U.S. Construction Spending Declines Again
The value of construction put-in-place fell 0.8% (+1.1% y/y) during October following a 0.3% September decline, revised from +0.5%. August’s 1.1% increase was revised from -0.3%. A 0.4% October rise had been expected in the Action Economics Forecast Survey.
Private construction declined 1.0% (-1.8% y/y) after falling 1.1% in September. Residential building activity fell 0.9% (+0.5% y/y). A 4.5% decline (+8.2% y/y) in home improvements dragged residential building activity lower. It followed a 4.7% September drop, Single-family building increased 1.6% (-3.1% y/y) while multi-family construction fell 1.6% (-2.1% y/y), down significantly for the third straight month.
Nonresidential construction declined 1.2% (-4.3% y/y) with commercial building off 2.4% (-17.7% y/y). (…) Public construction eased 0.2% (+10.2% y/y) in October. (…)
France Promises EU Retaliation After U.S. Trade Threats French Finance Minister Bruno Le Maire said the European Union would strike back against the U.S. if President Trump follows through on a plan to impose tariffs on French imports, in what could develop into trans-Atlantic tit-for-tat on trade.
French Finance Minister Bruno Le Maire said the European Union would strike back against the U.S. if President Trump follows through on a plan to impose tariffs on French imports, in what could develop into a trans-Atlantic tit-for-tat on trade.
On Monday, the Trump administration proposed tariffs of up to 100% against $2.4 billion of French imports—ranging from cheese and wine to handbags and porcelain—saying the nation’s new digital-services tax unfairly targets U.S. tech companies such as Apple Inc. and Alphabet Inc.’s Google unit.
Mr. Trump, in a news conference in London on Tuesday where he is attending the NATO summit, said “They are American companies, I don’t want France taxing American companies.”
The $2.4 billion in imports threatened with tariffs is slightly less than 5% of the $52 billion worth of goods imported from France in 2018. (…)
Mr. Le Maire said OECD members had come up with a good proposal that took into account U.S. concerns and that they were waiting for a response from the Trump administration. He called on the U.S. to honor its commitment in August, during a Group of Seven summit in Biarritz, to work with OECD members to develop a new tax framework for tech giants. (…)
The French tax applies a 3% levy on revenue that big tech companies reap in France from such activities as undertaking targeted advertising or running a digital marketplace.
In August, President Emmanuel Macron said U.S. and French officials had agreed on a proposal stipulating that France will reimburse U.S. tech companies if they end up paying more taxes under the French tax than they would under taxation rules that the OECD is currently negotiating.
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Trump to Levy Tariffs on Brazil, Argentina President accuses both countries of manipulating their currencies to devalue them, but few economists agree
(…) Currency manipulation occurs when countries purchase U.S. dollars to weaken their own currencies, making goods on international markets artificially cheaper.
Neither Brazil nor Argentina has been featured in the U.S. Treasury Department’s currency report, the official vehicle for designating nations as manipulators.
“Brazil has had a free-floating currency for a long time now and that isn’t changing,” said economist Carlos Kawall, chief researcher at ASA Bank in São Paulo. “The real is weakening because interest rates are going down and the dollar is strengthening against emerging-market currencies.”
In recent months, both Brazil and Argentina have instead taken steps to sell dollars from their reserves to support their plummeting currencies, the opposite of buying dollars as currency manipulators do.
“Of course Brazil doesn’t manipulate the currency,” said Monica de Bolle, senior fellow at the Peterson Institute for International Economics, nor does Argentina, she said. She said that Mr. Trump’s gambit could backfire if Brazilian and Argentine exports are hurt. “Then their currencies will inevitably weaken,” she said. (…)
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“Mr. Trump has also threatened new tariffs on products from China, Mexico, the European Union, Vietnam and elsewhere.” (NYT)
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Mount Tariff Erupts Again Trump hurts his re-election chances with more trade uncertainty.
(…) It’s hard to know exactly what motivated Mr. Trump’s tweets, and he didn’t say when the Section 232 tariffs would be restored. But he seems to think he can use tariffs as a two-fer to help struggling U.S. steel makers while punishing Argentina and Brazil for displacing U.S. farm exports to China. He’s wrong on every count. (…)
the President can’t use tariffs to punish any country for anything any time he’s in the political mood. Before slapping on new tariffs, his Administration would need to explain how steel imports from Argentina and Brazil are a national security threat. The President’s original Section 232 invocation to protect U.S. steel and aluminum manufacturers was legally dubious, and his new tariffs are more so.
Argentina makes up less than 1% of U.S. steel imports—hardly an economic threat to U.S. steel makers. Imports from Brazil have increased by nearly 50% this year, making up for lower imports from Turkey, Canada and other countries that were hit with the Section 232 tariffs. A weaker real isn’t the culprit.
In any case, the benefit of steel tariffs for U.S. metal manufacturers has largely been offset by the collapse of demand caused in large part by economic uncertainty that his protectionist polices have unleashed. Steel prices have plunged by nearly half since June 2018 amid a global manufacturing recession, ebbing trade flows and less capital investment. (…)
As usual Mr. Trump also sent out contradictory tweets taking credit for a strong U.S. economy while deploring a strong dollar. But the strong U.S. economy attracts capital from around the world, which lifts the dollar. The Fed has already cut interest rates three times this year. No amount of monetary easing is ever enough for Mr. Trump, and no amount of tariffs will satisfy U.S. steel makers.
Trump Sees No Deadline for China Deal, Prefers It Post-Election President Donald Trump signaled he would be willing to wait for another year before striking a trade agreement with China, casting doubt on the likelihood of a phase-one accord within weeks between Washington and Beijing.
This followed that:
China expects the U.S. to roll back some tariffs on its exports as part of a trade deal, an official newspaper said Monday, reiterating Beijing’s insistence that President Donald Trump’s administration be “flexible” and “reasonable.”
The Communist Party newspaper Global Times ran several articles Monday that emphasized there would be no deal without a promise to phase out the tariffs imposed by Washington.
It cited officials saying that China will buy American farm products and the amount “could be substantial, but it cannot promise a specific number in the deal because the amount must be based on market demands.” (…)
“Rolling back tariffs is a must. The China-U.S. trade war (was) instigated by the U.S. with tariffs, so the tariffs have to be cut first,” the newspaper quoted Wei Jianguo, a former Chinese commerce minister as saying. (…)
New U.S. tariffs are set to kick in on many Chinese-made products as of Dec. 15. A preliminary deal could avert that. But promising to not implement the next tranche of tariffs would not suffice, the Global Times said.
It said there was a “reasonable choice” for Trump to roll back some tariffs for the first deal and leave others for later, to “save the optics of the deal in the U.S. political climate and save the phase one deal.”
Hmmm…who wants to hold his breadth?
There’s more:
China Hints U.S. Blacklist Imminent in Threat to Trade Talks
Chinese state media said the government would soon publish a list of “unreliable entities” that could lead to sanctions against U.S. companies, signaling trade talks between the two nations are increasingly under threat from disputes over human rights in Hong Kong and Xinjiang.
The Communist Party-backed Global Times said in a tweet early Tuesday that the list was being sped up in response to a bill sponsored by Republican Senator Marco Rubio requiring sanctions against Chinese officials involved in alleged abuses of Uighur Muslims in the far west region of Xinjiang. Beijing has threatened to publish such a list of companies since May, after the U.S. placed restrictions on Huawei Technologies Co. (…)
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Huawei founder Ren Zhengfei plans to relocate research centre to Canada from U.S. Ren also took aim at the Trump administration, saying the U.S. is seeking to ‘crush’ Huawei and that his daughter Meng Wanzhou ‘was only used as a pawn’
Meanwhile in the real world:
Two China Firms Miss $526 Million Bond Payments as Woes Grow
Two Chinese companies failed to repay bonds worth a combined half a billion dollars on Monday, underscoring rising debt risks in the highly leveraged nation as the economy slows.
Peking University Founder Group was unable to secure sufficient funding to repay a 270-day, 2 billion yuan ($285 million) bond, according to a company filing to the National Interbank Funding Center. Tunghsu Optoelectronic Technology Co. failed to deliver repayment on both interest and principal on a 1.7 billion yuan bond, according to Shanghai Clearing House.
The quickening speed of bond defaults in China, especially among ailing private firms, highlights the growing financial strain triggered by the country’s worst economic slowdown in three decades and unabated trade tensions with the U.S. Last week, industrial firm Xiwang Group failed to pay a 1 billion yuan bond, missing a fresh repayment deadline on an already defaulted bond. (…)
The drama is far from ending. Shandong-based Xiwang is slated to repay interest Tuesday on a 1 billion yuan, 7-year bond due 2022. The corn oil and steel processor is among a cluster of private firms from the province where they are well known for vouching for each other’s debt.
- From Almost Daily Grant’s
The Financial Times reported Thursday that state-owned China Construction Bank Corp. has halted work on a 475 meter skyscraper project in the city of Wuhan, Hubei province after the Greenland Holdings Corp Ltd., one of China’s largest property developers with $60 billion in revenue during the 12-months ended Sept. 30, “failed to make a ‘significant’ project payment.”
According to the FT, more than a dozen “super” skyscraper projects (at planned heights of 300 meters or more), have fallen behind schedule or been postponed outright due to cash flow trouble. “Demand for office space has weakened considerably due to the slowing economy,” Cherry Hu, analyst at Cushman & Wakefield said. “The situation is not going to improve any time soon.”
Hope Fading Fast for Fourth-Quarter Earnings Rebound in S&P 500
Two months into the quarter, analysts have shaved 4% off their estimates to $41.12 a share, a drop of almost 1% compared with a year ago after a 1.3% decline last quarter. While they almost always lower expectations as a period progresses the current pace has been exceeded only twice since 2015. (…)
And in the unreal world:
‘Peak’ Private-Equity Fears Are Spreading Across Pension World
Investors plowing cash into private assets may recall the words of Wall Street legend Barton Biggs: There’s no asset class that too much money can’t spoil.
The Daily Shot offers these telling charts:
Two important facts are missing from the valuation chart: one: Q3 valuations reached 12.9x ebitda; two: according to S&P Global, 49% of recent ebitda calculations were “add-backs” or “expected” future cost savings. 
Let’s leave on a positive note:
Global manufacturing outlook improves as PMIs rise in majority of markets
Global manufacturing activity increased for the first time in seven months in November, according to PMI survey data, albeit improving only fractionally. New orders and output edged higher, showing the strongest gains seen so far this year, helping employment levels stabilise for the first time in seven months.
Moreover, headline PMIs rose in more countries surveyed than at any time seen over the past two years, which augurs well for a further improvement in global business conditions in coming months. (…)
Production rose globally to the greatest extent seen since December 2018, accompanied by a similar improvement in new order inflows, albeit with still-subdued rates of increase seen in both cases. Worldwide goods exports continued to fall, pointing to overall growth of manufacturing being held back by lacklustre worldwide trade flows.
The improvement in orders was nevertheless sufficiently strong to encourage manufacturers to bring a halt to the recent trend of job cutting seen over the prior six months, leaving employment levels unchanged in November.
Signs of recent deflationary pressures easing were also evident, with suppliers raising prices for raw materials very slightly and prices charged for goods by manufacturers up for the first time in five months, albeit by the smallest of margins. (…)
More encouragingly, however, PMIs rose in 18 of the 30 markets surveyed in November, a harbinger of better times to come for the headline global PMI. These improvements included faster rates of increase reported most notably in the US and China, as well as Canada, France, India, Brazil, Colombia and Greece, plus a return to growth in Vietnam.
Easing rates of decline were meanwhile reported in Germany and Spain (in turn playing a key role in helping to moderate the rate of contraction of the Eurozone), as well as in Japan, Turkey, South Korea, Indonesia, Malaysia, Poland and Austria. (…)
The analysis therefore hints at a strong link between trade war developments and actual manufacturing growth trends globally, suggesting that the future development of trade discussions could be instrumental in steering the direction of the PMI in coming months.
