The Paris-based research body said its gauges of future economic activity—which are based on information available for August—point to slowdowns in the U.S., China and Japan, as well as the U.K. and Canada. (…)
The most pressing concern for policy makers is the outlook for the Chinese economy, amid signs that its slowdown may turn out to be sharper than expected. The OECD’s leading indicator for the world’s second-largest economy fell again in August, to 97.2 from 97.6. (…)
The leading indicators suggest things won’t get any worse for Brazil and Russia, but neither is growth set to pick up. The OECD’s leading indicators continued to suggest India will be the main exception, with growth set to accelerate. (…)
But the OECD’s leading indicators suggest the eurozone economy will avoid a slowdown, and signal a pickup in France and Italy, both of which have lagged behind other members of the currency area.
Noted China bear Zhiwei Zhang, once of Nomura and now at Deutsche, is talking up China’s near-term economic prospects.
The reason? He thinks its fiscal slide — predicated on falling land sales which accounted for 22 per cent of general government revenues in 2014 — has come to an end. (…)
From Zhang on Thursday, with our emphasis:
We believe the fiscal slide is now coming to its end, because the recovery of land sales seems to have firmed up and gathered momentum in recent months.
While growth of land sales had hit the bottom in 2014Q4, the recovery did not show much momentum until May/June 2015. For instance, the yoy growth in value terms was still at -36% in April, but it turned positive in July to 3% (Figure 5). The preliminary data of September now shows a yoy growth of 30%, which could be even higher due to the lag in land sales reporting. (…)
Apart from a cyclical aspect (land sales were low for a long time and thus are due a rebound, essentially) Zhang says the boost to land sales is mostly down to China’s recent bout of fiscal easing. That and the stock market:
On monetary front, with 5 interest rate cuts (1.25 pp in total) and 4 general RRR cuts (2.5 pp in total) within 12 months’ time, corporate financing costs have come down significantly. For instance, the RMB5 billion bonds issued by China Vanke in Sep 2015 carried a face interest of only 3.5%, while a year ago the rates on such corporate bonds were mostly in the range of 5% to 10%. The recent surge of bond issuance, especially by property developers, shows that the corporates are indeed trying to take advantage of current low cost environment. On fiscal policies, the shift from tightening to stimulus, in particular the loosening of financing restrictions on LGFVs, also played a role. (…)
The poor equity market performance is perhaps another contributing factor. Shanghai and Shenzhen stock markets experienced one of their worst quarters in 2015Q3 by dropping 28.6% and 30.3%, respectively. This has made property investment a more attractive alternative, which in turn helped to restore property developers’ interest in purchasing lands.
(…) If investment can rebound on the back of lift in land sales then GDP will do so too. For a while, at least. (…)
A final chunk from Zhang to close:
Recovery of land sales and loosened fiscal stance will help to boost government spending in 2015H2. For instance, there have been clear indications of fiscal expansion following the policy u-turn in May. Growth of budgetary expenditure averaged 25% yoy in July and August, more than doubling the 11.8% in 2015H1. Total government expenditure, including that by government funds, also accelerated. The extrapolated yoy growth for Q3 based on July and August data is 11.9%, much faster than the 3.4% in H1 (-0.2% in Q1 and 6.2% in Q2). Another indication of fiscal expansion is the spike of funds available for investment from the state budget, whose yoy growth was only 9% in May, but then jumped to 17%, 29% and 34% in June, July and August, respectively.
There are other indications of a likely pickup in investment as well, such as the strong recovery of property sales and the pickup of investment amounts for both projects under constructions and newly started projects (…).(…)
Together these indications have reinforced our view that, led by accelerated government spending and an investment recovery, there will be a moderate growth rebound in Q4 from 7.0% yoy in Q3 and Q2 to 7.2%, with 7.0% full year growth for 2015.
The momentum will likely carry on to 2016Q1, but growth beyond that remains uncertain. Our baseline case is that growth returns to a downward trend, with the full year GDP growth dropping modestly to 6.7% in 2016 from 7% in 2015. The key underlying assumption is that the government will be willing to tolerate the slowdown and refrain from further fiscal and monetary stimulus once growth rebounds in Q4. The Communist Party Plenum in October and the Central Economic Working Conference in December will likely shed more light on policy stance in 2016. (…)
Interestingly, CEBM Research’s October survey confirms the pick up in land sales:
Land sales activity showed continued signs of improvement in September, especially in 1st and 2nd tier cities. Local governments have boosted efforts to sell land in response to better housing sales in prior months. In addition, after many months of refraining from restocking land banks some developers have started to restock.
However, that was the only positive from the recent survey:
- Steel: Order activity remains low. A broad-based decline in demand was observed in September. Respondents reported that demand from key sectors such as auto manufacturing, real estate, machinery equipment and shipbuilding was stagnant or in some cases contracted, putting downward pressure on effective contract pricing for steel products. Given the anemic domestic demand situation, steel export volume remained at a healthy level in September.
- Cement: In some regions, such as Southern China, respondents reported a pickup in construction activity. Respondents expect stable or slightly better sales activity in October as the market enters a traditional peak sales season. September also saw a coordinated price hike by producers.
- Property: Survey respondents reported that transaction volume during September (traditionally a peak month for property sales) fell flat.
- Exports: Container Freight Exporters: Anticipated Surge in End-of- Month Shipments Fails to Materialize; October Looking Weak,
Americans spend savings from cheap petrol Research clashes with reports that consumers were paying down debt
New analysis of the spending patterns of 25m people shows that households spent about 80 per cent of the windfall they received as a result of lower fuel prices — higher than suggested by some early government estimates.
The data from the JPMorgan Chase Institute suggests that the spending kick from lower gas prices has already been significant in a wide range of categories including dining out, entertainment and purchases of electronics and appliances — and that a rise in the price of oil could deliver a palpable blow to these areas.
“Consumers report that they are using their gains at the pump to pay down debts and save. Our data show they are spending most of them,” said the report, published on Thursday. (…)
Americans typically save 4-5% of their income so saving 20% of the oil windfall is significant.
BTW: Oct 7 (NYT) — Energy Department predicts lower winter fuel bills by roughly 18%
U.S. Consumers Show Signs of Caution with Debt Americans added to their debt at a slower pace in August—with outstanding consumer credit rising 5.6% versus July’s 6.6% increase—suggesting some caution on the part of consumers.
Outstanding consumer credit, a reflection of all debt besides mortgages, rose $16 billion or at a 5.6% annual rate in August, the Federal Reserve said Wednesday. That’s less than in July, when it increased at an annual rate of 6.6%, a slight downward revision from the initial estimate of 6.7%. In June, it rose at an annual rate of 9.6%.
Revolving credit, mostly credit cards, rose at an annual rate of 5.3%, a bit less than in July, when it rose at a downwardly revised annual rate of 5.5%.
Nonrevolving credit, made up largely of auto or student loans, rose at an annual rate of 5.7%, its lowest percentage increase since July 2012. (Charts from Haver Analytics)
The United Auto Workers said shortly after midnight Thursday that it reached a revised deal with Fiat Chrysler Automobiles NV that secures “significant gains” for its members,averting a strike that would have shut down production at U.S. plants and sent thousands of workers to the picket line.
The UAW didn’t offer any further details on the proposed deal, but in a statement, UAW President Dennis Williams says the new accord “addresses our members’ principal concerns about their jobs and their futures.”
More signs that recent employment data looked strange:
Gallup’s U.S. Job Creation Index registered +32 in September for the fifth consecutive month. This is the highest score Gallup has recorded since it began measuring employees’ perceptions of job creation at their workplaces in early 2008.
EM slowdown hits German exports Data show sharpest monthly fall since the financial crisis
Exports in August were 5.2 per cent lower than July, their sharpest monthly fall since the financial crisis, according to Germany’s national statistics office. Imports also fell 3.1 per cent. (…)
Exports were up 5 per cent in comparison with August 2014, while imports were 4 per cent higher. Exports to non-EU countries climbed fastest, rising 6.8 per cent, while sales to EU member states were up 3.5 per cent. (…)
As Europe’s biggest exporter, Germany — which sends 6.5 per cent of its exports to China — is particularly exposed to such trends, and German companies have been warning for a while of a Chinese slowdown. (…)
Thursday’s export statistics predate the emissions-rigging scandal that has engulfed Volkswagen, Germany’s largest carmaker.
From Markit’s Germany Manufacturing PMI:
German manufacturing companies reported a further improvement in operating conditions in September. Despite falling from 53.3 in August to 52.3, the average PMI reading for the third quarter (52.5) was the best in over a year.
September data signalled a further solid rise in new business placed with German manufacturers. The rate of new order growth eased slightly since August, but was nevertheless the second-strongest in 17 months. New export business also increased further during the month, with companies commenting on the weak euro and improved demand from the US.
The Q3’15 earnings season officially kicks off this afternoon with Alcoa. But the season has actually started with 17 off-fiscal companies having reported as of Oct. 2nd. For what it is worth, 14 beat and 2 missed.
Zacks Research tallies all NYSE companies
Deutsche Bank Sees Big Loss on Write-Down in Corporate Banking Deutsche Bank warned it will take a $6.5 billion charge on assets in its investment and retail- and private-banking operations for the third quarter and said it could cut its dividend.
Germany’s largest bank said the bulk of the write-downs were sparked by tougher regulatory requirements, which are driving down the value of its investment-banking business and other assets.
For Deutsche Bank, constraints on earnings coupled with regulators’ demands that the bank set aside more capital mean that its investment bank—notably including the Bankers Trust business it bought in 1999—isn’t expected to generate the profits it had in the past.
Also included are charges related to its Postbank retail unit, which Deutsche Bank plans to shed. The bank also set aside an additional €1.2 billion for legal reserves. (…)
As part of companywide cost cutting and a realignment of its businesses, Deutsche Bank said its management board will recommend “a reduction or possible elimination” of its common-share dividend for 2015. The company has paid a dividend of €0.75 a share the past six years. (…)
Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. are struggling to sell $1.2 billion of loans backing the leveraged buyout of online clothing retailer FullBeauty Brands, investors said, the latest sign that global economic turmoil has forced a broad reassessment of risk.
The setback is the latest for firms seeking to raise funds in corporate-debt markets, as prices have declined recently and several large deals have had to be scaled back. (…)