BEIJING – China’s manufacturing activity expanded at its fastest in 13 months in June, buoyed by a strong rebound in output, as the lifting of COVID lockdowns sent factories racing to meet recovering demand, a private sector poll showed on Friday.

The Caixin/Markit manufacturing purchasing managers’ index (PMI) rose to 51.7 in June, also indicating the first expansion in four months, from 48.1 in the previous month. That was well above analysts’ expectations for an up-tick to 50.1.

The 50-point index mark separates growth from contraction on a monthly basis.

The recovery suggested in the Caixin survey, which focused on more export-oriented and small firms in coastal regions, was more convincing compared with findings in an official survey.

Economic activity has sped up in June since various COVID lockdowns have been rolled back as COVID-19 cases fell, with a range of support measures unveiled by the State Council in late May to stabilise growth gradually kicking in.

A sub-index for output bounced to the highest level since November 2020, while new orders, bolstered by the first increase in export orders in about a year, snapped three months of decline and posted the fastest growth in four months.

Delivery times for suppliers stabilised in June amid easing supply chain snags, after worsening for the past two years.

However, despite the strong rebound, factories remained cautious in terms of hiring more staff, with employment falling for the third month in a row.

“Restoration in the post-pandemic era remained the focus of the current economy, yet its base was far from strong,” said Wang Zhe, senior economist at Caixin Insight Group.

“Deteriorating household income and expectations caused by a weak labor market dampened the demand recovery. Correspondingly, supportive policies should target employees, gig workers and low-income groups impacted by the outbreaks.”

China’s economy has started to chart a recovery path out of the supply shocks caused by strict lockdowns, but headwinds persist, including record high jobless rate in big cities, a still subdued property market, soft consumer spending and fear of any recurring waves of infections.

Analysts expect further improvement in economic conditions in the third quarter, although the official GDP target of around 5.5% for this year will be hard to achieve unless the government abandons the zero-COVID strategy.

President Xi Jinping defended the zero-COVID policy on Tuesday, saying China is willing to accept some temporary impact on economic development over harm to people’s health.

(Reporting by Stella Qiu and Ryan Woo; Editing by Sam Holmes)

By Jonathan Cable and Leika Kihara

LONDON/TOKYO/WASHINGTON – Global manufacturing struggled in June as higher prices and a darker economic outlook left consumers wary of making purchases, while China’s strict COVID-19 lockdowns and Russia’s invasion of Ukraine added to supply chain disruptions, surveys showed.

From the United States to the euro zone, activity at factories slowed to levels last seen during the initial wave of the pandemic. They were the latest signs pointing to the risk of all-out recession in the global economy, coming after the world’s top chipmakers said they were facing waning demand and as central bankers warned of painful interest rate hikes ahead.

“Between central banks digging their heels in to counter inflation and growing fears there is absolutely no path to a soft landing for the global economy, there are few, if any, places to hide,” said Stephen Innes at SPI Asset Management.

The slowdown in the United States was accompanied by declines in new orders and employment. The Institute for Supply Management’s index of national factory activity dropped to 53.0 last month, the lowest reading since June 2020, from 56.1 in May. Its measure of new orders contracted for the first time in two years, while employment remained weak.

The picture was equally gloomy in the euro zone, where manufacturing output also slowed. S&P Global’s manufacturing Purchasing Managers’ Index (PMI) fell to 52.1 in June from May’s 54.6, its lowest level since August 2020.

“We doubt the outlook for manufacturing will improve any time soon,” said Andrew Hunter, a senior U.S. economist at Capital Economics. “While the latest PMI surveys from China suggest manufacturing activity there is rebounding rapidly as lockdowns are lifted, that acceleration is unlikely to be sustained.”

Earlier, surveys showed China’s factory activity recovering in June, though a slowdown in Japan and South Korea, as well as a contraction in Taiwan, highlighted the strain from supply disruptions, rising costs and persistent material shortages.

At a meeting of central bank chiefs in Portugal this week, Federal Reserve Chair Jerome Powell and European Central Bank President Christine Lagarde made it clear that bringing down high inflation could hurt badly but must be done quickly to prevent rapid price growth from becoming entrenched.

Evidence from the real economy suggests that higher prices are already biting into consumer and corporate demand.

Micron Technology Inc sounded the latest warning from the world’s chipmakers, forecasting worse-than-expected revenue for the current quarter, noting that the market had “weakened considerably in a very short period of time.”

Facebook-owner Meta Platforms Inc has cut plans to hire engineers by at least 30% this year, CEO Mark Zuckerberg told employees on Thursday.

“If I had to bet, I’d say that this might be one of the worst downturns that we’ve seen in recent history,” Zuckerberg told workers in a weekly employee Q&A session, audio of which was heard by Reuters.

‘TUG OF WAR’

A Reuters poll of economists last month found there is a 40% chance of a recession in the United States over the next two years, with a 25% chance of it happening in the coming year.

“There’s hope China’s economy will pick up after a period of some weakness. But now there’s a risk of slowdown in the U.S. and European economies,” said Yoshiki Shinke, chief economist at Japan’s Dai-ichi Life Research Institute.

“It will be a tug of war between the two, though there’s a lot of uncertainty over the global economic outlook.”

China’s Caixin/Markit manufacturing PMI rose to 51.7, marking the first expansion in four months and well above analysts’ expectations for a reading of 50.1.

The Caixin survey, which focused on export-oriented and small firms in coastal regions, follows official data showing the country’s factory and service sectors snapped three months of activity decline in June.

China’s economy has started to chart a recovery path out of the supply shocks caused by its strict lockdowns, though risks remain such as diminished consumer spending and fear of a further wave of infections.

Meanwhile, the final au Jibun Bank Japan Manufacturing PMI slipped to 52.7 in June from 53.3 in the previous month.

South Korea’s S&P Global PMI fell to 51.3, dropping for a second straight month, reflecting supply constraints and a truckers’ strike.

Separate data showed South Korean exports, seen as a proxy for global trade because its manufacturers are positioned in many parts of the world supply chain, growing at their slowest pace in 19 months.

India’s PMI showed factory output expanded at its slowest pace in nine months, as elevated price pressures restricted demand and output.

(Reporting by Jonathan Cable and Leika Kihara; Writing by Mark John; additional reporting by Lucia Mutikani in Washington; Editing by Shri Navaratnam, Sam Holmes, Barbara Lewis and Paul Simao)

By Sayantani Ghosh

(Reuters) – A handful of chipmakers including Micron and AMD have signaled waning demand as red-hot inflation squeezes spending, even as it eases a two-year global semiconductor shortage that has hit production of everything from cars to smartphones.

Chip stocks across the world tumbled on Friday after memory chip maker Micron Technology Inc forecast on Thursday much worse-than-expected revenue for the current quarter and said the market had “weakened considerably in a very short period of time.”

Shares of Taiwan’s TSMC and MediaTek, Dutch chip-gear maker ASML, Franco-Italian firm STMicroelectronics and Germany’s Infineon all fell on Friday.

Chip stocks were the biggest drag on the S&P 500 on Friday. The Philadelphia Semiconductor index was down 3.5%, after sliding 35% in the first half of the year.

Chipmakers were overwhelmed trying to meet big orders from makers of smartphones and personal computers (PCs) after demand surged from people working from home during the pandemic.

The resulting shortage led companies, including automakers, to slash production, delay shipments and pay steep premiums for key chips. Recent COVID-19 lockdowns in China had global executives issuing grave warnings about supply chokepoints until recently.

However, soaring inflation across the world has resulted in consumers tightening belts, with China curbs also hitting demand. As a result, sales of smartphones and PCs have declined sharply.

“We believe it will take one-two quarters for the smartphone and PC customers to burn off the excess inventory before starting a rebuild,” Needham analysts wrote in a note, after Micron’s results.

Advanced Micro Devices Inc flagged last month a slowdown in PC sales this year, while Micron said Beijing’s recent lockdowns caused a 30% drop in its China revenue in the current quarter.

Industry-wide shipments of smartphones to China – the world’s biggest smartphone market – are expected to shrink by 18% this year, according to Gartner. It expects worldwide shipments to drop 7% due to supply-chain snarls and the Russia-Ukraine war.

Still, Micron executives said they were confident about demand for their chips in the long term, and industry analysts said there was still a lot of demand for chips used in EVs, 5G and high-speed computing.

COMING SHIFT

TSMC, the world’s largest contract chipmaker, has seen its major clients cut chip orders for the rest of 2022, Taiwanese daily Digitimes said on Friday, citing industry sources. TSMC declined to comment.

Top memory chip maker Samsung Electronics, in an attempt to check an inventory glut, temporarily halted new procurement orders and asked some suppliers to delay or cut shipments of components for several weeks, Nikkei said last month.

“I think the extent of the shift has definitely been bigger than anyone was anticipating in the ecosystem,” Micron’s chief business officer, Sumit Sadana, said on Thursday.

Tesla, which uses hundreds of chips in its electric cars, has shuttered a California office and laid off about 200 workers. CEO Elon Musk previously said he had a “super bad” feeling about the economy and that the company needs to cut salaried staff by about 10%.

“We expect a better supply of semiconductors in the second half of the year,” Volkswagen AG Chief Financial Officer Arno Antlitz said Wednesday at the Reuters Automotive Europe conference. Demand for new vehicles may come down, “but our supply will go up.”

General Motors is not cutting orders for chips, a spokesman said in an email on Friday.

(Reporting by Sayantani Ghosh in Singapore; Additional reporting by Supantha Mukherjee in Stockholm, Ben Blanchard in Taipei, Byungwook Kim in Seoul, Akash Sriram and Ankur Banerjee in Bengaluru; Editing by Kim Coghill, Anil D’Silva and Sriraj Kalluvila)

(Reuters) – Efforts by companies to strike merger agreements with buyout firms are floundering in stormy markets, with private equity struggling to raise financing for bids big enough to satisfy shareholders and their boards.

These are firms that have withdrawn, postponed or changed plans of their M&A deals in recent days:

KOHL’S CORP

The U.S. department store chain called off its sale to Vitamin Shoppe-owner Franchise Group on July 1, blaming a downturn in market conditions.

Kohl’s had entered exclusive talks with Franchise Group in June, valuing it at nearly $8 billion. Kohl’s had rejected bids it received since January for undervaluing the company.

NOVARTIS

The Swiss drugmaker is considering a spin-off of its generic drug unit Sandoz rather than selling it to private equity firms, Bloomberg reported on June 30, citing unnamed sources amid a challenging macro environment.

JUST EAT TAKEAWAY

Doubts on whether Europe’s largest online food deliverer will successfully sell its U.S. Grubhub operation dragged shares to an all-time low at the end of June, although the company said it had not changed its strategy and funding was not in doubt.

WALGREENS BOOTS ALLIANCE

The British pharma company on June 28 scrapped plans to sell its UK pharmacy chain Boots, saying no third party was able to make an adequate offer for the company, which had been valued at as much as 8 billion pounds ($10 billion).

Several sources told Reuters that lender wariness had made raising the funds difficult for private equity bidders Apollo Global and TDR.

RECKITT BENCKISSER GROUP

The British consumer goods company might shelve a planned $7 billion sale of its infant nutrition unit due to a worsening financing market, including lack of available funding, Bloomberg News reported on June 29.

($1 = 0.8318 pounds)

(Compiled by Mateusz Rabiega, Patrycja Zaras, Sarah Morland and David O’Sullivan in Gdansk; Editing by Susan Fenton)

By Aditya Kalra and Abhirup Roy

NEW DELHI – British snack chain Pret will adapt its menu to local tastes when it opens in Indian cities and airports under a partnership with retail giant Reliance to try to satisfy the nation’s growing appetite for upmarket refreshment.

As part of its broader plan to target the most affluent 50 million of India’s 1.3 billion people, Reliance on Thursday announced a franchise deal with Pret.

The partnership has the potential to make India one of Pret’s biggest markets and to challenge incumbents Starbucks and Coca-Cola’s Costa Coffee, as well as Tim Hortons of Canada, which said in March it will launch in India this year.

For Reliance, a conglomerate that also runs the country’s biggest retail chain and has partnerships with global fashion and luxury brands, the Pret deal marks its first major bet on wealthier Indians’ pursuit of new food experiences.

“We are looking at 3%-4% of India’s population … It fits right into our strategy,” Darshan Mehta, chief executive of Reliance Brands, told Reuters in an interview.

“Unlike Starbucks, I was looking at something that is more food-led. Starbucks is a beverage-led business,” he said, adding the Indian market was big enough for competing brands to grow.

Pret A Manger – or “ready to eat” in French – opened in London in 1986 and has 550 outlets globally, including in the United States and several European countries.

Mehta said Reliance aimed to make India one of Pret’s three biggest markets by 2030.

The first Indian outlet of Pret – known for organic coffee and chicken and avocado sandwiches – will open in Mumbai.

A source with direct knowledge said Pret will have 100 India outlets within five years, although Mehta declined to disclose the number targeted.

The broader food services market is predicted to grow significantly. Technopak Advisors estimates India’s cafe chain market will be worth $550 million by 2025, growing 34% each year.

As disposable income rises in cities and small towns, Indians, who have traditionally been tea drinkers, are embracing western-style coffee sold in cafes and restaurants.

When launched in 2012 in partnership with the Tata Group, Starbucks’ first store in India attracted long queues. It now has 268 stores in 26 cities, although it also has competition from local chains such as Blue Tokai.

Mehta sipped Blue Tokai coffee during his video interview with Reuters.

When asked about it, he said: “we’ve not yet launched Pret.”

PANDEMIC CLOSURES AND SPICE ADJUSTMENTS

Pret CEO Pano Christou has described the India deal with Reliance as its “most ambitious global franchise partnership to date”.

The chain was hard hit by the pandemic as the shift to working from home, which meant a huge drop in sales to the British office workers that had been a major market, and led it to close stores and shed jobs.

As it seeks new opportunities, Ankur Bisen, head of consumer and retail at Technopak, said closures of local cafes in India during the pandemic had created room for Pret to move in.

Bisen said Pret could pose “direct competition” to Starbucks if it successfully adapted its food to local tastes and attracted customers with stores that have room for dining.

Starbucks did not respond to a request for comment.

Like many other foreign chains, Starbucks success in India has been underpinned by a partnership with an Indian conglomerate and a combination of international flavours – Hawaiian and basil tomato sandwiches – and Indian food, such as spiced paneer.

Mehta said about 20% of Pret’s offerings will be Indian-inspired.

Many of the remaining items could also be modified to Indian taste, he said. For instance, the amount of spice or tahini sauce in falafel rolls could be changed.

Apart from its partnership wtih Pret, Reliance also plans to open an outlet of Japanese retailer Muji’s cafe and Asia’s second Armani cafe. Armani and Muji are both partners of Reliance in India.

For all its ambition, Reliance is proceeding in stages, with a few Pret stores by the end of 2023, and then more from 2024 Mehta said.

“Airports are a big part of the offering,” Mehta said, but Pret would also be dotted around city centres and company complexes, making up for some of the diminished British office worker market.

(Reporting by Aditya Kalra in New Delhi and Abhirup Roy in Mumbai; editing by Barbara Lewis)

By Pratima Desai

LONDON – Industrial metal prices have just seen their biggest quarter of falls in many years, with the market reflecting exposure to China’s COVID lockdowns, inflation, rising interest rates and stalled growth.

The speed and magnitude of the fall was unexpected and partly reflects the sale of metal such as aluminium and nickel bought in anticipation of supply disruptions to material from Russia, which did not materialise, after it invaded Ukraine.

“Metal supply is rising because it has been incentivised. Demand is slowing and the trend is for surpluses,” said Julian Kettle, Vice Chair of Metals and Mining at consultants Wood Mackenzie.

HOW FAR HAVE METALS PRICES FALLEN?

Aluminium prices on the London Metal Exchange (LME) plunged 30% in the second quarter, the largest quarterly loss since the financial crisis in 2008.

Copper dropped 20% in the second quarter, the largest quarterly loss since 2011, when the bubble created by massive Chinese stimulus burst.

Zinc tumbled 24% and lead dropped 21% in the second quarter, the largest quarterly losses since 2010 and 2011 respectively.

Tin and nickel crashed 38% and 29% respectively in the second quarter, the most on record.

With the exception of lead, all the other five metals hit record highs in March as markets priced in expectations of deficits due to robust demand and transport bottlenecks in producing regions.

WHAT ARE INDUSTRIAL METALS USED FOR?

Copper is vital for conducting electricity and is used in electronics, white goods, autos and buildings, zinc is used to galvanise steel and lead is a component of batteries used in internal combustion engine cars.

Aluminium is crucial for transport, packaging and construction, tin is used in electronics and semiconductors, while nickel is used to make stainless steel and electric vehicle batteries.

WHAT HAPPENED TO DEMAND?

COVID lockdowns in top consumer China have hit manufacturing and demand for metals, while soaring inflation, interest rate rises and the possibility of recession have undermined industrial activity around the world.

Global copper demand is estimated to grow around 2%-3% this year to around 26 million tonnes after 4%-5% growth in 2021 and aluminium demand is expected to grow little more than 2% to around 71 million from 8% growth last year.

Zinc consumption is forecast to rise at a sedate 1%-2% this year from 6%-7% in 2021 and nickel demand is seen expanding around 5% this year from around 15% last year.

WHERE ARE SUPPLIES HEADING?

Copper supplies are seen climbing 3%-5% on production ramp ups at mines in Latin America, Africa and elsewhere, while aluminium supplies are forecast to rise 3.5% with much of that rise in China.

Macquarie analysts estimate restarts and new aluminium capacity in China in the first five months of the year at 2.4 million tonnes per annum and one million tonnes per annum respectively.

“We expect operational smelting capacity to reach 42.5-43.00 million tonnes per annum by the end of this year,” they said.

Rising nickel output in major producer Indonesia is likely to boost global supplies by 14%-18% to more than 3.1 million tonnes this year.

Zinc supplies are expected to stagnate, partly because of production cuts in Europe due to record high power prices.

(Reporting by Pratima Desai; editing by David Evans)