Year: 2021

Travelling week. Will post whatever, however and whenever possible. Without my own stuff, posts may not come out as usual…

The World Economy’s Supply Chain Problem Keeps Getting Worse

(…) “We can’t get enough components, we can’t get containers, costs have been driven up tremendously,” said Christopher Tse, chief executive officer of Hong Kong-based Musical Electronics Ltd., which makes consumer products from Bluetooth speakers to Rubik’s Cubes.  

Tse said the cost of magnets used in the puzzle toy have risen by about 50% since March, increasing the production cost by about 7%. “I don’t know if we can make money from Rubik’s Cubes because prices keep changing.” (…)

“Port congestion and a shortage of container shipping capacity may last into the fourth quarter or even mid-2022,” said Hsieh Huey-chuan, president of Taiwan-based Evergreen Marine Corp., the world’s seventh-biggest container liner, at an investor briefing on Aug. 20. “If the pandemic cannot be effectively contained, port congestion may become a new normal.” (…)

The cost of sending a container from Asia to Europe is about 10 times higher than in May 2020, while the cost from Shanghai to Los Angeles has grown more than sixfold, according to the Drewry World Container Index.

(…) producers including Taiwan’s Giant Manufacturing Co., the world’s biggest bicycle maker, say they will raise prices to reflect the increased costs. (…)

Hong Kong-based coffee-machine maker Eric Chan doesn’t see the crunch easing for months as he juggles a supply line that involves hundreds of components to meet booming demand for kitchen appliances. (…)

In Germany, more than half of the 3,000 firms polled by the Association of German Chambers of Industry and Commerce expected widespread supply-chain problems to persist into next year. (…)

Many Chinese companies are willing to pay above-market rates to load their cargo, said a spokesman at HMM Co., South Korea’s biggest container line. So when the ships call at ports outside China, they’re already almost full. (…)

• U.S. dollar stores see profit hit as transportation costs bite

Top two U.S. dollar stores said on Thursday their full-year profits will take a bigger hit than feared due to surging transportation costs, with Dollar Tree Inc (DLTR.O) warning of a potential hit to inventories.

Dollar Tree shares fell 5% after the company cut its full-year profit forecast and rival Dollar General Corp (DG.N) dropped 3.7%.

Increasing freight costs caused by bottlenecks at ports as economies reopen and other pandemic-caused global supply-chain disruptions have hit all industries, and could especially torment dollar stores that operate on razor-thin margins.

Dollar Tree said it now expects its ocean carriers to fulfill only 60%-65% of their freight commitments, down from a previous outlook of 85%. (…)

The disappointing profit outlook comes despite better-than-expected second-quarter sales as government stimulus checks and advance child tax credits boost consumer spending power at its stores. (…)

World’s Largest Chip Maker to Raise Prices, Threatening Costlier Electronics The world’s largest contract chip maker is raising prices by as much as 20%, a move that could result in consumers paying more for electronics.

Taiwan Semiconductor Manufacturing Co. TSM 4.39% plans to increase the prices of its most advanced chips by roughly 10%, while less advanced chips used by customers like auto makers will cost about 20% more, these people said. The higher prices will generally take effect late this year or next year, the people said. (…)

• U.S. August auto sales to fall as supply constraints continue – J.D. Power, LMC Automotive Retail sales of new vehicles are expected to fall 14.3% to 987,100 in August from a year earlier, they said in a report released on Thursday.

(…) Dealers currently have about 942,000 vehicles in inventory, compared with about 3 million, two years ago, according to the report. (…)

Average transaction prices are expected to rise 16% to $41,378, partly due to fewer manufacturer incentives. (…)

The consultants lowered their forecast for 2021 global light vehicle sales by 2 million units to 83.8 million units, due to a lack of sufficient production volume.

Inflation Expectations Spike to Record at Canadian Businesses

U.S. Durable Goods Orders Ease in July

Manufacturers’ orders for durable goods slipped 0.1% (+17.6% y/y) during July following an unrevised 0.8% June increase. The latest decline matched expectations in the Action Economics Forecast Survey.

A 2.2% fall (+19.8% y/y) in transportation equipment orders accounted for last month’s overall decline. It was driven by a roughly one-half fall in nondefense aircraft orders which followed three months of strong increase. A 5.8% rise (-6.0% y/y) in orders for motor vehicles & parts offset some of the decline. Excluding transportation, orders improved 0.7% (16.7% y/y) following two months of 0.6% increase.

Nondefense capital goods orders excluding aircraft held steady last month (+15.6% y/y) after surging 1.0% in June, revised from 0.5%. (…)

Unfilled orders for durable goods rose 0.3% in July (2.0% y/y) following a 0.8% June increase. Order backlogs excluding transportation improved 1.1% (14.2% y/y) and have been strengthening for more than a year, reportedly due to shortages of key component products.

Inventories of durable goods rose 0.6% (6.0% y/y) in July. The 6.0% y/y increase builds on a 0.5% rise during all of 2020. Excluding transportation, inventories rose 0.8% (7.1% y/y) after a 1.0% June rise. That followed inventory decumulation during all of last year.

Europeans Are Flying Again, Just as Americans Pull Back European air travel is returning, thanks to cheap tickets from discount carriers and the rollout of a continentwide vaccination-certification system.

South Korea Raises Interest Rates, First Developed Economy in Asia to Do So During Pandemic Delta variant disrupts supply chains, but policy makers see rising household debt and inflation as bigger threats

The Bank of Korea on Thursday increased the benchmark seven-day repurchase rate by 0.25 percentage point to 0.75% from its historically low 0.50% that had been in place since May 2020. It said the country’s economy was continuing to recover and kept this year’s growth outlook unchanged at around 4%. (…)

South Korea is battling its largest outbreak of the pandemic, reporting more than 1,000 new daily cases for more than 50 days. Last Friday, the country extended social distancing measures in the Seoul metropolitan area until Sept. 5.

But central bank Gov. Lee Ju-yeol said the surge in cases was unlikely to significantly impact the economic recovery, which has been powered by overseas demand for consumer electronics, semiconductors and cars.

South Korea’s central bank sees rising inflation pressure and surging property prices as bigger concerns. The bank lifted its inflation outlook to 2.1% from 1.8%. (…)

The record household borrowing came amid a rapid surge in housing prices during the pandemic like many other parts of the world. Home prices have risen more than 50% since 2017, according to statistics site Numbeo.

President Moon Jae-in’s administration has introduced more than 20 policies to regulate real-estate prices. Last year, the government raised taxes for people owning multiple homes and increased sales tax rates for homes purchased within a year, aimed at stabilizing property prices. Yet, home prices rose 14.3% year-over-year in July, the most since 2002. (…)

Norway’s central bank is likely to be the next developed country to follow South Korea’s lead, and for similar reasons. Norges Bank left its key rate at zero when policy makers met earlier this month, but said they were likely to move in September.

Unlike many other central banks, including the U.S. Federal Reserve, Norges Bank is charged by lawmakers with using its interest rate to limit the risk of asset price bubbles and other threats to the financial system, although its first goal is to keep inflation at around 2%. With house prices having risen sharply over the past year, the central bank earlier this month said it was worried about “the risk of a buildup of financial imbalances.”

Iceland’s central bank raised its key interest rate in May and again on Wednesday, responding to an inflation rate that is already well above its target. (…)

About 26% of South Korea’s nearly 52 million people have been fully vaccinated, compared with around 55% in China and 78% in Singapore. South Korean officials said they aim to fully vaccinate 70% of the population by October.

Top T Rowe Price fund manager David Giroux cuts stocks exposure Investor known for market timing cools on equities after huge rally

   Let’s Try to Make Sense of That $600,000 Rock NFT Could it be that there’s just too much money sloshing around?

For a while in 1975, the hottest toy in America was the Pet Rock. It was a rock you treated like a pet. It cost $4, or about $20 in today’s money. It was ridiculous. But it made its creator rich and maybe helped people forget about Vietnam and Watergate for a bit.

Recently Justin Sun, CEO of the crypto platform TRON, bought a digital picture of a rock. It cost $611,170, or $3.1 million in 1975 money. It’s ridiculous. Here’s a picture of the picture of the rock he bought, which you can have for free, as a treat: (…)

Travelling week. Will post whatever, however and whenever possible. Without my own stuff, posts may not come out as usual…

U.S. Expansion Slowed in August, Survey Shows Factories and service providers are reporting sharply slower growth due to the Delta variant and troubles in hiring and shipping.

U.S. factories and service providers reported sharply slower growth in August, the forecasting firm IHS Markit said Monday in its surveys of purchasing managers.

Its index of service-sector activity, the broadest segment of the economy, fell to 55.2 in August from 59.9 in July, hitting an eight-month low. An index of factory activity dropped to 61.2, a four-month low, from 63.4 in July. A reading above 50 suggests activity—as measured by sales, output, prices and other factors—is growing.

But the surveys show that the Delta variant of the Covid-19 virus, which has led to a new wave of infections and hospitalizations and has spooked consumers, is harming the economy. (…)

The European economy also slowed during August, but less than the U.S., surveys of purchasing managers indicated. (…)

The composite Purchasing Managers Index for the eurozone fell to 59.5 in August from 60.2 in July. And for the first month since the pandemic struck, the services sector grew faster than the manufacturing sector, a sign that the Delta variant is having less of an impact on growth than the supply shortages that continue to hamper factories. (…)

By contrast, surveys of purchasing managers in Japan and Australia pointed to declines in economic activity during August, largely the result of tightening restrictions imposed by their respective governments in response to the Delta variant. Both countries lag behind the U.S. and Europe in vaccinations. The PMI for Japan hit its lowest level for a year, while the Australian measure fell to its lowest level in 15 months.

Other economies across Asia are also seeing a rapid rise in infections across thinly vaccinated populations, and that is likely to slow growth in one of the world’s main manufacturing centers. Largely in response to that development, Oxford Economics on Monday lowered its 2021 global growth forecast to 5.9% from 6.4%. (…)

The WSJ talks about “sharply slower growth”. Here’s the gist of Markit’s survey:

Private sector companies across the U.S. signalled a further strong upturn in business activity during August, however, the pace of growth slowed to an eight-month low. Capacity pressures, material shortages and the spread of the Delta variant reportedly weighed on the output expansion. (…)

Inflows of new business meanwhile also softened in August, rising at the slowest pace since December 2020, led by a marked cooling in growth of demand for services (notably in terms of exports, for which orders fell). Nonetheless, manufacturing firms reported a further marked increase in new order inflows, pointing to robust demand for goods.

Severe supply chain disruptions meanwhile led to a further robust increase in cost burdens at private sector firms midway through the third quarter. The rate of input price inflation accelerated to the second-fastest on record (since October 2009), with both manufacturing and service sectors registering a quicker rise in costs. At the same time, the rate of selling price inflation ticked higher as firms sought to pass higher input prices on to clients. (…)

From the Services PMI:

Meanwhile, input costs rose markedly and at one of the fastest paces on record amid significant hikes in supplier prices and greater wage bills. Subsequently, service providers raised their selling prices at a sharper rate.

From the Manufacturing PMI:

Contributing to the substantial rise in cost burdens during August was a marked increase in purchasing activity amid efforts to build safety stocks. The rate of input price inflation was the fastest on record (since May 2007) as suppliers hiked their charges again. Meanwhile, firms increased their own selling prices at the steepest rate in the series history in the hope of partially passing on higher costs to clients.

Full survey reports:

• IHS Markit Flash US Composite PMI
• IHS Markit Flash Eurozone Composite PMI
• au Jibun Bank Flash Japan Composite PMI

U.S. Crops Wither Under Scorching Heat Extreme heat is baking most of the U.S., causing many crops planted this spring to wilt and further pushing up already high prices for staples including corn and wheat.

Delta Variant Outbreaks in Sparsely Vaccinated Asian Countries Disrupt Production Vietnam has shut down factories and imposed strict new measures to fight a rising wave of Covid-19 after escaping largely unscathed from the first 14 months of the pandemic.

CONSUMER WATCH

Yesterday, Best Buy reported a 19.6% jump in comparable-store sales suggesting there’s still plenty of demand for the electronics that make being at home more comfortable and enjoyable.

Best Buy officers said on a Tuesday call with analysts that “Although we are seeing some shift in consumer spending occur, the impact has been less pronounced than we previously anticipated. (…) customers have an elevated appetite to upgrade due to continual tech innovations. And purchasing patterns reflecting permanent life changes, like hybrid work and streaming entertainment content.”

And as COVID cases have risen, “we’ve just seen this growth continue, honestly, in both experiences and on the retail side,”.

U.S. Existing Home Sales Rise Moderately in July

The National Association of Realtors (NAR) reported that sales of existing homes rose 2.0% (1.5% y/y) during July to 5.990 million (SAAR) following a 1.6% June rise to 5.870 million, revised from 5.860 million. The Action Economics Forecast Survey expected sales of 5.840 million in June. These data are compiled when existing home sales close.

Sales rose throughout most of the country last month. Sales in the Midwest gained 3.8% (-1.4% y/y) to 1.380 million after improving 3.1% in June. In the West, sales rose 3.3% to 1.24 million after a 1.7% June rise, but were unchanged y/y. Sales in the South gained 1.2% both m/m and y/y to 2.63 million after a 0.4% June improvement. Sales in the Northeast were unchanged at 740,000, up 12.1% y/y, after June’s 2.8% rise.

The median price of an existing home slipped 0.8% (17.8% y/y) to $359,900. The median home price was highest in the West, where it rose 0.3% (12.5% y/y) to $508,300. In the Northeast, the median price eased 0.4% (+23.6% y/y) to $411,200. The median home price in the South declined 1.7% (+14.4% y/y) to $305,200. In the Midwest, prices fell 1.1% (+13.1% y/y) to $275,300. The average sales price of all existing homes eased 0.7% last month (+12.0% y/y) to $378,700. The price data are not seasonally adjusted.

The number of existing homes on the market rose 7.3% (NSA) during July to 1.32 million, but the level was down 12.0% y/y. These figures date back to January 1999. The supply of homes on the market rose slightly to 2.6 months, but remained well below its high of 4.6 months in May of last year.

Sales of existing single-family homes rose 2.7% (-0.8% y/y) in July to 5.280 million units (SAAR) after rising 1.4% in June. Sales of condos and co-ops fell 2.7% (+22.4% y/y) to 710,000.

Chinese Factories ‘Can Hardly Find Any Workers’ Labor shortages are materializing across China as young people shun factory jobs and more migrant workers stay home, offering a possible preview of larger challenges ahead as the workforce ages and shrinks.

(…) Those trends pose a serious threat to China’s potential long-term growth rate. They will also make it harder for China to keep supplying the world with cheap manufactured goods, potentially adding to global inflationary pressures. (…)

Samsung to Invest $205 Billion in Chip, Biotech Expansion The South Korean conglomerate plans to increase investments by a third to more than $205 billion over the next three years, as it races for leadership in chip making and a bigger role in Covid-19 vaccine production

TECHNICALS WATCH

My favorite technical analysis firm noted yesterday that the last strong 2-day bounce came with total NYSE volume contracting. SentimenTrader adds this:

A New High but with Negative Breadth

Since the peak of the speculative orgy in February, we’ve been watching for major internal deterioration in the indexes. There were short bursts of unusual behavior in the months following that peak, but stocks immediately recovered.

There were more pronounced divergences during June and July, such as with the percentage of stocks holding above their 50-day moving averages. And with subsequent push to new highs, sentiment was becoming less and less enthused. Knee-jerk contrarians may take that as a positive thing, but stocks need buyers to be ever more optimistic to sustain an advance.

Investor confidence isn’t necessarily the most influenced by movements in the S&P or Dow Industrials. While they get the headlines, investors are more concerned with broader movements in stocks.

Two of our core measures for a long-term, broad look at how healthy stocks are is the NYSE McClellan Summation Index and the Net % of New Highs – New Lows. And right now, they’re signaling caution.

Despite the S&P being near its prior high, the Summation Index is negative. The worst possible combination for this indicator is when it is below zero and declining. That’s when the worst selloffs happen. There was a brief fakeout last September-October, but the current reading is already below that one.

On the NYSE, there are also now more securities falling to 52-week lows than rising to 52-week highs. When this is below zero, the S&P’s annualized return is only about a third of what it is when it’s above zero.

Out of all the times these indicators were below zero when the S&P was near a high, stocks suffered every time but once. There is a bit of boy-who-cried-wolf with this type of analysis because it hasn’t worked at all in 2021. This time, the potential difference is that it’s really the first time such broad and long-term metrics were so poor despite the major indexes holding near their highs.