilise all resources” to curb a slowly spreading COVID outbreak, ordering strict implementation of testing and temperature checks, and lockdowns for COVID-hit buildings.

The port city of Tianjin, home to factories linked to Boeing and Volkswagen, and other areas tightened curbs this month to fight new outbreaks.

According to World Economics, the lockdown measures had some impact on 41% of Chinese companies in July, though its index of manufacturing business confidence rose significantly from 50.2 in June to 51.7 in July.

(Reporting by Beijing Newsroom; Editing by William Mallard and Himani Sarkar)

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JAKARTA (Reuters) – Indonesia temporarily opened access to online payment firm PayPal to allow users to access their money, a senior official said on Sunday, after the country’s blocking of some online services and games sparked an outcry.

The Indonesian communication ministry on Saturday blocked PayPal, search engine website Yahoo, and several gaming services due to failures to meet a deadline under licensing rules.

Registration is required under rules released in late November 2020 and will give authorities broad powers to compel platforms to disclose data of certain users and take down content deemed unlawful or that “disturbs public order”.

Semuel Abrijani Pangerapan, a senior official at Indonesia’s Communications Ministry, told an online briefing on Sunday the government is opening access to PayPal for five working days.

“Hopefully that is enough time for users to migrate, get their money and find other services,” he said, adding that there had been no communication yet from PayPal.

On Saturday, thousands of comments criticising the government’s blockade of unregistered digital services flooded an Instagram post by the Communication Ministry.

Many messages said the government’s move was hurting Indonesia’s online gaming industry and freelance workers who use PayPal.

Authorities would unblock the websites if they comply with registration rules, Semuel said, defending the measure as protection for Indonesian internet users and the digital ecosystem.

Operators of other affected gaming services including Steam, Dota and Counter-Strike have been in communication with the government, he added.

PayPal and video gaming company Valve Corporation did not immediately respond to Reuters emails seeking comment.

(Reporting by Fransiska Nangoy; Editing by Lincoln Feast.)

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BEIJING (AP) — Chinese manufacturing’s recovery from anti-virus shutdowns faltered in July as activity sank, a survey showed Sunday, adding to pressure on the struggling economy in a politically sensitive year when President Xi Jinping is expected to try to extend his time in power.

Factory activity was depressed by weak global demand and anti-virus controls that are weighing on domestic consumer spending, according to the national statistics agency and an official industry group, the China Federation of Logistics & Purchasing.

A monthly purchasing managers’ index issued by the Federation and the National Bureau of Statistics retreated to 49 from June’s 50.2 on a 100-point scale on which numbers below 50 indicate activity declining. Sub-measures of new orders, exports and employment declined.

“Downward pressure is great,” said economist Zhang Liqun in a statement issued by the Federation. “The impact of the epidemic is still on the rise.”

The ruling Communist Party has stopped talking about this year’s official economic growth target of 5.5% after output shrank in the three months ending in June compared with the previous quarter.

The slowdown, which raises the risk of politically volatile job losses, adds to challenges for Beijing ahead of a ruling party meeting in October or November when Xi is expected to try to break with tradition and award himself a third five-year term as party leader.

An announcement Thursday by party leaders promised to “strive to achieve the best results” but avoided mentioning the annual growth target announced in March.

The party has promised tax rebates and other aid to help entrepreneurs after anti-virus controls temporarily shut down Shanghai and other industrial centers starting in late March.

The port of Shanghai, the world’s busiest, says activity is back to normal, but factories and other companies are operating under anti-virus controls that limit their workforces and weigh on production.

An index of production tumbled to 49.8 from June’s 52.8. New orders declined 1.9 points to 48.5. New export orders lost 2.1 points to 47.4.

Chinese leaders have avoided large-scale stimulus spending, possibly for fear of reigniting a rise in debt that they worry is dangerously high.

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ISLAMABAD (AP) — Pakistan’s powerful army chief has contacted Washington, seeking U.S. help in securing an early release of a crucial $1.7 billion installment from the International Monetary Fund to his country, struggling with a deepening economic crisis, Pakistani officials said Saturday.

According to several government officials, Gen. Qamar Javed Bajwa discussed the issue with U.S. Deputy Secretary of State Wendy Sherman, appealing on Washington to use its influence with the IMF to help Pakistan.

The appeal was a rare reaching out by the army chief. Pakistan’s relations with the United States have been troubled in recent years, mainly over the issue of neighboring Afghanistan, now run by the Taliban.

The relations remained especially tense under former Prime Minister Imran Khan, who was ousted in a no-confidence vote in Parliament in April. However, Pakistan’s military, which has directly ruled the country for more than half of its 75-year history, has closely worked with the U.S. and was an official ally in the war on terror against al-Qaida.

Pakistan’s foreign ministry confirmed Friday that Bajwa and Sherman had talked.

“I understand (the) conversation has taken place, but at this stage, I am not in direct knowledge of the content of this discussion,” said ministry spokesman Asim Iftikhar.

The officials who spoke to The Associated Press on Saturday said the discussion focused on the IMF loan. They spoke on condition of anonymity because they were not authorized to talk to the media.

Pakistan and the IMF originally signed the bailout accord in 2019. But the release of a $1.7 billion tranche has been on hold since earlier this year, when the IMF expressed concern about Pakistan’s compliance with the deal’s terms under Khan.

Khan’s successor, Prime Minister Shahbaz Sharif, and his government reached a preliminary agreement with the IMF earlier this month to revive the bailout package. That agreement was subject to approval from the fund’s board of directors.

Pakistan had hoped for a quick revival of the bailout, but the IMF has so far not released the much-needed installment, which may have prompted Bajwa’s call to Washington. It remained unclear what U.S. officials could do to speed up the process of the bailout.

There was no immediate comment from Washington on the phone call.

Bajwa also spoke by phone with the head of U.S Central Command in the Mideast, Gen. Michael Kurilla, on Friday, according to a military statement. It quoted Kurilla as saying he appreciates the role Pakistan plays in the region’s stability and expressing hopes for further improvement in cooperation with Pakistan.

Pakistan desperately needs the IMF loan. Earlier in July, the fund said it would raise the value of the bailout from $6 billion to $7 billion, if approved by its executive board, usually considered a formality.

Sharif has repeatedly blamed the former prime minister’s government, alleging that Khan — a former cricket star turned Islamist politician — had deliberately violated IMF’s conditions in order to remain popular among followers at home.

Analysts say the revival of the IMF bailout will help Pakistan and encourage other international financial institutions to engage with the South Asian country.

Sharif’s government has also been in contact with Washington over reviving the IMF bailout. Since his ouster, Khan has repeatedly alleged that his government was toppled under a U.S. plot, a charge Washington denies.

Since Khan’s ouster, Pakistan’s currency has plummeted to an all-time low amid uncertainty about IMF assistance. The rupee slid a record low of about 240 against the dollar last weekend. Previously, the dollar sold for 225 rupees.

The steady decline in this Islamic nation’s currency has spread panic among its business community. Rising food prices and inflation has made Sharif’s government, now in its four month in office, highly unpopular.

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Boeing has cleared a key hurdle with federal regulators and could soon resume deliveries of its large 787 airliner, which has been plagued by a series of production issues since late 2020, a person familiar with the matter said Saturday.

The Federal Aviation Administration notified Boeing on Friday that it would approve the company’s process for validating fixes to each plane before they are delivered to airline customers, said the person, who spoke on condition of anonymity to discuss a decision that has not been publicly announced.

The FAA declined to comment and referred inquiries to Boeing. In a statement, Boeing said only, “We will continue to work transparently with the FAA and our customers towards resuming 787 deliveries.”

Approval to resume deliveries would be a boost for Boeing, which collects a big chunk of each plane’s purchase price at delivery. Boeing has accumulated a backlog of about 120 undelivered 787s. The plane, which Boeing calls the Dreamliner, lists at $248 million to $338 million depending on size, although airlines pay far less than sticker price.

Issues with the 787 started in 2020 when small gaps were found between panels of the fuselage that are made of carbon composite material. That prompted inspections that turned up problems with a pressurization bulkhead at the front of the plane.

Boeing also had to replace titanium parts including fasteners after it was discovered that the Italian supplier used alloys that did not meet FAA standards.

Boeing has maintained that none of the issues raised immediate safety concerns.

It is not clear how long it will take Boeing to deliver all 120 backlogged planes, which were built at factories in Washington state and South Carolina. Each one will need to be cleared by the FAA.

American Airlines expects to get its first two 787s “in early August” but isn’t including them in the schedule until November, the airline’s chief financial officer, Derek Kerr, said last week on a call to discuss quarterly earnings.

The FAA decision to approve Boeing’s retrofitting plan was first reported by Aviation Week.

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By David Shepardson

WASHINGTON (Reuters) -A union representing nearly 2,500 employees at three Boeing Co defense locations in the St. Louis area said on Saturday they will vote on the company’s revised contract offer, canceling a strike that was set to start Monday.

The International Association of Machinists and Aerospace Workers (IAM) said an overnight bargaining session had led to the new Boeing offer and workers will vote Wednesday on whether to accept it.

Under the new contract offer https://www.iam837.org/news/new-contract-offer-from-boeing, employees can opt to receive an $8,000 lump sum payment — minus tax withholdings — upon ratification or can choose to have the entire amount deposited in a 401(k) plan. The company is dropping its revised 401(k) match proposal.

Boeing said in a statement Saturday “this new offer builds on our previous strong, highly competitive one and directly addresses the issues raised by our employees. We are hopeful they will vote yes on Wednesday.”

Workers at the three plants in Missouri and Illinois build the F-15, F-18, T-7A trainer, and the MQ-25 unmanned refueler. Boeing said on July 24 it was activating a contingency plan in the event of a strike.

The standoff began after the union had criticized Boeing’s 401(k) payments in the contract and workers rejected the offer.

“Boeing previously took away a pension from our members, and now the company is unwilling to adequately compensate our members’ 401(k) plan,” IAM said on July 24.

Boeing’s earlier 401(k) offer on Sunday included a company match of workers contributions up to 10% of workers’ salaries along with an automatic contribution of 2% for 2023 and 2024. Boeing had also offered a $3,000 ratification bonus.

Boeing currently provides a 4% company contribution and a 75% match on the first 8% of an employee contribution.

(Reporting by David Shepardson; Editing by Aurora Ellis)

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