Trade, China

Imports up, exports down:

China’s December industrial profits fall for 2nd straight month

(Reuters) Profits notched up by China’s industrial firms declined 1.9 percent from a year earlier to 680.8 billion yuan ($100.9 billion) in December. For the full-year of 2018, industrial profits increased 10.3 percent on an annual basis to 6.64 trillion yuan, versus the 11.8 percent gain in the January-November period, the National Bureau of Statistics (NBS) said on its website. Chinese industrial firms’ liabilities rose 5.2 percent from a year earlier to 64.1 trillion yuan by end-2018, compared with a 5.8 percent rise as of end-November.

Slowdown bites China’s auto industry as inventories pile up

(Nikkei) Auto sales including passenger and commercial vehicles fell 2.8% to 28 million units last year as Beijing phased out tax cuts on smaller cars and the Sino-American trade war helped dampen economic growth. Bernstein, which reckons first-time auto insurance give the most accurate view of actual retail sales, expects industry sales to decline 4% this year following what it calculated as a 7.1% contraction in 2018. The industry started 2019 with channel inventory at record high levels, and vehicle prices and margins are likely to remain under pressure amid declining volumes, it added.

Global growth indicators

Agent Orange, AKA Tariff Man, taking down the global economy:

Intel Projects Slower Revenue Growth This Year

(WSJ) Intel Corp. reported a 9% gain in revenue. Customers’ robust appetite for server chips boosted data-center businesses by 45% through the first nine months of 2018, but now those buyers need to digest those purchases, finance chief and interim chief executive Bob Swan said. That slowdown will hit the next two quarters as well, he said. The company now expects total revenue growth of about 1% in the year ahead to $71.5 billion, a much more conservative pace than the nearly 13% growth in 2018. Mr. Swan told analysts Thursday that “our outlook is a little more cautious than it was a few months ago.”

Global shipping rates slump in latest sign of economic slowdown

(Reuters) The Baltic Dry Index, measure of ship transport costs for materials like iron ore and coal, has fallen by 47 percent since mid-2018. The Baltic index has lost a quarter of its value since the start of the year, and dry-bulk is not the only shipping market under pressure. The Harpex Shipping Index, which tracks container rates, has dropped by 30 percent since June 2018. As a measure of the demand for shipping manufactured goods from producers to consumers, container rates are also seen as a leading economic indicator.

Sentiment indicators, Shutdown slowdowns

Euro area business growth close to stalling at 5½ year low in January

(Markit) Flash Eurozone PMI Composite Output Index at 50.7 (51.1 in December). Services PMI Activity Index at 50.8 (51.2 in December). Manufacturing PMI Output Index at 50.4 (51.0 in December). Manufacturing PMI at 50.5 (51.4 in December). The factory sector reported the weakest expansion since the current production upturn began in July 2013, while the service sector expansion was the smallest since August 2013. New orders for goods fell for a fourth successive month, declining at a rate not seen since April 2013, while inflows of new business in the service sector slipped into decline for the first time since July 2013.

Trump adviser warns of zero growth if shutdown lingers this quarter

(The Hill) Kevin Hassett, chairman of the White House Council of Economic Advisers, said Wednesday that the partial government shutdown could wipe out an entire quarter of gross domestic product (GDP) growth if it lasts until the end of March. “It is true that if we get a typically weak first quarter and then have an extended shutdown that we could end up with a number that’s very, very low,” Hassett said. When asked if the U.S. could see no growth at all in the first quarter, Hassett said, “Yes, we could,” if the shutdown lasted until the end of March.

Truckers See Momentum Slowing Heading Into 2019

(WSJ) J.B. Hunt Transport Services on Thursday reported $2.32 billion in revenue for the fourth quarter, a 16% year-over-year increase. An index of U.S. domestic freight volumes slipped 0.8% last month compared with December 2017, the first annual decline in two years, according toCass Information Systems Inc., which processes freight bills. The average price to hire the most common type of big rig dipped to $2.07 per mile, a penny lower than the prior month and 5 cents below the level in December 2017, according to online freight marketplace DAT Solutions LLC.

Existing home sales, Trade, BOJ

Bad:

Highlights

Mortgage rates began to move down in December but it wasn’t soon enough to help the month’s resales. Existing home sales fell a sharper-than-expected 6.4 percent to a 4.990 million annualized rate that is the lowest in more than three years and barely makes Econoday’s consensus range.

Weakness across the board is a fair description of the results with single-family sales down 5.5 percent to a 4.450 million rate and condo sales down 12.9 percent to 540,000. The weakest region in the data is the Midwest at an 11.2 percent decline with the West showing the least weakness at minus 1.9 percent.

For buyers, the bad news includes less selection as supply on the market fell 10.9 percent to 1.550 million units for sales. Relative to sales, supply is at 3.7 months vs 3.9 months in the prior month.

For sellers, the bad news includes a 1.4 percent decline in the median price to $253,600. And relative to sales, prices appear rich as the year-on-year median shows a gain of 2.9 percent vs what is a 10.3 percent decline in year-on-year sales.

Mortgage rates peaked in November and are since down about 40 basis points for 30-year fixed mortgages to roughly 4.75 percent. This move is very likely to help sales in January which will also get a comparison lift from what turned out to be a very weak December. The housing sector may have ended a soft 2018 on a down note but the outlook for 2019 — as long as the labor market stays healthy and rates hold steady — may well be positive.

Global trade collapse in progress:

Japan’s trade falls into red for 1st time in 3 years

(Kyodo) Japan logged a goods trade deficit of 1.20 trillion yen ($11 billion) in 2018. Imports rose 9.7 percent from a year earlier to 82.69 trillion yen, outpacing a 4.1 percent increase in exports to 81.49 trillion yen. Crude oil imports surged 24.5 percent to 8.91 trillion yen last year. By region, Japan ran a deficit of 3.28 trillion yen against China. Against all of Asia, Japan saw a surplus of 5.54 trillion yen. Japan had a surplus of 6.45 trillion yen against the United States. With Europe, Japan logged a deficit of 487.5 billion yen. For December, Japan logged a goods trade deficit of 55.3 billion yen. Exports fell 3.8 percent while imports grew 1.9 percent.

China’s plans to dominate hi-tech sector with ‘Made in China 2025’ plan hit a stumbling block as US trade war takes its toll

(SCMP) Beijing’s push to dominate hi-tech industries in the next decade under the “Made in China 2025” plan has been hit by the US trade war with a number of advanced manufacturing sectors experiencing weakening demand. Production of industrial robots fell by 12.1 per cent in December from a year earlier after a drop of 7.0 per cent in November. Growth in the new-energy car sector slowed to 15.5 per cent in December from 24.6 per cent in November. Production of integrated circuits also fell by 2.1 per cent in December, although an improvement from November’s decline of 7 per cent.

0 rate policy for decades, massive quantitative easing, 10 year rate pegged at 0%- maybe central banks can’t create inflation???

Who would’ve thought… ;)

Budget, Asian airfreight, US profit forecast, Growth index, Capex, Share buybacks

December 2018 CBO Monthly Budget Review: Total Receipts Up by 1% And Spending Up 9% in the First Quarter of Fiscal Year 2019

The federal budget deficit was $317 billion for the first quarter of fiscal year 2019, CBO estimates, $92 billion more than the deficit recorded during the same period last year. Revenues were about the same and outlays were $93 billion (9 percent) higher than during the first quarter of 2018.

Asian airfreight traffic drops for first time in 2.5 years

(Nikkei0 Asia-Pacific carriers carried 2.3% less freight in November than they did a year earlier, according to data collected by the International Air Transport Association. This was the first monthly drop posted since March 2016. Global freight traffic was flat for the month. “Weaker manufacturing conditions for exporters and shorter supplier delivery times particularly in China impacted the demand,” the Transport Association said. In October, freight traffic had risen 2.1%. The Association of Asia-Pacific Airlines, which separately tracks data for 36 regional airlines, reported 0.1% growth in regional freight traffic for November.

Prospect of U.S. profit drop rises for investors

(Reuters) For 2019, analysts now see profits growing by 6.8 percent, down sharply from an Oct. 1 estimate of 10.2 percent earnings growth. The last profits recession occurred from July 2015 through June of 2016. S&P 500 tech earnings are expected to decline year-over-year for the first three quarters of 2019, based on Refinitiv’s data, and deliver growth of just 2.6 percent this year, the lowest of any sector. Since 1968, as far back as Refinitiv’s data goes, the S&P 500 has had 10 earnings recessions. Seven of the 10 profit recessions since 1968 have coincided with a formal economic recession.

Not particularly reliable but another data point:


And this:

Remember, these buybacks per se act as a ‘reverse split’ does to increase nominal share prices for the benefit of management compensation that’s tied to nominal share price. A ‘scam’ when not specifically disclosed to shareholders?

U.S. buyback market support may wane in 2019

(Reuters) Through the first three quarters of the year companies bought $583.4 billion of their own stock according to S&P Dow Jones Indices data. $295 billion of foreign profits were repatriated in the first quarter of 2018. In the third quarter that was down to about $93 billion. About $190 billion of repatriated funds were used on buybacks in the first three quarters of 2018, JPMorgan says. S&P 500 companies bought roughly $4.5 trillion worth of their own shares, equal to about a third of the benchmark’s $15 trillion gain in value over that time, according to Wells Fargo.

Employment, Euro pmi, Chile retail sales, Goldman index. Leveraged loans, Bank credit


Agent Orange, the self proclaimed tariff man, taking the EU:


US decelerating:


I would have expected Chile to be affected most by global warming…


It’s becoming more clear to me that lending shifted from banks to other investment entities via the leveraged loan process, and the growth in that credit channel is what supported GDP growth as other channels faded. Most recently, however, leveraged loan growth has faded, and the weakening economic indicators tell me this time there hasn’t been any other forms of credit expansion stepping up:

Profits, Bank lending, Factory activity, Mtg apps, Auto sales

Corporate Profit Crunch Looms as Stocks Slide

(WSJ) In December, analysts cut their earnings forecasts for 2019 on more than half the companies in the S&P 500, according to FactSet, the first time that had happened in two years. They expect earnings for S&P 500 companies to grow 7.8% in 2019, down from their forecast of 10.1% at the end of September, according to FactSet. That is a big climb down from the estimated 22% earnings growth rate in 2018. The last earnings recession took place in 2015 and 2016. The effect was mild, with the S&P 500 falling just 14% from peak to trough, before recovering alongside earnings to end 2016 up 9.5%.

Great Retreat from Global Bank Lending Continues

(WSJ) The total amount of cross-border bank debt has dropped from a peak of $35.453 trillion in the first quarter of 2008 to $29.456 trillion in the second quarter of this year, a fall of nearly 17%. The 10-year period of decline and stagnation is unprecedented in the records of the Bank for International Settlements. German, Dutch and Austrian banks have reduced their foreign loan books by more than half since the first quarter of 2008, while Belgian banks have cut their international exposures by more than 80%. Across Asia, banks have increased their cross-border lending, with Japanese institutions leading the way.

Dallas Fed survey, California home sales, Tariff exemptions

Not good:

California Home Sales Slowest For An October In Seven Years

(Econintersect) California home sales fell year over year for the third consecutive month, hitting a seven-year low for an October, as affordability constraints and a more cautious stance by many would-be buyers continued to weigh on the market.

Interesting. Wonder if Agent Orange knows about this?

US grants nearly 1,000 exemptions from China tariffs

(Nikkei) The Trump administration has granted nearly 1,000 exemptions to tariffs on Chinese goods. The U.S. has imposed additional duties three times on $250 billion worth of Chinese goods as sanctions for alleged intellectual property theft. The USTR has received exclusion requests for items that meet certain conditions. The exceptions, made public on Saturday, apply to select products among $34 billion worth of Chinese industrial machinery and electronics parts that have faced extra tariffs of 25% since July. The USTR will continue to gradually announce the results of completed screenings.

Pending home sales, Richmond Fed, Holiday retail sales

Bad:

Highlights

Existing home sales have been leveling but the signal from pending home sales points to a new downturn. The pending home sales index for November fell 0.7 percent to 101.4 which is under Econoday’s consensus range and compared to expectations for a 1.5 percent gain. Year-on-year this index is down 7.7 percent vs a 7.0 percent decline in final sales of existing homes.

Pending sales in November posted low single-digit contraction in both the South and Midwest to offset low single-digit gains in Northeast and West. Pending sales take one to two months to close with today’s report offering advance indications for final resales in December and January.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 0.7 percent to 101.4 in November, down from 102.1 in October. However, year-over-year contract signings dropped 7.7 percent, making this the eleventh straight month of annual decreases.

Read more at https://www.calculatedriskblog.com/#hHG97tpYkWwFYF4R.99

More surveys fading fast:

Highlights

Manufacturing activity in the Fifth District contracted in December, with the Richmond Fed Manufacturing Index declining sharply by 22 points to minus 8, a negative surprise to analysts whose consensus forecasts called for an unchanged reading. The decline was driven by a 37-point drop in shipments to minus 25, the lowest reading since April 2009, and a decline of 26 points to minus 9 in the volume of new orders. Respondents also reported a sharp 30-point deterioration in local business conditions to minus 25, the lowest reading on record for the survey.

Also falling into contraction was the backlog of orders, which was down 33 points to minus 18, and capacity utilization, down 25 points to minus 16. Vendor lead times remained in expansion territory but also declined sharply by 21 points to 14.

Bucking the downtrend and shoring up the overall index were increases in inventories, with finished goods up 11 points to 13 and raw materials up 10 points to 15. Employment also provided support after weakness in the prior month, with the number of employees up 3 points to 14.

Other employment data was weaker, however, with wages down 3 points to 31, available skills down 2 points to 28 and the average workweek down 8 points to 3.

On the inflation front, prices paid rose at a 4.36 percent annualized rate, slightly less than in November but still outpacing prices received, which rose at a moderate 2.26 percent rate. Expectation over the next 6 months were for a narrowing of the gap between prices paid and prices paid rate, with prices paid slowing to a 2.90 percent annualized rate and prices received remaining about unchanged at a 2.31 percent growth rate.

First two headlines on CBNC seem a bit contradictory?