Greetings,

This morning we start with China where the service sector PMI (from Caixin/Markit) came in above expectations. This had a calming effect on stock markets in Asia and pushed the S&P futures higher.

Source: Markit

Here are several other China-related developments we are tracking.

1. Auto sales growth in China rose. 

Source: MNI

2. The steel rally in Shanghai continues as stimulus kicks in.

Source: barchart

3. As bad loan balances at China’s banks rise, Beijing is implementing a debt for equity swap at the nation’s lenders. Banks will convert nonperforming loans into shares of the borrowers. Inefficient firms who are unable to pay their debt will thus be allowed to continue rather than going into bankruptcy. Other than shedding debt and changing owners, these businesses are unlikely to be restructured, resulting in moral hazard.

Source: @SandyHendry, @business

Source: The Telegraph

4. While there are some positive economic signs from the mainland, Hong Kong is experiencing deteriorating economic conditions. Here is a summary from Markit.

Source: @MarkitEconomics

Has the Russian economy turned the corner? The latest PMI report suggests that there are signs of stabilization.

Source: @MarkitEconomics

Russian business sentiment remains terrible but at least it is no longer worsening.

Source: MNI

Russian inflation slowed more than forecast as the impact of ruble’s decline fades and domestic demand remains weak. Some analysts are suggesting inflation will pick up again. Perhaps.

We now turn to Western Europe where Iceland’s Prime Minister resigned as a result of the Panama Papers scandal. The documents revealed a major unreported conflict of interest.

Source: Reuters

Iceland krona remains strong in spite of the political turmoil (chart shows the euro declining vs. krona).

Source: barchart

In the UK, RBS points out a surprisingly weak labor productivity. The UK’s productivity underperformance has been the subject of academic research and debates, but clear reasons for this remain elusive.