What’s Important in the Financial World (4/23/2012) Walmart Probe, Weak EU and China’s PMI

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Any economic recovery in the eurozone that analysts and politicians might have hoped for will be put off for some time. PMI data for the first month of the second quarter was particularly weak. Markit reported:

The Markit Eurozone PMI Composite Output Index fell to a five-month low in April, according to the preliminary “flash” reading which is based on around 85% of usual monthly replies. The index fell for the third month in a row to 47.4, down from 49.1 in March, to signal a faster rate of decline of private sector economic activity. Output has fallen seven times in the past eight months.

The news was especially bad because it shows the strongest nations in Europe economically have started to slow along with the weaker ones. The Flash France Composite Output Index declined to 46.8, a six-month low. The Flash Germany Composite Output Index was at 50.9, a five-month low. The region’s economy cannot recover when its two largest nations by GDP have started to struggle.

Walmart Probe

The pressure on Walmart (NYSE: WMT) due to a report that bribery was widespread in its Mexico unit may cost the most senior executives at the parent company their jobs. The New York Times ran a 7,600-word article that detailed the activity. Mentioned in the piece were Vice-Chairman Eduardo Castro-Wright, who ran Walmart’s Mexico operation and apparently approved the bribes. Walmart’s former CEO and current board member H. Lee Scott Jr. was aware of the details of the problem, the Times reports. Current CEO Michael T. Duke, who ran Walmart International, apparently was as well. Walmart could face large fines in Mexico and the U.S. Its operations in a number of other large markets likely will be scrutinized. The revelation leaves the Walton family, who controls the world’s largest retailer, and the corporation’s board with the potential challenge of replacing its CEO and at least one other board member.

China’s PMI

China’s manufacturing economy improved slightly in April, but is still in rough shape. The HSBC Flash Purchasing Managers Index (PMI) was 49.1 in April. That is up from 48.3 in March. Any number below 50 means the sector is contracting. It is not possible to identify the exact reason for the problem, but there are only a few possibilities. One is that the growing recession in the European Union, the world’s largest region by gross domestic product, has crippled China’s exports. Another is that consumer spending within China has slowed along with its overall economy. This second reason will cause the People’s Republic a host of issues. Millions of people continue to move from rural areas into cities to be factory workers. Many of these workers expect higher wages. Manufacturing companies with slowing sales cannot pay those higher wages without sharply lowering their margins or operating at losses.

Gas Prices

Gasoline prices dropped for the first time this year, according to the carefully followed Lundberg Survey. The service reports that the average price for a gallon of regular fell to $3.91 over the past two weeks. That is down $0.05 from the two weeks earlier. “We can thank crude oil for allowing gasoline to do what it has been wanting to do for weeks, which is drop,” said publisher Trilby Lundberg. Lundberg also predicted that the price would fall again, if oil does not rise. And it may not. Concerns about a blockade of the Strait of Hormuz by the Iranian navy have fallen. Global refinery capacity is low, but warm weather seems to have undercut demand for oil. And the economy of the world’s second-largest importer of crude — China — has slowed since late last year.

Douglas A. McIntyre

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