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Fed meeting keeps markets in check

LONDON (AP) — Stocks edged higher Tuesday ahead of a two-day policy meeting of the U.S. Federal Reserve that could have a huge influence on how investors see the future path of the country’s monetary policy.

For weeks now, markets have been gripped with uncertainty over whether the Fed will start reducing the amount of financial assets it is buying. For much of the past few years, the Fed’s super-easy and super-cheap monetary policy has helped drive sentiment in the markets. Any reduction — so-called tapering — could spook investors who have been accustomed to seeing much of the money generated by the policy ending up in financial markets.

The uncertainty was caused by comments made by Fed chairman Ben Bernanke in May and investors will be hoping that a clearer line is evident at the end of this month’s meeting on Wednesday. Though a change is not expected on Wednesday, investors will be looking for a clearer line in the accompanying Fed statement and in Bernanke’s post-meeting press conference.

The nervousness surrounding the Fed was evident Monday when an opinion piece in the Financial Times about the Fed’s intentions spooked investors and prompted some selling in U.S. markets.

“The entire sorry episode signifies how reliant on central bank stimulus markets have become,” said Michael Hewson, senior market analyst at CMC Markets.

In Europe, the FTSE 100 index of leading British shares was up 0.9 percent at 6,384, while Germany’s DAX rose 0.1 percent to 8,228. The CAC-40 in France was 0.1 percent higher too at 3,868.

Wall Street was poised for modest gains at the open, with Dow futures and the broader S&P 500 futures up 0.3 percent.

How Wall Street performs when it opens could also hinge on U.S. inflation numbers an hour before the bell. Inflationary pressures have been relatively benign in the U.S. so any sign that they are rising may impact upon expectations over the Fed — one of the great fears over a monetary stimulus is that it may push up inflation in the long-run. The consensus in the markets is that the annual rate for May will rise to 1.4 percent from the previous month’s 1.1 percent.

“Any signs that inflation is overheating would certainly add weight to calls for a tighter monetary policy to be implemented quickly,” said Fawad Razaqzada, market strategist at GFT Markets.

The dollar’s near-term outlook, particularly against the euro, rests on the Fed too. Europe’s single currency was up 0.1 percent at $1.3381. Against the yen, the dollar has been buffeted by Japan’s own monetary stimulus. Following recent losses, the dollar was back in favor, trading 0.9 percent higher at 95.37 yen.

Earlier in Asia, Japan’s Nikkei stock average shed early gains to fall 0.2 percent to 13,007.28. Trading volume was the lowest for the year. Elsewhere, Hong Kong’s Hang Seng index was nearly flat at 21,225.88, while South Korea’s KOSPI index gained 0.9 percent at 1,900.62.

Oil prices fell ahead of the Fed’s meeting, with the benchmark New York rate down 23 cents at $97.54. The contract fell 8 cents to finish at $97.77 a barrel on the Nymex on Monday.

In currencies, the euro rose to $1.3388 from $1.3340 late Monday in New York. The dollar rose to 95.11 yen from 94.86 yen.

Market FuturesUP on Fed hope- Week Ahead

 

U.S. stock market futures made a strong push north on Monday, with investors getting hopeful that this week’s Federal Open Market Committee meeting will soothe anxieties over when and how the central bank will pull back the throttle on stimulus.

Data on deck includes a manufacturer’s report and a home builders’ index. Gains for futures came against a backdrop of strong overseas markets, with the Nikkei Stock Average(TYO:JP:NIK)  retaking 13,000.

Extending earlier gains, futures for the Dow industrials (CBE:DJU3)  rose 125 points, or 0.8%, to 15,112, while those for the Standard & Poor’s 500 index (GLC:SPU3)  rose 13.9 points, or 0.9%, to 1,632.30. Futures for the Nasdaq 100 index (GLC:NDU3)  rose 29.25 points, or 1%, to 2,966.25.

The week’s main event, the two -day FOMC meeting, concludes Wednesday with a press conference held by Federal Reserve Chairman Ben Bernanke.

“We suspect that this week Bernanke will continue to say tapering will happen at some point, could happen this year but will be data-dependent, and that we are still a long way off from removing the very easy policy stance the Fed has in place,” said Jim Reid, strategist at Deutsche Bank.

“We still think that the Fed will struggle to taper very much and very early, but the debate is now going to be around for a while,” said Reid.

Fawad Razaqzada, market strategist at GFT Markets, said in a note that “ultimately what was perceived as an imminent event just a few days ago — the beginning of the end of QE — does seem to have been pushed to the back-burner.”

The Wall Street Journal’s Jon Hilsenrath, who last week reported that the Fed will likely push back on market expectations of a rate rise, said in a blog post on Sunday that investors should be focusing on the Fed’s projections for growth, inflation and unemployment, due at the conclusion of that meeting.


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What the Fed says “about the economy will send important signals about what they expect to do in the future. If they maintain confidence in their economic forecasts, it could signal they think they’re on track to begin pulling back the program later this year,” Hilsenrath wrote.

Ahead of that meeting, the Empire State manufacturing survey is expected to come in flat, after falling into negative territory in May for the first time since January. That report is due at 8:30 a.m. Eastern Time.

At 10 a.m. Eastern, the home builders’ index for June will be released.

The rebound for stock futures on Monday comes in the wake of a third weekly loss in four forWall Street, as investors grew more cautious over whether the economy can bear a tapering of the Fed’s stimulus program, notably bond buying worth $85 billion a month.

The Dow industrials (DJI:DJIA)  fell 1.2% for the week, losing 105.90 points, or 0.7%, to 15,070.18 on Friday. The S&P 500 index (SNC:SPX)  retreated 9.63 points, or 0.6%, to 1,626.73, ending the week with a 1% drop.

In overseas markets, most Asian markets extended gains, with Japan stocks rebounding in particular as the yen retreated. Gold turned lower and oil moved up.

 

By Barbara Kollmeyer, MarketWatch

Fed’s Bond-Buying Wild Card

Many investors have lowered their expectations for future inflation, a shift that could get the attention of Federal Reserve officials as they consider the course of their bond-buying program at a policy meeting next week.
The Fed has a 2% inflation goal and doesn’t want consumer prices to veer too much above or too much below that number over time. Some recent inflation measures have dropped below that level this year, but Fed officials haven’t been too worried because expectations of future inflation were stable.
Now that expectations show signs of shifting, too, Fed officials could feel pressed to rethink their view that consumer prices will return to their target. If the fall in inflation expectations persisted and deepened, it could cause some Fed officials to argue for continuing their bond-buying program at the current $85 billion-a-month pace for longer than otherwise.
“It is no longer clear that inflation expectations are so stable,” Jan Hatzius, chief economist at Goldman Sachs Group Inc., said in an interview. Market-based measures of inflation expectations are now on “the low side of comfortable.” In a note to clients June 10, he predicted that expectations of lower inflation are likely to make Fed officials less willing to pull back on the bond-buying programs out of fear it could destabilize those expectations about future inflation.
Fed officials are now in their self-imposed premeeting blackout period in which they don’t speak publicly. Their public comments before this period have largely suggested they aren’t deeply concerned about inflation getting too low.
Expectations matter so much to Fed officials because they believe businesses and households act today based on what they expect for the future. If they expect consumer prices to fall a lot in the future, they might cut back on spending today.
In that context, the Fed launched its bond-buying program to bolster economic growth by pushing down long-term interest rates and pushing up asset prices, hoping that would spur spending, hiring and investment. If officials believe the economy is on track to gain strength in coming months, they might start to reduce the size of the bond purchases. But if they thought low inflation and falling expectations signaled new weakness in the economy, they might want to continue the program at its current level for longer.
Analysts will be looking to see if the Fed makes any changes to its formal policy statement at the end of next week’s meeting that reflect the softening expectations, or if Fed Chairman Ben Bernanke addresses them during his news conference after the two-day meeting concludes Wednesday.
After its May 1 meeting, the Fed said while inflation “has been running somewhat below” its 2% target, “[l]onger-term inflation expectations continue to remain well anchored.”
One closely watched indicator of market inflation expectations shows how expectations are softening. The so-called breakeven rate—or the difference between yields of conventional Treasury securities and Treasury Inflation-Protected Securities—widens when investors expect higher inflation and narrows when they believe inflation is headed lower. TIPS pay investors a return adjusted for changes in the consumer-price index.
In recent weeks, the gap has narrowed: It shows investors’ expect inflation in five years to be 2.459% as of Tuesday, down from the 2.7% they expected at the end of April and the nearly 2.9% expected at the beginning of the year, according to Fed data.
To be sure, despite these drops, inflation expectations by this and other measures remain above the Fed’s 2% inflation target, which is one reason the Fed may not be too worried.
But if investors’ expectations of future inflation continue to fall it could become a growing issue for Fed officials. They became worried about expectations softening too much in 2010 when these measures were near 2.2%, and responded by launching a second round of bond buying.
The latest shifts in expectations are happening against a backdrop of sharp declines in measures of actual inflation. The Labor Department reported Thursday that prices paid for U.S. exports of consumer goods, excluding autos, fell 1.3% over the last year, the biggest drop since the agency started keeping track in 1983. Prices of goods imported into the U.S. also fell.
The Fed’s preferred inflation gauge, the Commerce Department’s price index for personal-consumption expenditures, has come in well below 2% recently. In April, the latest month for which there are data, it was up just 0.7% from a year ago, and the “core” index—which strips out volatile food and energy costs—was just 1.1% higher than a year earlier.
On an unrounded basis, the April core reading—1.05%—was at the lowest level ever recorded in the history of the index, which goes back to 1959.
Minutes of Fed officials’ May 1 meeting show they are keeping a close eye on inflation. “A number of participants expressed concern that inflation was below the Committee’s target and stressed that future price developments bore careful watching,” the minutes said.
There are some obvious benefits to falling inflation. Lower energy and food prices mean consumers have more money to spend on other things. In general, though, the Fed tries to keep inflation stable near 2%, a level that central-bank officials believe supports steady economic growth and hiring. Big moves either above or below that make it hard for businesses and households to plan for the future.
“Keeping inflation expectations anchored at levels consistent with the central bank’s medium-term inflation objective—2% on the personal consumption expenditures deflator in our case—is vitally important,” New York Fed President William Dudley said in a recent speech reflecting on lessons learned from Japan’s experience with deflation, or falling prices. “Once deflation expectations become well entrenched, it is very difficult to change them. And, because inflationary expectations are an important driver of actual inflation outcomes, deflationary expectations can be self-fulfilling in driving actual deflation outcomes.”
Jon Hilsenrath contributed to this article.
Write to Victoria McGrane at victoria.mcgrane@wsj.com

Apple in More Trouble Than You Think

Apple’s decline has been well-documented. One need only look at a stock chart, which shows that shares of Apple have lost more than a third of their value in nine months. Or one could look at the number of Google searches for “Apple,” which peaked with the stock in September 2012 and have since dropped precipitously.

But Max Wolff says that Apple (AAPL) investors should look out for a variety of risk factors that haven’t yet materialized. According to Wolff, chief economist and senior analyst at GreenCrest Capital, Apple faces four big risks that no one is talking about.

1. Privacy Concerns Could Disproportionately Hurt Apple

Privacy concerns raised by the NSA phone records revelations could be more troubling to people using Apple products and services than those using those of other companies, Wolff said.

 

“You pay more to be in the Apple ecosystem than in anyone else’s ecosystem,” Wolff said, “and people might be more upset that they’re paying a lot of money and they’re still getting spied on.”

Wolff likens it to the difference between a free concert and one that a fan pays to attend.

“If I’m going to see a show in Central Park, and it’s terrible, then I’m not angry at Central Park,” Wolff told CNBC.com. Contrast that to paying $500 for top-notch seats and then getting moved to worse ones.

“Google (GOOG) is the free ecosystem and Facebook (FB) is a walled garden, but at least it’s free,” Wolff said. “If you’re paying more to be in the Apple ecosystem, and if you find out that your privacy is no more sacred than it is anywhere else, that actually is problematic.”

 

2. Apple’s Tax Issues Could Become a Problem

Wolff points out that Apple has been remarkably good at dodging serious consumer ramifications from a tax policy that some consider evasive.

“Every progressivey person that is upset that corporations don’t pay taxes has an Apple,” Wolff said. “And at the end of their email or text message about how horrible it is that companies don’t pay their taxes, it says, ‘By the way, this message was sent from the biggest tax cheat in American history.'”

Once again, Wolff says that the especially high cost of Apple products puts the company at a heightened risk. He notes that when buying a low-priced clothing item, a consumer should not be too shocked to learn that it was made in sub-par conditions by a young worker. “If you just paid $1,400 for a suit, on the other hand, you expect that it was made by someone who’s at least 8.”

Wolff said that while “Apple has been very good at being Teflon, and I don’t see any reason to think that wouldn’t continue, the tax issue is not going away.”

3. Google’s Chrome and Android Integration

Wolff notes that Google is working to integrate its Chrome and Android platforms, and this could end up being a major concern to Apple.

“If Google figures out a way to market a Chrome operating system with an Andoid tie-in, they can sell you a notebook computer which is also a tablet, and has a nice integrated operating system, for $400 or $500,” Wolff said. “If they get that then they’ll have a single product that is very dangerous for the Macbook Air and the iPad.”

Once again, Apple’s luxury pricing makes it vulnerable.

“Even if you think Google’s product is less good, then $1,500 worth of Apple products nicely duplicates it,” Wolff said. “It is $1,200 less good? For a lot of people that’s not a question mark, because they don’t have $1,200.”

Even people who might be able to afford Apple’s products, though, might choose Google’s cheaper choice anyway. “If a lot of what I’m going to do on these devices is Google Docs and Google Drive and Gmail, and I wouldn’t have to get the free frames at Lenscrafters, I could be a dangerous new kind of hipster,” Wolff said.

4. The Education Battle

Wolff believes that schools are the next battleground between Apple and Google.

“One of the next big fights is going to be education spending,” Wolff said. “If I’m a school system, I can buying an entire classroom [of students] these Google devices, or I can buy two of them the Apple stuff.”

In the developing world, Google’s Chromebooks are an even more exciting possibility. “If you’re a classroom in the developing world, for $3,000, you can have a globally competitive Web system.” Or you could get one fantastic Apple computer and a huge LED monitor, “and just stare at it.”

The bottom line, for Wolff? “Some of these price differentials might make some difference.”

 

– By CNBC’s Alex Rosenberg .

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Shares, dollar recover after selloff

By Richard Hubbard

LONDON – The dollar and world shares edged higher on Wednesday, clawing back some of the previous day’s steep losses as investors sought out bargains with one eye on central bank stimulus.

Concerns about the U.S. Federal Reserve’s tapering its bond-buying program and the Bank of Japan’s commitment to its monetary stimulus sparked a broad sell-off of stocks, bonds and commodities on Tuesday.

The dollar, which chalked up its biggest one-day fall against the yen since May 2010 in the selloff, recovered on Wednesday by about 0.5 percent to trade around 96.50 yen.

The euro fell 0.25 percent against the dollar. European Central Bank Executive Board member Peter Praet said on Tuesday the ECB had room to cut interest rates further

European shares led the gradual recovery in global equity markets after another volatile session in Asia saw MSCI’s broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> drop 0.4 percent to a 6-1/2-month low.

The selloff was seen drawing some buyers back into the markets, and with U.S. data providing only tentative signs of a recovery, currency strategists said it was increasingly unlikely that Fed stimulus would soon be cut back.

“U.S. data has not been supportive for an early reduction,” said Niels Christensen, FX strategist at Nordea.

A fund manager said recent market volatility was not linked to any fundamental change in the global economic outlook or a shift in central banks’ accommodative policies.

“The back-up (price falls) you have seen over the last month is actually a bit of a positive.” David Zahn, head of European fixed income for Franklin Templeton said.

“It has wiped out quite of lot of the people who had a short-term view and reflects a little bit more the fundamentals.”

STOCKS EDGE UP

The pan-European FTSEurofirst 300 index (.FTEU3) gained 0.45 after having fallen to six-week lows in Tuesday’s selloff. .

Japan’s Nikkei stock average (.N225) earlier extended its losses to close 0.2 percent though it was off its day’s lows. The Nikkei has now fallen some 17 percent from a 5-1/2-year high scaled last month when worries began to Bank of Japan’s commitment to tackle rising bond yields which threatened its stimulus plans.

Further signs that Britain’s economy was strengthening underpinned the UK stocks (.FTSE) and gave a lift to sterling which rose to a three-week high against the euro and edged towards a four-month peak against the dollar.

The UK reported that the number of Britons claiming unemployment benefit fell more than expected in May to its lowest level in two years.

“In terms of the implications for the economy, it’s encouraging in the sense that the increase in employment will continue to support the income background and therefore encourage higher consumer spending,” Philip Shaw, chief economist at Investec said.

In the debt market, U.S. Treasuries and German bond futures were weak, but the recent jump in yields was also seen luring some buyers back into the market.

Ten-year notes slipped 3/32 in price to yield roughly 2.2 percent to be just below a 14-month high hit on Tuesday. (US/)

The German Bund future was about 5 ticks down at 142.69 with German 10-year yields half a basis point up at 1.56 percent.

Stock futures tumble

MADRID (MarketWatch) — U.S. stock futures fell on Tuesday, tracking losses across global markets after the Bank of Japan disappointed some market watchers by holding its policy steady, and worries about Federal Reserve tapering continued to haunt the market.

A handful of U.S. data numbers are due, including job openings and wholesale inventories.

Global stocks were also rattled as a German constitutional court began to consider the legality of the European Central Bank’s pledge last year to buy the government bonds of weaker euro-zone countries to prevent the single currency from breaking up.

The Next 24: Lululemon drops as CEO steps down

Yoga-wear maker Lululemon Athletica says CEO Christine Day is stepping down. The Nikkei has its best gain in 2 years and could keep rallying. Plus, Wall Street darling W.W. Grainger reports before the bell. Victor Reklaitis has all you need to know about the next 24 hours of trading. Photo: Associated Press.

Deep in negative territory, futures for the Dow Jones Industrial Average (CBE:DJM3) fell 115 points, or 0.8%, to 15,113, while those for the Standard & Poor’s 500 index(GLC:SPM3)  fell 14.80 points, or 0.9%, to 1,627.30. Futures for the Nasdaq 100 index(GLC:NDM3)  fell 24.50 points, or 0.8%, to 2,962.50.

“Equity markets continue to push lower amid a wide range of disappointing factors,” said Mike McCudden, head of derivatives at Interactive Investor. “The Fed will call time on bond buying at some point, Chinese economic data is showing further signs of a slowdown, and the Bank of Japan continues to — in the mind of many traders — punch below its potential.“

Along with Asia and Europe stocks, the dollar fell sharply against the Japanese yen after the Bank of Japan decided to stay put on its policies, dashing some hopes that the central bank would extend the duration on its ultra-low-interest rates to banks. The dollar (ICAP:USDJPY) sank to ¥97 from a level of ¥98.64 seen late Monday in North America.

• Need to Know: Crucial gut checks before the U.S. markets open

Henrik Drusebjerg, senior strategist with Nordea Bank, said there is also some delayed reaction to disappointing weekend export numbers from China. “If we really should believe in equity markets going up from now, it’s extremely important that we see global growth, otherwise it’s not very likely corporates will be able to raise their earnings,” he said.

On Tuesday, the National Federation of Independent Business said small-business sentiment rose in May to the highest level in a year. Later on Tuesday, the Labor Department will release job openings data for April at 10 a.m. Eastern Time, while the Commerce Department will publish wholesale inventories for May at that time as well.

Within that data, the job openings numbers will likely draw the most attention as Federal Reserve Vice Chair Janet Yellen has said it’s one of the indicators she’s watching for signs of a labor improvement.

Wall Street stocks finished Monday’s session little changed after Standard & Poor’s revised its U.S. credit-rating outlook to stable from negative. In choppy trading, the Dow Jones Industrial Average (DJI:DJIA)   finished down 9.53 points, or 0.06%, to 15,238.59. The S&P 500(SNC:SPX)  dipped 0.57 point to end at 1,642.81.

Drusebjerg said in places like China, stocks are beginning to look quite cheap, but globally stocks are at fair value. “Given that we’ve now seen two years of increasing equity prices and stable-to-slightly-decreasing earnings in corporates, it has made equity markets overall close to fair value,” he said.

Within corporate news, shares of Dole Food Co. (NYSE:DOLE)  jumped 18% in premarket trading after David H. Murdock, the company’s chairman and CEO, made a bid for the rest of Dole. Murdock controls almost 40% of Dole Food, and the $12-per-share cash offer represents an 18% premium to Dole Food’s closing price on Monday of $10.20 per share.


ReutersEnlarge Image

Mario Draghi, ECB President

Shares of Lululemon Athletica Inc. (NASDAQ:LULU)  tumbled 14% in premarket trading after the yoga clothing retailer announced quarterly results the prior day and said its Chief Executive Officer Christine Day will step down.

U.S. investors will be keeping an eye on Germany on Tuesday, where the country’s supreme court will be scrutinizing whether ECB President Mario Draghi was within his legal limits when he last year announced a new policy — Outright Monetary Transactions — where the bank could buy bonds to keep a euro-zone government and the euro from collapse.

“The primary fear is that (OMT) could be capped to a certain amount and that would definitely hurt Draghi’s words when he said, ‘We will do whatever it takes’,” Drusebjerg noted.

Losses built for Europe stocks throughout the morning, with the Stoxx Europe 600 index(STX:XX:SXXP)  dropping 1.6%.

Asia stocks fell after that no-change stance from the Bank of Japan, with the Nikkei Stock Average (TYO:JP:NIK)  closing down 1.5%. Nikkei futures were pointing to losses of 4%.

Gold also fell sharply, and other precious and base metals followed suit. Gold for August delivery (CNS:GCM3)  dropped $12.80, or 1%, to $1,373.30 an ounce

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Economy Growth outlook lifts shares and the dollar

By Richard Hubbard

LONDON  – The dollar jumped higher against the yen and Japanese stocks led a rise in world shares on Monday as signs of economic momentum in the United States and Japan outweighed worries about a slowdown in China.

A central bank forecast that the French economy will grow slightly in the second quarter and a pickup in euro zone investor sentiment for June also added to the positive outlook.

But markets are still fixated on the timing of a potential slowdown in the Federal Reserve’s bond-buying program and are likely to remain volatile after U.S. data last week, including the key jobs report, did little to change expectations.

“(The jobs data) hasn’t changed the market’s view much on the timing of Fed tapering,” said Kasper Kirkegaard, currency strategist at Danske Bank.

With the United States continuing to drive a world economic recovery, the dollar rose 1 percent to 98.56 yen, recovering some 3.5 percent from Friday’s low of 94.98, which was its weakest level since April 4.

The yen weakness and data showing Japan’s economy grew 1.0 percent in January-March, revised up slightly from a preliminary estimate, lifted the Nikkei index (.N225) 4.9 percent for its biggest one-day gain since March 2011.

The Nikkei has now swung by more than 3 percent on all but two of the last 11 sessions, five of those by more than 4 percent, making it one of the most volatile periods since the height of the financial crisis at the end of 2008.

Analysts and traders will now scrutinize forthcoming U.S. data for clues on the timing of the potential tapering. The Bank of Japan’s policy meeting this week will meanwhile be watched for any signs of further stimulus measures.

CHINA DISAPPOINTS

Weak industrial output and trade data from China over the weekend dented sentiment across other Asian markets outside Japan and undermined gains in European shares in early trade.

MSCI’s broadest index of Asia-Pacific shares <.miapj0000pus> ended down 0.35 percent while Europe’s FTSEurofirst 300 index (.FTEU3), which initially fell on the Chinese data, recovered to be little changed by mid-morning.

The combination of solid U.S. data and soft Chinese figures also gave investors an incentive to sell higher-yielding, growth-linked currencies like the Australian dollar, which hit a 20-month low against the greenback of 93.93 U.S. cents.

Key commodity prices also suffered from the signs of weaker Chinese demand. Brent crude dipped toward $104 per barrel and copper touched a three week low of $7,146 a tonne.

china data

China Trade Data Underscores Growth Worries

China’s exports posted their lowest growth rate in almost a year in May while imports unexpectedly fell, government data showed on Saturday, underlining concerns that growth in the world’s second-largest economy could slow anew in the second quarter.

Evidence has mounted in recent weeks that the economy is fast losing growth momentum as sluggish domestic demand fails to make up for lethargic export sales.

The latest figures, shorn of the hot money speculation and exports to warehouses but booked as sales that had inflated previous months’ data, more accurately reflect the grim reality facing China’s exporters.

“The trade data reflects the sluggish domestic and overseas demand, signaling a slower-than-expected recovery in the second quarter,” said Shen Lan, an economist at Standard Chartered in Shanghai.

Data for May retail sales and industrial output, as well as investment and inflation, are due on Sunday and could provide more evidence of the slowdown.

Exports edged up 1 percent in May from a year earlier, the lowest growth since last July and against a median forecast in a Reuters poll of a rise of 7.3 percent. Data was even worse for imports – they fell 0.3 percent against expectations of a 6 percent rise.

The trade surplus was $20.4 billion for the month, compared with market expectations of $19.3 billion.

Exports to the United States, China’s top export destination, fell 1.6 percent in May, the third straight month of declines, while those to the European Union, the second most important market, fell 9.7 percent, also the third straight month of declines.

However, in one bright sign, separate customs data showed that China’s imports of major commodities rose in May compared with the previous month, helped by lower prices on world markets and pointing to resilient demand.

TESTING TIMES

It has been an uncomfortable few months for China’s leaders as a raft of data has pointed to a lack of traction for growth.

“The domestic economy is facing great downward pressure and the stable development of foreign trade still faces great challenges,” Vice-Minister of Commerce Zhong Shan said in a statement on the ministry’s website (www.mofcom.gov.cn).

China’s overseas demand had not recovered obviously while exporters faced more fierce competition in the global market, Zhong said.

However, Premier Li Keqiang struck a more upbeat note, being quoted by state television as saying that China’s economy was generally stable, growth was within a “relatively high and reasonable range” and the employment situation was stable.

“There are increasingly intricate and complicated factors in the economy and we should strictly monitor the changes in the economic situation,” said Li.

China needs to make use of liquidity already in the economy to support real economic development and curb over-capacity in certain industries, he added.

Surveys this month showed that China’s factory activity shrank for the first time in seven months in May, with export orders falling, while growth in the services sector cooled.

A Reuters poll taken before Sunday’s retail and industrial data shows industrial output is seen up 9.3 percent, unchanged from April, while growth in fixed-asset investment, one of the two main drivers of China’s economy in 2012, likely rose 20.5 percent in the first five months of this year.

That would be equivalent to investment rising 20.2 percent in May from a year ago, Reuters’ calculations showed, the slackest pace in at least three months.

Growth in retail sales is forecast at 12.9 percent in May, little changed from April’s 12.8 percent and below last year’s monthly average expansion of 14.2 percent.

The IMF and OECD last month cut their forecasts for China’s 2013 economic growth to 7.75 percent and 7.8 percent, respectively.

China’s annual economic growth had slowed to 7.7 percent in the first quarter from 7.9 percent in the previous quarter. The full-year annual growth of 7.8 percent in 2012 was the weakest since 1999.

However, China’s leaders have adopted a greater tolerance for a slowdown and are likely to allow quarterly growth to slip as far as 7 percent before triggering fresh stimulus to lift activity, sources told Reuters this week.

NO SMOKE AND MIRRORS

One of the reasons the May export data was so grim is that the government had cracked down on the speculative activities that had created double digit rises in export growth every month this year, even as China’s main markets slowed.

“The dramatic slowdown in yoy (year-on-year) export growth in May in part reflects the impact of a clamp down by the government on firms dressing up financial inflows as exports,” Louis Kuijs, an economist at RBS, said in an emailed note.

China’s customs also acknowledged the lack of extraneous factors, reflected in the fact that exports to Hong Kong, the main centre for currency arbitrage and warehouse storage, grew only 7.7 percent in May, down from a 57 percent surge in April.

“The arbitrage trade to Hong Kong has basically been curbed and the trade between mainland and Hong Kong dropped sharply,” it said on its website, www.customs.gov.cn.

By Xiaoyi Shao and Jonathan Standing

Economist: Labor Market Just Not That “Healthy,” Beware the Lost Generation

The jobs report shows that the economy added 175,000 jobs in May and the unemployment rate rose a bit to 7.6%.

Economist Maria Ramirez tells Yahoo Finance’s Daily Ticker: “The reality is that labor market is not as healthy as what the unemployment rate tells you. Most importantly, it’s the younger generation that is worst off because they have the hardest time getting a job and they have the lowest participation rate. So many are continuing to go to school and building up debt to finance it.” Others are weighing in too…

Mohamed El-Erian, CEO and co-CIO of PIMCO, writes: “Today’s numbers will cause the Fed to think again about its desire to taper its buying of securities — and this despite the fact that central bankers are increasingly recognizing that the hoped-for ‘benefits’ of unconventional measures come with ‘costs and risks’ (that is, collateral damage and unintended consequences) — in other words, they are stuck with imperfect policy tools.”

Nigel Gault of IHS Global Insight says: “January payroll employment growth was close to expectations, but upward revisions to history gave today’s payroll report a positive glow. Fourth-quarter employment growth now stands at a 201,000 average (up from 151,000 previously), a solid increase despite all the fiscal-cliff fears, which underscores that the Q4 GDP contraction isn’t giving the right picture.”

So overall consensus on Wall Street seems to be that this was a good number, but not too good, which to the Street… is good.

Doomsday Poll: 87% Risk Of Stock Crash By Year-End

In “Stocks for the Long Run,” economist Jeremy Siegel researched all the “big market moves” between 1801 and 2001. Bottom line: 75% of the time, there is no rationale for “big moves.” No one can predict them. Maybe technicians and traders can pick short-term moves the next second. Maybe tomorrow. But the long-term “big market moves?” No way.

So why predict an “87%” chance of another meltdown in 2013? Because in the real world of statistical probabilities, historical facts and expert opinions danger signals are flashing wild. In mid-2008 we summarized the predictions of 20 experts over several years. Predicted a meltdown in a few years — markets crashed two months later. Fast.

In retrospect, it was inevitable, thanks in part to the hype, arrogance and incompetence of Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson who failed to prepare America.

The warnings are again accelerating. And so is the happy talk from Wall Street casino insiders, about rallies, housing recoveries, perpetual cheap money. Don’t listen. The next crash will happen by year-end.

Yes, there’s a 13% chance the next Fed chairman will keep printing cheap money into 2014. But on New Years Eve our aging bull will be 4½ years old, well past Bill O’Neill’s “average” 3.75 years for putting this bull out to pasture.

So unless you’re shorting, all bets on Wall Street casinos for 2014 are megarisk, like 2008. Like a Stephen King horror film, you feel it coming. Could happen anytime, even tomorrow, says Siegel’s research, or the unpredictable logic in Nassim Taleb’s “Black Swan.”

Here are 10 other predictions adding credibility to a crash by the end of 2013:

1. Warren Buffett ‘guaranteed’ new bubble, new recession four years ago

Actually he saw it coming early. Shortly after the 2008 crash Warren Buffett was asked: “Do you think there will be another bubble leading to a huge recession?” Yes, “I can guarantee it.” Cycles happen.

Next question: “Why can’t we learn the lessons of the last recession? Look where greed has gotten us.” Then with the impish grin of a Zen master, Uncle Warren replied, “Greed is fun for a while. People can’t resist it.” But “however far human beings have come, we haven’t grown up emotionally at all. We remain the same.”

Yes, one of world’s richest men was personally guaranteeing another bubble, another “huge recession.” Now, four years later, that time bomb is ticking louder, closer.

2. Federal Reserve’s Council: ‘Unsustainable bubble in stocks, bonds’

The International Business Times just reported on the minutes of the Federal Reserve Board Advisory Council’s mid-May meeting. Members expressed “strong concerns over the Fed’s low-interest-rate policies and its bond-purchase program, which they say could trigger unmanageable inflation and an ‘unsustainable bubble’ in the stock and bond markets.” Some “pointed out that near-zero interest rates could not be sustained in the long run.”

Why? “A spike in inflation could force the Fed to hike interest rates, hurting business confidence and consumer spending, and prove disastrous to the U.S. economy, which is still clawing its way back from the debilitating effects of the 2008 financial crisis.”

Get it? The Fed and Wall Street insiders hear something’s dead ahead.

3. Peter Schiff is ‘doubling down’ on his ‘doomsday’ prediction

Euro Pacific Capital CEO Peter Schiff, author of “The Real Crash: America’s Coming Bankruptcy,” is “not backing away from doomsday predictions about the U.S. economy,” wrote MarketWatch’s Greg Robb last week. He sees the no-win scenario: “Either the Fed stops QE and starts selling the Treasurys and mortgage-related assets on its balance sheet, thus triggering a recession, or else faces an inevitable, even-worse, currency crisis.”

The “idea that the U.S. economy is in recovery is based entirely on rising asset prices … Asset prices are only rising because rates are low. As soon as rates go back up, asset prices will” fall.

Last year on Fox Business Schiff warned: “We’ve got a much bigger collapse coming.” Then last week: “I am 100% confident the crisis that we’re going to have will be much worse than the one we had in 2008.” His 100% beats our 87%.

4. Bill Gross: ‘Credit supernova’ turning 2013 bull into big bad bear

Yes, Gross sees a ‘credit supernova’ dead ahead. His firm has $2 trillion at risk when the Federal Reserve cheap money finally explodes in America’s face, brings down the economy, again. Gross warns: “Investment banking, which only a decade ago promoted small-business development and transition to public markets, now is dominated by leveraged speculation and the Ponzi finance.”

Bernanke’s Ponzi finance is self-destructive, lethal and massive. Endless cheap money upsets the balance between credit expansion and real economic growth, resulting in diminishing returns. Very bad news.

5. Gary Shilling predicts the ‘grand disconnect’ will trigger ‘shocker’

Yes, economist Gary Shilling predicts a “shocker” before the end of the year. Worse because investors are “paying little attention to weak and declining economies around the world, and concentrating on the flood of money being created by central banks.”

The “grand disconnect” is driving up stocks “while the zeal for yield, amidst low interest rates, benefited junk bonds and other low-quality debt.” Wall Street’s blowing a nasty new bubble, repeating the run-up to the 2008 crash.

6. ‘Kaboom ahead,’ an ‘ominous third phase’ of 2008 Meltdown

“Bond guru buying stocks. Sees ‘Kaboom’ Ahead,” shouted the Bloomberg Market headline about Jeffrey Gundlach, CEO of Doubleline Capital. Earlier he predicted the 2008 meltdown. But now he says the real damage is yet to come.

“The first phase of the coming debacle consisted of a 27-year buildup of corporate, personal and sovereign debt. That lasted until 2008.” Then cheap money “finally toppled banks and pushed the global economy into a recession, spurring governments and central banks to spend trillions of dollars to stimulate growth.” Next, an “ominous third phase,” a bigger crash, whose impact will far exceed the damage of 2008.

What’s he buying? Hard assets. Plus “sitting on cash,” waiting to scoop up more at “fire-sale” prices, “it’s worth waiting.”

7. ‘Tick, tick … boom!’ InvestmentNews sees bond crash dead ahead

A few months ago InvestmentNews front page is so powerful you can hear sirens on a flashing, warning in huge bold type: “Tick, tick … boom!” Their readers: 90,000 professional advisers who trust INews forecasts.

This was the biggest warning since 2008: “What will your clients’ portfolios look like when the bond bomb goes off?” Not “if” but “when.” Yes, they expect the bond bomb to explode soon.

Wake up, INews sees extreme dangers for millions of Americans who have “no idea what’s about to happen to them … Tick, tick … boom!”

8. Reagan’s budget director sees an ‘apocalypse … get out now’

Recently David Stockman warned of an economic “apocalypse” dead ahead, “arising from a rogue central bank that has abetted the Wall Street casino, crucified savers on a cross of zero interest rates and fueled a global commodity bubble that erodes Main Street living standards through rising food and energy prices … get out of the markets and hide out in cash.”

Stockman’s not merely warning of a crash ending the bull rally since 2009. This “grand bubble” has been building for 32 years since the Reagan revolution. He’s atoning for a generation of politicians with no moral compass: “Capitalism has morphed into a monopoly ruled by politicians who are serving a wealthy elite. Competition is a joke.”

9. Nouriel Roubini: ‘Prepare for the perfect storm’ in an unstable world

Yes, prepare, prepare, prepare. Roubini told Slate.com: Our world is a game of dominos, any one of which could put in motion a global collapse: “Sooner or later, another ugly fight” over debt, markets will “become spooked” with “a significant amount of drag … on an economy that has grown at barely a 2% rate.”

Scanning the world’s hot-button triggers in the euro zone, China, BRICs, Iran, Middle East, Pakistan, oil markets, Dr. Doom warns, the “drums of actual war will beat harder.” Any one of these trends “alone would be enough to stall the global economy and tip it into recession.”

10. Jeremy Grantham: America’s growth and prosperity ‘gone forever’

Grantham’s GMO firm manages $100 billion. He focused on Richard Gordon’s disturbing research: “Is U.S. Economic Growth Over?” Yes, says Grantham, “the U.S. GDP growth rate … is gone forever.”

For centuries before the Industrial Revolution growth was under 1%. Then the growth trend till “1980 was remarkable: 3.4% a year for a full hundred years,” driving the American dream. “But after 1980 the trend began to slip,” says Grantham,“ by over 1.5% from its peak in the 1960s and nearly 1% from the average of the last 30 years.” By 2100, America’s GDP growth will fall back to where it started before the Industrial Revolution, to an annual rate less than 1%.

Buffett guarantees … Schiff doubles down … Gross sees supernova … Shilling’s grand disconnect … Gundlach’s ominous third phase … Stockman’s apocalypse … InvestmentNews tick, tick, boom … Roubini’s perfect storm … Grantham’s growth gone forever … place your bets at Wall Street’s casinos … the risk’s only 87% … or is it 100%?

By Paul B. Farrell