Today: Biz execs less optimistic in U.S. and China. Draghi and friends. Another game changer.
The Markit Business Outlook Survey, which looks at expectations for the year ahead across 650 US private sector companies, indicated that corporate sentiment eased to a post-crisis low in the latest outlook period.
At +31.2 percent, the net balance of firms expecting a rise in activity over the coming 12 months was down from +51.4 percent in the previous survey conducted in the summer. Moreover, the latest reading is the lowest seen since the survey began five years ago.
Nonetheless, U.S. firms indicated that the degree of positive sentiment towards future growth remained stronger than the global benchmark (+27.8 percent). The Republic of Ireland (+67.1 percent) and the UK (+55.0 percent) were the most optimistic nations, while the lowest confidence was recorded in Russia (+9.8 percent) and France (+12.6 percent).
Within the U.S. economy, manufacturers are much more upbeat about future output levels (+42.5 percent), than service providers (+28.9 percent).
In line with softer growth expectations, the latest outlook survey indicated that the net balance of U.S. firms anticipating a rise in profits (+27.2 percent) was down from that seen during the summer (+33.0 percent) and the lowest since the series began in October 2009.
According to survey respondents, factors likely to weigh on future business conditions included fragile global economic growth, heightened geopolitical risk, ‘Obamacare’, domestic policy uncertainty, and strong competition for new work.
Meanwhile, capex intentions also eased slightly since the summer. At +4.1 per cent, the latest reading hit a post-crisis low and remained slightly above the global benchmark (+7.6 percent).
U.S. private sector companies expect to add to their payroll numbers over the next 12 months, with the net balance at +15.2 percent. However, the latest reading was was down from +17.4 percent during the summer and only slightly above the global benchmark (+14.0 percent). By sector, manufacturers are more positive about their job hiring plans for the forthcoming 12 months (+20.9 percent) than companies operating in the service economy (+14.1 percent).
The Markit Business Outlook Survey, which looks at expectations for the year ahead, signals further optimism at Chinese companies in October. A net balance of +26 percent of firms forecast a rise in activity over the coming year, up from +24 percent in June. Despite improving from the previous outlook survey, the net balance remains below the series long-run trend, and is slightly lower than both global and BRIC averages (+28 percent and +27 percent respectively).
The improvement in overall sentiment was largely driven by service providers, where the net balance of companies expecting growth of activity increased from +20 percent in June to +27 percent in October. Furthermore, this is the highest net balance recorded for the sector in over a year-and-a-half. Panellists suggest that supportive state policies and expectations of stronger client demand are key factors that will boost activity over the next 12 months.
Meanwhile, the net balance of companies anticipating activity growth in the manufacturing sector dipped to a one-year low in October (+25 percent), with a number of respondents citing an uncertain global economic outlook.
German Business Mood Improves German business sentiment unexpectedly increased in November, a closely watched survey showed, suggesting Europe’s largest economy is slowly finding its footing again.
The Ifo Institute said Monday that its monthly business confidence survey rose to 104.7 from 103.2 in October, breaking a string of six straight monthly declines.
Not including a chart, the WSJ article gives a better impression. Here’s the reality (Haver Analytics):
Speaking of German mood:
Germany’s central bank president, Jens Weidmann, Monday expressed doubt that a potential government bond-buying program would increase growth in eurozone countries.
Speaking in Madrid, Mr. Weidmann—who is a member of the European Central Bank’s 24-strong governing council—said that monetary policy alone can’t create growth, and must be based on higher productivity and policy reforms.
“Central banks are not able to deliver growth,” Mr. Weidmann said. “Whenever we meet, this is always the first question, there is the conception that there is this silver bullet and this is distracting our attention from the main problem.” (…)
In recent months, Mr. Weidmann has often spoken out against the purchase of government bonds by the ECB. Other members of the governing council have expressed a similar stance.
OECD Warns on Eurozone Economy The eurozone needs monetary stimulus and a softening of fiscal discipline to ward off the threat of persistent economic stagnation, the Organization for Economic Cooperation and Development said.
In its economic outlook, the Paris-based organization singled out the eurozone as the black spot in an already gloomy picture of the global economy. Global growth will remain modest and unemployment above precrisis levels, with risks that financial volatility and weak confidence will make things even worse, the OECD said. (…)
It expects eurozone economic growth to edge up only slightly to 1.1% in 2015 from 0.8% this year. By contrast, the U.S. economy will grow 2.2% this year and 3.1% next year, the OECD said.
Inflation will also continue to be very weak in the eurozone at 0.6% next year compared with 1.2% in the U.S., and the currency bloc could even fall into a trap of declining prices, the OECD said. (…)
The OECD also highlighted Japan’s weakness and cut its growth forecasts for the country to 0.4% this year and 0.8% next year from 0.9% and 1.1% previously. But the OECD said recent steps to expand monetary easing and postpone consumption tax increases will “hopefully keep the economy on track.”
The European Central Bank won’t make a hasty decision to add more stimulus and will hinge any measures on incoming economic data, Executive Board member Benoit Coeure said.
“We’ll have to understand how what we’ve already decided works — we’re not going to rush to a new decision without knowing,” Coeure said yesterday in an interview with Bloomberg Television’s Francine Lacqua. “We have to look at the data around us, and we have to discuss thoroughly all possible options in particular when it comes to buying new assets. There’s unanimous agreement in the Governing Council that there might be situations where we’d have to do more.” (…)
“We’re not committing to any particular time line,” said Coeure, who is the official responsible for market operations at the ECB. “We’ll have a discussion in December, we’ll look at the numbers, we’ll look at how the economy is doing, and what we’ve been able to achieve on the ABS market, which has just started a couple of days ago, and on the covered bond markets. We’ll have that discussion, and if it’s not in December it will be later.”
But Draghi stands ready to act…
(…) The strength of the consensus worries even self-confessed dollar bulls, like Marc Chandler of Brown Brothers Harriman.
He says: “I’m just finishing up a huge business trip that took me through the US and Europe and Asia, and I’ve not met a single money manager who’s not bullish on the dollar, not bullish on US stocks or not bullish on the divergence story. What could go wrong is not that something goes wrong in Europe or Japan, but that the shine goes off the US side of the story.”
ANOTHER GAME CHANGER
8 minutes of your time: