German economy at risk of downturn as growth slows

Updated 18 December 2014
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German economy at risk of downturn as growth slows

FRANKFURT: German private-sector growth slowed to the weakest in 18 months in December, increasing the risk that a soft phase will turn into a more pronounced economic downturn.
Markit Economics said a Purchasing Managers Index for manufacturing and services fell to 51.4 this month from 51.7 in November. Economists forecast an increase to 52.3. A factory gauge rose to 51.2 from 49.5, crossing the 50 mark that divides expansion from contraction, while a measure for services fell to 51.4 from 52.1.
While German data showed this month that the economy, Europe's largest, had a modest start into the last quarter of the year, the Bundesbank has pointed to signs that growth could strengthen. As the rest of the euro area struggles to expand and inflation hovers close to zero, the European Central Bank has held out the prospect of expanding its range of asset-purchases next year.
The German "data are consistent with only marginal gross- domestic-product growth in the fourth quarter at best," said Oliver Kolodseike, an economist at London-based Markit. "The possibility of a renewed downturn at the start of next year is clearly becoming more and more likely, especially if the survey data continue to disappoint."
The German economy narrowly escaped recession in the third quarter, recording growth of 0.1 percent after shrinking by the same extent in the April-June period. Economists predict growth of 0.2 percent in the final three months of the year.
Companies signaled a second consecutive monthly decline in new business in December, citing a lack of investment and increased competition, according to Tuesday's report.
In France, the manufacturing PMI unexpectedly declined to 47.9 from 48.4. Economists predicted an increase to 48.6. A gauge for services and manufacturing activity in the 18-nation euro area is seen increasing to 51.5 this month from 51.1, according to a separate survey.
A second round of targeted long-term loans to banks by the ECB last week came in at the low end of analysts' forecasts, in a sign that financial institutions see few ways of using cheap central-bank money in the weak economy. ECB President Mario Draghi said on Dec. 4 that "all assets but gold" are under consideration for purchase as the central bank seeks to step up aid to the economy.
The Bundesbank said Monday that some support for German consumers will come from lower oil prices, a development Weidmann has likened to a "mini stimulus package."
Meanwhile, investor sentiment in Germany rose sharply again in December driven by a weak euro and plunging oil prices, a survey found on Tuesday, underlining a sunnier outlook for Europe's top economy.
The widely watched investor confidence index calculated by the ZEW economic institute jumped by 23.4 points in December, after increasing for the first time this year in November, ZEW said in a statement.
It said there was abundant evidence that faith in Germany among financial market experts was being restored.
"This renewed confidence remains linked to the auspicious economic conditions including the weak euro and the low price of oil," ZEW President Clemens Fuest said in a statement.
"This positive trend could be seen in the recent data for German exports. But it should be noted that the current economic optimism is fostered by factors that can change quickly."
For its survey, ZEW questions analysts and institutional investors about their current assessment of the economic situation in Germany, as well as their expectations for the coming months.
The sub-index measuring financial market players' view of the current economic situation in Germany also rose, by 6.7 points.
In November the ZEW headline indicator had bounced back for the first time in 2014, adding to signs that the German economy is stabilizing and providing a boost for the euro zone as a whole.
After hitting a 22-month low in October, the index jumped to 11.5 points from minus 3.6 points the previous month.
Last week Germany reported that its trade surplus had grown slightly in October, with imports showing a sharper decline than exports due in part to the weaker euro.
A frequent criticism of the ZEW index is that it can be volatile and is therefore not particularly reliable.
As a result, analysts were cautious about reading too much into the December data.
"December's sharp rise in German ZEW investor sentiment is an encouraging sign that confidence has so far not been hit by renewed problems in Greece, but the improvement is at odds with the weakness of the more reliable PMI" or purchasing managers' index, said Jennifer McKeown, senior European economist at Capital Economics in London.
The German PMI had declined in December, McKeown noted, and said that she maintained her view "that the Germany recovery will be steady rather than spectacular and that additional policy support is still required in Germany and the euro zone as a whole" to boost growth.
Christian Schulz of Berenberg Bank said "the evidence that Germany's economy is about to reaccelerate after a rough patch is mounting" but warned there may be "new wobbles ahead".
"The market rout triggered by political risks in Greece as well as the economic fallout of sanctions and the sharply lower oil price for Russia are bound to leave traces in German investor confidence in the coming months, if sustained," he said.
Carsten Brzeski, chief economist at ING-Diba bank in Frankfurt, said the ZEW index, with the headline number showing its strongest monthly increase since January 2013, and the weaker PMI sent "mixed signals".
"The economy should benefit from a very special stimulus package: The weaker euro and the sharp drop in energy prices," he said.
"To some extent, however, this very special stimulus package could also be the poisoned apple as it could delay necessary structural reforms."


Slack primed as latest unicorn to make market debut

Updated 19 June 2019
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Slack primed as latest unicorn to make market debut

  • Slack is a cloud-based software company that markets online tools for information sharing and workflow management
  • Current customers include Nordstrom, Ford and HSBC and the company has more than 95,000 paid customers overall

NEW YORK: The 2019 parade of big new Wall Street entrants continues this week with the debut of Slack Technologies, underscoring investor hunger for new companies in spite of some high-profile stumbles.
Nearly halfway through the year, US markets are on track for one of the biggest IPO seasons ever in terms of money raised following a stream of offerings from former “unicorns,” private companies worth more than $1 billion.
Yet two of this year’s biggest names — Uber and Lyft — currently trade below their IPO price, along with Snapchat, which has lagged its initial price for most of the time since it went public in March 2017.
Still, there have also been plenty of prominent companies that have risen since their initial public offerings, including jeans company Levi’s, Tradeweb Markets, which builds electronic marketplaces, Zoom Video Communications, and mobile application and software system Pinterest.
The most dramatic jump has been in food company Beyond Meat, which now trades at more than six-fold its entering price.
“The public has a huge interest” in new companies, said JJ Kinahan, chief market strategist at TD Ameritrade, adding that the mixed performance of the 2019 ex-unicorn class is comparable to that of the broader market.
“There aren’t a lot of other choices besides IPOs for investors seeking growth,” said Gregori Volokhine, president of Meeschaert Financial Services, who attributes the rush of funds in part to central bank policies promoting liquidity.
“There’s an excess of underinvested funds worldwide,” he said.
In terms of sheer volume, the number of IPOs in 2019 so far — 93 — is roughly equal to last year’s figure, according to Dealogic.
But the funds raised, $34.5 billion, stand 13.6 percent above last year’s sum and the highest for the comparable period since 2000, according to Dealogic data.

Direct listing
A cloud-based software company that markets online tools for information sharing and workflow management, San Francisco-based Slack parts ways from the other big companies this year by opting for a direct listing instead of an IPO.
This approach, which was also employed by Spotify last year, cuts down on fees to investment bankers in IPOs. Although existing shares can be sold, a direct listing does not issue new shares, averting share dilution but also forgoing the new funds raised in an IPO.
The process can also be riskier in terms of share price volatility compared with an IPO, where underwriters line up investors in advance. In a direct listing, shares are exposed more directly to the open market.
Slack chief executive and co-founder Stewart Butterfield described the company’s technologies as a “brand new category of software” that replaces email in a company.
Current customers include Nordstrom, Ford and HSBC and the company has more than 95,000 paid customers overall.
“It turns email to messages and organizes them into team, project and topic based channels instead of individual in-boxes,” Butterfield said in a June 10 earnings conference call.
“It’s a team-first approach to communication, in contrast to email’s individual first approach. It creates a rich, searchable, permanent body of information that’s widely available across an organization, even for people who just joined the team.”
 

Unprofitable three years
The company, which is expected to be valued at around $17 billion when it enters the market on Thursday, reported revenues of $134.8 million in the quarter ending April 30, up 66.7 percent from the year-ago period.
But Slack, which has been unprofitable the last three years, reported a $33.3 million loss during the period, 34 percent more than last year’s loss.
Of course, many unprofitable companies have gone public and done well in markets for years. Yet the heavy losses and murky profit outlook at Uber and Lyft have been seen as factors in their lackluster performance since going public.
But investors remain keen on growth stories following the success of Amazon, Facebook and other tech giants that have emerged in recent decades.
A key beneficiary of this desire has been Beyond Meat, which has multiplied in value many times since going public May 3 at $25 and currently is priced at $168.92. The company has been seen as a main beneficiary of the growing alternative protein market, which some analysts think could top $100 billion in the coming decade or so.
Kinahan said in general investors have wised up after the early 2000s Internet bubble but that “it’s just unnatural” for stocks like Beyond Meat to move in an unbroken straight line upwards.
“There’s a healthy bit of skepticism in the market,” he said. “However, certain companies have maybe gotten a little ahead of themselves.”