The Conference Board’s leading economic index inched up 0.1% in August, matching expectations for a modest uptick, according to a report Friday.
The increase follows a flat reading in July, which was revised higher from an initially reported 0.2% decline. In June, the indicator increased 0.6%. (…)
While average working hours and new orders in manufacturing have been weak, pointing to continued slow growth in the industrial sector, rising employment, personal income, and manufacturing and trade sales have helped to offset weakness in industrial production, the board said. (…)
The LEI has been flattening out as Doug Short illustrates:
the LEI has historically dropped below its six-month moving average anywhere between 2 to 15 months before a recession. The latest reading of this smoothed rate-of-change suggests no near-term recession risk.
U.S. Household Wealth Set Record in Second Quarter The wealth of American households climbed to a new peak in the second quarter, bolstered by rising real-estate values that more than compensated for softness in the stock market.
The net worth of U.S. households and nonprofit organizations—the value of homes, stocks, bonds and other assets minus all mortgages, debts and other liabilities—climbed by $695 billion to $85.7 trillion, according to a Federal Reserve report released Friday.
Households lost close to $13 trillion in the recession, but a soaring stock market and resurgent home prices have boosted American wealth by $30 trillion over the past five years—gains fueled in part by a campaign of ultralow interest rates and large-scale asset purchases by the Fed. (…)
The Fed report showed Americans had assets totaling just shy of $100 trillion—of which nearly $24.6 trillion was in housing, $21.8 trillion in corporate equities and mutual funds, and $21.1 trillion in pension and retirement accounts.
Wealth tied to stocks has likely declined since the report—the S&P 500 index has fallen more than 6% since a May peak.
Households had $14.3 trillion in debt in the second quarter, about two-thirds of which was mortgages. Total debt climbed by $133 billion in the period. Even though households’ assets have soared, their liabilities remain below where they were prior to the recession. Many households have been less willing to add debt; others had debts reduced through foreclosures. (…)
(…) Ahead of next month’s budget law, Italy said output would rise by 0.9 per cent this year and 1.6 per cent next year, compared with earlier forecasts of 0.7 per cent growth in 2015 and 1.4 per cent in 2016. (…)
Pier Carlo Padoan, Italy’s finance minister, said he expected Italy’s debt to gross domestic product ratio, which is forecast at 132.8 per cent in 2015, to begin declining from 2016, for the first time since 2007.
However, the drop in the debt will occur at a slower pace than forecast last April, as Italy plans to make use of the improved economic data — and the related increase in tax revenues — to push through new stimulus measures, particularly a round of tax cuts.
Italy’s budget deficit this year is forecast at 2.6 per cent, which is well below the European Commission’s threshold of 3 per cent and is due to decline further to 2.2 per cent in 2016.
But that is higher than the 1.8 per cent level predicted in April. Meanwhile, Italy has said it expects to reach structural balance, which takes into account changes in the economic cycle, one year later than previously predicted — or in 2018 instead of 2017. (…)
Chinese Economic Outlook Too Grim, Survey Shows While China’s economy in has weakened moderately, it wasn’t the “game-changer” that prompted global markets to fall sharply, according to a survey of companies.
(…) Manufacturing saw its most sluggish performance in two years during the July-September period, but services remained strong, both in quarter-to-quarter and year-to-year terms, according to China Beige Book International, based on a survey of more than 2,100 firms. And while China exports were weaker, they were a less significant driver of overall growth in the world’s second-largest economy, the group said.
“In China’s maturing economy, not only is manufacturing no longer the bellwether of the overall economy, but exports are no longer the bellwether of the manufacturing sector,” said the group in a report. “Current market perceptions of China may be more thoroughly divorced from facts on the ground than at any time in our nearly five years of surveying the economy.”
Margins and job growth for companies in China inched up for a second straight quarter as wage growth fell slightly, the China Beige Book said. Global investors have adopted an excessively negative view of China’s prospects in the wake of the mid-June stock market collapse and the unexpected devaluation of its currency in August, the group said.
Producer deflation hasn’t been a major concern for the majority of companies that responded to the survey, the report said: While sales prices weakened in the third quarter over the second quarter, input prices weakened even more, helping to expand profit margins, it said.
The China Beige Group said there is a history of global investors overreacting to problems in China. “Those touting China’s sudden fragility are either exaggerating current problems or have entirely missed the slowdown of the past several years,” it added.
The current report shows that services, which account for more than half of China’s economy, show improvement in sales, pricing, volumes and capital expenditure. CBB said the slowdown was concentrated in the public sector, where revenue growth slowed moderately, while private businesses showed a “slight downtick” from a higher growth rate. (…)
The report also found that job growth inched up, company profits improved, and wage growth moderated mildly. Capital expenditure picked up for a second quarter following four quarters of broad decline, the authors wrote.
Rail freight fell to -15.3% YoY in August and is down to -10.9% YoY YtD.
New home prices rose to +0.4% MoM in August, same as July.
Stocks Fall Sharply as Federal Reserve Decision Sparks Growth Concerns Many see Fed’s call as a signal that weakness persists; ‘the issues with China are still here’
The S&P 500 declined 32.17 points, or 1.6%, to 1958.03, and the Nasdaq Composite Index fell 66.72, or 1.4%, to 4827.23. Overseas, stocks also fell, with the Stoxx Europe 600 declining 1.8%. Germany’s DAX fell 3.1%, France’s CAC 40 declined 2.6% and London’s FTSE 100 lost 1.3%. Japan’s Nikkei Stock Average ended Friday 2% lower, although markets elsewhere in Asia gained.
(…) Whereas Fed pronouncements this year have made glancing references to overseas factors, Thursday’s statement ratcheted up the rhetoric markedly, with an explicit reference to “global economic and financial developments” and the damage these could do to US growth and inflation.
This will force investors to start scouring both domestic and foreign data for clues about the Fed’s intentions. (…)
She said investors had been shaken by the lack of “deftness” shown by the Beijing authorities, and that there was a risk of an “abrupt” slowdown in the People’s Republic. If this has become an important factor for Fed policymakers, it is difficult to envisage the open questions about China being answered by the end of the year.
Amid intensifying global headwinds, Ms Yellen hinted at the possibility of allowing the labour market to run hotter in order to get inflation back up to the Fed’s 2 per cent target. This raises the possibility that rates could stay on hold for longer than many analysts expected. (…)
Investors hate stocks– again.
Amid a six-year bull market that’s notable mainly for how little conviction there is in it, equity sentiment is plunging at a historic rate, falling by some measures at the fastest pace since Federal Reserve Chairman Paul Volcker had just finished pushing up interest rates in the 1980s. The cost to hedge against stock losses is soaring, valuations are contracting, and bearishness among professional stock handicappers is rising the most in three decades.
Fret not. All of this is good news for bulls, if history is any guide. Since 1963, the Standard & Poor’s 500 Index has advanced an average 11 percent in the year after newsletter writers surveyed by Investors Intelligence were as pessimistic as they are now, data compiled by Bloomberg show. That compares with an annualized return of 8.3 percent. (…)
Investors have bailed out of stocks at every sign of trouble since 2009, from the euro crisis to ebola, with the latest catalyst coming from China’s devaluation of its currency. The distrust has been a barrier to euphoria, a quality that historically is the bigger threat to bull markets.
Fear reigns, spreading faster than any time since 1984 as the S&P 500 tumbled 10 percent over four days in August. At the start of this month, the bull-to-bear ratio in Investors Intelligence’s survey of newsletter writers fell to a four-year low of 0.9. In April, when bulls dominated the market that was heading for an all-time high, the ratio reached 4.1. (…)
Pessimism prevails among options traders and speculators, too. The cost of puts protecting against a 10 percent drop in the S&P 500 rose to a record on Aug. 24 relative to calls betting on a 10 percent rally, according to three-month data compiled by Bloomberg. While the spread has retreated to 12.76, it’s still up 30 percent from three months ago and higher than 99 percent of the time since 2005.
In futures tracking the S&P 500, bearish contracts outnumber bullish ones by the most in three years, data from the Commodity Futures Trading Commission show. Speculators increased short positions in stocks to the highest level since March 2009, according to data compiled by U.S. exchanges. (…)
This bull market has seen the biggest rallies after periods of the worst sentiment. Bearish newsletter writers surpassed bullish ones three other times during the last 6 1/2 years, in April 2009, August 2010 and October 2011. All turned out to be buying opportunities as the S&P 500 rallied for two straight quarters each time, with gains exceeding 20 percent.
The last time sentiment soured as fast as it is now was June 1984, when the S&P 500 was close to completing a nine-month decline that was overshadowed by another round of rate hikes spearheaded by Volcker to tame inflation. As the Fed began easing in October, stocks advanced in the next five years. (…)
Low oil prices risk $1.5tn of projects Industry operators expect investment to drop by up to 30%
A report published Monday says $1.5tn of potential investment globally — including in North America’s shale-producing heartlands — is “out of the money” at current oil prices close to $50 a barrel and unlikely to go ahead.
Industry operators expect capital spending on new projects to decline by between 20 and 30 per cent on average in the wake of the price slide, says Wood Mackenzie, the energy consultancy. It calculates that $220bn of investment has been cut so far, about $20bn more than it estimated two months ago and much of it the result of projects being deferred. Such a decline in spending means that the price crash since last summer — the result of weaker Chinese demand, record US production and Saudi Arabia’s decision not to cut output — could resemble the savage downturn of the mid-1980s. (…)
Just half a dozen new projects will be approved this year, says the Wood Mac report, and 10 or 11 in 2016, compared with an annual average of 50 to 60. (…)
Among the hardest hit companies will be oilfield service suppliers, the contractors which provide thousands of workers and equipment such as drilling rigs to the majors. “This will have a massive impact on the service sector.”
(…) Despite comparisons with the 1980s, Wood Mac believes that such a deeper, structural shift is unlikely.
“In our view oil prices will rise sharply from 2017, and there is a real risk that cost inflation pressures will then return,” it says.