BEIJING (Reuters) - China's manufacturing activity in July shrank for a third month, an official factory survey showed on Wednesday, bolstering expectations Beijing will need to launch more stimulus as a protracted property crisis and job insecurity drag on growth.

The official purchasing managers' index (PMI) fell to 49.4 in July from 49.5 in June, below the 50-mark separating growth from contraction but beating a median forecast of 49.3 in a Reuters poll.

PHILADELPHIA (Reuters) - Vice President Kamala Harris would adhere to President Joe Biden's vow not to raise taxes on middle-income taxpayers and has helped to determine the Biden-Harris' administration's approach to tax fairness, including higher taxes on the wealthy and corporations, U.S. Treasury Secretary Janet Yellen said on Tuesday.

"Vice President Harris has indicated her support for avoiding tax increases for middle-income families. So I believe that's a principle that she would adhere to," Yellen told an Internal Revenue Service event in Philadelphia with Pennsylvania Governor Josh Shapiro, a contender to be Harris' vice-presidential pick.

By Joey Roulette

WASHINGTON (Reuters) - SpaceX is in talks with U.S. and Australian officials to land and recover one of its Starship rockets off Australia's coast, a possible first step toward a bigger presence for Elon Musk's company in the region as the two countries bolster security ties, according to three people familiar with the plans.

Since a Starship rocket made a controlled splashdown for the first time in June in the Indian Ocean, SpaceX has been eager to expand its testing campaign. Successful landings and recovery of the boosters afterward are important elements of the speedy development of the giant and reusable rocket designed to launch satellites to orbit and land astronauts on the moon.

The plan would be to launch Starship from a SpaceX facility in Texas, land it in the sea off Australia's coast and recover it on Australian territory. Getting permission to do so would require loosening U.S. export controls on sophisticated space technologies bound for Australia, according to the sources, who spoke on condition of anonymity.

President Joe Biden's administration already has sought to ease similar restrictions within the AUKUS security alliance, a grouping of the United States, Australia and Britain aimed at countering China.

SpaceX, the U.S. Space Force and the Australian Space Agency did not immediately reply to requests for comment.

Towing Starship, after it has landed in the ocean or on a barge, to a nearby port on Australia's western or northern coasts would be ideal, though more specific plans and locations are still being discussed, the sources said.

The conversations underscore the U.S. determination to help Australia build up its military as a deterrent to an increasingly assertive China in the region.

The proposed SpaceX arrangement would put more trust in a close American ally that for years has sought to expand its space defense program, strengthen civil and military space ties with the United States and stimulate its own space industrial base.

Discussions in recent weeks between SpaceX executives and U.S. and Australian officials have focused on regulatory hurdles in bringing a recovered Starship booster ashore in a foreign country, the sources said. Because the talks are ongoing, the timing of any Starship landing off Australia remained unclear.

The sources said the proposed test-landings likely would be the first phase of a larger future Australian presence for SpaceX that could include launching from a facility on the continent or landing a Starship booster on the ground instead of the ocean, though discussions on those possibilities are in the early stages.

In developing its partially reusable Falcon 9 about a decade ago, SpaceX also made ocean-based test landings before attempting touchdowns on land and atop barges at sea. Falcon 9 is now SpaceX's workhorse rocket, and its first-stage booster has made hundreds of routine landings from space.

A TOWERING ROCKET

Starship is a 400-foot (120-meter) tall two-stage rocket designed to be fully reusable. It represents SpaceX's next-generation rocket system, meant to loft large batches of satellites into space, land NASA astronauts on the lunar surface and potentially ferry military cargo around the world in roughly 90 minutes.

Starship's June test flight was its most successful to date. Starship was launched from Texas toward space on a suborbital trajectory that sent it freefalling at hypersonic speeds back through Earth's atmosphere before reigniting its engines for a soft splashdown in the Indian Ocean, about 90 minutes after launch. Its SuperHeavy booster landed in the Gulf of Mexico.

Previous test flights had ended with Starship disintegrating before a safe landing could be achieved. The June flight has led SpaceX to pursue a new phase of more complicated landing tests, according to multiple people familiar with the campaign.

The U.S. Air Force Research Laboratory's conceptual "Rocket Cargo" program envisions using suborbital rockets to swiftly deliver military cargo around the world in 90 minutes, called point-to-point delivery. Some at the Pentagon viewed the June Starship test launch as a crucial demonstration of this program, according to U.S. defense officials.

A Starship launch from Texas and landing off Australia could further demonstrate point-to-point delivery.

While still in an early phase, the delivery time for rocket-based cargo around the planet - taking advantage of orbital velocity of 17,000 miles per hour (27,350 kph) and a hypersonic reentry through Earth's atmosphere - would be a fraction of the roughly 12 to 24 hours typically needed for traditional aircraft.

SpaceX since 2021 has been studying how to use to Starship for those deliveries under a $102 million Pentagon contract. The program will graduate to a more serious prototype effort with the U.S. Space Force next year, according to 2025 budget documents.

By Medha Singh

(Reuters) - Companies worldwide are lowering full-year sales and profit guidance as higher interest rates and weakness in China's economy hurt global consumer sentiment, taking the shine off earnings growth in the latest quarter.

A number of high-profile companies have underwhelmed investors, including McDonald's (NYSE:MCD), automakers Nissan (OTC:NSANY) and Tesla (NASDAQ:TSLA), and consumer giants Nestle and Unilever (LON:ULVR). With roughly 40% of U.S. and European companies reporting results, earnings have come in about as expected - but after the strong run by world equity markets, 'about as expected' seems like a disappointment.

    "A very mixed season so far in terms of results," said Brian Mulberry, client portfolio manager at Zacks Investment Management. "We're starting to see the pressure that the higher-for-longer interest rate environment is putting on companies and their ability to continue to drive earnings and revenue growth."

The earnings season will get a jolt this week from the globe's tech giants, including Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Samsung Electronics (KS:005930), Japan's Toyota Motor (NYSE:TM), oil titans Exxon Mobil (NYSE:XOM) and Shell (LON:SHEL) and European retailers L'Oreal and Adidas (OTC:ADDYY).

Global companies have zeroed in on two issues hitting their bottom lines: higher interest rates that are pinching consumer spending, and underperformance in China's economy, the second-largest in the world.

McDonald's reported its first drop in sales worldwide in 13 quarters, citing weakness in China's economy. Companies including Unilever, Visa (NYSE:V) and Aston Martin also noted weakness in China, and analysts have warned that demand in the Asian giant is unlikely to reverse while a protracted property downturn and job insecurity weigh on consumers.

 "The Chinese... are not willing to spend because they are afraid about the future," said Stefan-Guenter Bauknecht, portfolio manager at DWS. Until growth improves in China, the country will be "the weakest of the big regions, or at least the most far behind expectation," he said.

Earnings per share have so far risen by nearly 12% in the United States from a year ago, the strongest quarter out of the last 10, according to LSEG data. Earnings are up 4% in Europe, according to Bank of America Securities, slightly ahead of market expectations and for Europe the first positive growth rate since 2022.

Consumer weakness is being flagged across industry sectors and guidance cuts have picked up, the brokerage said. U.S. companies have reduced third-quarter forecasts to 7.3% year-over-year growth as of Friday from 8.6% at the beginning of July, according to LSEG data.

"While Q2 results overall have been decent, the season has nonetheless spooked the market on signs of consumer stress," Bank of America analysts said in an research note.

Nestle and Unilever both reported first-half sales growth below expectations. Companies in the euro zone's two largest economies are growing more pessimistic, raising concerns over the bloc's sluggish recovery.

"There is value-seeking behavior among consumers. There is pressure, especially at the low-income range," Nestle CEO Mark Schneider said on a call with journalists.

Auto companies are facing difficulties in the United States, where high inventories and logistical issues hurt profits of Ford Motor (NYSE:F), Stellantis (NYSE:STLA) and Nissan. EV leader Tesla disappointed investors with its results, and many still see the company as far overvalued with EV sales slowing.

EV battery firm LG Energy Solution, which supplies Tesla and Hyundai Motor (OTC:HYMTF), forecast revenue would fall more than 20% this year due to a sharper-than-expected slowdown in global EV demand. Its bigger rival, China's CATL, reported a 13% drop in second-quarter revenue.

CASHING IN CHIPS

The earnings news has hardly been all bad. Google parent Alphabet (NASDAQ:GOOGL)'s growth in cloud computing revenue augurs well for other tech bellwethers later this week. Industrial conglomerate 3M's results sent its shares to near a two-year high, while automaker General Motors (NYSE:GM) and pharmaceutical giant Johnson & Johnson (NYSE:JNJ) posted strong earnings, and banking giant JP Morgan said its profit hit a record.

Asian chipmakers have turned more bullish about demand outlook as they benefit from the global AI boom that has helped it weather the tapering off of pandemic-led electronics demand.

“AI is so hot; right now everybody, all my customers, want to put AI functionality into their devices,” TSMC Chairman and CEO C.C. Wei said at an earnings conference, adding AI demand now is more real than two or three years ago. Shares of TSMC have gained 56% so far in 2024.

Despite upbeat forecasts, shares of major Asian chipmakers are under pressure to keep up with rising expectations. That's evident as well in the performance of AI leader Nvidia (NASDAQ:NVDA), whose value surged past $3 trillion earlier this year before pulling back in the summer.

“Investor expectations are so high they may be hard to meet, and in the short term, the stock price may not rise as much," said analyst Lee Min-hee at BNK Investment & Securities.

The broad-market MSCI International index has gained 11% so far this year, peaking earlier this month before selling off, in part due to hopes that the U.S. Federal Reserve will begin cutting interest rates after similar moves from other central banks.

    "To the extent that lower rates ahead remains the popular view, analysts are unlikely to be lowering overall earnings projections for next year," Rick Meckler, partner at Cherry Lane Investments.

(Reuters) -U.S. home insurers suffered their worst underwriting loss this century in 2023, as a toxic mix of natural disasters, inflation and population growth in at-risk areas put a vital financial market under acute pressure, according to rating agency AM Best.

Insurers providing policies to homeowners were hit with a $15.2 billion net underwriting loss last year, according to figures from rating agency AM Best, saying that the figure was the worst since at least 2000 and more than double the losses since the previous year.

The report identified increasing population in the areas most vulnerable to natural disasters as a key factor — citing census figures showing that six states prone to severe weather, including California, Texas and Washington, accounted for half of the country's population growth in the 2010s.

"A growing population means an even larger rise in real property development and thus in insured values," said Christopher Graham, senior industry analyst at AM Best.

"Construction in catastrophe-prone areas adds to flood risk. It also increases the risk of wildfires in areas prone to them due to human activity, as well as utility companies, he added."

AM Best said it believes that a return to underwriting profitability for the segment over the near term is unlikely.

The Financial Times first reported on Sunday the details of the AM Best report.

By Alun John, Harry Robertson, Tom Westbrook

LONDON/SINGAPORE (Reuters) -A perfect storm of political, policy and technical risks has upended one of the year's most popular currency trades, sending the Japanese yen soaring from 38-year lows with ripples spreading as far as Switzerland, Australia and Mexico. 

Nearly $40 billion in suspected intervention by Japanese authorities ignited the yen's rally but the move has taken on a life of its own, upending the carry trades which exploit differences in interest rates and often utilise the currency. 

The yen has surged from around 162 per dollar in mid July to roughly 153 per dollar, its biggest two week gain of the year, even if it remains this 2024's worst performing G10 currency.

"The yen is a classic example of where positioning and top-down factors are aligning," said Hugh Gimber, global market strategist at JPMorgan Asset Management. 

Analysts point to expectations that the yawning gap between U.S. and Japanese interest rates could soon narrow, as well as concerns that a Donald Trump victory in November's U.S. presidential election could unleash new currency wars.

Speculators have cut their bearish bets against the yen by the most in a month since March 2020. At $8.61 billion, the net short position is 40% below April's near-seven year high, according to data from the U.S. markets regulator.

"Because this unwinding of short yen positioning is correlated with the so-called carry trade it can affect other carry positions as well," said Athanasios Vamvakidis, global head of G10 FX strategy at Bank of America.

STEAMROLLER

Carry trades have proved hugely popular this year and last, fuelled by a combination of low volatility and big differences between central bank interest rates.

Traders borrowed in yen or Swiss francs at rock-bottom rates and invested in assets with higher returns such as Mexican government bonds or even U.S. tech stocks, with analysts saying last week's equity-market rout may have got an extra kick from some carry trades unwinding. 

Benchmark 10-year borrowing costs are around 1% in Japan and 0.5% in Switzerland versus more than 4% in Australia - popular with developed-market carry traders - or near 10% in Mexico. 

The recent pick up in volatility has added pressure to carry trades that did well in the more benign markets of the first half of 2024, said Nathan Swami, head of currency trading at Citi in Singapore

"Carry trades involving funding in yen appear to be increasingly vulnerable to VaR shocks, similar to what we saw last week," he said. 

A VaR shock is essentially a jump in the maximum loss an investment can sustain over a period of time.

The resulting shifts are felt far and wide.

The Swiss franc and China's offshore yuan, other popular carry trade funding currencies, also appreciated last week, with the yuan seeing its biggest weekly gain against the dollar since April, and the franc hitting its strongest since March..

"It's all about carry trades. You can see from the daily moves in say the Swiss franc, when the news isn't to do with the franc but the yen," said Jamie Niven, senior fixed income portfolio manager at Candriam. 

Niven said he began reducing a short position in China's yuan last week, as its sudden appreciation made him wary of carry-trade currencies. 

Meanwhile, the Australian dollar has fallen 3.6% against the U.S. dollar in two weeks, and nearly 6% on the yen, its most in a fortnight since the pandemic volatility of March 2020. 

Latin American currencies like the Mexican peso are also softer.

"It's not a pure carry environment for the moment," said Andreas Koenig, head of global FX at Amundi, Europe's largest asset manager, noting that the recent daily moves in currencies like the peso can easily wipe out any gains from carry.    

The surprise outcome of the Mexican election in June also jolted carry trades, while the U.S. vote and uncertainty about the trajectory of central bank policy are likely to drive further currency volatility, deterring investors from carry trades for now.

"When uncertainty goes up and we're coming closer to big events, like U.S. elections, I would say I would wait until these are out," said Koenig. 

"Afterwards," Koenig added, "I'm pretty sure a lot of opportunities can open up, especially let's say on the Mexican side."

WASHINGTON (Reuters) - Ethiopia has secured an agreement with the International Monetary Fund for a new financing program worth $3.4 billion, the IMF said on Monday.

Ethiopia's central bank floated the country's birr currency on Monday, a key step to secure IMF support, and to make progress on a long-delayed debt restructuring.

The Horn-of-Africa nation, which is struggling with high inflation and chronic foreign currency shortages, became the third economy on the continent in as many years to default on its debt at the end of last year.

It has been in talks with the IMF since last year to establish a new lending program, after the last fund-supported program agreed in 2019 was abandoned due to conflict in the northern region of Tigray that ended with a November 2022 peace deal.

Reuters previously reported Ethiopia was seeking to secure about $3.5 billion in a deal with the IMF.

The IMF said the agreement will enable an immediate disbursement of about $1 billion.

Africa's second-most populous country requested a debt restructuring under the Group of 20's Common Framework process in early 2021, but progress was slowed by the civil war in Tigray that lasted two years.

The government in Addis Ababa has unveiled some economic reforms, which analysts say are linked to the negotiations for a new IMF program, including the adoption of an interest rate-based monetary policy earlier this month.

By Leika Kihara

TOKYO (Reuters) - Japan's government and central bank must guide policy by taking into careful consideration recent yen weakness that is hurting consumption, the government's top economic council said on Monday.

Achieving a recovery in consumption, which shrank for four straight quarters, is key to the government's near-term economic policy, the council said in a statement that laid out guidelines for crafting next year's state budget.

"We cannot overlook the impact a weak yen and rising prices are having on households' purchasing power," the council said.

"It's important for the government and Bank of Japan to guide policy with a close eye on recent yen declines," the council said in the statement presented at its meeting on Monday.

The statement underscores concerns policymakers share on the economic fallout from the weak yen, which has hit consumption by pushing up the cost of fuel and food imports.

The weak yen is also likely to be a key topic of debate at the Bank of Japan's two-day policy meeting ending on Wednesday, when its board will lay out a detailed plan to taper its huge bond buying and debate whether to raise interest rates.

The yen briefly hit a 38-year low of 161.96 to the dollar earlier in July, down 14% from the start of this year, triggering yen-buying intervention by Japanese authorities. It has recouped some of the losses to hover at 154.09 on Monday.

The government, for its part, will seek to raise the minimum wage and take steps to cushion the blow from rising prices, such as payouts to low-income households and temporary subsidies to curb utility bills, the council said.

Consumption has been a soft spot in Japan's fragile recovery with its weakness blamed for the economy's contraction in the first quarter.

In its monthly economic report for July, the government described a pick-up in consumption as stalling. The assessment is bleaker than that of the BOJ, which has described consumption as "resilient."

By Leika Kihara

TOKYO (Reuters) - Japan's government and central bank must guide policy by taking into careful consideration recent yen weakness that is hurting consumption, the government's top economic council said on Monday.

Achieving a recovery in consumption, which shrank for four straight quarters, is key to the government's near-term economic policy, the council said in a statement that laid out guidelines for crafting next year's state budget.

"We cannot overlook the impact a weak yen and rising prices are having on households' purchasing power," the council said.

"It's important for the government and Bank of Japan to guide policy with a close eye on recent yen declines," the council said in the statement presented at its meeting on Monday.

The statement underscores concerns policymakers share on the economic fallout from the weak yen, which has hit consumption by pushing up the cost of fuel and food imports.

The weak yen is also likely to be a key topic of debate at the Bank of Japan's two-day policy meeting ending on Wednesday, when its board will lay out a detailed plan to taper its huge bond buying and debate whether to raise interest rates.

The yen briefly hit a 38-year low of 161.96 to the dollar earlier in July, down 14% from the start of this year, triggering yen-buying intervention by Japanese authorities. It has recouped some of the losses to hover at 154.09 on Monday.

The government, for its part, will seek to raise the minimum wage and take steps to cushion the blow from rising prices, such as payouts to low-income households and temporary subsidies to curb utility bills, the council said.

Consumption has been a soft spot in Japan's fragile recovery with its weakness blamed for the economy's contraction in the first quarter.

In its monthly economic report for July, the government described a pick-up in consumption as stalling. The assessment is bleaker than that of the BOJ, which has described consumption as "resilient."