Xi vows not to devalue renminbi to boost exports
(…) Mr Xi also defended his government’s decision last month to carry out a small devaluation and move to a new exchange rate mechanism by saying the move had achieved “initial success in correcting the deviation in the exchange rate”.
But he also echoed the words of other Chinese leaders by saying there was “no basis” for continued depreciation of the renminbi and that China opposed competitive devaluations and currency wars. He also said the country would not devalue the currency in order to support its exports. (FT)
Canada’s retail sales climb for third straight month on autos, clothing
The 0.5 per cent increase matched economists’ forecasts, but sales excluding motor vehicle and parts dealers were flat. In volume terms, sales rose 0.2 per cent.
The motor vehicle and parts subsector climbed 2.0 per cent, boosted by a 2.7 per cent increase in new car sales. The subsector has risen for six months in a row, with the gains largely due to higher sales of new trucks.
Sales at clothing and accessories stores rose 2.5 per cent, the first increase in three months. Purchases at electronics and appliance stores edged down by 1.7 per cent after a hefty 8.0 per cent increase in June as new regulations limiting the duration of cellphone contracts came into effect.
How an Immigration Downturn Has Contributed to the Construction-Worker Shortage The U.S. construction industry has lost more than half a million Mexican-born workers since 2007, contributing to a labor shortage that’s likely to drive up home prices, according to a new analysis.
Increasingly restrictive immigration policies and better opportunities abroad have resulted in less Mexican immigration to the U.S. for such work, according to a report released Monday by home-building analyst John Burns Real Estate Consulting Inc.
(…) Mexican-born construction workers in the U.S. numbered 1.32 million last year compared with 1.89 million in 2007, Commerce data show. (…)
Meanwhile, employment of U.S. residential specialty trade contractors, which account for most home-construction labor, stands at nearly 1.8 million workers. That’s nearly 28% less than at the home-building market’s peak in 2006.
Japan casual worker shortage hints at inflation pressures
(…) A stronger economy is boosting demand for casual labour. The number of young people, who traditionally supply it, is in rapid decline.
Such wage pressures are a welcome sign of success in the Bank of Japan’s generation-long battle against deflation — but they also pose a conundrum. Given clear signs of labour shortages, why are overall wages and prices not rising faster? (…)
One possibility is that the labour market is simply not as tight as it looks. Although the BoJ puts the minimum sustainable unemployment rate at 3.5 per cent, its model relies on data from the past 20 years of economic malaise, when the economy never reached full capacity. (…)
His other explanation is the duality of Japan’s labour market. Unlike casual staff, regular workers have jobs for life, but this isolates them from any pressure on wages.
Jobs for life mean “a wage increase in a competitor firm may not create wage pressure at my firm”, says Mr Ganelli. “At the same time, firms have little reason to increase wages, because they won’t be able to lure staff from competitors.”
A final factor is the retirement of baby boomers as Japan’s population ages. Many regular workers retire at 60 or 62, then sign on as contract workers at their former company, but with a lower wage. This change in labour force composition pushes down the overall wage bill. (…)
Financial support fades for US shale oil Borrowing bases to be cut by 39 per cent, says survey
(…) E&P companies raised $9.1bn from bond issues in the first quarter of the year and $10.3bn in the second quarter, but just $1.7bn in total in July and August, according to Dealogic.
The next tightening of financial conditions is approaching fast in the shape of redeterminations of E&P companies’ borrowing bases: the limits on bank lending, based on the estimated value of the companies’ oil and gas reserves. (…)
Front-month WTI crude is down about $4 per barrel since the beginning of March, but oil for delivery in December 2016 has dropped $11, from about $63 to $52. That downward shift in the futures curve will drag down banks’ valuations of all oil assets.
A recent survey of oil industry executives, advisers and financiers by Haynes and Boone, the law firm, found that on average they expected borrowing bases to be cut by 39 per cent this autumn.
The impact of the squeeze can be seen in several E&P companies that have cut their capital spending plans for the year since the round of second-quarter results statements over the summer. (…)
Another wild card is what happens to hundreds of thousands of US “stripper wells,” marginal operations that extract an average 2 b/d from holes drilled decades ago. Citi estimates about 300,000 b/d of stripper well output may disappear this year.
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Total to slash project spending by $3bn Cuts come amid fears that drop in oil prices will be prolonged
What’s Unsurprising About Citi’s Surprise Index Markets increasingly are reminded that the world economy, including the U.S. economy, is not growing as quickly as expected. Data coming out of developed countries have fallen short of consensus recently with U.S. existing homes sales, German producer prices and Japanese imports all missing expectations in the past week.
The Citigroup Inc.’s Economic Surprise Index for developed countries, which measures where economic data registers relative to estimates, dipped into negative territory last week, sitting at its lowest level since late June. And Citi’s Economic Surprise Index for just the U.S. is at a two-and-a-half-month low, extending its record streak in negative territory to 168 sessions Tuesday. (…)
While Citi said there’s a lack of relationship between the surprise index and equity performance, it did note that market volatility during periods when the index is in negative territory is typically higher than when the index is positive – a warning sign for market participants already jittery about how global growth could weigh on their trades. (…)
SENTIMENT WATCH
Are Stocks Rolling Over?
Chart technicians are turning increasingly bearish. That’s largely because the S&P 500 was losing its upward momentum earlier this year and mostly moving sideways as its leadership narrowed. If it continues to move sideways following the latest correction, the 200-day moving averages of the S&P 500 and its 10 sectors might start to roll over. A few technicians are already saying the market is making a major top and entering a bear market.
I am a meat-and-potatoes fundamentalist with a drizzle of quant to enhance my meals. However, I will stay for dessert to chat with technicians. In any event, I am monitoring the 200-dmas of the S&P 500 and its 10 sectors more closely. There certainly is some rolling over going on, especially for the two most globally sensitive sectors, namely Energy and Materials. The interest-rate sensitive sectors are also looking a bit toppy, particularly Telecom Services and Utilities. On the other hand, the sectors with most of the market capitalization in the S&P 500 remain on 200-dma uptrends, particularly Consumer Discretionary, Consumer Staples, Health Care, and IT.
Is the Market a Dead Bull Walking?
(…) Among the several technicians and canny market observers we follow, all seem to be pointing to a few key areas: the first is roughly 1950, which represented both an uptrend line stretching back to the August low, and a Fibonacci retracement level. The break below roughly 1950 on the index was a critical point, one that Mr. Newton and several other chartists were eyeing. The next is around 1930 – which is where the index has been parked for hours. Should that get taken out, they all also point to the next circle-the-wagons stand around 1900.
If that should get broken, the August low of 1866 would come clearly into focus. (…)
“The current stock market decline is not just another correction in the six‐year bull trend,” wrote Michael Oliver of Momentum Structural Analysis. “A bear market in developed market stock indices has begun.” Mr. Oliver’s specialty is to look at momentum charts, not price charts, and in doing so he’s sees a significant break of the momentum that’s been supporting the market since the 2009 lows. Moreover, he sees the same break in overseas markets like the Nikkei 225 (down 14% from its June high) and Frankurt Dax (down 23% from its April high).
“The action is not isolated to the U.S., but is spreading across the developed market stock indices,” he wrote. “They were all bloated by QEs, whether by the Fed, the ECB, or the BOJ, and now their mutual downside breakage is not surprising. Furthermore, their coincident trend breakage enhances our bear market conclusion regarding the S&P 500. It’s not alone.”
On the charts he watches, Mr. Oliver says it’s not even a question. But on the price charts, there is still a long way to go before the bull market will be declared dead. From its May (and all-time) high of 2131, the S&P 5oo would have to fall to about 1705 – representing a 20% drop – for the market to consider the bull market dead. Even with Tuesday’s selloff, the S&P is only a hair more than 9% off that high. Even falling back to the August low of 1866 would represent only a 12.4% drop.
Harvard endowment warns of market ‘froth’
Harvard is looking for investment managers with expertise as short-sellers, as the world’s biggest university endowment becomes more cautious about the outlook for financial markets.
In its latest annual report, which showed investment returns fell to 5.8 per cent in the year to June, the $38bn endowment said its managers had started to increase cash holdings and feared that some markets had become “frothy”. (…)
Empire State Factory Sector Activity Decreases For Second Consecutive Month
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S&P 500 Flagging