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Fed Worries about Low Inflation

CNN Money writes "Are China's factories speeding up or slowing down? It depends on who you ask. China's official purchasing managers' index got a boost in July, rising to 50.3 from 50.1 last month, according to the National Bureau of Statistics. Any number over 50 indicates an acceleration in the sector. But investors typically pay attention to two separate purchasing managers' surveys conducted in China: the state's measurement, and one performed by global bank HSBC. At the moment, the indicators are telling two different stories. The HSBC manufacturing PMI, also released Thursday, dropped to 47.7 in July -- its weakest performance in 11 months.  Most of the time, both surveys deliver results that indicate factory activity is either picking up speed or decelerating. But the surveys occasionally diverge. With one index above 50 -- the dividing line -- and the other below, that's what happened in July.

“Part of the discrepancy can be explained because the official government gauge is heavily weighted toward large enterprises, while the HSBC survey taps a smaller sample size and places greater emphasis on smaller firms. The two surveys also use different methods to perform seasonal adjustments -- a way to smooth data and make it comparable from year to year. According to economists at Societe Generale, the two surveys diverge about a third of the time, usually due to differences in these adjustment techniques. This month's disparity "reflects the high level of uncertainty over China's growth outlook, although it is unclear why it emerged," said Nomura economist Zhiwei Zhang. "The rise in the official PMI is puzzling," Zhang said, particularly as other indicators suggest China's economy is slowing. Stock markets in China rose after the manufacturing data were released, with the Shanghai Composite Index advancing about 1%. Hong Kong's Hang Seng Index also turned up near 1% before settling around 0.6% midday. Beijing is worried over slower growth, and recent economic data has prompted the government to introduce some mild stimulus measures. "These targeted measures should boost confidence and reduce downside risks to growth,' HSBC's top China economist Qu Hongbin said in a statement.”

In March, China's government set a growth target of 7.5% and plans to maintain on average 7% expansion over the next three years.  China's second-quarter gross domestic product rose 7.5%, a slower rate than the 7.7% posted in the first quarter of the year. Whatever you believe though there is no doubt that the report gave copy and oil a bounce.

Nat Gas report today! Is it possible that despite all of the record low temperatures around the country that has killed demands that the low of gas may be near?  Joe Silha of Reuters writes "U.S. natural gas prices are expected to creep higher for the remainder of this year and again in 2014 as demand continues to improve after extremely low prices last year have attracted more users, a Reuters poll of analysts showed. Prices have bounced back from last year's decade lows as chilly late winter weather increased heating needs and whittled down record inventories to below average levels by the end of March. Price forecasts have cooled somewhat due to falling utility demand and strong production, primarily from booming shale output.   "Most analysts this year have been surprised by supply. Despite the reduction in drilling rigs, production hasn't fallen off," said Teri Viswanath, analyst at BNP Paribas in New York.  The Reuters quarterly poll put the consensus forecast for spot prices this year at Henry Hub, the benchmark U.S. supply point in Louisiana, at an average of $3.87 per million British thermal units. That would be up slightly from the April poll estimate of $3.84 and up about 40% from the 13-year low average of $2.77 posted in 2012.  For the first half of this year, Henry Hub prices have averaged $3.75, up 55% from the $2.41 average at the same time last year, according to Reuters data. In 2014, tighter rules on emissions should favor gas, a less polluting fuel, and force more coal plants into retirement. That should boost baseload gas-fired power demand and help drive prices up about 8% to $4.20. Estimates for 2014 were down about 1% from the April poll average. Prices in 2015 were expected to gain another 7% to $4.48 as economic activity picks up and utilities continue to shift to cleaner burning gas instead of coal to generate power. Of the 27 participants in the poll, there were 13 upward revisions for 2013, eight downward revisions and four unchanged. Two did not participate in the previous poll. Price estimates for 2013 ranged from a low of $3.68 to a high of $4.15.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

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