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China’s falling factory activity a sign of economic woes ahead

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China‘s factory activity contracted more than expected in October to shrink for a second month, hurt by persistently high raw material prices and softer domestic demand, pointing to more economic disquiet in the final quarter of 2021.

The official manufacturing Purchasing Manager’s Index (PMI) was at 49.2 in October, down from 49.6 in September, data from the National Bureau of Statistics (NBS) showed on Sunday.

The 50-point mark separates growth from contraction. Analysts had expected it to come in at 49.7.

China’s sprawling manufacturing sector has steadily slowed this year, with output in September growing at its most feeble pace since March 2020 due to environmental curbs, power rationing and higher raw material prices.

In line with the softer headline PMI, a subindex for production slipped to 48.4 in October from 49.5 in September. A subindex for new orders also contracted for a third month, coming in at 48.8.

“About one-third of the surveyed companies listed insufficient demand as their biggest difficulty, indicating inadequate demand had restricted their production,” said Zhang Liqun, an analyst at the China Logistics Information Center.

More worryingly, a subindex for output prices rose to 61.1, the highest since 2016 when the statistics bureau started publishing the indicator, suggesting rising inflationary pressures while broader economic growth slows.

“The production index has dropped to the lowest level since it was published in 2005, excluding the global financial crisis period in 2008/09 and the COVID outbreak in February 2020,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

“The output price index rose to the highest level since it was published in 2016. These signals confirm that China’s economy is likely already going through stagflation.”

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Factory gate inflation rose to a record last month on soaring commodity prices but weak demand capped consumer inflation, forcing policymakers to walk a tightrope between supporting the economy and further stoking producer prices.

Analysts polled by Reuters expect the People’s Bank of China to refrain from attempts to stimulate the economy by reducing the amount of cash banks must hold in reserve until the first quarter of 2022.

“Production remains weak, indicating the demand problem may be relatively large, and some easing of policy is still needed,” said Zhou Hao, senior economist at Commerzbank.

The official non-manufacturing PMI in October eased slightly to 52.4 from 53.2 in September, when services swung back to expansionary at the end of a COVID-fraught summer.

New clusters of COVID-19 returned in October, especially in the north, which could again disrupt economic activity and deal yet another blow to the services sector because of tough restrictions to contain the disease.

“Due to the impact of the epidemic and weather, consumers were more inclined to spend their holidays at home or travel for short distances,” said Zhao Qinghe, a senior NBS statistician, in an accompanying statement.

While the transport sector including air and railway services expanded, the growth was relatively weak, Zhao said.

China’s official October composite PMI, which includes both manufacturing and services activity, stood at 50.8, down from September’s 51.7.

(Reporting by Ryan Woo and Gabriel Crossley; Editing by William Mallard and Richard Pullin)

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Google delays return to office in Europe, Middle East, Africa – Business Insider

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Alphabet Inc‘s Google is postponing its return-to-office plan for offices in Europe, the Middle East and Africa on concerns over the Omicron variant of the coronavirus, Business Insider reported on Thursday, citing a memo it obtained.

 

(Reporting by Deborah Sophia in Bengaluru; Editing by Amy Caren Daniel)

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Canada’s CIBC misses profit estimates as costs climb, TD beats

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Canadian Imperial Bank of Commerce (CIBC) posted disappointing fourth-quarter earnings on Thursday as expenses and retail banking bad debt provisions rose, while bigger rival Toronto-Dominion Bank beat expectations.

Both banks joined rivals in announcing share buybacks and raising dividends, which they are now able to do since the financial regulator’s restriction on capital distributions was

lifted last month.

TD, Canada‘s second-biggest bank, posted lower margins in Canada, but it surprised with a 5 basis-point margin expansion in its U.S. retail business from the prior quarter. It also released C$123 million ($96 million) of reserves previously set aside to cover loan losses.

CIBC, the country’s fifth-largest bank, reported 10% revenue growth, but that was clouded by a 13% increase in expenses. It also took C$78 million of provisions, higher than expected, as a 36% jump in money set aside in its Canadian banking unit offset releases in other divisions.

CIBC said it expects expense growth in fiscal 2022 to rise to the mid-single digits, but aims to deliver positive medium-term operating leverage, with revenue growth outpacing expense expansion.

“While we may have periods of negative operating leverage earlier in the year, we will target positive operating leverage across our business through the course of next year,” Chief Financial Officer Hratch Panossian said on an analyst call.

TD shares jumped 3.8% to C$95.48 in morning trading in Toronto, while CIBC fell 2.5% to C$137.61. The broader stock benchmark rose 0.9%.

TD said it would increase its dividend by 12.7%, and would buy back up to 50 million, or 2.7%, of outstanding shares.

CIBC will raise its dividend by 10.2$ to C$1.61 per share and said it would buy back up to 10 million shares, about 2.2% of outstanding stock.

Canadian banks have largely posted better-than-expected earnings in past quarters, but have faced pressures from low margins and higher variable compensation costs this quarter, with some of the boost from their capital markets businesses and reserve releases in prior periods receding.

The recovery in Canadian non-mortgage lending that investors had been hoping for is materializing, albeit at different rates.

Canadian credit card lending at both banks rose 3.1% from the prior quarter. TD’s business lending grew 2.6% from the previous quarter, the same pace as mortgage growth. CIBC’s corporate lending grew a more muted 0.85%, compared with a 3.4% increase in home loans.

TD said adjusted net income rose to C$2.09 a share from C$1.60 cents, a year earlier, compared with the average analyst estimate of C$1.96 a share.

CIBC said profit excluding one-off items rose to C$3.37 per share from C$2.79 a year earlier, versus the average analyst estimate of C$3.53.

($1 = 1.2817 Canadian dollars)

 

(Reporting by Nichola Saminather; Additional reporting by Sohini Podder and Mehnaz Yasmin; Editing by Shailesh Kuber, Jan Harvey, Emelia Sithole-Matarise and Jane Merriman)

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CIBC Misses Analysts’ Estimates as Expense Gains Accelerate – Yahoo Canada Finance

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(Bloomberg) — Canadian Imperial Bank of Commerce is seeing costs rise as the lender ramps up spending to boost businesses in the U.S. and domestically.

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Non-interest expenses rose 7.4% from the third quarter to C$3.14 billion ($2.5 billion), the Toronto-based bank said Thursday in a statement. That’s an acceleration from the previous 5.9% quarter-over-quarter gain it reported in August. Overall profit trailed analysts’ estimates.

CIBC has been spending to expand its franchise in the U.S. as well as its Canadian personal and business banking unit to sustain the growth in mortgages and client retention it has seen in recent quarters. But those investments haven’t been cheap as labor costs rise and banks battle to retain talent, driving up CIBC’s salary costs 5% from the third quarter and increasing performance-based compensation 20% for the year.

Chief Financial Officer Hratch Panossian said CIBC will keep spending to help drive revenue gains.

“Our strategy is to generate positive operating leverage, but to do so through top-line growth rather than containing expenses or under-investing,” Panossian said on the company’s earnings call.

CIBC slid 4.1% to C$135.44 at 9:40 a.m. in Toronto. The shares have advanced almost 25% this year, compared with a 27% gain for the S&P/TSX Commercial Banks Index.

The lender also raised its quarterly dividend 10% to C$1.61 a share, and announced a plan to buy back 10 million shares, or about 2.2% of outstanding shares. At the current share price, that would cost about C$1.4 billion. Canada’s banks last month were released from restrictions on dividend increases and share buybacks that regulators put in place early in the pandemic to protect the financial system.

Also in the statement:

  • Net income rose 42% to C$1.44 billion, or C$3.07 a share, in the three months through Oct. 31. Excluding some items, profit was C$3.37 a share. Analysts estimated C$3.54, on average.

  • CIBC took C$78 million in provisions for credit losses. Analysts estimated C$125.4 million, on average.

  • Canadian banking profit rose 1.2% from a year earlier to C$597 million.

(Updates with CFO’s comments starting in fourth paragraph.)

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