Japan exports hit by biggest fall in 2 years on weak China demand

(Reuters) Japan’s exports fell 8.4 percent in the year to January. It was the sharpest annual decline since October 2016, and followed a revised 3.9 percent year-on-year drop last December. Japanese exports to China, Japan’s biggest trading partner, fell 17.4 percent in the year to January. Slowing shipments ahead of Chinese New Year holidays likely helped slow China-bound exports, finance ministry officials said. Japan’s shipments to Asia, which account for more than half of overall exports, fell 13.1 percent in January. U.S.-bound exports rose 6.8 percent in the year to January, led by shipments of cars.

California Existing Homes in January: “Home sales fall to lowest level in more than 10 years”

The CAR reported: California home sales fall to lowest level in more than 10 years, C.A.R. reports

Housing demand in California remained subdued for the ninth consecutive month in January as economic and market uncertainties sent home sales to their lowest level since April 2008, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today.

The Arizona Regional Multiple Listing Service (ARMLS) reports (“Stats Report”):

1) Overall sales declined to 5,357 from 6,082 in January 2018. Sales were down 16.3% from December, and down 11.9% from January 2018.

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… ;)

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:

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.

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.