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Factories to test world’s ‘delicate equilibrium’

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LONDON (Reuters) – The world economy is caught in a “delicate equilibrium” between stabilization and a further downturn, according to Bank of England Governor Mark Carney, and that balance could look even shakier over the next few days.

FILE PHOTO – Chinese national flags are flying near a steel factory in Wu’an, Hebei province, China, February 23, 2017. REUTERS/Thomas Peter/File Photo

Early measures of factory activity from Asia, Europe and the United States – which typically give signals of momentum in the overall economy – will be scrutinized by investors, many of whom fear that the sudden weakness of late 2018 is intensifying.

Trade tensions have weighed heavily on factories around the world, something that is likely to be high on the minds of negotiators from the United States and China when they resume their talks to avert an escalation of their tariff war.

Things looked very different a year ago. The world economy seemed to have finally kicked into a higher gear, nearly a decade after the financial crisis of 2007-08, with all regions joining in the upswing.

But a combination of U.S. President Donald Trump’s aggressive stance on trade and worries about the impact of central banks raising interest rates – the U.S. Federal Reserve increased borrowing costs four times in 2018 – has raised fears that the world could be heading back into recession.

Carney, in a speech on Feb. 12, said he believed growth was likely to stabilize at its new slower pace, helped by central banks scaling back their plans for removing the massive levels of stimulus they have held in place for a decade.

“But this is a judgment, not a guarantee. The world is in a delicate equilibrium,” Carney warned.

The most recent signs from the world economy have not been promising.

U.S. retail sales for December were far weaker than expected and Germany avoided a recession by the narrowest of margins.

Britain – weighed down by the uncertainty about Brexit as well as the global weakness – is heading for its slowest year of growth since 2009, according to the BoE, while China’s economic growth last year was the weakest in 28 years.

In the next few days, a string of surveys of manufacturing will give a fresher sense of whether the slowdown of last year is dissipating or getting worse.

Purchasing manager indexes (PMIs) for the euro zone, the United States and Japan are due on Feb. 21 and there will be other measures of factory output in the form of U.S. durable goods data and industrial orders in Japan and Italy.

Chris Williamson, chief business economist at IHS Markit which publishes the PMIs, said that in late 2017 only one country’s factory sector – Colombia’s – was shrinking. Now 11 of the 30 countries he covers are contracting, including those in China and Germany, from where problems are rippling out into Asia and eastern Europe respectively.

“A lot of the anecdotal evidence that we get is blaming trade wars and tariff worries, and the gloom it is casting over the prospects for the year ahead,” Williamson said.

Markit’s global export index had been in decline for five months, highlighting how the slowdown was led by weaker trade, although a slight pick-up in optimism among manufacturers around the world in January offered a hint of hope.

Much of that optimism hinges on the chance of the United States and China finding a way to de-escalate their trade war.

Chinese President Xi Jinping said on Friday that talks with the United States would continue in the coming days and he hoped the two sides will be able to reach a deal.

But many investors want to see more definitive signs that the clouds hanging over the economy really are lifting.

Toby Vaughan, chief investment officer with Brown Shipley, a British private bank and wealth management firm, said his team scaled back on equity holdings in October and have not yet raised their exposure back up.

“The reality is, none of those factors have really changed. There are some encouraging signs, but it’s headlines and rhetoric with regard to U.S.-China for example,” he said.

While Washington and Beijing are sounding positive about their trade stand-off, officials in Europe are worried that the Trump administration is preparing to hit European automobile exports with tariffs, citing national security grounds.

“Such a development would likely be taken negatively by markets as it would risk a direct response of tariffs from the EU and a step up in tensions,” economists at ING said in a note to clients.

“Businesses and consumers will face higher prices in such a scenario along with the likely disruption to supply chains – and all of this could see a repeat of the steep equity market falls which were seen in late 2018.”

Writing by William Schomberg; Editing by Toby Chopra

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S&P 500 posts highest close since November 8 on trade optimism

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NEW YORK (Reuters) – The S&P 500 posted its highest closing level since Nov. 8 on Friday as investors clung to signs of progress in the ongoing trade talks between the United States and China.

Investors assessed a slew of headlines on the talks, with top trade negotiators from the two countries meeting to wrap up a week of discussions on some of the thorniest issues in their trade war.

If the two sides fail to reach a deal by midnight on March 1, then their seven-month trade war could escalate.

“People are expecting some sort of positive news on trade and tariffs with China fairly soon,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

“But we won’t know until the end of next week,” he said, and, “there has been a lack of specifics.”

Optimism on the trade front and dovish signals from the U.S. Federal Reserve have driven the recent gains and left indexes well above their lows of December, when the market swooned on fears of an economic slowdown. The S&P 500 is now up about 19 percent since its late-December low.

The S&P 500 technology index was up 1.3 percent, leading gains among the 11 major S&P sectors, while the trade-exposed industrials index climbed 0.6 percent.

The Dow Jones Industrial Average rose 181.18 points, or 0.7 percent, to 26,031.81, the S&P 500 gained 17.79 points, or 0.64 percent, to 2,792.67 and the Nasdaq Composite added 67.84 points, or 0.91 percent, to 7,527.55.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., February 22, 2019. REUTERS/Brendan McDermid

All three indexes registered gains for the week, with both the Dow and Nasdaq posting a ninth week of increases.

The number of New York Stock Exchange and Nasdaq stocks hitting 52-week highs hit 367, the most since mid-September and outnumbered those hitting year lows by the widest margin in six months.

Stocks briefly pared gains after U.S. officials briefed on the negotiations said more time is likely needed in the talks given China’s resistance this week to American demands for specific steps by Beijing to end forced transfers of U.S. technology and certain other policies.

Afterward, President Donald Trump said there was a very good chance the United States would strike a deal with China to end the trade war, and that he was inclined to extend his March 1 deadline to reach an agreement.

“Right now the downside risk has been not as steep, but there’s always a concern that something happens last-minute,” said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey.

“Having a Chinese economy that stabilizes is constructive for global markets,” she said. “That’s what is key in terms of the market looking at the results.”

Kraft Heinz Co tumbled 27.5 percent, and was the biggest drag on the S&P along with a 1.7 percent fall in Class B shares of the company’s controlling stakeholder, Berkshire Hathaway Inc.

The packaged food company posted a quarterly loss, disclosed a Securities and Exchange Commission probe and wrote down the value of its iconic Kraft and Oscar Mayer brands.

Slideshow (2 Images)

Advancing issues outnumbered declining ones on the NYSE by a 2.99-to-1 ratio; on Nasdaq, a 2.45-to-1 ratio favored advancers.

The S&P 500 posted 64 new 52-week highs and three new lows; the Nasdaq Composite recorded 112 new highs and 21 new lows.

About 6.9 billion shares changed hands on U.S. exchanges. That compares with the 7.3 billion-share daily average for the past 20 trading days.

Additional reporting by Shreyashi Sanyal and Sruthi Shankar in Bengaluru; Editing by Chizu Nomiyama and Jonathan Oatis

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FCA sets $14 million annual target compensation for CEO Manley: filing

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FILE PHOTO: Fiat Chrysler Automobiles (FCA) CEO Mike Manley arrives at the memorial service held in honor of former CEO Sergio Marchionne in Turin, Italy, September 14, 2018. REUTERS/Massimo Pinca/File Photo

DETROIT (Reuters) – Fiat Chrysler Automobiles NV (FCA) has set an annual compensation target for Chief Executive Officer Mike Manley consisting of pay, cash and equity bonuses of $14 million, the automaker said in a regulatory filing on Friday.

Manley took over as the head of FCA last July after the abrupt departure of his predecessor Sergio Marchionne. The company paid its new CEO 600,442 euros ($680,240) for 2018 and he will receive a bonus for 2018 of $367,000 to be paid this year.

Manley also was granted FCA 180,364 shares for his work in 2018, which will vest in 2019 if the company meets certain targets. The fair value per share on the date those were granted was $16.61, FCA said.

His target annual compensation consists of a base salary of $1.6 million, and a bonus of $2.4 million and an equity award valued at $10 million, both linked to the company hitting certain performance targets.

Former CEO Marchionne received 6.6 million euros in compensation for 2018, which consisted of nearly 2 million euros in base pay and an annual bonus for 2017 of just over 4.6 million euros.

For the 2014 to 2017 time period, Marchionne also received 2.8 million FCA shares. The fair value per share was $14.84, FCA said.

FCA chairman John Elkann received a base salary of 1.7 million euros and no annual bonus.

Reporting by Nick Carey; Editing by Sonya Hepinstall

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Flattening U.S. yield curve in late 2018 ‘flashing red’ on economy: Fed’s Williams

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President and Chief Executive Officer of the U.S. Federal Reserve Bank of San Francisco, John Williams, addresses a news conference in Zurich, Switzerland September 22, 2017. REUTERS/Arnd Wiegmann/File Photo

NEW YORK (Reuters) – A flattening U.S. yield curve in December, which was close to being inverted, was “flashing red” about a deceleration in U.S. economic growth heading into 2019, despite some solid data at the time, New York Federal Reserve President John Williams said on Friday.

The yield curve flattens as the gap between short and long-dated yields narrow, suggesting investors’ worries about a slowing economy.

The yield curve inverts when shorter-dated yields rise above longer-dated ones. An inverted yield curve has preceded all U.S. recessions in the past 50 years.

Williams was giving closing remarks at a conference about quantitative tools, jointly sponsored by the New York Fed and the Atlanta Federal Reserve.

Reporting by Richard Leong; editing by Diane Craft

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