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: January 2017

THE DAILY EDGE (13 January 2017)

EUROPE ON THE UPSWING
Industrial production up by 1.5% in euro area

In November 2016 compared with October 2016, seasonally adjusted industrial production rose by 1.5% in the euro area (EA19) and by 1.6% in the EU28, according to estimates from Eurostat, the statistical office of the European Union. In October 2016 industrial production rose by 0.1% in the euro area, while it fell by 0.1% in the EU28.

In November 2016 compared with November 2015, industrial production increased by 3.2% in the euro area and by 3.1% in the EU28.

image

image

Spotty but clearly moving up strongly.

  • Labor demand is improving. (The Daily Shot)

Source: Credit Suisse, @NickatFP, @joshdigga

  • And inflation has returned.

China December Exports Tumble Sharply Chinese exports fell sharply owing to weak demand in many major markets, and the country is bracing for further difficulties this year given the prospect of a more protectionist Trump administration.

Exports slipped 6.1% in December from a year earlier compared with a 0.1% gain in November, China’s customs administration said Friday. December’s decline was steeper than the drop of 3% that was the median estimate of 11 economists polled by The Wall Street Journal. It also made December the eighth month out of the past nine in which exports fell, with November’s small increase the exception.

Imports in December rose 3.1% from a year earlier, roughly in line with expectations, compared with a 6.7% gain in November. China’s trade surplus narrowed last month more than expected to $40.82 billion from $44.61 billion in November.

Overall in 2016, exports fell 7.7% and imports declined 5.5%, resulting in an annual trade surplus of $510 billion, below the $594.5 billion trade surplus in 2015.

Chinese exports saw slipping demand across all major regions except the U.S., which saw a 5% increase, according to the customs data. (…)

Ministry of Commerce spokesman Sun Jiwen, a day earlier, cited mounting protectionism as a challenge and said that Beijing will “try all methods” to stabilize trade, including steps to help exporters expand foreign markets and become more competitive. (…)

Thinking smile Forecasters See Upside Risks to Their Economic Outlooks The election of Donald Trump has economic forecasters thinking hard about something that hasn’t been a problem for a while: upside risks. In a Journal survey, 64% of respondents said the risk was to the upside, the highest in over two years.

(…) The average forecast is for GDP growth of 2.4% in 2017 and 2.5% in 2018. That is a 0.2 percentage point increase for 2017 and 0.5 percentage point for 2018.

Forecasts also call for slightly higher inflation and interest rates over the next two years, and a somewhat lower unemployment rate by the end of 2018. The odds of a recession over the next year have declined for six months in a row and are now 16% from as high as 22% last summer, according to survey respondents. (…)

Punch How about that risk to the upside?

Source: @Schuldensuehner (The Daily Shot)

Meanwhile:

Source: @epomboy, @jessefelder (The Daily Shot)

SENTIMENT WATCH
The Market Has Already Started to Dump Trump

Markets responded to Donald Trump’s rambling news conference on Wednesday by dumping Trump. The dollar and pharmaceutical and biotechnology stocks were sold, bonds were bought and stocks once regarded as out of favor with the president-elect outperformed.

This could be taken as a sign that investors prefer their presidents to be presidential. But it was also a confirmation of a move under way in the stock market for more than a month. The post-election Trump rally ran out of steam by mid-December, as hopes of a boom faded. (…)

The case for buying shares now is that the loss of enthusiasm for Mr. Trump within the market is just a pause after a rally driven by hope, while investors wait for signs of how the new president will behave.

The concern is that the U-turn in Trump trades is a signal that the market is already paying more attention to Mr. Trump’s potential negatives, such as attacks by tweet on individual companies, aggressive diplomacy against China and the risk of a trade backlash.

Either way, his news conference certainly didn’t help.

Donald Trump’s Tweets: A Trader’s Dilemma Investors are grappling with Mr. Trump’s visible but capricious social-media presence, which is upending how Wall Street thinks about trading.

(…) The president-elect has tweeted more than 300 times since the election. Excluding media companies, he has called out publicly traded companies by name or product in 18 separate tweets, including Boeing Inc., Ford Motor Co., and United Technologies Corp. unit Carrier Corp.

Big firms haven’t been the only targets. Shares of Rexnord Corp., a maker of bearings and gears with a market capitalization of $2.2 billion, fell as much as 2.5% last month on the first trading day after Mr. Trump took aim at the Milwaukee company’s plans to move jobs to Mexico. Trading volume was double the daily average. (…)

An E*Trade survey earlier this month of more than 900 active investors with at least $10,000 in an online-brokerage account found that three-fifths of those aged 25 to 34 had traded based on a tweet by Mr. Trump. Among those between 35 and 54, 36% had done so, and among those 55 and over, 20% had.

While many large trading firms increasingly depend on electronic algorithms that can be programmed to buy or sell an instant after an economic-data release or corporate-earnings report, the unscripted nature of Mr. Trump’s tweets poses a challenge.

High-speed trading strategies can quickly identify that a stock was referenced in a tweet. But discerning whether the underlying message is bullish, bearish or indifferent presents a significant programming challenge. (…)

TRUMPISMS

Could be the beginning of a lengthy list…’Cause the Donald can swing!

  • Trump vs Streep

It’s funny that President-Elect Donald Trump thinks Meryl Streep is “overrated”—now that she has taken the stage during a nationally televised broadcast to criticize him in an eloquent, impassioned speech that has since inspired both the wrath of Republicans and over $60,000 in donations to the Committee to Protect Journalists. Why is it funny? Because just a year and a half ago—before Trump was elected president and Streep publicly attacked him—Trump actually called her one of his favorite actresses.

In 2015, when asked if there were any actresses that he is particularly fond of, Trump name-checked the Oscar winner.

“Julia Roberts is terrific, and many others,” Trump told The Hollywood Reporter’s Janice Min, before adding, “Meryl Streep is excellent; she’s a fine person, too.” There you have it—in 2015, before she had insulted him, Trump considered Streep to be great, professionally and personally. (Vanity Fair)

THE DAILY EDGE (12 January 2017)

Trump’s tax cuts may pressure U.S.’s top credit rating: Fitch

(…) “Even before elections the U.S had the highest level of government debt of any triple-A country. If we add on top of that Trump’s plans to cut taxes by $6.2 trillion over the next 10 years that could add around 33 percent to U.S. government debt,” he added. (…)

Other countries around the world could be in line for ratings cuts in 2017. Fitch’s negative outlooks on sovereign ratings currently outweigh positive outlooks by a factor of 6:1. (…)

German GDP Grows at Fastest Rate in Five Years Germany’s economy grew strongly, propelled by a buoyant labor market and a pickup in government spending, likely making it one of the fastest-growing of the G-7 industrialized nations.

Germany’s gross domestic product expanded by 1.9% in 2016 from 2015 in inflation-adjusted terms, the Destatis statistics body said Thursday.

A statistician with Destatis said Thursday that gross domestic product probably expanded by around 0.5% in the fourth quarter from the third quarter. An official forecast is due Feb. 14. (…)

The Bundesbank forecast in December that inflation, measured according to European Union harmonized standards, would rise to about 1.4% in 2017 from 0.3% in 2016. (…)

Government spending rose 4.2% in 2016 from 2015, according to Destatis. Household consumption increased 2.0%, while construction investment rose 3.1%.

A 2.5% rise in exports, meanwhile, was outstripped by a 3.4% increase in imports. Investment in plant and machinery was lackluster, up 1.7% from the 2015. (…)

China’s Car Sales Rose Fastest in Three Years in 2016 More than 24 million vehicles were sold in China in 2016, 15% more than the year before, but sales are expected to slow considerably this year.

A total of 24.38 million vehicles were sold in 2016, 15% more than the year before, the China Association of Automobile Manufacturers said Thursday. It was the strongest expansion since 2013 when sales grew 16%.

The car-manufacturers’ group predicted a considerably slower 5% rise in China’s car sales this year, however.

By contrast the U.S. sold a record 17.55 million light vehicles last year, an increase of less than 1% from the year earlier.

Domestic and foreign auto makers shipped a record 2.67 million passenger vehicles—sedans, crossovers and minivans—to dealers in December, 9% more than the same period in 2015, the association said.

Mr. Xiao said dealer inventories dropped quickly in the last two months of 2016 because of a rush by consumers to beat the expiration of the purchase tax discount.

Buyers of cars with engines up to 1.6 liters last year paid a 5% purchase tax. This year, buyers of such cars will instead pay a 7.5% rate. Although the duty is still lower than the normal 10%, the weaker stimulus measure will put pressure on manufacturers to ramp up their own discounts. (…)

Overall production capacity in China’s car market will rise by 10% this year, compared with demand growth of about 7%, says investment bank UBS. (…)

Sport-utility-vehicles remained the brightest spot in the Chinese market in 2016, with more than 9 million sold, up 45% from a year earlier. Ford Motor Co.’s overall China sales rose 14% to 1.27 million on strong demand for its expanded lineup of SUVs such as the Edge and the Explorer. (…)

China sold 336,000 electric cars last year, including both full and plug-in hybrid electric cars, up 62% from a year earlier.

Chinese Bank Lending Up Sharply in December Chinese banks greatly increased their lending in December, official data showed, possibly signaling a takeoff in corporate demand as Beijing continues to try to stabilize economic growth.

Chinese financial institutions issued 1.04 trillion yuan ($149.9 billion) in new yuan loans in December, up from 794.6 billion yuan in November, the People’s Bank of China reported Thursday.

The jump was a surprise, said Chen Ji, an economist at Bank of Communications, given that banks normally scale back on lending at the end of the year. They are constrained by annual loan quotas issued by the central bank. (…)

Medium- and long-term loans to nonfinancial corporations, a gauge of corporate-sector demand, came to 695.4 billion yuan, more than three times November’s 201.8 billion yuan, according Wall Street Journal calculations based on the central-bank data. (…)

Medium- and long-term household loans, predominantly mortgage loans, came to about 421.7 billion yuan, accounting for 41% of the new loans issued in December. That is down from around 72% in November. (…)

Total social financing, a measure of credit in the economy that includes both bank and nonbank financing, came to 1.63 trillion yuan in December, down from 1.74 trillion yuan in November.

China’s broadest measure of money supply, M2, ended December up 11.3% from a year earlier, slowing slightly from November’s 11.4% pace and short of the economists’ forecast, also 11.4%.

Another measure, M1, which covers liquid assets such as cash and demand deposits, ended December up 21.4% from a year earlier, down from November’s 22.7% pace.

US shale oil output remains resilient despite rig count fall Increasing productivity will be closely watched by Opec and other oil exporters

(…) Oil watchers obsess over the “rig count” statistics released each Friday by Baker Hughes, an oilfield services company. The tally is a good indication of oil companies’ intentions to expand supply. The 529 rigs now deployed are 213 more than the low in May and currently top the sum in the field a year ago, reflecting producers’ response to a modest rebound in crude prices to more than $50 a barrel.  But the rig count is only part of the picture. While the number of US oil rigs is two-thirds less than the peak in October 2014, the EIA estimates that US onshore crude oil production has shrunk only 6 per cent. (…)

From The Daily Shot:

Stocks, Dollar Fall on Lack of Clarity on Trump Stimulus Pharmaceutical shares and bond yields fell Thursday while the dollar continued to weaken as investors world-wide digested comments President-elect Donald Trump made at his news conference.

(…) Drugmakers also fell sharply in Australia and Japan, echoing a drop in their U.S. peers Wednesday when Mr. Trump said the drug industry was “getting away with murder” and called for “new bidding procedures.” (…)

Analysts said a lack of clarity around Mr. Trump’s stimulus plans and trade policies at the news conference disappointed some investors who had hoped for more details on his plans to cut taxes and reduce regulation. (…)

  

U.S. vs CHINA

Bad news for US grain traders and ethanol producers – China has slapped higher-than-expected anti-dumping tariffs on a US animal-feed ingredient made from a by-product of corn ethanol production.

Trade tensions between the US and China are expected to increase after Beijing announced duties on distillers dried grain with solubles (DDGS) ranging from 42.2 per cent to 53.7 per cent, sharply higher than the 33.8 per cent figure in the Commerce Ministry’s preliminary decision in September. Anti-subsidy tariffs will be 11.2 per cent to 12 per cent, the ministry said.

The Obama administration is expected to launch a formal complaint Thursday against the Chinese government with the World Trade Organization over subsidies it says Beijing provides to the country’s vast aluminum industry, according to people familiar with the matter.

The complaint would represent an escalation of trade disputes between countries with the world’s two largest economies almost a week before Donald Trump assumes the U.S. presidency. Mr. Trump suggested again Wednesday in a news conference that trade relations with Beijing would be a top priority, saying the U.S. trade imbalance with China was too large. (…)

Confused smile Invest and Profit With the POTUS Indexes

(…) To help you make sense of this, we have created two indexes based on Donald Trump’s tweet and other pre-presidential utterances. (…)

Contact: edgeandodds [at] gmail.com