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: December 2018

THE DAILY EDGE: 5 DECEMBER 2018

China Swings Into Action on Trade as ‘Tariff Man’ Trump Ups Pressure China said Wednesday the trade meeting with the U.S. was “very successful”.

Beijing will start to quickly implement specific items where there’s consensus with the U.S. and will push forward on trade negotiations within the 90-day “timetable and road map,” the Ministry of Commerce said in a statement on Wednesday morning in China.

Hours later, Bloomberg News reported that officials have begun preparing to restart imports of U.S. soybeans and liquefied natural gas — the first sign confirming the claims of President Donald Trump and the White House that China had agreed to start buying some U.S. products “immediately.” In the afternoon, a Ministry of Foreign Affairs spokesman said China hopes to speed up talks and is devoted to finding a solution to settle issues. (…)

China Says There Is ‘Clear Timeline’ on Trade Negotiations Beijing is beginning to flesh out details of a weekend tariff truce with the U.S., after days of vague Chinese statements and a barrage of comments from President Trump and other administration officials.

China’s Commerce Ministry in a statement Wednesday acknowledged for the first time that Beijing on Saturday agreed to a 90-day cease-fire to allow negotiations to take place. The statement, attributed to an unnamed spokesman, said that the negotiations have a “clear timeline and road map” and that China aims to quickly implement “an agreed upon consensus.”

The Chinese statement said “the Chinese side will work to carry out the items on which consensus has been reached, the sooner the better.”

Also this week, key government agencies and China’s supreme court announced tough punishments for infringing on intellectual property—a prominent complaint by the Trump administration. (…)

Chinese officials have suggested that China will step up purchases of U.S. farm and energy products such as soybeans and natural gas as part of Saturday’s deal. Demand for those products is immense. Still, it’s unclear how large China’s purchases will be and whether Beijing will remove the punitive tariffs or offer rebates to the buyers. (…)

Beijing still has yet to confirm many of the items the Trump administration has said were decided on Saturday.

The Commerce Ministry’s statement also didn’t specify a start date for negotiations nor say when the 90-day clock would start ticking; U.S. officials, after some confusion, say it started on Saturday, meaning the deadline would fall around March 1. Mr. Trump has tweeted that the deadline could be extended. (…)

In a recent joint statement, three dozen Chinese government agencies and official bodies laid out 38 punishments for companies that violate intellectual property rights. The punishments go into effect this month and include restricting the violators’ access to financing, including state subsidies.

The statement was dated Nov. 21 but only made public Tuesday. (…)

Mr. Trump, in a series of tweets Tuesday morning, said he expected to see China start buying more U.S. agricultural exports immediately, which the U.S. said had already been agreed upon in the meeting between Mr. Trump and Chinese President Xi Jinping in Buenos Aires, a commitment Beijing hasn’t commented on.

“When people or countries come in to raid the great wealth of our nation, I want them to pay for the privilege of doing so,” he said, adding: “I am a tariff man.” He also noted that the U.S.’s 90-day deadline for negotiations began last weekend. (…)

Mr. Mnuchin emphasized that the Argentina meeting marked the first time that China responded to U.S. demands with specific commitments. He didn’t expand much on the commitments beyond saying the U.S. and China engaged on topics including intellectual property rights and joint ventures.

Mr. Mnuchin said it is significant Chinese senior leaders are willing to engage. He acknowledged differences in opinions on China among Mr. Trump’s top advisers, but insisted that it was standard to have a range of views within any administration.

Mr. Trump tweeted U.S. Trade Representative Robert Lighthizer will be working closely with Mr. Mnuchin, Commerce Secretary Wilbur Ross, Mr. Kudlow and China adviser Peter Navarro to determine whether a deal is possible.

“President Trump said in the meeting with (Chinese President Xi Jinping), even joked, about the fact that we have different people with different views,” Mr. Mnuchin recalled. “President Xi smiled and said ‘yeah, I have the same thing across my table’.”

Workers at a Boeing Co. plant in Los Angeles are nearing completion of a new satellite, which uses restricted technology relied on by the U.S. military. It was ordered by a local startup that seeks to improve web access in Africa.

In reality, the satellite is being funded by Chinese state money, according to corporate records, court documents and people close to the project.

About $200 million flowed to the satellite project from a state-owned Chinese financial firm in a complex deal that used offshore companies to channel China’s money to Boeing. It included a discussion with a longtime friend of China’s president, said the startup’s founders. (…)

The American founders of the startup, Emil Youssefzadeh and Umar Javed, said they told Boeing from the outset over two years ago that Chinese government money was financing their satellite order. Later, they warned Boeing the Chinese financiers were actively interfering in the project. (…)

(…) “Plainly said: there is state-sponsored espionage in Canada,” said Mr. Vigneault Tuesday, according to published remarks at a luncheon hosted by the Economic Club of Canada. “No matter how it’s done or who’s behind it, economic espionage represents a long-term threat to Canada’s economy and to our prosperity.”

His remarks avoided citing which states are operating covertly in Canada. However, Mr. Vigneault said  sectors where CSIS has observed increased activity by state-sponsored actors include artificial intelligence, quantum technology, 5G mobile networks and biopharmaceuticals. (…)

Eurozone economic growth continues to slow in November

After accounting for seasonal factors, November’s final IHS Markit Eurozone PMI® Composite Output Index registered its lowest level since September 2016. Posting 52.7 in November, the index was down from October’s 53.1 though slightly higher than the earlier flash estimate of 52.4.

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It was in Germany where the euro area’s growth slowdown was centred, with latest data showing the weakest expansion here in nearly four years. However, Italy remained the imageweakest-performing country, with activity slightly down for a second successive month. In contrast, firmer growth was seen in Ireland, France and Spain, although rates of expansion remained down on those seen earlier in the year.

Goods producers did, however, record only a marginal increase in output, the weakest in the current expansionary cycle which began in July 2013. Service sector growth remained at a solid level, albeit the weakest seen in over two years.

The downturn in overall activity growth was closely correlated with a similar fall in the rate of new business expansion to a 27-month low. Jobs continued to be created during November, albeit to a lesser degree than seen in previous months. Although solid, employment growth was the slowest recorded since the start of 2017 with weaker gains seen in Germany, France and Ireland.

Where jobs were created, growth was linked to ongoing capacity pressures as evidenced by another increase in backlogs of work. However, with falls in unfinished business seen in Germany and Italy, plus slower growth in France, the net gain in overall work outstanding was only marginal.

On the price front, input cost pressures remained elevated in November and above the survey’s long term trend. There were reports of increased wages being paid, plus ongoing evidence of high energy and fuel bills. Higher input prices encouraged companies to raise their own charges. Competitive pressures, however, served to restrict pricing power, especially in Italy, France and Spain where only modest rates of inflation were recorded. Subsequently, output charges at the aggregate level rose to the weakest degree for six months.

Finally, expectations regarding activity were at their lowest level in nearly four years during November. Political and economic uncertainties, especially around trade, continued to weigh on sentiment.

The final IHS Markit Eurozone PMI® Services Business Activity Index was slightly down on October’s 53.7 during November, dropping to a level of 53.4. That was the lowest reading recorded for over two years.

New business volumes also rose at the slowest rate in over two years but at a sufficiently strong enough degree to generate another rise in work outstanding. Backlogs rose modestly and have now increased throughout the past two-and-a-half years. Rising workloads subsequently encouraged further job creation, with growth in staffing levels remaining solid despite easing to a six-month low. The sharpest increases in employment were again seen in Germany and Ireland, which also recorded the strongest rises in input costs amid evidence of higher wages being paid.

With energy and fuel costs also reported to be higher, overall input prices in the eurozone service sector continued to increase at an elevated rate. In response, output charges were again raised at a solid pace although limited pricing power in France, Italy and Spain served to restrict overall inflation.

Finally, business confidence deteriorated to its  lowest level since August 2016. Optimism about the future was at its lowest level for two years in both France and Germany.

Chris Williamson, Chief Business Economist at IHS Markit:

(…) The survey responses highlighted intensifying headwinds of Brexit and trade war worries, a struggling autos sector and rising uncertainty regarding the economic and political outlook. Business optimism is running at its lowest since late 2014, adding to downside risks for growth as we move into 2019. Furthermore, hiring, which has hitherto shown surprising resilience as firms have hoarded labour despite the slowdown in demand, is now also showing signs of weakness. Employment growth in November was the lowest for almost two years.

(…) with Germany reporting the weakest growth for nearly four years, the survey raises question marks about the extent to which GDP will rebound in the fourth quarter. Growth looks more resilient in France and Spain, thanks mainly to robust service sector performances.

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Chinese business activity rises modestly in November

The Caixin China Composite PMIâ„¢ data (which covers both manufacturing and services) pointed to a stronger rise in total business activity across China in November. Notably, the Composite Output Index rose from a 28-month low of 50.5 in October to 51.9 in November, to signal a modest rate of expansion.

The stronger performance was supported by a rebound in activity across the service sector, as manufacturing production was stable for the second month in a row. Furthermore, the latest upturn in services activity was the most marked for five months, with the seasonally adjusted Caixin China General Services Business Activity Index climbing from October’s 13-month low of 50.8 to 53.8 in November. According to panellists, improved underlying demand conditions and greater client numbers contributed to higher activity levels. At the same time, relatively subdued demand across the manufacturing sector meant that factory output remained unchanged.

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In line with the trend for activity, services companies signalled the steepest increase in total new orders since June during November. That said, the rate of expansion was moderate overall. New business meanwhile rose at a quicker, albeit still marginal, pace across the manufacturing sector. At the composite level, total new work increased at a modest rate that was the strongest for five months.

Divergent trends were seen regarding export sales, with Chinese service providers noting a modest increase in new business from abroad while manufacturers saw a further decline. New export work at the composite level consequently fell for the eighth month running.

Expectations that new orders will rise further in the coming months led services companies to increase their workforce numbers for the second consecutive month. That said, the rate of job creation remained marginal, and failed to offset a further modest reduction in manufacturing employment. As a result, overall staff numbers fell for the sixth month in a row, albeit marginally.

Outstanding business at service providers fell slightly for the third month in a row during November amid reports of greater efforts to clear backlogs. In contrast, unfinished workloads continued to expand at manufacturing companies. Taking both sectors into account, the amount of work-in-hand (but not yet completed) rose marginally at the composite level.

Average input costs continued to rise across both the manufacturing and service sectors during November, and at similarly solid rates. However, the latest increase in manufacturing cost burdens was the weakest seen for seven months, while the rate of cost inflation was unchanged from October across the service sector.

Prices charged by Chinese companies were unchanged from the previous month in November. Data broken down by sector showed that a fractional decline in factory gate prices offset a slight increase in charges set by service providers. Companies widely commented that relatively subdued demand conditions and efforts to remain competitive had weighed on overall pricing power.

Businesses operating in China remained optimistic that output would increase over the next year, but confidence remained subdued in the context of historical data. Although sentiment among manufacturing firms picked up from October’s 11-month low, it remained among the lowest seen in the series history. At the same time, services companies expressed the weakest level of optimism since July, with a number of respondents citing concerns over the strength of future client demand and intense competition.

FINANCIAL SERVICES

Mark alerted me to this Dec. 4 Goldman Sachs Financial Services conference in NYC accessible here. Mark helpfully guides us through the process:

Example.  If you click through the BNY Mellon links for a certain conference (scroll down in email), it might say who is presenting or you can google “Goldman Sachs Financial Services Conference” – then you find a press release that Wells Fargo presenting.

They provide the link – https://cc.talkpoint.com/gold006/120418a_as/?entity=25_5TQY87E

You take the link and delete “?entity=25_5TQY87E” – you get to the main section of the webcast.

THE DAILY EDGE: 4 DECEMBER 2018

U.S. Light Vehicle Sales Remain Firm

Sales of light vehicles eased 0.2% (-0.8% y/y) during November to 17.49 million units (SAAR), but remained near the highest level in twelve months.

Passenger car sales declined 4.8% (-14.5% y/y) last month to 5.37 million units and reversed the modest increase during October. (…) Light truck sales increased 1.9% in November to 12.12 million units and reversed the prior month’s decline. Sales were nearly at the record high and up 6.8% y/y. (…)  Sales of imported light trucks improved 0.8% (17.6% y/y) to a new record of 2.41 million units. Imports share of the light truck market was little changed at 19.9% which remained near the cycle high, up from the low of 12.7% in 2014.

Trucks’ share of the U.S. vehicle market reached a record 69.3% last month. This compared to 47.3% at the low during all of 2009. (…)

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(…) “As a matter of our policy, we want to end all those subsidies,” Lawrence Kudlow said on Monday. “And by the way, other subsidies imposed during the Obama administration—renewables, etc. We are a free market.” (…)

On Monday, Mr. Kudlow said the president was referring to an Obama-era stimulus package that created a $7,500 consumer tax credit for the purchase of electric cars. He said the president’s considerations about revoking subsidies may not be directed specifically at GM, noting, “legally, you really can’t.”

It is unclear whether the president has the authority to take this type of action because the stimulus package was created by legislation. (…)

GM is nearing a sales cap of 200,000 electric cars per manufacturer, which begins a phaseout of the tax credit for its customers. Tesla hit the 200,000-vehicle limit in recent months, which means new Tesla buyers will get smaller tax credits in coming quarters before the incentive goes away entirely.

Other auto makers such as Volkswagen AG and Ford Motor Co. have said they plan to introduce many electric car models in coming years. If the tax credit remains in place, their customers would be eligible for the $7,500 incentive while GM’s and Tesla’s wouldn’t.

“If the president took a more drastic step and eliminated the credit for the entire industry…this could possibly even give GM an advantage,” Edmunds.com analyst Jeremy Acevedo said. (…)

U.S. Construction Spending Continues to Weaken

The value of construction put-in-place eased 0.1% (+4.9% y/y) during October. The weakening was the same as in September, revised from no change. It followed a 0.4% August decline, revised from +0.8%. A 0.4% increase had been expected in the Action Economics Forecast Survey.

In the private sector, activity fell 0.4% (+3.9% y/y) and reversed a 0.4% September gain. Residential building activity deceased 0.5% (+1.8% y/y) following a 0.1% uptick. Single-family construction fell 0.5% (+2.4% y/y), down for seven months in the last eight. Multi-family construction improved 1.0% (3.2% y/y) after a 7.1% surge. Home improvement activity fell 0.9% (+0.4% y/y) and has been falling all year.

Nonresidential construction in October fell 0.3% (+6.4% y/y) after a 0.7% rise. (…)

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THE “INCREDIBLE” DEAL!
Trump’s Advisers Struggle to Explain Deal He Claims He Cut With Xi
‘He Said, Xi Said’

(…) Officials in Washington and Beijing gave sharply different takes on what Trump and Xi had agreed to during their two-hour steak dinner in Buenos Aires, and there was no joint statement afterward in English and Chinese. (…)

Dan Clifton of Strategas Research says in a note to clients today that presidents become more pro-growth after midterm elections:

We noticed President Trump’s tone towards China started to become more constructive on November 1st. This is consistent with previous presidents who suffer setbacks postmidterm election and begin to worry about their own re-election. In the past we have seen presidents throw out long-held ideological beliefs to get GDP higher ahead of their own re-election. Just think about President Obama almost to the day eight years ago agreeing to extend all of the Bush tax cuts past his reelection after years of promising to get rid of those tax cuts. Trump has long-held beliefs on China and wants structural reforms. But the President also needs cap ex to boost growth ahead of the election and this allows for a more flexible position on China ahead of the presidential election. If progress is being made in the discussions we could see the 90 day deadline extended.

Matthews Asia’s Andy Rothman shares this view:

(…) Trump appears to have abandoned, at least for the moment, his isolationist path. This change is presumably motivated by the realization that a trade war with America’s largest trading partners would damage the U.S. economy and equity markets, and thus the president’s re-election chances. (…)

Trump will have to accept that the U.S. must share economic and strategic power with a rising China, while continuing to take steps to help shape how Beijing uses its influence. Washington will also have to accept that while the past three decades of economic engagement have promoted significant change within China—from no private sector, to an economy where 85% of urban employment is with small, entrepreneurial firms; accompanied by a broad expansion of personal freedom—fundamental changes to China’s political structure cannot be dictated by outsiders, but are very likely to evolve as the country becomes wealthier.

The Xi administration will have to accept that along with its professed desire to use its rising power within the existing global infrastructure, comes a responsibility to follow the rules of that system and to be transparent. Xi will also have to accept that his policies have consequences outside of China, and take responsibility for them. For example, just as the U.S. had to consider the impact of China’s new WTO commitments in the 1990s on its then-impoverished northeastern rust belt, Beijing must deal responsibly with the impact of its industrial policies on employment in developed countries.

In short, the two leaders will have to agree that rising competition between the two nations does not have to be a zero-sum game, and that it is cooperation and concessions, rather than confrontation, that will leave both sides better off. (…)

Here’s the rub:

Trump Names Lighthizer to Run U.S.-China Negotiations President Trump tapped Robert Lighthizer, a China hard-liner, to lead the next round of U.S.-China talks, after the sides agreed to a trade truce.

(…) Mr. Kudlow said China had committed to roll back tariffs on automobiles and agricultural goods. He also claimed the two sides were “pretty close to some agreements “ on two of their most intractable issues—protection of intellectual property and halting alleged Chinese pressure on U.S. companies to transfer technology to their Chinese partners.

Others with knowledge of the matter, however, said China hadn’t made firm commitments to act before negotiations were complete. They said the administration is looking for signs of China’s intentions over the next few weeks. Chinese Vice Premier Liu He, who has been China’s main negotiator with the U.S., is considering leading a 30-member delegation to Washington in the coming weeks, people familiar with the matter said. (…)

The two sides even disagree whether there is a deadline for talks. At the Saturday meeting, Mr. Trump agreed to suspend a planned Jan. 1 increase in tariffs on $200 billion in Chinese goods to 25%, from 10%, as the two sides negotiate over Chinese economic policies.

The U.S. said it would “endeavor” to wrap up talks in 90 days. In Buenos Aires, Chinese officials made no mention of any deadline, and were angered when told about the U.S. claims.

Mr. Kudlow seemed to be giving China more wiggle room in his remarks. At first, he said the 90-day clock on tariffs would begin Jan. 1, not immediately, as earlier suggested. Later, the White House corrected those remarks and returned to the Dec. 1 start date.

For other trade issues, he didn’t name any deadline. “We’ll have to set up a timetable for the timetables,” he said. Others involved in the talks, though, said the U.S. would insist on a 90-day period. (…)

Good thing we’re not talking about anything too important here…

Lighthizer Has Long Seen Chinese Trade Policy as Unfair to U.S.

The 71-year-old Mr. Lighthizer, a former steel-industry lawyer, has told colleagues he took the trade-representative job mainly to try to reorient China policy. In op-ed columns dating back to 1997, Mr. Lighthizer opposed China’s entry into the World Trade Organization under the terms being negotiated. Mr. Trump has called the WTO a “disaster for this country.”

He grew up in the Lake Erie port city of Ashtabula, Ohio, which was battered by imports. He sees himself as blue-collar even though he is a doctor’s son who once raced around West Virginia in sports cars. (…)

In trade circles, he is well known for tough tactics. In the mid-1980s, as a U.S. Trade Representative official who negotiated with Japan, he once grew so frustrated he took a Japanese proposal, turned it into a paper airplane and floated it back at the Japanese negotiators. In Japan, he became known as “the missile man.”

He has regularly warned Mr. Trump that Beijing was “playing him” with offers to which he felt Beijing wouldn’t carry out. The two men value tariffs as ways to pressure countries into concessions.

In a summer interview with The Wall Street Journal, he said: “We have a [Chinese] system that’s been very effective in building its own industrial base largely at the expense of us and others.”

(…) “I will be formally terminating Nafta shortly,” he told the press on Air Force One, referring to the current pact that is still in force until Congress approves the new deal with Mexico and Canada that Mr. Trump signed Friday. “And so Congress will have a choice of the [new] USMCA or pre-Nafta, which worked very well.”

By “pre-Nafta” he means the continental trade rules in force before 1994. That would mean the immediate reimposition of tariffs and import restraints on a vast amount of trade. It would be an economic shock that could well send the economy into recession.

As a political matter it amounts to Mr. Trump holding a gun to his own re-election chances and daring Democrat Nancy Pelosi to let him pull the trigger. Mr. Trump seems to think that the chances of passing new Nafta improve if he presents Democrats with the ultimatum of voting for new Nafta or confronting the damage of terminating current Nafta.

That isn’t how Democrats are likely to see it. They’ll claim Mr. Trump negotiated a bad deal and demand changes knowing that if Nafta blows up and the economy suffers, a President always gets most of the blame. The media will naturally echo the Democratic view.

Mr. Trump needs the current Nafta in place as insurance in case Mrs. Pelosi and House Democrats decide to defeat, or perhaps even fail to take up, the new Nafta deal. Democrats will be only too happy if Mr. Trump blows up old Nafta before a new one passes.

U.S. Factory-Sector Growth Accelerated in November

The Institute for Supply Management on Monday said its manufacturing index rose to 59.3 in November from 57.7 in the previous month. (…) Tim Fiore, who oversees the ISM survey of factory purchasing and supply managers, said companies last month had been “moving very aggressively getting material delivered for the first quarter before Dec. 31” due to expected tariff increases in January. (…)

Low customer inventories, which fell in November, also mean the “future is looking more positive,” Mr. Fiore said, as companies will have to restock to keep up with demand. (…)

Here’s the more dependable Markit report:

U.S. manufacturing output expands at joint-weakest rate since September 2017

November survey data signalled a solid improvement in operating conditions across the U.S. manufacturing sector, despite the headline PMI dipping to a three-month low. The upturn was supported by the fastest increase in new orders since May and a sharp rise in employment. Output also rose solidly, despite growth easing to the joint-weakest in over a year. Capacity pressures were also evident through a further rise in backlogs. Panellists continued to highlight stockpiling activity amid expectations of further rises in raw material prices, with input buying increasing strongly. Cost burdens rose markedly as shortages at suppliers and tariffs pushed up input prices.

The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posted 55.3 in November, down slightly from 55.7 in October. Although the headline figure dipped to a three-month low, it indicated a solid improvement in the health of the sector that was above the series trend.

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Production continued to increase in November. The rise in output was solid overall, albeit the joint-slowest in over a year. Nonetheless, panellists commonly reported on more favourable demand conditions.

Conversely, new orders increased at a sharp and accelerated pace in November. The rise in new business was the quickest since May and was often linked to increased client demand and new product launches. Foreign demand also picked up, with new export orders expanding at the fastest pace for nine months.

Firms registered a further rise in employment in November, with many noting that greater production requirements had prompted them to hire additional workers. The rate of job creation was sharp and the second-fastest in the year-to-date. Nonetheless, panellists reportedly struggled to cope with the steep increase in new orders, despite higher staffing levels, as backlogs of work continued to increase. The level of work-in-hand grew at one of the fastest rates in over three years.

In response to higher amounts of new and unfinished work, manufacturing firms registered a strong expansion in buying activity. Input purchases also rose due to concerns of further tariffs and resulting increases in raw material costs. Stockpiling activity was linked to a sharp deterioration in vendor performance, as demand for inputs continued to outstrip supply.

Subsequently, cost burdens faced by goods producers rose further. Although the rate of inflation was slower than those seen earlier in the year, it remained marked. A combination of tariffs and supplier shortages were linked to higher raw material prices. Firms were reportedly able to partly pass greater cost burdens on to clients through higher output charges.

Business confidence dipped to the weakest since September 2017. Although optimism stemmed from stronger demand, some raised concerns surrounding the sustainability of the current sequence of new order growth.

(…) The survey acts as a reliable guide to the official manufacturing data, and suggests that factory output is growing at an annualised rate of around 1.5% so far in the fourth quarter, providing a material but by no means impressive contribution to GDP. As such, the data corroborate the flash PMI’s signal that the economy will likely see growth slow to a 2.5% rate in the fourth quarter.

In a further sign that growth has peaked, business optimism about the year ahead waned to the lowest for over a year, albeit with the proportion of companies expecting output to be higher in a year’s time outnumbering those expecting a decline by 36% to 3%.

Canadian manufacturing PMI hits three-month high, driven by survey-record rise in employment

November data pointed to a positive month overall for the Canadian manufacturing sector, although growth rates for output and new orders remained softer than seen on average in the third quarter of 2018. The most encouraging aspect of the latest survey was a strong and accelerated upturn in job creation, which manufacturers attributed to rising business investment in plant capacity.

Additionally, input cost inflation moderated in November, with lower oil-related prices helping to offset higher costs for imported materials (particularly metals).

The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index® (PMI®) registered 54.9 in November, up from 53.9 in October, to signal the sharpest improvement in business conditions since August.

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Manufacturing production growth edged up from October’s 22-month low, helped by a stronger upturn in new order books. Latest data also signalled a solid rise in export sales, with survey respondents mainly commenting on rising sales to U.S. clients. Nonetheless, the overall rate of new export order growth remained much softer than seen in the first half of 2018.

Despite a slowdown in demand conditions relative to earlier in the year, manufacturers reported a renewed acceleration of employment growth in November. The latest expansion of payroll numbers was the fastest since the survey began in October 2010. Anecdotal evidence suggested that efforts to alleviate capacity constraints had encouraged greater business investment and additional staff recruitment.

Intense supply chain pressures continued in November, as signalled by another sharp lengthening of delivery times for raw materials. Survey respondents cited low stocks among suppliers and ongoing shipping delays for items imported from Asia. Concerns about raw material availability led to another moderate increase in stocks of purchases across the Canadian manufacturing sector during November. However, latest data signalled the weakest rise in input buying since the end of 2017, partly reflecting more subdued projections for client demand.

Manufacturers remain optimistic overall about their growth prospects for the next 12 months. However, the degree of confidence was up only slightly since October and still among the weakest seen over the past two years. Some firms noted that slower economic growth in Europe had weighed on business sentiment in November. (…)

Canada’s auto sales fell for the eighth straight month in November, as a rise in interest rates dampened demand for new cars. Total auto sales tumbled 9.4 per cent to 143,668 units according to a report by Global Automakers Canada (GAC). (…)

Global manufacturing remains subdued in November

Conditions in the global manufacturing sector remained lacklustre in November. The J.P.Morgan Global Manufacturing PMI™ – a composite index produced by J.P.Morgan and IHS Markit in association with ISM and IFPSM – posted 52.0, unchanged from October’s 23-month low as growth of output and new orders remained below their respective long-run averages. (…)

New orders rose at a pace unchanged from October’s 25-month low, with international trade flows the main drag. The level of incoming new export business fell for the third
straight month in November. Developed nations registered (on average) a marginal increase, as gains in the USA and Japan offset reductions in the euro area and the UK.
Emerging markets saw a reduction for the eighth straight month, mainly due to ongoing declines in China. (…)

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Big Fracking Profits at $50 a Barrel? Don’t Bet on It The rapid decline of U.S. oil prices will test the claim of fracking companies that they can prosper at $50 a barrel or less, a price level they have found challenging in the past.

(…) From 2012 to 2017, the 30 biggest shale producers lost more than $50 billion. Last year, when oil prices averaged about $50 a barrel, the group as a whole was barely in the black, with profits of about $1.7 billion, or roughly 1.3% of revenue, according to FactSet. (…)

Estimates by consulting firm R.S. Energy Group peg break-evens excluding land costs and overhead at about $37 for the Permian Basin of West Texas and New Mexico, $42 for the Eagle Ford in South Texas and $47 for the Bakken in North Dakota. (…) All-inclusive break-evens are about $51 in the Permian, $57 in the Eagle Ford and $64 in the Bakken, according to R.S. Energy. (…)

Generally, because of sunk costs, drilling additional wells made sense. But many of the companies curtailed drilling to their choicest acreage, which caused the break-even figures to fall significantly in 2016, and helped create the impression that shale companies could generate overall profits even at lower prices. (…)