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U.S. Consumer Spending, Incomes Rose Steadily in October Americans’ incomes and household spending advanced at a solid pace for the second straight month in October, suggesting consumers can support economic growth in the year’s final months.

Personal consumption, which measures how much Americans spent on everything from hospital stays to heating oil, rose 0.3% in October from a month earlier, the Commerce Department said on Wednesday. September spending was revised up to a 0.7% gain, up from a prior estimate of up 0.5% and the second-biggest monthly gain in two years.

Incomes advanced 0.6% in October, the best monthly gain since April, after a 0.4% gain in September. (…)

The personal-consumption expenditures price index, the Federal Reserve’s preferred inflation measure, rose 0.2% in October from the prior month. From a year earlier, the index was up 1.4%. While still below the Fed’s 2% target, it is the firmest year-over-year reading in two years.

So-called core prices, which exclude the volatile categories of food and energy, advanced 0.1% from the prior month and were up 1.7% from a year earlier. (…)

When adjusting for inflation, Wednesday’s report showed consumer spending rose 0.1% in October from the prior month. Inflation-adjusted disposable personal income—income after taxes—was up 0.4%.

Americans saved more last month. The personal saving rate rose to 6% from 5.7% the prior month.

The income side is pretty solid with disposable income up at a strong 6.0% annualized rate in the last 2 months on similar trends in wages and salaries. Some of the se gains are being saved with real expenditures remaining spotty (not “steady”) and trending slower than income in recent months. (Table from Haver Analytics)

• From Bespoke Investment:

Trump’s Treasury Choice Says ‘No Absolute Tax Cut’ for the Wealthy Donald Trump’s choice for Treasury secretary said there will be “no absolute tax cut” for high-income households, a promise at odds with tax proposals from Mr. Trump and House Republicans.

Steven Mnuchin said that “Any reductions we have in upper-income taxes will be offset by less deductions, so that there will be no absolute tax cut for the upper class.” The big tax cut, he told CNBC, will go the middle class. (…)

Mr. Trump’s tax plan would lower top rates dramatically, providing such large benefits to high-income households that analysts say they can’t be covered with limits on tax breaks, such as the $100,000-a-person limit on itemized deductions already in Mr. Trump’s plan. The largest deductions typically are for mortgage interest, state and local taxes and charitable contributions. (…)

It wasn’t immediately clear on Wednesday whether Mr. Trump and his team were actually changing their tax plan. (…)

Mr. Mnuchin, a former Goldman Sachs Group Inc. executive, said the Volcker rule provision in Dodd-Frank—named after former Federal Reserve Chairman Paul Volcker—is too complicated and signaled the Trump administration may try to roll it back. The rule is aimed at trying to stop banks from betting with deposit-insured funds. Goldman and other Wall Street firms have complained that the rule is too complex.

“The No. 1 problem with the Volcker rule is it’s way too complicated, and people don’t know how to interpret it,” Mr. Mnuchin said. “So we’re going to look at what do with it, as we are with all of Dodd-Frank.”

Numbers Don’t Add Up for Trump’s Trillion-Dollar Building Plan

(…) The cornerstone of the Trump plan, outlined by proposed Commerce Secretary Wilbur Ross and economist Peter Navarro, is to use tax credits to spur public-private partnerships. This would, in theory at least, be revenue neutral for the federal budget.

Such projects have fared poorly in the past. A 2015 Congressional Budget Office reportcounted 14 completed highway projects that relied on some form of private financing. Of the eight that have been open for more than five years, half, including projects in Texas, California, and South Carolina, have either declared bankruptcy or experienced a public buyout of the private partners. All relied on toll revenue. They built it, but not enough came.

Equity investors under the Ross-Navarro proposal might still like those odds given the sweeteners it contains, though that confidence might not extend to lenders on the projects. The proposal assumes that $1 trillion of spending would require about $167 billion of private-equity investment that would then receive an 82% tax credit. That would, they calculate, reduce the total cost of financing by 18% to 20%. (…)

If the rubber on Mr. Trump’s infrastructure proposals is slow to hit the road then a reversal of some or all of the gains in construction-related stocks is likely. While fundamentals already were improving for some of them, spending pledges from both presidential candidates created froth. A basket of eight companies that fetched 14.5 times projected earnings for the next 12 months on average at the beginning of 2016 now trades at 18.2 times.

Public-private partnerships seem like an easy way to build infrastructure without borrowing too much. History shows that such plans are harder than they appear.

U.S. Pending Home Sales Edged Higher in October

The National Association of Realtors said Wednesday that its pending home sales index, which tracks contract signings for previously owned homes, edged up 0.1% from a downwardly revised September reading to a seasonally adjusted 110.0. Sales typically close within a month or two of signing. (…)

October’s reading was 1.8% above where the index stood in October a year ago, and the highest since July. (…)

The pending-home sales report showed the index rose in all four regions of the country since October 2015, with the strongest annual growth in the Northeast. Lawrence Yun,the trade group’s chief economist, said 40% of October’s sales were at or above their listed price, a rise from 33% last October. (…)

Pending home sales are up 1.5% in the Sep-Oct. period but that followed a 2.5% drop in August. Pending sales have been particularly weak in the South with sales down 2.9% during the last 3 months.

Delinquencies Rise on Growing Volume of Subprime Auto Loans The number of subprime auto loans slipping into delinquency rose to the highest since 2010 in the third quarter and is following a pattern much like the months heading into the 2007-09 recession.

(…) New auto loans to borrowers with credit scores below 660 have nearly tripled since the end of 2009. So far in 2016, about $50 billion of new auto loans per quarter have gone to those borrowers. About $30 billion each quarter has gone to borrowers with scores below 620, which are considered bad. (…)

German Retail Sales Rebound Strongly; Still More Volatility Than Trend

German retail sales rebounded strongly in October, gaining 2.6% after a 1% decline in September. Even with two monthly drops in a row in August and September, the October rebound puts rates on a three-month growth track. But German retail sales have been so volatile that it is still hard to discern a trend. Even with the strong readings for October, it is not clear that three-month, six-month and 12-month growth rates are not still locked in a downtrend. (…)

Quite separately auto registrations in Germany have been contracting and their contraction is sequentially more severe. Over 12 months they contract at a 5.3% pace, over six months the contraction pace steps up to -14.9% while over three months it is at a -24.4% annual rate. Registrations did put in two monthly gains in a row in August and September before collapsing in October. That kind of action makes trends hard to read.

However, in the quarter-to-date, German retail sales are up at an 11.5% pace and for real sales the pace is 8.4%. Auto registrations are still undergoing a severe contraction early in Q4. But since this quarterly calculation is based on positioning one month over the previous quarter’s average and compounding the results, the actual growth rates are subject to great change as the rest of the quarterly data come in. (…)

The U.K., France and Portugal show sales gains in October with Spain showing a real sales decline but only one of -0.1% over three months. The U.K. and France post strong sales gains while Spain and Portugal log substantial three-month declines. However, on all other horizons, all the countries retail sales are increasing and usually on solid to strong rates of growth (France over six months is an exception with weak growth). In the quarter-to-date, only real sales in Spain show a decline; that is only at less than a -1% annual rate.

On balance, retail sales in key EMU countries and in the U.K. seem reasonably resilient if not strong. There is a great deal of volatility making it hard to tell if sales are changing speeds for real or not. However, in the recently released EU Commission indices, retailing was the top performing sector in the EMU area. The EU Commission retail diffusion readings for select EMU members are presented in a companion chart. France shows some softening, but the rest demonstrate firming.

• Fillon Pitches Bitter Economic Medicine in French Presidency Bid Veteran politician François Fillon’s bid to become France’s next president hinges on whether he can rally his compatriots to embrace a form of economic shock treatment they have long resisted.

Stimulus and Property Sales Keep China Growing

(…) Real-estate sales in China’s top 70 cities sales grew 1.1% month on month in October, down from September’s 1.8%. In other areas of the traditional economy, freight volumes grew by more than 10% year on year in October while power consumption increased at around half that pace in the first 10 months of 2016.

Stimulus has also helped. In the latest of several such announcements, China this week approved a 247 billion yuan ($35.8 billion) railway project aimed at bolstering connections between Beijing, the port city of Tianjin and the neighboring province of Hebei. China’s total fixed-asset investment in railways increased 9.8% year on year to 623 billion yuan during the first 10 months of 2016. (…)

Here’s the rub:

A few strange and terrible things are happening to the Chinese economy all at once.

• The Chinese yuan is falling against the dollar — down a whopping 5% in the last 6 months.
• Capital outflows are increasing as people pull their money out of the country. Outflows jumped to $206.7bn in 3Q from $98.5bn in 2Q.
• And, despite the yuan’s weakness, Chinese exports are not getting a boost.

(…) “Stripping out the impact of yuan depreciation, exports in dollar terms fell 7.3% year on year in October after a 10% drop in September,” wrote Bloomberg’s Tom Orlik in a recent note. “Imports slipped 1.4% after a 1.9% decline. China’s trade surplus in dollar terms was $49 billion, up from $42 billion. The surplus is in contrast to a larger-than-expected $45.7 billion decline in China’s foreign reserves in October, indicating quicker capital outflows in the month.” (…) (BI)

Oil Holds Gains After OPEC Deal Oil prices held on to gains made after OPEC struck a long-sought agreement to reduce production by 1.2 million barrels a day.

(…) The cut, representing about 1% of global production, will help to reduce a supply glut that has depressed prices for more than two years. It involves significant reductions by heavyweights including Saudi Arabia, the group’s most powerful member and de facto leader of the cartel. (…)

Analysts say the biggest question remains enforcement, as OPEC has no authority to make its members comply. OPEC members have a record of producing beyond their allotted quotas.

Under the pact, Saudi Arabia is expected to take the lion’s share of the cuts by slashing production by 486,000 barrels a day. Iraq had a last-minute change of heart by agreeing to curb output by 200,000 barrels a day. (…)

Another wild card is the cooperation of non-OPEC producers, which are expected to decrease production by 600,000 barrels a day. Russia said it would cut production by 300,000 barrels a day, though it isn’t clear how much of that will come from already-expected declines. (…)

Source: @WSJ; Read full article

• Oil price rally likely short-lived as OPEC deal not enough to reduce glut The oil price rally sparked by an OPEC-Russia deal to cut output is likely to be short-lived, say traders in Asia, because the agreement may only draw more supplies from storage tanks and more crude shipments from the United States.

• $1 Trillion Money Manager Downplays The OPEC Deal

Global Bonds Suffer Their Worst-Ever Monthly Meltdown

Trump’s Tax Cuts Imply Billions Worth Of Deferred Tax Asset Writedowns For Wall Street Banks