Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

Month: November 2016

THE DAILY EDGE (1 November 2016)

U.S. Consumer Spending Rose 0.5% in September Consumer spending climbed 0.5% in September, a sign of resilience among households amid signs of flagging confidence in the economy.

Incomes gained 0.3%.

Economists surveyed by The Wall Street Journal had expected personal spending and income both to increase 0.4% in September. (…)

Monday’s figures showed purchases of autos and other big-ticket items surged in September—spending on durable goods climbed 1.3%.

Americans also saved a little less. The personal saving rate fell to 5.7% from 5.8% the prior month. (…)

The personal-consumption expenditures price index, the Federal Reserve’s preferred inflation measure, rose 0.2% in September from the prior month. From a year earlier, the index was up 1.2%. That was the firmest year-over-year reading since November 2014.

So-called core prices, which exclude the volatile categories of food and energy, advanced 0.1% from the prior month and were up 1.7% from a year earlier. (…)

When adjusting for inflation, consumer spending climbed 0.3% in September from the prior month. Inflation-adjusted disposable personal income—income after taxes—was flat.

Q3 slowed sequentially as this Haver Analytics table shows. Real PDI and spending: +1.6% SAAR.

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This is not a healthy trend:image

Plate The Commerce Dept.’s data include a 1.2% rebound (3.5% YoY) in restaurant & accommodations spending (3.5% YoY) in September which was confirmed by the National Restaurant Association’s own stats:

Driven by an overall increase in operators’ current situation, the National Restaurant Association’s Restaurant Performance Index (RPI) advanced in September. The RPI stood at 100.8, up 1.2 percent from August.

“September’s RPI uptick was aided by gains in the current situation indicators, which have been soft in recent months,” said Hudson Riehle, senior vice president of research for the National Restaurant Association. “Meanwhile, the forward-looking indicators are becoming more muted. Operators are decreasingly optimistic looking toward the months ahead. In fact, three in 10 operators say they expect economic conditions to worsen in the next six months.”

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The Current Situation Index stood at 101.0 in September – up 2.5 percent from a level of 98.6 in August. September’s reading of the current situation indicators was the highest level since April, and lifted the index back into expansion territory above 100. Restaurant operators showed the strongest same-store sales results since April; 49 percent reported a same-store sales increase between September 2015 and September 2016. Similarly, they also reported stronger customer traffic levels, though results were still mixed overall. Forty percent of restaurant operators reported an increase in customer traffic and 39 percent reported a traffic decline.

German Retail Sales Drop Is Largest in Two Years

large imageGerman retail sales (excluding autos) fell off sharply in September as the largest drop in two years was logged. (…)

The year-on-year gain in nominal German retail sales is at 0.4% while real sales ex-autos show a drop of 0.2% over 12 months. Both real and nominal sales show sequential growth rates that are getting progressively weaker on shorter horizons. (…)

However, car registrations in Germany have been holding up. They expanded by 2% in September (month-on-month) and are up by 9.1% over 12 months. Registrations, however, are still contracting on balance over three months. (…)

Other early European retail sales reporters include the U.K., France, Spain and Portugal. Sales are weak or lower in September of each of these countries except Spain where real sales rose by 0.6% in September (but after a 0.9% drop in August). Still, the sequential growth rates of real retail sales in these countries generally shows growth and firming with the exception of Spain and Portugal. In Spain sales slowed on balance over three months while in Portugal sales dropped over three months. Still, sales are growing year-over-year in each of these countries with the slowest annual growth in France at just 1.2% over 12 months.

In the quarter-to-date, sales are generally strong as well. In the U.K. sales are up at a 7.3% pace in Q3 compared to an 11% pace for Portugal and a 3.9% pace for Spain. Sales in France, however, are the exception; they are falling in Q3 at a -0.2% annualized rate.

German retail sales have declined MoM in 8 of the last 12 months (chart from The Daily Shot)

  • South Korea’s retail sales see the largest monthly decline in years. (The Daily Shot)
Asset Bubbles Threaten China’s Economy Easy credit and fiscal stimulus are inflating prices and volatility across Chinese financial markets. Some Chinese leaders worry the investing binge has gone too far, producing hazardous economic side effects.

(…) The biggest apparent bubble is in housing, but prices have surged for niche assets, too, such as calligraphy, antiques and art. In May, futures prices for soybean meal, used as pig feed, jumped 40%. The trading volume of 600 million tons was nine times higher than China’s annual consumption. The pipe-making material PVC is up 40% so far this year on the Dalian Commodity Exchange. (…)

Apartment prices in Shenzhen rose 47.5% last year, according to real-estate firm Knight Frank. That was the largest increase in the world and almost twice the 25% jump in the second-place city, Auckland, New Zealand. (…)

Jiangsu Shagang Co., a publicly traded steelmaker that posted a loss for 2015, swung back to profitability in the first half of this year partly because the steel-futures jump made Shagang’s rebar worth more.

Even Shagang is a speculator. To offset a difficult business climate, Shagang has diversified into “financial futures…venture/risk investment, real estate, etc.,” according to its website. Shagang declined to comment. (…)

Xiao Chaojiang, who runs Shenzhen Ruike Investment, a fund with $30 million in assets, said he has profited by jumping from stocks to steel rebar futures to iron ore to soybean meal to cotton. He is now considering other agricultural sectors. (…)

Deflating the asset bubbles poses risks for China. Some unprofitable state businesses need easy money to roll over other debts that they can’t pay. At least for now, officials are trying to control each bubble as it arises. (…)

A few charts from The Daily Shot:

  

  

Money Over Half A Trillion In M&A: October Mergers Smash All Records With $500.1 Billion In Deals

BlackRock: A Consequential Election. Impact of 2016 US election on investing

Tks Freddie:

• Washington decision making is likely to become more fractious regardless of the Nov. 8 election result. Divisions between and within the Republican and Democratic Parties have been growing, and an outcome whereby neither party would have a significant majority in the House of Representatives is a possibility. This could make it harder to reach consensus on legislation, potentially heralding a return to dramatic showdowns over budget issues.

• Yet corporate tax reform and increased spending on infrastructure appear to have some bipartisan support — and would be a ripe area for negotiation in a divided Congress. Infrastructure spending should boost growth more than usual amid rock-bottom rates, in our view. We offer some of our own policy thoughts, including steps to address a looming retirement crisis and to entice private capital to finance infrastructure.

• A growing backlash against free trade and immigration threatens to make economies more insular — at a time when economic growth and productivity in many countries are barely above stall speed. Emerging markets have the most to lose, especially under a victory by Republican nominee Donald Trump. Mexico is a clear potential loser given its heavy reliance on exports to the US.

• The US election campaign suggests rising populist sentiment is likely here to stay. We also see potential changes to income taxes, with ripple effects on US municipal bonds. We focus on two sectors that could be most affected by the election: financials and health care. Mergers and acquisitions are set to face increased scrutiny if Democratic nominee Hillary Clinton prevails, as her party appears to view anti-trust enforcement as a tool to boost competition and address inequality.

CHINA MANUFACTURING PMI, INFLATION TICK UP

Chinese manufacturers signalled an improvement in growth at the start of the fourth quarter, with output expanding at the quickest rate in over five-and-a-half years amid a rebound in new order growth. Stronger demand appeared to be led by improved domestic orders, however, as the level of new export sales fell slightly over the month.

Meanwhile, companies cut their staff numbers at the slowest pace in 17 months, while backlogs of work continued to accumulate. Inflationary pressures picked up sharply in October, with input cost inflation accelerating to its fastest since September 2011 and output charges rising to the greatest extent since February 2011.

The seasonally adjusted Purchasing Managers’ Index™ (PMI™) posted 51.2 at the start of the fourth quarter, up from 50.1 in September. This signalled a moderate improvement in the health of the sector that was the greatest since July 2014.

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Stronger growth in production supported the higher headline index reading in October. Furthermore, the latest increase in output was the fastest since early 2011. According to panellists, improved inflows of new work underpinned the expansion in production. This was highlighted by a further rise in total new orders in October, with the rate of growth quickening to a 27-month record. However, improved intakes in new work appeared to be driven by stronger domestic demand, as new export business declined slightly in October.

Despite increased production, stocks of finished goods increased only marginally during the latest survey period. According to respondents, the increased use of current inventories to meet new orders had dampened the overall rate of stock accumulation.

The trend in falling employment softened at the start of the fourth quarter. This was highlighted by the weakest decline in staff numbers since May 2015 during October. Companies that cut their workforce numbers generally commented on company down-sizing as part of efforts to reduce costs. This contributed to further pressure on operating capacity, as shown by the eighth successive monthly rise in backlogs of work.

Faster growth in new orders and output led firms to raise their purchasing activity over the month. The rate of expansion remained modest, however, despite quickening to a three-month high. At the same time, inventories of purchased goods declined, albeit marginally. Anecdotal evidence attributed the fall to the increased use of inputs to meet higher production schedules.

Chinese manufacturers signalled a sharp and accelerated increase in average cost burdens in October. Furthermore, it was the quickest rate of input price inflation for just over five years. Companies generally passed on greater production costs to clients by raising their output charges at a similarly sharp rate. Notably, it was the fastest rate of charge inflation since February 2011.

  • China’s official manufacturing purchasing managers index rises to 51.2 in October

China’s official manufacturing purchasing managers index increased to 51.2 in October from September’s 50.4, the National Bureau of Statistics said Tuesday. The reading, the third straight month of expansion, beat a median forecast of 50.3 by 11 economists polled by The Wall Street Journal.

The improvement appeared broad-based: subindexes for new orders and production all rose. An official index for nonmanufacturing activity also edged up, to 54.0 in October from 53.7 in September.