Year: 2025

***   Happy, Healthy New Year  ***

U.S. Manufacturing PMI:

S&P Global: Output falls at fastest pace in 18 months

The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI^®) posted 49.4 in December, down from 49.7 in November but up from the ‘flash’ reading of 48.3.

Latest data showed a sixth consecutive monthly worsening in the health of the manufacturing sector. The deterioration in December was more marked than that seen in November, but still only modest overall.

Manufacturing production was down for the fifth successive month, with the rate of contraction the fastest in a year-and-a-half. Lower output generally reflected a drop in new orders.

After having neared stabilization in the previous month, new business decreased at a faster pace in December.

New export orders were also down, and to a greater extent than total new business. Europe and Australia were among the export markets reported to have seen a reduction in demand.

Where new orders decreased, this was often linked to a reluctance among customers to commit to new projects. In some cases, this reflected a pause ahead of the new administration taking power in January.

However, survey respondents generally noted that the incoming administration is expected to help boost demand conditions in the new year. Manufacturers were therefore optimistic that output will increase over the course of 2025. That said, after jumping in November, sentiment fell back in December and was the lowest since August.

Positive expectations for the coming year encouraged manufacturers to increase staffing levels for the second month running. The rate of job creation was modest and slightly slower than seen in November.

Rising workforce numbers at a time of falling new orders meant that firms continued to work through outstanding business in the final month of the year. Moreover, the pace of depletion was sharp and the steepest since June 2023.

While firms increased employment, the drop in new orders resulted in reductions in purchasing activity, as well as stocks of inputs and finished goods. Input buying and stocks of purchases both decreased more quickly than in November, while the reduction in stocks of finished goods was the first in six months.

The rate of input cost inflation accelerated sharply at the end of the year, with the latest increase the fastest since August. The rise was broadly in line with the pre-pandemic average.

Higher supplier charges and rising costs for raw materials were reported by panellists. In turn, firms increased their output prices, with the pace of inflation quickening to a three-month high. Charges have risen continuously since June 2020.

Meanwhile, suppliers’ delivery times lengthened to the greatest extent since October 2022, linked to staff shortages at suppliers and freight delays.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence

(…) Factories are reporting an environment of subdued sales and inquiries, notably in terms of exports.

“Many firms are generally anticipating that business will pick up in the New Year, with respondents pinning hopes on expectations that the new administration will loosen regulations, reduce tax burdens and boost demand for US-made goods via tariffs. Confidence has consequently risen from a low-point last June, having jumped higher in November on the election result.

However, this optimism has been pared back somewhat in December, as firms are now reporting worries over higher input prices, and are concerned that inflation may pick up again, adding to speculation that interest rates will not be cut as much as previously thought likely over the coming year.

Canada: Growth of manufacturing sector sustained in December

The seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index™ (PMI®) remained above the crucial 50.0 no-change mark in December to signal growth of the sector for a fourth successive month. The PMI edged up to 52.2, from 52.0 in November, just below its long-run average of 52.4.

Supporting the PMI in December were concurrent rises in output and new orders. Growth rates were again solid, with firms noting a general uplift in demand. In some instances, panellists reported better sales to US clients in line with inventory accumulation ahead of expected tariff imposition on Canadian goods by the US in 2025.

A weaker Canadian dollar also helped to support sales. However, export demand overall remained underwhelming according to several panellists and foreign sales ended fractionally lower in December. Manufacturers remained suitably encouraged by production and new order trends to raise their purchasing activity (albeit marginally) for the first time since July 2022. (…)

Firms sought to recruit additional workers, especially skilled roles, during December. This meant that employment rose for a fourth successive month overall, though growth was marginal and the softest since September. Extra capacity helped firms to keep on top of overall workloads, with backlogs of work falling slightly over the month.

On the cost front, input price inflation accelerated during December, reaching its highest level since April 2023. Panellists commented that a range of goods had risen in cost, with vendors willing to increase their charges given stronger demand. A weaker Canadian dollar increased the cost of imported goods, according to panellists. In response, average output charges rose again. Although solid, output price inflation was down slightly on November’s three-month high.

Finally, confidence in the outlook was positive in December, with confidence overall reaching its highest level in nearly a year-and-a-half. Firms are forecasting an increase in US exports ahead of expected tariff imposition in 2025. However, the timing and scope of these tariffs meant the outlook was unusually uncertain for manufacturers at the end of 2024.

Mexico:

(…) Order cancellations, subdued demand conditions and uncertainty in the automotive sector reportedly hampered sales volumes. That said, the rate of contraction in total new orders was marginal and equal to that recorded in November.

The downturn in new export orders entered its tenth straight month in December, though the pace of contraction moderated from November. Where a contraction was reported, panellists remarked on weaker demand from US-based clients. (…)

Global manufacturing contracts at end of 2024

The J.P.Morgan Global Manufacturing PMI® posted 49.6 in December, down from 50.0 in November. Although the rate of deterioration signalled by the latest figure was only modest, this was the fifth decline during the past six months.

Four out of five PMI components (output, new orders, employment and stocks of purchases) were at levels consistent with a deterioration in overall operating conditions. Only a lengthening of supplier delivery times had a positive impact on the PMI.

Manufacturing production fell slightly in December. The rate of decline was only modest and, when taken together with the marginal gains seen in October and November, suggested output broadly stagnated over the final quarter as a whole. (…)

Data broken down by sector signalled lower production in the intermediate and investment goods industries. This contrasted with the performance of the consumer goods category, where output rose for the seventeenth month in a row. The same picture was signalled for new orders, with declines at intermediate and investment goods producers only partly offset by growth in the consumer goods sector.

International trade volumes fell for the seventh consecutive month in December. Only eight nations covered saw new export orders increase, namely Spain, Russia, India, Taiwan, South Korea, Indonesia, the Philippines and Greece. (…)

Input cost inflation accelerated to a four-month high in December. Selling price inflation meanwhile eased to a nine-month low.

US Car Sales Get Year-End Boost From Trump’s Threat to End EV Tax Credits

EV sales grew 12% in the fourth quarter of 2024, pushing the full-year total to a record 1.3 million, according to forecasts from researcher Cox Automotive. That’s up from an 8% growth rate in the previous quarter. Plug-in models make up around 8% of the overall US car market, only slightly more than a year ago.

The annualized rate for 2024 rose to 15.9 million cars, based on the average forecast of four researchers, up from 15.5 million a year ago. (…)

Only a quarter of new-car shoppers are considering an EV for their next purchase, down two percentage points from a year ago, according to JD Power. (…)

As for the overall new car market, lower interest rates, rising manufacturer incentives and fading anxiety around the election drew more buyers, prompting analysts to raise full-year sales forecasts. (…)

The average retail transaction price for new vehicles is trending toward $46,258, according to JD Power. (…)

FYI, a Rolex yellow gold Day-Date model with a 40-mm black dial now costs about $45,809, up nearly 8% from last year.

China Flexes Lithium Dominance With Plans for Tech-Export Curbs

China is planning tougher scrutiny on exports of technology to make battery materials, as Beijing looks to protect its grip on a crucial supply chain amid rising global trade tensions.

The government has proposed adding various technologies — some used for lithium refining and battery chemicals production — to its list of items that are subject to export controls, according to a notice seeking public opinion from the Ministry of Commerce on Thursday.

The plan appears aimed at protecting innovations that China has developed during its rise to dominate global battery and electric-vehicle production. It comes against a backdrop of burgeoning competition with the US in everything from critical minerals to semiconductors.

The proposed curbs target a selection of processes used to make battery-grade lithium chemicals, including direct lithium extraction, an emerging method in which China has considerable expertise. It also covers some specific types of chemical compounds used in making cathodes that are crucial to the performance of batteries. (…)

The new export controls would cover technology for making certain types of lithium-iron-phosphate cathode, as well as lithium-iron-manganese-phosphate cathode and iron phosphates. Last year, China put the know-how for making rare earth metals under similar restrictions, which subject overseas shipments to a higher degree of scrutiny.

The measures are relatively narrow in scope, for example targeting only the more advanced types of the named products. Battery cathodes can differ widely in performance and cost, and China has spearheaded efficiency gains in the lithium-iron-phosphate, or LFP, units that are gaining popularity in the global EV industry. (…)

Gallium, germanium, antimony and superhard materials are no longer allowed to be shipped to America, while sales of graphite have been placed under tighter controls. The metals are used in everything from semiconductors to satellites and night-vision goggles. (…)

***   Happy, Healthy New Year  ***

MANUFACTURING PMIs

Eurozone manufacturing sector ends 2024 in contraction

The HCOB Eurozone Manufacturing PMI posted its thirtieth successive sub-50.0 reading in December, marking two-and-a-half years of continuous decline in factory operating conditions across the single-currency market. At 45.1, the headline index dropped fractionally from 45.2 in November to a three-month low.

Of the eurozone nations covered by the HCOB PMI survey, December’s results showed considerable divergences. Countries located in the south continued to outperform, with Spain and Greece showing stronger improvements in manufacturing sector conditions. Expansions here were more than offset, however, by the big-three of Germany, France and Italy, which all posted deteriorations once again. Most notable was France, which saw its Manufacturing PMI sink to its lowest level since May 2020.

Demand for eurozone goods fell once again at the end of 2024. The rate of contraction quickened and was broadly in line with that seen on average across the current 32-month sequence of deteriorating sales. A softer decrease in new export orders implied that December’s faster drop in new business was domestically driven. Sales to international customers fell at the softest pace in four months at the end of 2024.

Production volumes continued to decrease across the eurozone manufacturing industry. In fact, December’s drop in output was the steepest since October 2023. Although, with the concurrent drop in new orders outpacing that seen in production, the latest survey data suggested that firms were able to uphold output volumes somewhat. Support came from companies’ backlogs, which declined sharply and at a faster pace when compared to the previous month.

That said, eurozone factory employment levels remained in contraction, extending the current period of job losses to just over a year-and-a-half. The extent to which workforce numbers fell eased slightly but was nevertheless marked.

Another steep monthly fall in purchasing activity was registered during the final month of 2024. Indeed, lower input buying came in tandem with another sharp drop in eurozone manufacturers’ pre-production inventories. December’s reduction in stocks was among the strongest since 2009. Volumes of finished goods held in warehouses also dropped.

Prices paid by eurozone manufacturers were unchanged on the month. This marked the first time since August 2024 that input costs had not decreased. Nevertheless, an absence of cost pressures enabled firms to discount the price of their goods further, as selling charges decreased for the fourth month in succession.

Surveyed businesses looked ahead to the future with increased optimism in December, with growth expectations for the next 12 months at their strongest in four months. However, when compared with the series average, business confidence remained subdued.

China: Manufacturing sector expansions continues at end of 2024

The headline seasonally adjusted Purchasing Managers’ Index™ (PMI®) fell to 50.5 in December, down from 51.5 in November. Posting above the 50.0 neutral mark, the latest data signalled that conditions in the manufacturing sector improved for a third consecutive month. The fall in the PMI however indicated that the pace of growth eased since November and was marginal overall.

Manufacturing production in China increased for a fourteenth successive month in December. That said, the rate of expansion decelerated to a marginal pace as new order growth slowed. While improvements in underlying demand and successful business development efforts led to incoming new orders rising for a third straight month, the rate of growth eased on the back of softening external demand. Indeed, export orders contracted after increasing at the fastest pace in seven months in November.

Meanwhile, higher new orders led to a third monthly increase in purchasing activity. Stocks of purchases rose in tandem, with anecdotal evidence highlighting intentions of safety stock building among some manufacturers. Despite higher buying activity, vendor performance improved for the first time since May (albeit only marginally). Post­production inventory also accumulated in December, rising for a seventh successive month. The rate of expansion eased, however, as production growth slowed.

Rising new orders led to another round of backlog accumulation at the end of year. The rate of accumulation eased to a marginal level, however. As a result of softening capacity pressure, manufacturing headcounts fell again in December though at the softest pace in the current four-month sequence.

Turning to prices, average selling prices declined for the first time since September. Although the rate of decline was modest, this contrasted with another increase in input prices. Panellists indicated that they had absorbed cost increases and further lowered selling prices to support sales. Export charges also declined in December.

Finally, business confidence eased in the latest survey period. Chinese manufacturers were the least upbeat since September. This was as concerns about the outlooks for growth and trade, especially amidst the US tariffs threat, challenged hopes for new product- and policy-driven sales growth in the new year.

(…) it is worth noting that prominent downward pressures remain, with tepid domestic demand and mounting unfavorable external factors. Meanwhile, employment remains sluggish and profit margins have been squeezed, leading to a decline in market optimism. In December, some of the Caixin manufacturing PMI survey’s gauges declined, suggesting more time is needed to assess the consistency and effectiveness of previous policy stimulus. (…)

ASEAN manufacturers rounded the year with another month of modest growth

The S&P Global ASEAN Manufacturing Purchasing Managers’ Index™ (PMI®) has printed in expansion territory in each month since January, with a December reading of 50.7, slightly down from November’s 50.8, indicating modest sector improvement. Growth over 2024 averaged at 51.0.
Underlying components of the PMI index revealed sustained upticks in two of the five the largest segments, new orders and output. The former saw growth for a tenth straight month, as the latest uptick signalled a modest rise which was also the strongest this quarter. However, new export orders remained a drag, with a downturn in December extending the current run of contraction to 31 months.

Nonetheless, a sustained and slightly quicker intake of overall new orders fed through to a solid and historically strong rise in output. The rate of growth was broadly consistent with that seen in November. (…)

December marked a renewed easing of price pressures. Rates of both input price and output charge inflation eased from November’s slight spike. (…)

Japan: Softer deterioration in manufacturing conditions at end of 2024

The headline au Jibun Bank Japan Manufacturing Purchasing Managers’ Index™ (PMI®) recorded 49.6 in December, up from 49.0 in November and indicative of a slight contraction in the health of the Japanese manufacturing sector that was the softest for three months.

Latest data showed there was a softer decrease in output at the end of the year. The rate of decline was only marginal, and eased from that seen in the month prior. Firms signalled often that muted demand was behind the latest contraction, though there were some mentions of the introduction of new products. Manufacturers also indicated a softer preference for the use of existing inventories, as the rate of depletion of finished item holdings was only fractional.

There were reports that new order volumes moved closer to stabilisation during December, as the rate of reduction eased to the softest for six months. At the same time, new export demand remained muted amid evidence of low demand from key markets, most notably mainland China and the US. (…)

European Gas Rises Following Loss of Russian Flows Via Ukraine

(…) Russian gas deliveries across Ukraine halted on New Year’s Day after a transit contract between the two warring nations expired, with no alternative in place. (…) Inventories across the continent are already falling at the fastest pace since 2021, when the gas crisis was just starting to brew. (…)

While Europe is unlikely to run out of gas this winter, thanks to inventories and deliveries from other suppliers, traders may find it harder to refill storage for the next heating season. Gas prices for next summer recently surged above those for winter 2025-26, which will make it more costly to restock. (…)

With the loss of flows via Ukraine, Europe will also deepen its reliance on liquefied natural gas, including from Russia. The country shipped record volumes of LNG to the region last year, making it the largest supplier after the US, which has recently started up two new export plants. (…)

Europe as a whole will need to compete harder for LNG this year, especially in the summer when energy demand for air conditioning soars in Asia. While several new LNG plants are under construction worldwide, meaningful capacity additions won’t be ready for another couple of years. (…)

The rapid expansion of data centers powered by Artificial Intelligence (AI) technology is driving a surge in electricity demand, boosting the need for natural gas in the United States. (…) Projections suggest that electricity demand from data centers could quadruple by 2030, requiring an additional 8.5 billion cubic feet per day of natural gas to meet consumption.

Top U.S. Gas Producer EQT Sees AI as Biggest New Source of Demand

(…) AI-related electricity demand is expected to translate to between 6 billion to 13 billion cubic feet of gas a day in the short term, Toby Rice, EQT’s chief executive officer, said Tuesday. That compares with current total US consumption of just over 100 billion cubic feet a day. (…)

In the near-term, prices are likely to stay range-bound at $2 to $3 because of the oversupply that followed the mild weather last winter, according to Rice. It will take about six months to work through the glut, he said, assuming temperatures revert to normal next winter.

If prices do rally, the EQT boss warns of possible spikes similar to those seen in 2022, when futures exceeded $10 after the invasion of Ukraine sparked turmoil in global energy markets.

One reason for his view is the changing make-up of US power supply. Many power stations would previously have been able to change over to burning coal when gas prices jumped. But a lot of those facilities have made a permanent switch to gas in recent years.

That means gas prices that would have been capped at $5 can now potentially bounce from $2 to as much as $9, a level that would force factories and other industrial users to curtail operations, Rice said. Regional variations could be even more extreme, he added, with pipeline constraints pushing gas in New York or Boston to as much as $20. “Buckle up for volatility,” Rice said. (…)

The marginal cost to bring new production in the US online is about $3.50 per million BTU at the benchmark Henry Hub delivery point, according to Rice. Right now, it looks like producers may want to hold back some activity in 2025 as futures prices for next year are trading below that level, he said.

EQT’s own break-even point is $2, which Rice described as a “stress case scenario” that allows the company to cover drilling and operational costs and still generate free cash flow. He added that such a low breakeven minimizes the need to hedge.

Were U.S. domestic prices to explode, would the Trump administration attempt to curb LNG exports?

BTW: Polar vortex poised to spin into U.S., leading to frigid January

Pieces of the polar vortex are projected to swirl southward out of northern Canada and into parts of the U.S. during early and mid-January.

• Accompanying the cold will be the threat of multiple significant winter storms.

2024 Was A Roaringly Good Year For Stocks

The past two years were certainly prosperous ones for equities investors, as the S&P 500 rose 23.3% following a 24.2% gain in 2023. Those gains more than offset the 19.4% loss during 2022. On average, the S&P 500 is up 9.4% per year over the past three years, consistent with its long-run average growth rate of 7.2% (chart). Of course, accounting for dividends, returns are even higher than that performance suggests.

Three consecutive years of double-digit gains don’t happen too often. Nevertheless, that’s what we are expecting: We see the S&P 500 increasing 19.0% this year to 7000. However, we think it could be a bumpier ascent than in recent years, especially during the next couple of months. Fed officials are likely to be less dovish in the coming weeks. In addition, uncertainty about fiscal, trade, and immigration policies might continue to put upward pressure on bond yields.

Last year’s advance was heavily skewed by the Magnificent-7 stocks, which collectively soared 62.7% and currently account for a whopping 32% of the market cap of the S&P 500 (…).

However, the S&P 500 Financials and S&P 400 Utilities managed to beat the S&P 500. (…)

The bull market since October 12, 2022 has been a broad one, with plenty of stock market indexes up by more than 25%. It only seems narrow because of the significant outperformance of a handful of large-cap stocks. (…)