Month: September 2015

Beijing’s Economic Woes Echo Across Asia Evidence gathered that China’s economic slowdown is rippling across Asia.

South Korean trade sinks, manufacturing softens in Malaysia and Vietnam, while Australia is expected to report a rare quarterly contraction. (…) The 14.7% decline [in Korean exports] in August from a year earlier, driven in part by slack demand from its largest trading partner China, provides the first regional picture of trade in August since Beijing’s Aug. 11 currency devaluation. (…)

Japan’s exports to China fell 10.8% from January to June and is expected to remain weak for the rest of the year due in large part to slow shipments of smartphone-making equipment, according to a government-affiliated agency that tracks trade.

Two other regional economies, Malaysia and Vietnam, on Tuesday announced manufacturing declines for August, after Beijing’s yuan depreciation cut the cost of Chinese goods, creating a new competitive hurdle for those countries.

South Korea’s exports of $39.33 billion in August, its eight consecutive month of declines, included an 8.8% fall in shipments to China, which absorbs one quarter of Korea’s total exports. Exports to the eurozone, another persistent area of weakness, fell 20.8%.

Shipments of cars, petrochemical products, ships, steel, machinery and other goods—except for cell phones and computer chips—slumped to nearly all export destinations, including China. Exports account for around half of South Korean economic output.

Officials in Seoul said a drop in oil prices, dragging down the value of Korean petrochemical and refined oil products, was a major factor for the overall export slide in August. The country has a large oil-refining sector. (…)

China urges companies to shore up market Regulators call for dividends, buybacks and M&A to help stop rot

Four Chinese regulatory agencies have issued a joint statement “encouraging” listed companies to hand out more dividends, buy back their own shares and carry out more mergers and corporate restructurings to boost slumping share prices.

The statement from the finance ministry and the regulators in charge of securities, banking and state-owned assets was issued after Beijing’s decision to end its large-scale but unsuccessful programme of direct stock purchases. (…)

They said state-owned banks would be urged to provide low-interest, long-term loans to help listed companies conduct more mergers and acquisitions at home and abroad.

The statement also said the agencies would “actively encourage” listed companies to issue more cash dividends, a practice that is relatively rare among companies listed on mainland Chinese stock exchanges.

The agencies will facilitate share buybacks by listed companies through regulatory measures that, analysts said, could include tax breaks. Buybacks would take place when share prices fall below net asset value. (…)

IMF’s Lagarde sees weaker than expected global economic growth

“Overall, we expect global growth to remain moderate and likely weaker than we anticipated last July,” Lagarde told university students at the start of a two-day visit to Indonesia’s capital.

The IMF in July forecast global growth at 3.3 percent this year, slightly below last year’s 3.4 percent.

HOW SLOW IS THE U.S. ECONOMY?

You and I read a lot of stuff each week. Some good, some not so good. There are however a few pundits who seem to do generally better work than most others on a consistent basis. David Rosenberg is one of them and when he says that

• The pace of activity now seems to be reaccelerating to over a 3% annualized pace – one reason the Fed seems so confident for the most part. (…)
• The U.S. economy is the one firing on all cylinders at the current time (…)

it makes me wonder if my own reading of the U.S. economy is not too harsh. Then I read John Hussman who, despite having been on the wrong end of the market, keeps doing excellent, and original work. From his August 24 piece:

(…) the chart below of regional Fed and purchasing manager surveys shows the fresh deterioration we observe here.

(…) The chart below measures order surplus as new orders plus backlogs, minus inventories, based on standardized values of regional Federal Reserve and purchasing managers surveys, compared with the “headline” indices of these surveys three months later. The recent dropoff in order surpluses is an important economic concern here.

This goes along the sharp increase in inventories in the last 2 GDP reports and the urgent need for demand to strengthen:

  

Then I get real world, almost live stuff, from Evercore ISI, which reports that its Company Surveys fell to 49.8 last week, the lowest since March 2013.  At 49.8, the index is consistent with about 1.8% growth. The main areas of weakness are #1, the China Sales Survey, #2 is the Cap Goods Cos. Survey, #3 is weak foreign demand, #4 is their Trucking Cos. Survey which shows soft volumes in 2Q and early 3Q.

More worrisome, and addressing directly David Rosenberg’s “the U.S. economy is firing on all cylinders at the current time” is that ISI’s Company Survey Diffusion Index has fallen to -2.8% as there are more signs of slowing than of acceleration. 

So I am sticking with my more conservative view.

Dallas Fed Disappoints

After two straight months of improvement, manufacturing activity in the Dallas region took a turn for the worse in August.  While economists were expecting the headline Dallas Fed Manufacturing Index to show a slight improvement to -4.0 versus last month’s level of -4.6, the actual reading was much worse than expected at -15.8 and brings the headline index of current conditions back near its recent lows.  Like the current conditions index, the headline index for conditions six months from now also declined this month, falling from 18.8 down to 3.4, but still remained slightly positive.

Oil surges 25% in three trading sessions US data and hint of change of thinking inside Opec provide boost

(…) Brokers and traders bought futures as they digested a commentary in Opec Bulletin, a magazine of the Vienna-based group. Opec’s decision last November to keep oil taps wide open in the face of surging global production was a critical chapter in oil’s plunge from more than $100 a barrel.

“Needless to say, Opec, as always, will continue to do all in its power to create the right enabling environment for the oil market to achieve equilibrium with fair and reasonable prices,” said an article headlined “Co-operation holds the key to oil’s future”.

“As the Organisation has stressed on numerous occasions, it stands ready to talk to all other producers. But this has to be on a level playing field,” Opec Bulletin said. (…)

US oil output in June fell to 9.3m barrels per day, down from a peak of 9.6m barrels a day in April, the Energy Information Administration said. EIA said production in the first six months of 2015 averaged 9.4m b/d, revised from 9.5m b/d, as the agency released its first monthly report of crude oil production based on a new survey method. (…)

Everybody seems surprised that U.S. oil production has been falling. Bearnobull has been documenting that since May with the declines in petroleum carloads as reported by the Association of American Railroads. New update on that next Monday.

Drop In Oil Prices Stimulating Demand

Our monthly analysis of global oil demand shows that the plunge in oil prices is stimulating usage, which suggests that the windfall is boosting economic growth around the world. Over the past 12 months through July, world oil demand rose to a record 94.6mbd, and is up 1.9% y/y, up from just 0.8% a year ago.

The growth rebound can be seen in both advanced and emerging economies. Oil demand was up 5.4% in China during July, from 0.2% a year ago, to a new record high. India’s usage is up 5.6%, the fastest pace since May 2008.

So why are oil prices so low? There’s too much supply. Our ratio of global oil demand to world oil supply fell to 1.01 during July, the lowest since February 2007.