Category Archives: China

Trade, China

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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.

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Existing home sales, Trade, BOJ

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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… ;)

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

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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.

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Dallas Fed survey, California home sales, Tariff exemptions

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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.

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US factory growth, China car sales, Euro Area, Germany, Fisher comment, State revenues, Las Vegas housing

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The tariff thing keeps taking its toll:

China Nov car sales fall 14%, biggest drop since 2012

(Reuters) China’s automobile sales fell 13.9 percent in November from a year earlier. The drop in sales to 2.55 million vehicles, a fifth straight decline in monthly numbers. The last time sales fell by more than this was in January 2012, when business was hurt by the timing of the Lunar New Year holiday. The November drop comes on the heels of almost 12 percent declines in each of the past two months, putting China on track for an annual sales contraction not seen since at least 1990. Sales in the country totalled 25.4 million vehicles in the first eleven months of the year, down 1.7 percent from the same period a year earlier.

Euro Area Private Sector Activity at 49-Month Low: Markit

The IHS Markit Eurozone Composite fell to 51.3 from 52.7 in the previous month and below market expectations of 52.8, a preliminary estimate showed. The reading pointed to the weakest expansion in the private sector activity since November 2014, as both manufacturing (51.4 from 51.8) and services (51.4 from 53.4) slowed. The job creation rate dropped to a two-year low; new export orders fell for the third straight month, recording the steepest decrease since series began while new business almost stalled. The slowdown was centered in France, as disruptions to business and travel were registered from the ‘gilets jaunes’ protest. On the price front, input price inflation eased to an eight month low due to lower oil and other commodity prices and fewer supply constraints regarding demand in the region. Finally, optimism deteriorated drivn by growing concerns over global trade and economic growth, rising political uncertainty, Brexit and tighter financial conditions.

German Private Sector Growth at 4-Year Low

The IHS Markit Germany Composite PMI declined to 52.2 in December 2018 from 52.3 in the previous month and below market forecasts of 52.5. The latest reading pointed to the weakest pace of expansion in the private sector since December 2014 as service sector expansion was the second-weakest seen in over two years (PMI at 52.5 vs 53.3 in November) and manufacturing growth slowed to a near three-year low (PMI at 51.5 vs 51.8 in November). Inflows of new orders edged closer to stagnation as new export business fell for the fourth month running, with a number of manufacturers highlighting a drop in sales to China. Meanwhile, employment growth picked up from November’s six-month low and remained solid overall while backlogs of work decreased for a second straight month. On the price front, input price inflation was the lowest since September 2017. Looking ahead, business confidence regarding the year-ahead outlook for activity dropped to a four-year low.

Seems a particularly silly statement, but not uncommon:

Ex-Fed’s Richard Fisher: Rates need to go higher to create enough room to cut should the economy tank

State and local tax receipts now growing faster than expenditures is a source of drag on the economy:

Many States See Strong Revenue

(WSJ) With most states nearing the midpoint of their fiscal years, which end June 30, at least 19 of them are seeing higher-than-expected general-fund revenue, according to a report from the National Association of State Budget Officers. “Clearly, from what I’ve observed, a continued, much-improved personal-income tax situation” is feeding the states’ revenues, said John Hicks, Nasbo’s executive director. “But also, we’re seeing an improved sales tax.” The states’ personal income-tax collections grew by a median 7.9% in fiscal 2018, Mr. Hicks noted. And general-fund collections from personal-income taxes outperformed forecasts by 3.6%.

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China, Corporate debt and profits, Bank credit, Japan, Leveraged loans

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China exports falling with tariffs:

China’s November export, import growth shrinks, showing weak demand

US exports turning south as well?

The deceleration that started with the collapse of oil capex in Dec 2014 took a brief zig up late in 2017, and subsequently continued lower:


Likewise the ability to generate gross profits has been fading:


After tax and depreciation it’s not a whole lot different, with a one time leg up for the 2018 corporate tax cut that just brought it back to the prior highs, not adjusted for inflation:


And real hourly compensation flattened out around the same time:


This series decelerated with the collapse of oil capex at the end of 2014 and has remained at historically low levels:

Japan GDP Growth Rate

The Japanese economy shrank 0.6% on quarter in Q3, faster than a preliminary estimate of a 0.3% drop and market expectations of a 0.5% decline. It is the steepest contraction since Q2 2014 as natural disasters like flood and earthquake weighed more on personal consumption and capital investment than initially estimated.

Leveraged loans are now funded by non banks as well as banks, and some of the non banks are funded by banks, so banks are still funding some portion of leveraged loan funding.

However, this credit expansion- including what does not show up as bank lending- does support GDP growth, and a slowdown removes that support for the economy:

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Trade, Factory orders, Vehicle sales, UK service sector, German PMI

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Deficit growing despite tariffs. Could be J curve effect:

Highlights

A slight 0.1 percent decline in exports and a slight 0.2 percent gain in imports made for a sizable 1.7 percent deepening in the nation’s trade deficit in October to $55.5 billion which is just outside Econoday’s consensus range.

The deficit with China was very deep, at $43.1 billion in October vs $40.2 billion in September for a year-to-date deficit of $420.8 billion that is 23 percent deeper than this time last year. This is important data for ongoing trade talks between the U.S. and China.

October’s deficit with the EU, at $17 billion, also deepened as did the deficit with Japan at $6.2 billion. The deficit with Mexico, at $7.2 billion, eased slightly while the deficit with Canada, at $1.9 billion, widened slightly. Note that country balances, unlike other data in this report, are not adjusted for calendar or seasonal effects.

Exports, in possible tariff effects, show another sizable drop in foods, feeds & beverages, to $10.3 billion vs September’s $11.0 billion. Exports of civilian aircraft were also weak, at $4.9 billion vs September’s $5.2 billion. Services exports, an area of strength for the U.S., edged higher in the month to $69.6 billion.

Foods, feeds & beverages on the import side rose slightly to $12.3 billion with imports of consumer goods, which are a special sore spot in the U.S. trade picture, rising $2.0 billion to $57.4 billion. Imports of services rose modestly to $47.0 billion.

October’s $55.5 billion headline deficit compares with a monthly average in the third-quarter of $52.8 billion and unfortunately marks a very weak opening for fourth-quarter net exports.

Tariffs taking their toll:

Highlights

Held down by downturns in the defense goods and also civilian aircraft, factory orders sank 2.1 percent in October. The split between the report’s two main components shows a modest 0.3 percent increase for nondurable goods — the new data in today’s report where the gain is tied to printing and petroleum — and a 4.3 percent drop for durable orders vs 4.4 percent in last week’s advance report for this component.

Orders for defense goods have fallen 16.4 and 16.2 percent the last two reports but follow a giant 48.8 percent surge in August that was tied to aircraft. Orders for civilian aircraft in October and September have fallen 22.2 and 19.1 percent but here too follows an outsized gain in August, of 63.7 percent.

Core capital goods (nondefense ex-aircraft) are mostly weak in today’s report, with orders unchanged following declines of 0.6 and 0.2 percent in the prior two months. But core shipments, which are direct inputs into fourth-quarter GDP, did rise 0.3 percent for a respectable opening to fourth-quarter business investment.

Areas of strength in October include sharp order gains for fabrications, computers & electronics, and also electrical equipment. Other readings include a marginal 0.1 percent rise in factory inventories which will offset very strong October builds for retailers and wholesalers and will limit October’s contribution to GDP inventory. Both total shipments and also total unfilled orders posted soft 0.1 percent declines.

Monthly swings in aircraft can badly cloud results this report which focuses attention on the smoother reading of year-on-year change. This remains solidly positive at a 6.9 percent gain for total orders which, however, is down from 7.5 percent in September and a 4-year high of 10.3 percent in August. But a little slowing at year-end won’t dim manufacturing’s central contribution to the strength of the 2018 economy.


Still flat to down, much like housing:

Highlights

Unit vehicle sales in November came in on the high end of expectations but, at a 17.4 million annualized rate, still fell just short of October’s 17.5 million rate. The results do not point to a back-to-back monthly gain for motor vehicles which make up about 1/5 of total retail sales and which in October ended two months of declines. Yet November did come in at a very healthy rate with strength concentrated in light trucks which typically have high sticker prices and which help dollar totals of the retail sales report.

The IHS Markit Germany Composite PMI stood at 52.3 in November 2018, compared to a preliminary reading of 52.2 and October’s final 53.4. The latest reading pointed to the weakest pace of expansion in the private sector in nearly four years amid slower growth in service sector and a slight rise in manufacturing output that was the weakest for over five-and-a-half years. New orders rose the least since the start of 2015, with export orders falling for the third straight month, and job creation slowed. On the price front, output charge inflation eased to an 11-month low. Looking ahead, business confidence towards the outlook remained close to the lowest in almost four years. Composite Pmi in Germany is reported by Markit Economics.

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Mtg apps, China exports, Oil

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Continuing to be negative year over year:

Highlights

Rising interest rates continue to dampen mortgage activity, with purchase applications for home mortgages falling a seasonally adjusted 2.3 percent in the November 9 week to the lowest level since February 2017 while refinancing applications decreased by 4.3 percent to the lowest level since December 2000. Unadjusted, purchase applications fell further into negative year-on-year territory and were 3 percent below their level in the same week last year. The refinance share of mortgage activity rose 0.3 percentage points from the prior week to 39.4 percent. Climbing to the highest level since 2010, the average interest rate on 30-year fixed rate conforming mortgages ($453,100 or less) was up 2 basis points from the prior week to 5.17 percent.

Trade issues taking their toll and bringing down the entire global economy:

Sometimes the headlines make no sense to me vs the data…

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Employment, Bank loans, Output gap chart, Foreign $ bonds

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Looks like it’s turned up a bit with the tax cuts?


Looks like this source of private sector deficit spending has gone flat again:


Looks to me a lot more like a deficiency of demand than a demographic shift:

This is a source of $US deficit spending that ‘offsets’ unspent incomes:

China to raise billions in rare US debt deal as trade tensions persist

(Nikkei) China is planning to sell $3 billion in U.S. dollar bonds this month. China is planning to sell bonds that mature in five, 10 and 30 years, and become a regular issuer of sovereign debt. In October 2017, China issued $2 billion in five- and 10-year bonds at slightly higher interest rates than what the U.S. Treasury was paying to borrow at the time. Asian companies outside of Japan have sold $185 billion in U.S. dollar bonds so far in 2018, of which roughly half has come from Chinese firms, according to ANZ Research. Overall Asia ex-Japan corporate debt issuance is down 17% from a year ago.

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Lots of evidence of slowing;

Highlights

A marginal headline gain of 0.1 percent in construction spending masks significant declines in residential spending during August. Residential spending fell 0.7 percent in the month to more than offset a 0.2 percent rise in July. Looking at sub-components, single-family spending was also down 0.7 percent in August with multi-unit spending down 1.7 percent. Home improvement spending fell 0.6 percent.

Strength in the report is in highways & streets, up 1.7 percent in the month. Educational spending was also strong with a 1.0 percent gain. Government spending was very active in August, up 5.9 percent at the Federal level and up 1.7 percent for state & local.

Private nonresidential spending was flat, down 0.2 percent overall with commercial, power and manufacturing subcomponents all showing declines to offset gains for transportation and offices.

This report is not pointing to acceleration in business investment and is consistent with another weak quarter for residential investment which remains the economy’s weak spot for 2018.

Investing in the Soaring Popularity of Gaming

(Reuters) Global mergers and acquisitions dropped to $783 billion in the third quarter, down 35 percent from the prior quarter. The first nine months of 2018 saw global M&A reach a new record of $3.2 trillion. M&A activity in Europe has been particularly strong, with deals worth $962.5 billion so far this year, a 72 percent increase compared with a year ago. U.S. M&A, which rose 14 percent year-over-year to $368.1 billion in the quarter. Announced deals in Europe fell 14 percent to $151.4 billion, while M&A in Asia-Pacific was down 38 percent to $185.1 billion, the Thomson Reuters data showed.

Japanese business sentiment logs longest fall since 2009

(Nikkei) The closely watched index of large manufacturer sentiment came to plus 19 for the July-September period, down from 21 in the previous survey in June. The survey showed that big manufacturers expect profits to fall 4.6% for the year ending March 2019, on an assumption that the yen will average 107.40 to the dollar this business year. In the previous survey, the rate was seen at 107.26 yen per dollar. The survey showed that large companies plan to increase their capital investment in the current fiscal year by 13.4%, only a tick lower than the 13.6% increase predicted in the previous June survey.

China’s Economy Losing Steam as Trade Conflict With U.S. Intensifies

(WSJ) An intensifying trade brawl with the U.S. is starting to take a heavier toll on China’s economy, as weakening foreign demand and sluggish domestic consumption cause Chinese manufacturers to significantly scale back production. The new data released Sunday showed that privately owned makers of cars, machinery and other products stopped expanding in September, as export orders dropped the most in more than two years. At the same time, output by large, state-owned manufacturers continued to weaken.

Euro area manufacturing purchasing managers index

This reduces aggregate demand:

The savings bill the House passed Thursday would make it easier for small businesses to offer retirement plans to their employees, create universal savings accounts and allow 529 education savings plans to be used for more purposes.

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