Edge and Odds

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Edge and Odds

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COMMODITIES

NEW$ & VIEW$ (6 FEBRUARY 2014)

SOFT PATCH WATCH

Lightning  EUROZONE RETAIL SALES REMAINED WEAK IN JANUARY AFTER A BLEAK CHRISTMAS

Yesterday, I reported on the very severe decline in retail sales in December. To repeat, especially since I have yet to find a mainstream media with this important factual news (even uber-bear ZeroHedge missed it):

Total retail volume dropped 1.6% MoM in December in the EA17. Over the last 4 months, retail volume is down 1.8%, that is a 5.4% annualized rate! Core sales volume dropped 1.8% in December and is down 1.5% since September (-4.6% annualized). Real sales dropped 2.5% in Germany (-2.4% in last 4 months), 3.6% in Spain (-6.0%), 1.0% in France (-1.2%).

These numbers were from Eurostat. Today, Markit released its January Eurozone Retail PMI. Read their release considering that it is based on surveys conducted in Germany, France and Italy. The overall reading is up just above the 50 mark, but only because Germany had a solid January following a dismal December. France and Italy continued to experience poor sales trends, even after a very soft December.

imageJanuary eurozone retail PMI® data from Markit showed the first rise in sales for five months. And although only slight, the increase was the fastest since April 2011. Germany was the driver of growth, posting its most marked improvement in trade since August. France’s drag on the currency union’s overall performance meanwhile diminished as sales there fell at a much slower pace than in December, whereas Italy saw another solid decrease.

The Markit Eurozone Retail PMI registered at a 33-month high of 50.5 in January. Although indicative of only marginal growth, this latest index reading was nevertheless a marked improvement from 47.7 in December. Sales were still notably lower compared with the situation one year ago, however.

Stocks of goods for resale at eurozone retailers rose to the greatest extent in more than a year-and-a- half in January. With spending on resale items having fallen on the month, data suggested that this was in part due to sales being lower-than-expected. Indeed, retailers confirmed that they had generally underperformed relative to their targets.

Pointing up This is very worrying. The all-important December sales were terrible and January was only better in Germany (thanks in part to mild weather). Retailers are thus stuck with high unsold inventories which will negatively impact manufacturing in coming months. Given that U.S. retailers also seem to be overstock post Christmas, manufacturers of consumer goods are probably globally feeling the pain at this moment.

Retailers’ sales chilled by weather, low consumer confidence

(…) Kohl’s Corp (KSS.N) on Thursday said sales in January were “significantly” lower than expected as shoppers stayed away. The department store chain reported a 2 percent decline in quarterly comparable sales, those online and at stores open at least a year, despite a good start to the holiday season.

Analysts expect a group of nine retailers that report these results on a monthly basis to show a 2 percent rise in comparable sales for January, well below the 4.9 percent growth of a year earlier, according to Thomson Reuters.

Some chains managed to register sales gains, but those came either at the expense of rivals or profit margins.

Costco Wholesale Corp (COST.O) said its same-store sales rose 5 percent in January, with fresh food a popular item for its bargain-seeking members. That contrasted with a quarterly decline at Wal-Mart Stores Inc’s (WMT.N) Sam’s Club chain.

Victoria’s Secret parent L Brands Inc (LB.N) posted a much bigger-than-expected jump of 9 percent in comparable sales. But the company said its profit margin was “significantly” lower after it had to deepen discounts and hold sales events longer. The retailer expects only modest sales gains in February.

The consumer mood seemed to sour last month. The Thomson Reuters/University of Michigan’s consumer sentiment index slipped to 81.2 in January from 82.5 in December. Confidence fell acutely among households with annual incomes below $75,000. (…)

Cato Corp (CATO.N), a chain of low-priced clothing stores; Fred’s Inc (FRED.O), which sells general merchandise; and Stein Mart Inc (SMRT.O), an off-price clothing retailer, all blamed Mother Nature for declines in comparable sales.

Sterne Agee analyst Charles Grom said higher home heating bills could crimp consumer spending “well into April.”

Clothing chains that cater to teens had another dismal month in January. The Buckle (BKE.N) reported a 6.6 percent drop in comparable sales, while at Zumiez Inc (ZUMZ.O), they fell 7.6 percent.

The disappointing sales results follow recent poor reports from many stores. Baird analyst Mark Altschwager estimated that comparable sales at J.C. Penney Co Inc (JCP.N) fell 3 percent last month. And last week, Wal-Mart said its profit for the fourth quarter ended January 31 would come at or slightly below its forecast.

Getting shoppers into stores, a source of major concern for retailers during the holiday season, did not seem to improve last month. Walgreen Co (WAG.N) managed to report a jump in comparable sales, but the drugstore chain said traffic fell 2.2 percent.

Meanwhile, ECB Keeps Rate Unchanged The European Central Bank kept interest rates on hold, resisting calls for additional stimulus to guard against threats to a nascent recovery in the euro zone

“The reason for today’s decision not to act has really to do with the complexity of the situation that I described and the need to get more information,” Draghi said in Frankfurt today after the ECB left interest rates on hold. “We are willing, and we are ready to act.”

“We remain firmly determined to maintain the high degree of monetary accommodation and to take further decisive action if required,” Draghi said. “We firmly reiterate our forward guidance. We continue to expect the key ECB interest rates to remain at present or lower levels.”

“I tried to give you a sense of how complex is the picture which would explain why before taking any decision today we would wait,” Draghi said. “Things may get better, or they may stay where they are, or they may get worse.”

They are also driving blind in Europe. At least, Draghi admits it.

US retailers feel the food aid squeeze Big grocers report falling sales because of welfare cuts

The neediest Americans will be hurt by an $8.6bn cut to food aid in a bill that was approved by Congress this week and will be signed into law by President Barack Obama on Friday. But another set of welfare beneficiaries will lose out too: big grocery retailers. (…)

At Walmart, which is better known for penny-pinching, analysts estimate that around 20 per cent of shoppers use food stamps. The company said last week that sales at its US stores had fallen in the past quarter partly due to $11bn of food stamp cuts that began in November and will extend over three years. For a household of four, that reduced monthly payments by $36 to $668, according to equity analysts at Cowen & Co.

The cut approved this week, which is spread over a decade, works out at an annual reduction of $860m. It will shrink benefits for 850,000 households – or about 4 per cent of all recipients – by an average of $90 a month, according to the Congressional Budget Office.(…)

At Target, 17 per cent of shoppers use food stamps – known as the Supplemental Nutrition Assistance Program – and at Costco the figure is 13 per cent, says Cowen & Co. (…)

The very fact that this is happening in the USA is incredible!

Fortunately,

World Food Prices Drop to 19-Month Low as Sugar to Grains Slide

World food prices fell in January to a 19-month low, as costs for everything from sugar to grains slid amid ample global supplies, the United Nations’ Food & Agriculture Organization said.

An index of 55 food items dropped to 203.4 points last month from 206.2 in December, the Rome-based FAO wrote in an online report today. The index is down 4.5 percent from a year earlier and is at the lowest level since June 2012, as costs of grain, sugar, vegetable oils and meat fell, with only dairy prices rising.

More Men in Their Prime Are Out of Work More than one in six men ages 25 to 54 don’t have jobs. It’s partly a symptom of a U.S. economy slow to recover from the worst recession in 75 years and also a chronic condition that shows how technology and globalization are transforming jobs faster than many workers can adapt.

(…)  Some are looking for jobs; many aren’t. Some had jobs that went overseas or were lost to technology. Some refuse to uproot for work because they are tied down by family needs or tethered to homes worth less than the mortgage. Some rely on government benefits. Others depend on working spouses.

Having so many men out of work is partly a symptom of a U.S. economy slow to recover from the worst recession in 75 years. It is also a chronic condition that shows how technology and globalization are transforming jobs faster than many workers can adapt, economists say.

The trend has been building for decades, according to government data. In the early 1970s, just 6% of American men ages 25 to 54 were without jobs. By late 2007, it was 13%. In 2009, during the worst of the recession, nearly 20% didn’t have jobs.

Although the economy is improving and the unemployment rate is falling, 17% of working-age men weren’t working in December. More than two-thirds said they weren’t looking for work, so the government doesn’t label them unemployed.

For women, the story is different. In the 1950s, only about a third of women ages 25 to 54 had jobs. That rose steadily until the 1990s, and then leveled off for reasons that aren’t clear. At last tally, about 70% were working; 30% weren’t.(…) 

Inflation Fuels Crises in Two Latin Nations

(…) For Brazil, fewer exports of its cars, auto parts, food and manufactured goods to one of its major trading partners, Argentina, stands to further hold back its already slowing economy. Uruguay, whose economy is more dependent on Argentina’s, is concerned about a run on Argentine banks and a drop in tourism from its neighbor.

Venezuela, economists say, has started to selectively default—failing to pay European airlines, American oil service companies and Colombian food exporters, among others, as it struggles with fast-depleting reserves. (…)

Price Pressures

The Coming Arctic Boom

As the Ice Melts, the Region Heats Up. Excerpts from a July 2013 Foreign Affairsarticle written by Scott G. Borgerson. Good read.

The ice was never supposed to melt this quickly. (…) In 2007, the Intergovernmental Panel on Climate Change estimated that Arctic summers would become ice free beginning in 2070. Yet more recent satellite observations have moved that date to somewhere around 2035, and even more sophisticated simulations in 2012 moved the date up to 2020. Sure enough, by the end of last summer, the portion of the Arctic Ocean covered by ice had been reduced to its smallest size since record keeping began in 1979, shrinking by 350,000 square miles (an area equal to the size of Venezuela) since the previous summer. All told, in just the past three decades, Arctic sea ice has lost half its area and three quarters of its volume. 

It’s not just the ocean that is warming. In 2012, Greenland logged its hottest summer in 170 years, and its ice sheet experienced more than four times as much surface melting as it had during an average year over the previous three decades. That same year, eight of the ten permafrost-monitoring sites in northern Alaska registered their highest-ever temperatures, and the remaining two tied record highs. (…)

The region’s melting ice and thawing frontier are yielding access to troves of natural resources, including nearly a quarter of the world’s estimated undiscovered oil and gas and massive deposits of valuable minerals. Since summertime Arctic sea routes save thousands of miles during a journey between the Pacific Ocean and the Atlantic Ocean, the Arctic also stands to become a central passageway for global maritime transportation, just as it already is for aviation. (…)

Most cartographic depictions conceal the Arctic’s physical vastness. Alaska, which U.S. maps usually relegate to a box off the coast of California, is actually two and a half times as large as Texas and has more coastline than the lower 48 states combined. Greenland is larger than all of western Europe. The area inside the Arctic Circle contains eight percent of the earth’s surface and 15 percent of its land. 

It also includes massive oil and gas deposits — the main reason the region is so economically promising. (…) Initial estimates suggest that the Arctic may be home to an estimated 22 percent of the world’s undiscovered conventional oil and gas deposits, according to the U.S. Geological Survey. These riches have become newly accessible and attractive, thanks to retreating sea ice, a lengthening summer drilling season, and new exploration technologies. 

Private companies are already moving in. Despite high extraction costs and regulatory hurdles, Shell has invested $5 billion to look for oil in Alaska’s Chukchi Sea, and the Scottish company Cairn Energy has invested $1 billion do the same off the coast of Greenland. Gazprom and Rosneft are planning to invest many billions of dollars more to develop the Russian Arctic, where the state-owned companies are partnering with ConocoPhillips, ExxonMobil, Eni, and Statoil to tap remote reserves in Siberia. (…)  Moreover, [the fracking] boom has also reached the Arctic. Oil fracking exploration has already begun in northern Alaska, and this past spring, Shell and Gazprom signed a major deal to develop shale oil in the Russian Arctic.

Then there are the minerals. Now, longer summers are providing additional time to prospect mineral deposits, and retreating sea ice is opening deep-water ports for their export. The Arctic is already home to the world’s most productive zinc mine, Red Dog, in northern Alaska, and its most productive nickel mine, in Norilsk, in northern Russia. (…)

Alaska has more than 150 prospective deposits of rare-earth elements, and if the state were its own country, it would rank in the top ten in global reserves for many of these minerals. And all these assets are just the beginning. The Arctic has only begun to be surveyed. Once the digging starts, there is every reason to expect that, as often happens, even greater quantities of riches will be uncovered.

The coming Arctic boom will involve more than just mining and drilling. The region’s Boreal forests of spruces, pines, and firs account for eight percent of the earth’s total wood reserves, and its waters already produce ten percent of the world’s total fishing catch. Converted tankers may someday ship clean water from Alaskan glaciers to southern Asia and Africa. (…)

As the sea ice melts, once-fabled shipping shortcuts are becoming a reality. (…) Although the Northern Sea Route has a long way to go before it siphons off a meaningful portion of traffic from the Suez and Panama Canals, it is no longer just a mariner’s fantasy; it is an increasingly viable seaway for tankers looking to shave thousands of nautical miles off the traditional routes that go through the Strait of Malacca and the Strait of Gibraltar. It also provides a new export channel for warming farmlands and emerging mines along Russia’s northern coast, where some of the country’s largest rivers empty into the Arctic Ocean. (…)

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