The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo held steady during January at 60 after falling 7.7% during the prior two months.
The index of single-family home sales increased 3.1% (8.1% y/y) to 67 and recovered December’s decline. Offsetting this rise, however, was a decline in the index of expected sales during the next six months. It fell 4.5% to 63, but still was 5.0% higher than one year ago.
Home builders reported that their traffic index fell 4.3% to 44. That repeated the prior month’s decline and left it at the lowest level in six months.
China Highlights Pivot to Service Sector Stressing the positive in its flagging economy, China’s government says a transition from industry toward services is advancing, but the latest snapshot of economic performance suggests that shift will be arduous.
(…) In reporting that economic growth dropped to 6.9% last year, the government’s statistics bureau said Tuesday that for the first time services accounted for more than half of the economy, climbing to 50.5% from 48.1% the year before. Meanwhile, manufacturing’s share shed more than two percentage points, falling to 40.5%. (…)
Rather than rapid growth in services and consumption, some analysts said the restructuring is more a reflection of the downturn in China’s traditional industrial growth drivers. Growth in the industrial sector slowed sharply to 6.0% in 2015 from 7.3% in 2014 while services expanded to 8.3% last year from 7.8% a year earlier. (…)
Consumption amounted to about two-thirds of economic growth last year, up 15 percentage points from 2014, the statistics bureau said Tuesday. While disposable income outperformed the economy, increasing 7.4% last year, many analysts said overall consumption figures generally include government spending, unlike statistics provided by most other nations.
Beijing hasn’t released detailed statistics yet. But of the 51.4% of the economy made up by consumption in 2014, only 37.9% was household spending, according to official figures. (…)
President Xi Jinping has said a growth target of 6.5% is necessary to meet a goal aimed at doubling its citizens’ income between 2010 and 2020. (…) According to Minsheng Securities Co., China’s infrastructure spending would need to grow by at least 18.7% this year for the country to reach the 6.5% target. (…)
Capital flight from China worse than thought Emerging markets saw an estimated $735bn in net capital outflows last year
(…) Emerging markets saw an estimated $735bn in net capital outflows last year with all but $59bn of that coming from China. In October, the global finance industry group had predicted 2015 would see net outflows from emerging markets of $540bn, the first since 1988. (…)
The discrepancy revealed on Wednesday, the IIF said, came in large part because of accelerating capital flight from China in the final three months of last year via channels used to circumvent capital controls. Over-invoicing for exports, cash transactions and other such flows recorded as “errors and omissions” accounted for $216bn of the $676bn in China’s net outflows in 2015, according to the IIF. (…)
Pegs under pressure
Two currency pegs have come under increasing pressure in recent days. Authorities in Saudi Arabia moved this morning to stem the tide of traders betting against the riyal’s peg to the U.S. dollar by banning local riyal forward options. Those forwards had jumped to their highest in at least two decades. In Hong Kong, local dollar forwardssunk to the weakest since 1999, forcing interbank lending rates to their highest in seven years. Hong Kong Monetary Authority Chief Executive Norman Chan reiterated on Monday his commitment to keeping the linked exchange-rate system. (Bloomberg)
The European Union’s statistics agency Wednesday said house prices in the eurozone were 1% higher in the third quarter than in the three months through June and 2.3% higher than in the same period of 2014. That was the largest annual gain since the first quarter of 2008, six months before the financial crisis was triggered by the collapse of the Lehman Brothers investment bank.
During the third quarter, house prices rose most rapidly in Austria, where they were up 9.3% on the year. Prices also rose rapidly in Germany, where they were up 5.6% on the year as unemployment rates fell to their lowest levels since reunification and wages began to pick up.
By contrast, house prices fell in both France and Italy, while there were continuing recoveries in Ireland and Spain. (…)
IMF Again Cuts Global Outlook The International Monetary Fund once again cut its outlook for the world economy, warning that economic turmoil in China and financial contagion throughout emerging markets threaten to curb global growth.
(…) Deeper downturns in many of the world’s largest developing countries and a weaker-than-expected expansion in the U.S. prompted the IMF to downgrade its forecast for global growth this year by 0.2 percentage point to 3.4%. That is a meager improvement from last year’s 3.1% growth rate. (…)
The IMF slashed its forecasts for Brazil, where a government corruption scandal is compounding its growth problems. The fund now expects the economy will contract by 3.5% this year, 2.5 percentage points lower than its last forecast. Russia’s economy will shrink by 1% this year, 0.4 percentage point deeper than the IMF’s previous outlook.
Meanwhile, a strong dollar is weighing on U.S. exports, subduing acceleration of the world’s biggest economic engine. The IMF said the American economy should grow by 2.6% this year, up a hair from last year’s 2.5%, but 0.2 percentage point down from its prior forecast.
The eurozone and Japan are adding little to global growth, expanding by 1.7% and 1%, respectively, as they struggle to revive growth amid high debt loads and anemic demand.
The IMF left its forecast for China’s economic growth to cool to 6.3% this year and 6% next year, down from 6.9% in 2015. (…)
More from Howard Marks: What Does the Market Know?
Global Stocks Slide on Oil Rout; Japan Enters Bear Market Stocks fell sharply around the world, with Japan’s Nikkei entering a bear market and European indexes falling 3%, as oil prices sank and a lack of Chinese stimulus disappointed investors. U.S. stock futures were down about 2%.
(…) “This correction has overly punished other sectors and now we’re ready to take advantage of it,” Bianco wrote in a note to clients Tuesday. “We are not panicked by this correction because we understand it. It’s driven by a profit recession centered at certain industries caused by factors that we’ve long flagged as risks.”
Bianco expects “zero profits” from energy with oil at $35 a barrel and cut his earnings estimates for the materials, industrial capital goods and retailing industries. At the same time, he raised estimates on airlines, autos and consumer staples and said technology and health-care stocks are trading at some of the cheapest valuations in three decades. (…)
Bianco’s prediction for a near-term rally came in a note in which he lowered his estimate for the S&P 500 by 2.2 percent to 2,200 from his Jan. 7 prediction of 2,250. The level implies a 17 percent gain from Friday’s close and is 3.2 percent above the May high.
The move was Bianco’s second cut to his 2016 year-end forecast, following his 25-point reduction earlier this month. Citigroup Inc.’s Tobias Levkovich trimmed his 2016 target last week by 2.3 percent to 2,150, citing the persistent rout in oil.
- 42 companies (13.5% of the S&P 500’s market cap) have reported. Earnings are beating by 4.8% while revenues have surprised by 0.2%.
- The beat rate is 76%.
- Expectations are for a decline in revenue, earnings, and EPS of -3.3%, -5.1%, and -3.5%. EPS growth is on pace for +0.6%, assuming the current 4.8% beat rate for the remainder of the season. This would be 6.4% excluding Energy. (RBC Capital)
Thomson Reuters’ EPS forecast is –4.7% for Q4’15. For Q1’16, it sees +0.5%, down from +2.3% on Jan. 1.
Driver’s Licenses Lose Allure for Young America’s youth aren’t rushing out to get their drivers licenses as they once did, a trend that signals the auto industry’s new interest in car-sharing services and autonomous vehicles might be the right tack.
A study published this week by the University of Michigan reports a sharp decline over the past two decades among people under 25 years of age getting their driver’s licenses.
The drop signals high-schoolers and college-age Americans are less interested in driving than previous generations. And the change is spreading to their parents and grandparents, moves that have auto makers scrambling to ramp up investments in alternative mobility services such car-hailing services.
Since the financial crisis of 2008, the proportion of Americans under 70 years of age holding a driver’s license has declined even as annual U.S. light-vehicle sales have slowly climbed back to levels seen early last decade, University of Michigan researchers Michael Sivak and Brandon Schoettle found. (…)
The population, however, has grown 14% during that period and the age of the nation’s existing vehicle fleet has risen—two factors that suggest today’s underlying demand may not be as strong as it was 15 years ago. Rising sales incentives and used-car inventories, analysts say, point to demand plateauing, and heightening the need for car executives to explore alternative revenue streams. (…)
Among the survey’s notable statistics: 77% of people between the ages of 20 and 24 were licensed to operate a vehicle in 2014, down from about 80% in 2011 and 92% in 1983. Less than a quarter of 16-year-olds today have their licenses, down from 46% in 1983; and 60% of 18-year-olds have one, down from 80% in 1983. (…)
Iranians Squeeze Moderate Leaders Days after Iran secured relief from economic sanctions under a contentious nuclear deal, the country’s powerful hard-liners are moving to sideline more moderate leaders who stand to gain from a historic opening with the West.
(…) Reformists have been largely sidelined since the opposition Green Movement was violently suppressed in 2009, and currently have only a smattering of the 290 seats in parliament. But they were hoping to capitalize on momentum from the opening represented by the nuclear deal to build support—a prospect U.S. officials have backed.
Mr. Khamenei urged close monitoring of American obligations under the nuclear deal on Tuesday, warning against U.S. deception. He has described the U.S. as Iran’s enemy. (…)