Morning Market Roundup: Jobless Claims, Yahoo! Japan, EU, China's Purchasing Managers' Index

Here’s what’s important in the financial world this morning:

China: China’s Purchasing Managers' Index (PMI) declined as the nation’s factory economy contracted for the first time in almost three years. The state-sponsored China Federation of Logistics & Planning reported its manufacturing PMI fell to 49.0 on a 100-point scale, falling below the previous month’s 50.4 reading. The news coincides with a poor PMI number for Europe. The index in the eurozone fell to 46.4 from 47.1 in October. That means China must face a slowing of economic activity with its trade partners, which could make its manufacturing base even more vulnerable to future contraction. The only good by-product of the slowing in China is that it may chock down inflation, which has been over 6 percent in the past year.

EU: The ability of financially troubled EU nations to raise money has gotten worse — again — and shows no sign of improvement. Spain’s treasury sold 3.75 billion euros of three bonds, at the high end of the targeted 2.75 to 3.75 billion euro range. However, the average yield on the April 30, 2015, bond was 5.187 percent, up from 3.639 percent when it was last sold on Oct. 6. Italy and even France have had similar problems as what they must pay on sovereign paper rises quickly. There is a fair concern that these interest rates cannot be sustained, which means that the ability of these sovereigns to address deficits must come with proof of severe austerity measures. These may take months or longer to put in place, further increasing the skepticism that southern European nations can avoid default.

Tech.: The process to buy part or all of Yahoo! has become more confused, at least as it is presented by the media. Some rumors are that private equity firm Bain may set a partnership with Chinese e-commerce company Alibaba and Yahoo! Japan to buy all of Yahoo! This would give Alibaba and Yahoo! Japan the chance to buy back the stakes in their firms that Yahoo! owns. It would leave Bain with Yahoo!’s slow-growing U.S. business.

Another possible outcome is that a private equity firm would buy 20 percent of Yahoo! The money, along with more capital Yahoo! would borrow, would be used to buy its shares, which would increase EPS. That will not turn around the company’s difficult revenue problems, though. There is also speculation that Microsoft could finance a purchase of Yahoo! to guarantee its Bing search partnership with the portal company. None of these solutions appears to do much for shareholders, who might have gotten $33 a share from a Microsoft offer in 2008. Yahoo! trades at $16 now.

U.S. Business: The Thomson Reuters/PayNet Small Business Lending Index shows borrowing by small businesses rose 20 percent in October. The level is still below where it was in 2005. Yet, the information is encouraging for two reasons. The first is that banks are willing to take on more risk. The other good sign is that small businesses have begun to grow again. More than half of workers in the U.S. are employed by these small firms. And, economists believe, there can be no jobs recovery without hiring at the small business level.

Currently, U.S. claims for unemployment insurance rose last week, climbing past the 400,000 mark, signaling the continued weakness of the job market.

"Weekly applications for unemployment benefits rose 6,000 to a seasonally adjusted 402,000, the Labor Department said Thursday. Applications had been below 400,000 for three straight weeks," reports CNBC. "The four-week average, a less volatile measure, was mostly unchanged at slightly below 400,000. The average fell to a seven-month low two weeks ago. Weekly applications had been declining for two months."

Applications would need to stay below 375,000 to help lower the unemployment rate (significantly at least). Applications have not been at that that level since February.

(24/7 Wall St./The Blaze)