RTRS - China April factory output disappoints, clouds outlook

BEIJING, May 13 (Reuters) - China's factory output growth was surprisingly muted in April, darkening the outlook for the Chinese economic recovery and feeding expectations that the government may take policy action to support activity.

Annual industrial output grew 9.3 percent in April, up from a seven-month low of 8.9 percent hit in March but still missing market expectations for a 9.5 percent expansion, data showed on Monday.

"Economic activity is weaker than expected. This could reinforce the case for the central bank to cut interest rates," said Zhou Hao, an economist from ANZ Bank in Shanghai.

Fixed-asset investment, an important driver of China's economy, also missed market forecasts, growing 20.6 percent in the first four months of 2013 compared with the same period a year ago. Economists had expected growth of 21 percent.

Retail sales was the only piece of data that met market expectations, growing 12.8 percent in April from a year ago.

For investors, the big question now is whether China's growth recovery is still on track.

Just a few months ago, investors had lauded the world's second-biggest economy as being in a sweet spot of benign inflation and rebounding growth.

But hopes that China's economy is recovering from last year's slump, its worst in 13 years, took a beating after growth unexpectedly cooled in the first quarter.

April's output figures follow surprisingly buoyant trade numbers for the month, which many economists suspect are inflated by firms' attempts to sneak funds into China past its capital controls. They say true export growth was likely more moderate.

On the other hand, a slightly quicker-than-expected pick-up in consumer inflation in April suggested Beijing does not have quite as much room as it might desire to relax monetary policy should growth swoon.

The mixed bag of economic figures from China this month should encourage investors to look at data from the real economy for clues on the state of growth. The country's power output numbers for April, for instance, are due on Tuesday.

Analysts have struggled to track the turns in China's economy in the past year, often proving to be too upbeat.

Predictions that a mild economic recovery was under way this year proved overly optimistic after growth sputtered between January and March. Calls in 2012 for a growth rebound were also nine months too early, materialising only in the fourth quarter.

RTRS - U.S. retail sales gain shows some strength in economy

WASHINGTON, May 13 (Reuters) - U.S. retail sales unexpectedly rose in April, pointing to underlying strength in the economy and leading forecasters to bump up second-quarter growth estimates.

The surprise gain in retail sales, which account for about 30 percent of consumer spending, was the latest sign of resilience in an economy that has been hit by belt-tightening in Washington as the government tries to cut its budget deficit.

"It's more indication that our economy is growing. It's not growing as rapidly as a lot of people would like, but things are improving," said Tom Hall, an economics professor at Miami University's Farmer School of Business in Oxford, Ohio.

Retail sales edged up 0.1 percent after a 0.5 percent drop in March as households bought automobiles, building materials and a range of other goods, the Commerce Department said on Monday. Economists had expected a decrease of 0.3 percent.

So-called core sales, which strip out automobiles, gasoline and building materials and correspond most closely with the consumer spending component of the government's measure of gross domestic product, increased 0.5 percent after an upwardly revised 0.1 percent gain in March. February's core sales were revised higher as well.

Coming on the heels of data showing relatively sturdy job growth over the last three months, the increase in core sales helped to allay fears of an abrupt slowdown in the economy.

The dollar rose against the euro and the yen, while prices for U.S. Treasury debt moved lower. Stocks on Wall Street retreated from recent record highs, but the data helped to limit losses.

Several economists raised second-quarter growth estimates on the fairly strong core sales number. Goldman Sachs lifted its forecast by three tenths of a percentage point to a 2.1 percent annual rate, while JPMorgan pushed up its estimate by half a point to 2 percent.

The positive revisions to the core sales data for February and March initially led economists to anticipate that the government would revise higher its initial 2.5 percent estimate for first-quarter GDP growth.

However, a second report from the Commerce Department showed business inventories were flat in March for a second month, suggesting restocking was probably not as big a boost to growth in the first three months of the year as initially thought.

Even so, economists said the government's initial estimate would likely hold, given that core retail sales for February and March were stronger than earlier believed.

In addition, the lack of inventory accumulation should be a boon to second-quarter growth as businesses will likely have to stock up to meet steady demand from households.

FALLING GAS PRICES HELPING

Growth is being crimped by the end of a 2 percent payroll tax cut and higher tax rates for wealthy Americans, which kicked in on Jan. 1. Across-the-board government spending cuts worth about $85 billion are also weighing.

But declining gasoline prices, which fell 14 cents in April, are helping to offset some of the drag on household income, freeing up money for discretionary spending.

Economists say the Federal Reserve's campaign to keep interest rates low is also helping households, in part by pushing up share prices and home values.

"Those who doubt that the Federal Reserve is making an impact just need to look at debt restructuring and wealth effects on spending," said Diane Swonk, chief economist at Mesirow Financial in Chicago. "There is no way the consumer would be holding up so well without the support of lower interest rates."

The tone of the retail sales report was mostly firm. Receipts at auto dealerships rose 1.0 percent after falling 0.6 percent in March. Though falling gasoline prices pushed down receipts at gasoline stations, sales excluding gasoline recorded their largest increase since December.

Stripping out gasoline and autos, sales rose 0.6 percent.

Sales of building materials and garden equipment supplies rose, posting their largest rise since September, a reflection of the housing market's recovery.

Receipts at clothing stores recorded their biggest increase since February last year. There were also increases in sales at sporting goods, hobby, book and music stores, and electronics and appliances stores.

Trader's highlight

DJI - NEW YORK, May 13 (Reuters) - U.S. stocks closed little changed on Monday, pausing after hitting record highs last week, but strength in healthcare issues helped to keep declines in check.

The day's flat close followed a third straight week of gains on the major indexes, with both the Dow and S&P 500 setting record closing highs last week. The S&P 500 remains up 14.5 percent for the year so far.

While some analysts argue the long-term trend is still higher, many see momentum waning in the near term in the absence of positive catalysts. Volume has been lighter than average, and volatility has been low in recent days.

"Intraday volatility has essentially been nonexistent. I think it means people are really sitting on the sidelines right now seeing which way it's going to go," said Uri Landesman, president of Platinum Partners in New York. He expects the rally to top out in the next two weeks.

The Dow Jones industrial average ended down 26.81 points, or 0.18 percent, at 15,091.68. The Standard & Poor's 500 Index was up 0.07 point at 1,633.77. The Nasdaq Composite Index was up 2.21 points, or 0.06 percent, at 3,438.79.

Oils - NEW YORK, May 13 (Reuters) - Crude oil prices settled lower on Monday after a choppy day of trading, hit by slowing oil demand in China and data showing the biggest drop for U.S. retail gasoline sales in more than four years.

Positive U.S. retail sales data supported the idea that the U.S. economy was continuing to recover but it did not apply to gasoline sales, underscoring ailing demand for the fuel. The retail data also strengthened the U.S. dollar, which had a negative impact on the price of crude oil.

Refinery crude throughput in China, the world's second-largest consumer, fell 3 percent in April from March, its lowest daily rate since last September, as refineries entered maintenance season. Implied oil demand was up 3.2 percent in April from a year earlier to about 9.6 million barrels per day, the lowest in eight months.

Brent crude settled down $1.09 per barrel at $102.82, after trading as low as $102.25. U.S. oil ended the day 87 cents lower at $95.17 a barrel, after trading as low as $94.47.

"The economic data in China is not yet providing upward support. It is not that it is weak, it is simply not sufficient to support a bullish trend," Harry Tchilingurian, head of commodity market strategy at BNP Paribas, said.

U.S. retail sales edged up 0.1 percent, after a revised 0.5 percent decline in March, data from the Commerce Department showed. Economists polled by Reuters had expected retail sales to drop 0.3 percent last month.

CBOT Soybean - Soybean futures on the Chicago Board of Trade rose on Monday on firm cash markets and tightening U.S. supplies, lifting the spot contract to a six-month high, traders said.

·         The May soybean contract rose 2.2 percent one day ahead of its expiration, peaking at $15.27-1/4 per bushel, the  highest spot soybean price since Nov 2.

 

·         Nearby soymeal contracts posted the biggest percentage gains in the soy complex and soyoil followed the higher trend.

 

·         Cash bids for soybeans were steady to sharply higher in  the eastern U.S. Midwest as farmers delayed sales and deliveries  of old-crop supplies and focused on planting their new crop.

 

·         Light rains at mid-week will slow fieldwork in parts of    the U.S. Midwest, with heavier rains to follow early next week,    an agricultural meteorologist said. Conditions should favor   active planting early this week. 

·         Ahead of the USDA's weekly crop progress report later on   Monday, a Reuters survey of analysts pegged U.S. soybean  planting progress by May 12 at 10 percent, up from 2 percent a  week ago. Estimates ranged from 7 percent to 13 percent   complete. 

 

·         USDA reported export inspections of U.S. soybeans in the  latest week at 3.351 million bushels, within a range of trade     estimates for 3 million to 6 million.    

BMD CPO - SINGAPORE, May 13 (Reuters) - Malaysian palm oil futures eased from a one-month high on Monday as worries about weak exports prompted profit-taking and offset initial gains driven by slowing inventory levels.

Edible oil futures got off to a strong start as traders priced in a drop of 11.3 percent in Malaysia's end-April palm oil stocks to 1.93 million tonnes from a month earlier.

But lacklustre export demand later weighed down prices. Palm exports slid 18.4 percent to 377,193 tonnes for the first 10 days of May from a month earlier, on slowing demand from Europe and China, cargo surveyor Societe Generale de Surveillance said last Friday.

"The Malaysian palm oil stock finally crossed below the 2-million-tonne mark, which is positive for the crude palm oil price as it is an indication that stocks have normalised," said Ivy Ng, senior research analyst at Malaysia's CIMB Investment Bank.

"But this was offset by the 18 percent drop in palm oil exports for the first 10 days of May," she added. "We suspect the weaker exports may be due to higher demand for Indonesian palm oil ... and slower demand from China due to high stocks at the ports."

The benchmark July contract on the Bursa Malaysia Derivatives Exchange lost 0.4 percent to close at 2,309 ringgit ($771) per tonne, and off an earlier high of 2,341 ringgit, a level last seen on April 12.

Total traded volumes stood at 20,607 lots of 25 tonnes each, lower than the average 35,000 lots.

Stagnant production growth in April led to a bigger decline in Malaysian stocks than expected, and analysts said slowing output growth could continue to trim stocks this month, and support crude prices.

"Looking forward, we believe stocks could fall 5 percent month-on-month to 1.84 million tonnes by May. The trend of declining inventory is supportive," said Alan Lim Seong Chun, a research analyst with Malaysia's Kenanga Investment Bank.

In other markets, crude prices slipped towards $103 a barrel on Monday as oil demand in the world's second-largest consumer China fell to eight-month lows, weighing on the global outlook for the fuel. 

In vegetable oil markets, U.S. soyoil for July delivery fell 0.2 percent in late Asian trade. The most-active September soybean oil contract  on the Dalian Commodities Exchange rose 0.4 percent.