RETAILING

IMF Sees U.S. Fading as Global Growth Engine

The fund left its forecast for global growth unchanged in the latest quarterly update to its World Economic Outlook, released Monday in Kuala Lumpur. The world economy will expand 3.5 percent this year, up from 3.2 percent in 2016, and by 3.6 percent next year, the IMF said. The forecasts for this year and next are unchanged from the fund’s projections in April.

Beneath the headline figures, though, the drivers of the recovery are shifting, with the world relying less than expected on the U.S. and U.K. and more on China, Japan, the euro zone and Canada, according to the Washington-based IMF. (…)

The IMF estimated U.S. growth at 2.1 percent this year and again in 2018, consistent with what the fund said June 27 in its annual assessment of the U.S. economy. In the April world economic outlook, it had forecast U.S. growth of 2.3 percent and 2.5 percent, respectively, in 2017 and 2018. The economy expanded by 1.6 percent in 2016.

“U.S. growth projections are lower than in April, primarily reflecting the assumption that fiscal policy will be less expansionary going forward than previously anticipated,” the IMF said in the latest report. (…)

The IMF’s projection for growth in China is 6.7 percent for 2017 — the same as its estimate made June 14 in an annual staff report, and up 0.1 point from April’s world economic outlook. For 2018 the fund sees Chinese growth at 6.4 percent, an increase of 0.2 points from three months ago. In the staff report, the IMF looked for average annual growth of 6.4 percent in China during 2018 through 2020. (…)

Eurozone growth spurt loses momentum for second month running

• Flash Eurozone PMI Composite Output Index at 55.8 (56.3 in June). 6-month low.
• Flash Eurozone Services PMI Activity Index at 55.4 (55.4 in June). Growth unchanged.
• Flash Eurozone Manufacturing PMI Output Index at 56.9 (58.7 in June). 6-month low.
• Flash Eurozone Manufacturing PMI(3) at 56.8 (57.4 in June). 3-month low.

The eurozone started the third quarter on a solid footing, according to PMI® survey data, though the rate of growth remained slightly below the recent highs in both manufacturing and services and inflationary pressures cooled further. (…)

The survey data are historically consistent with GDP rising at a quarterly rate of 0.6%, cooling slightly from a pace of over 0.7% signalled for the second quarter.

The upturn was once again broad-based by sector. Manufacturers − buoyed in particular by further robust export order book growth − continued to report stronger output growth than service providers, despite the rate of expansion easing to the weakest since January.

Growth of new orders, backlogs of work and employment all edged lower in July but remained solid. While new orders and backlogs were found to have been rising at rates only modestly below recent six-year peaks, the rate of job creation continued to run at one of the highest seen over the past decade. Factories led the job market upturn, reporting the second-highest employment gain on record.

(…) even with employment growing at one of the fastest rates seen over the past decade, the survey is still showing backlogs of uncompleted orders rising at a rate close to a six-year high. Manufacturing suppliers’ lead times also lengthened to the greatest extent for over six years as demand exceeded supply for many inputs. These are symptoms of a booming rather than an ailing economy.

Average prices charged for goods and services rose at a slightly slower pace than the already modest rate seen in June, the rate of increase slipping to the weakest since January.

Canadian Wildfires Choke Lumber Supply to U.S. Home Builders Lumber futures have soared in July as blazes spread across the province of British Columbia, leaving many U.S. wholesalers short-handed.

Solid retail sales support rate hike; inflation lowest since 2015

Canadian retail sales posted their third healthy increase in a row in May, a sign of strength that analysts said boosts the case for another rate hike this year despite data showing persistently weak inflation.

Sales rose by 0.6 per cent from April to hit a record C$48.91-billion ($38.82-billion), Statistics Canada said on Friday. The increase was greater than the 0.2 per cent advance forecast by analysts in a Reuters poll.

May’s advance in retail trade was driven by a 2.4 per cent increase in sales at motor vehicles and parts dealers.

Separately, Statscan said the annual inflation rate slowed to a 20-month low of 1.0 per cent in June, well below the central bank’s 2.0 per cent target, although core measures showed signs of strength.

Among those core inflation measures, CPI common, rose to 1.4 per cent from 1.3 per cent. The bank says this gauge is useful in assessing the economy’s underperformance.

CPI median, which shows the median inflation rate across CPI components, rose to 1.6 per cent from 1.5 per cent while CPI trim, which excludes upside and downside outliers, stayed at 1.2 per cent.

• Is Canada Showing the G7 How to Do It?

• As loonie nears 80 cents, speculators finally turn bullish

Why Small Firms Are Giving Out 15% Pay Raises

(…) Wage growth for existing employees accelerated by 1.07% annually over the past three years at companies with fewer than 50 employees, according to an analysis of ADP data by Moody’s Analytics for The Wall Street Journal—well above the 0.69% average increase for firms of all sizes over the same period.

Small businesses are feeling the pressure, Mark Zandi, chief economist of Moody’s Analytics, said. “They have to work harder to keep employees now that the labor market is tight.” (…)

According to a June survey of roughly 800 companies by the Journal and Vistage Worldwide Inc., 58% of small-business owners reported increased difficulties finding needed workers. Many have responded by boosting pay or benefits, while others have stepped up training or slowed the pace of growth. (…)

Younger workers—those under age 35—are capturing the biggest pay increases, according to the Moody’s Analytics analysis. (…)

OPEC Huddles With Oil Allies in Fight Against Glut The Organization of the Petroleum Exporting Countries met with big oil-producing allies such as Russia, wrestling with a difficult fact: They are pumping too much crude.

(…) Overall, OPEC output rose above 33 million barrels a day this month, up 145,000 barrels a day from a month ago, tanker-tracking firm Petro-Logistics says.

Saudi energy minister Khalid al-Falih said Monday that the coalition’s compliance with the production deal was strong. But he said there were laggards whose issues had to be dealt with “head on.” (…)

Mr. Falih, who sometimes skips such meetings, cut short a vacation and spent the weekend in a flurry of meetings and phone calls with OPEC members and allied producers.

On Monday, Mr. Falih expressed worry about new oil supplies coming from the U.S., where .

Analysts have warned that any new production cuts from OPEC would likely just help American shale producers. First it would cede market share to the U.S. from OPEC. Second, any price rally would likely be quickly killed by new shale production.

• OPEC Signals No Big Changes to Supply Deal at Russia Meeting

Weaker growth of Japan manufacturing sector in July

• Flash Japan Manufacturing PMI® down to eight-month low of 52.2 in July (52.4 in June)
• Flash Manufacturing Output Index at 51.4 (52.2 in June). Weakest growth for 10 months
• Export orders stagnate

July’s survey data indicated a further easing of growth in both orders and output from May’s recent highs. The slowdown was driven by stagnation in export orders, amid reports of weaker demand from South East Asia markets.

Nonetheless, the sector continues to add jobs, with employment growth remaining amongst the best since the financial crisis, whilst optimism hit its highest level in five years of data collection.

Xi’s Sign-Off Deals Blow to China Inc.’s Global Spending Spree President Xi Jinping approved the recent cutoff in bank financing to Dalian Wanda Group for overseas acquisitions, according to people with knowledge of the measures.

(…) The cutoff in bank financing for the company’s foreign investments highlights Beijing’s changing view of a series of Wanda’s recent overseas acquisitions as irrational and overpriced, these people say.

Targeted along with Wanda are HNA Group Co., Anbang Insurance Group and Fosun International Ltd. 0656 -0.34% —which had reputations for well-cultivated political ties.

“It feels like an avalanche,” said Jingzhou Tao, a lawyer at Dechert LLP in Beijing, who does mergers and acquisitions work. “This is sending a shock wave through the business community.”

Since 2015, the four companies completed a combined $55 billion in overseas acquisitions—or 18% of Chinese companies’ total. In recent days, Wanda’s billionaire founder Wang Jianlin has been shrinking his empire by selling off assets and paying back the company’s bank loans.

Beijing for years encouraged Chinese companies to scour the globe for deals. Now it is reining in some of its highest-profile private entrepreneurs in what officials say is growing unease with their high leverage and growing influence. The measures serve as a stern warning for other big companies that loaded up on debt to buy overseas assets, officials and analysts say. (…)

Going forward, some believe China’s private companies will have trouble getting capital, which would help shift financial clout further in favor of big state-owned enterprises.

Beijing’s sterner line comes as big private businesses and others have been amassing capital and influence that challenge the authoritarian Chinese leadership’s firm hold on the economy. (…)

The latest scrutiny is a watershed moment in the Communist government’s relations with a private sector it has never been comfortable with. Though some senior leaders, particularly Premier Li Keqiang, are urging a new culture of startups and small businesses, Mr. Xi has promoted plans to make already-large state enterprises larger and strengthen their sway over the economy.

Chinese firms completed $187 billion in outbound deals last year, according to Dealogic, as private companies snapped up trophy properties, soccer clubs and hotels, while Chinese with means bought homes and pushed up real-estate prices from Texas to Sydney. (…)

The official said China is acutely aware that as Japan rose to economic prominence in the 1980s, its companies splurged on American real estate and other trophy assets, resulting in losses that cascaded through Japan’s banking sector. (…)

• U.S. Message to China: Hands Off Our Companies

The U.S. is toughening its scrutiny of Chinese deals, throwing a number of high-profile takeover bids into question and helping spur a huge case backlog, according to people familiar with the process. (…)

Deal makers say CFIUS—a multiagency committee led by the U.S. Treasury whose task is to screen foreign investments for national-security concerns—is growing increasingly wary of Chinese companies. A recent buying spree pushed China’s announced overseas investments to a record $221 billion last year, including $66 billion in the U.S., according to Dealogic. (…)

Chinese deal makers are battling similar concerns from European regulators as well. (…)

EARNINGS WATCH

From Factset:

Overall, 19% of the companies in the S&P 500 have reported earnings to date for the second quarter. Of these companies, 73% have reported actual EPS above the mean EPS estimate, 11% have reported actual EPS equal to the mean EPS estimate, and 15% have reported actual EPS below the mean EPS estimate. The percentage of companies reporting EPS above the mean EPS estimate is above the 1-year (70%) average and above the 5-year (68%) average.

In aggregate, companies are reporting earnings that are 7.8% above expectations. This surprise percentage is above the 1-year (+4.7%) average and above the 5-year (+4.2%) average.

In terms of revenues, 77% of companies have reported actual sales above estimated sales and 23% have reported actual sales below estimated sales. The percentage of companies reporting sales above estimates is well above the 1-year average (56%) and well above the 5-year average (53%).

In aggregate, companies are reporting sales that are 1.3% above expectations. This surprise percentage is above the 1-year (+0.5%) average and above the 5-year (+0.5%) average.

The blended earnings growth rate for the S&P 500 for the second quarter is 7.2% today, which is higher than the earnings growth rate of 6.8% last week. If the Energy sector is excluded, the blended earnings growth rate for the remaining ten sectors would fall to 4.8% from 7.2%.

The blended sales growth rate for the S&P 500 for the second quarter is 5.0% today, which is equal to the sales growth rate of 5.0% last week. If the Energy sector is excluded, the blended revenue growth rate for the index would fall to 4.0% from 5.0%.

At this point in time, 14 companies in the index have issued EPS guidance for Q3 2017. Of these 14 companies, 7 have issued negative EPS guidance and 7 have issued positive EPS guidance. The percentage of companies issuing negative EPS guidance is 50% (7 out of 14), which is below the 5-year average of 75%.

So far, most of the increase in Q2 estimates is in Financials. Consumer-centric sectors (I, CS, HC, T, U, CD) have sen their average estimated growth edge up from +0.8% last week to +1.0%. But this is a big week with 191 reports.

FYI, Thomson Reuters sees EPS growing 9.6% in Q2, +6.9% ex-Energy.

In all, Q2 is shaping up as another strong quarter, which may explain this:

China embraces era of staff-free shopping Wide use of mobile payments propels country’s vendors past the likes of Amazon Go

Like other convenience stores across China, the shelves of a BingoBox outlet in Shanghai are lined with instant noodles, beer, and bags of traditional snacks such as duck neck. But one thing is missing — the staff. Just as China’s rising labour costs — now higher than Latin America — pushed manufacturers to add robots to their production lines, retail in China is becoming more automated. “People are a big cost,” said BingoBox’s founder Chen Zilin.

The Chinese retailer has taken pole position in a race to build unmanned shops, with more than a dozen in operation and hundreds more planned. (…)

The entrance to the BingoBox in Shanghai, a single-aisle affair dropped Tardis-like into a parking lot behind a supermarket, is unlocked by the use of mobile phone app. Customers scan items for payment, with theft prevented by the use of real-name registration and video monitoring. 

His company plans almost 200 more by the end of next month, (…). Costing Rmb100,000 ($14,800) to set up, with monthly operating costs of Rmb2,500, the stores allow for wider margins than other stores. Labour costs make up about 10 per cent of monthly outlays for a Chinese supermarket, according to analysts. (…)

Congress agrees Russian sanctions and defies Donald Trump Bill’s passage puts Capitol Hill on possible collision course with US president

• EU ready to retaliate against US sanctions on Russia Brussels fears effort to punish Moscow’s election meddling will hurt energy companies