Ford UAW Workers to Vote on Pact With $30,000 More in Pay, Bonus
Ford Motor Co. employees represented by the United Auto Workers will begin voting on a proposed four-year contract that includes $30,000 in additional wages and bonuses and $9 billion in factory investments expected to create or secure 8,500 jobs, the union said. (…)
Wage increases of $10,633, plus a variety of bonuses guaranteed payouts, will boost the average production worker’s pay by a total of $32,513 over the life of the contract, according to the union. Skilled trade workers’ total compensation will grow an average or $35,098 over four years, the union said. Those calculations don’t include profit sharing. (…)
The Ford deal, though, is richer. Upon approving the contract, workers will get $10,000 in combined bonuses, including the payment for approval and $1,500 in profit sharing that has been pulled forward. They also annually will receive $1,750 in inflation protection and competitiveness payouts. (…)
OECD Sees Growth in Member Countries Expansion will help to offset the impact of a slowdown in emerging economies
The Organization for Economic Cooperation and Development said on Monday that lower oil prices and falling unemployment will bolster economic growth in the 34-nation group of developed economies, helping to offset the impact of a slowdown in emerging economies.
The forecasts underscore how the U.S. in particular is expected to remain an island of stability within the global economy, shrugging off an anemic recovery in Europe, weak growth in Japan and turmoil in China and other developing nations.
In its semiannual economic forecasts, the OECD said that growth in the U.S. would continue to be among the most robust in the group of nations, hitting 2.4% in 2017. It predicted the 19-nation eurozone would continue to lag behind the U.S., with growth at 1.5% this year, 1.8% next year and 1.9% in 2017. (…)
Growth throughout the OECD is forecast to hit 2% this year, 2.2% next and 2.3% in 2017. (…)
Japan, the OECD’s second-largest economy after the U.S., has been hit more significantly by the slowdown in China, the OECD wrote. Growth is expected to hit 1% next year but then slow to 0.5% in 2017, in part because of a consumption tax increase planned for that year. (…)
CHINA ECONOMY HAS BOTTOMED
Beijing has been quietly stimulating using all available tools.
- House prices have resumed a rising trend.
- Automobile sales have jumped in the last 2 months.
Now this from CEBM Research:
The CEBM Sales vs. Expectations Composite Index jumped from -30.5% in October to 26.8% in November. The rebound in this month’s index reading was driven by upstream activity in Central China in response to infrastructure project demand, a strong boost in auto sales, and better-than expected container freight export shipments. This month’s survey results display that despite continued weakness in aggregate demand some areas of the economy have begun to respond
positively to continued policy easing and stronger government spending in 3Q15.Cement demand and pricing has improved noticeably in Central China in response to infrastructure project demand and seasonal factors. Auto sales were a particular bright spot in this month’s survey as sales were boosted by the government’s decision to halve the 10% purchase tax on small automobiles. Container freight export shipment survey respondents reported better-than-anticipated shipment volume and upbeat expectations for shipments November.
Other sectors remain weak but things must begin to turn up somewhere…Slow grind, but grind nonetheless.
China’s Inflation Slows in October
China’s consumer-price index rose 1.3% in October last month from a year earlier, according to the government’s statistics bureau. The pace was slower than the 1.6% year-over-year rise in September and a tick down from the median 1.4% gain forecast by 11 economists in a survey by The Wall Street Journal. Prices of goods at the factory gate fell 5.9% in October from a year earlier, matching September’s decline.
On a monthly basis, consumer prices edged down 0.3%.
Food prices rose 1.9% YoY, from 2.7% in September. Non-food prices climbed 0.9%. Prices of consumer goods increased 1%, while services increased 1.9%. Core CPI (ex-food, ex-energy) are up 1.5% YoY, in line with the last 10 month average.
QUESTIONS
Let’s assume the following environment for the next 12 months:
- World GDP will grow some 3.0%, China +6.5% and the USA +2.5%.
- Inflation will be close to zero.
- Oil prices will decline 40%.
- The USD will appreciate 20%.
- U.S. manufacturing will be in recession dragged by weak exports and depressed oil markets.
S&P 500 EPS in that environment?
Few would have thought flat. Yet, they are flat YoY in Q315 with precisely that environment!
The earnings season is almost over and frankly, these earnings are remarkable:
- Telecom: +14.7%
- Cons. Discretionary: +14.6%
- Health Care: +12.7%
- Financials: + 8.8%
- Technology: + 5.3%
- Industrials: + 0.3%
- Cons. Staples: – 1.3%
- Utilities: – 2.2%
- Materials: – 15.3%
- Energy: -57.1%
With 2 important sectors down big time, total EPS are essentially unchanged.
With exports down and the USD up 20%, industrial earnings are flat! From RBC Capital global equity team on Industrials’ earnings:
3Q15 earnings results not as bad as feared: We had been braced for a rocky 3Q15 earnings season thanks to the scorched-earth declaration by Fastenal on Oct-13 that the sector had entered an “Industrial Recession” along with negative preannouncements from Colfax and Eaton. That said, results have not played out quite as weak as anticipated, albeit against much lower expectations.
3Q15 earnings scorecard: Of the 24 companies that reported, we had 16 beats, 6 misses, and 2 in-lines. Organic revenue growth has been weaker, declining -2.0% vs. our estimate for -0.8%. Guidance has been broadly weaker with 12 out of 19 companies cutting their 2015 outlooks. In contrast, operating margins have come in better than expected, falling -35 bps YoY vs. our estimate for -70 bps.
Signs of stabilizing oil & gas declines: The most impactful read across from 3Q15 earnings season, in our view, was that oil & gas related cuts to earnings seem to be stabilizing for the first time since oil began its plummet back in Sept-2014. WESCO, Honeywell, Pentair, Roper, and General Electric all largely reiterated their 2015 views, and Dover only modestly tweaked its forecast lower.
Second question:
Assume the USD and Brent are unchanged from their current levels and everything else is trend lined. S&P 500 EPS 12 months out?
Some clues:
- Ex-Energy, EPS are up 6.5% YoY. And ex-Materials, probably +7.2%. What can Industrials, Materials and Energy contribute without the USD and Oil headwinds?
- Factset digs deeper:
For companies (ex-Energy) that generate more than 50% of sales inside the U.S., the blended earnings growth rate is 10.1%. For companies (ex-Energy) that generate less than 50% of sales inside the U.S., the blended earnings decline is -2.1%.
The blended sales growth rate for the S&P 500 (ex-Energy) for Q3 2015 is 1.4%. For companies (ex-Energy) that generate more than 50% of sales inside the U.S., the blended sales growth rate is 4.7%. For companies (ex-Energy) that generate less than 50% of sales inside the U.S., the blended sales decline is -4.9%.
So,
- U.S. centric companies are increasing earnings 10.1% with revenue growth of 4.7% in a zero inflation environment and a 2.5% GDP growth rate.
- Other non-Energy companies have been able to keep earnings from falling more than 2.1% on a 4.9% sales decline given weak foreign economies, a 20% appreciation of the USD and declining exports.
- Any which way, margins keep rising! Cost discipline remains strong.
Next 12 months possibilities:
- U.S. economy improves enough for Fed to raise rates.
- Draghi keeps pushing.
- Abe keeps shooting.
- China keeps stimulating.
- Brent flat at worst.
- Copper et al flat at worst.
Current 2016 consensus: +8.6%
Doable.
SENTIMENT WATCH
Gundlach Says December Rate Increase a Threat to Stocks, Bonds
A December interest rate increase would threaten U.S. stock and bond markets while potentially driving up the value of the dollar to the point where it weakens the economy, according to Jeffrey Gundlach, chief executive officer of DoubleLine Capital.
“I have a hard time believing a Fed tightening will help the economy,” Gundlach, whose Los Angeles-based company manages about $80 billion, said Monday on a conference call with investors. “I think volatility will increase and the economy will weaken.” (…)
“For the time being,” Gundlach said, the threat of higher rates “will hurt the stock market.”
OIL
Oil glut to swamp demand until 2020 IEA says cleaner fuels and greater efficiency will depress prices
$80/Bbl Oil By 2020, Says IEA The oil markets should be rebalanced and prices should be in the $80 a barrel range by 2020, according to a new report issued by the International Energy Agency.
OPEC Rift Exposed as Oman Oil Minister Calls Group ‘Irresponsible’
Discontent with the Organization of the Petroleum Exporting Countries spilled into the open Monday, when Oman’s oil minister called current oil production levels “irresponsible” and blamed the group for contributing to low oil prices.
“This is a commodity that if you have one million barrels a day extra in the market, you just destroy the market,” said Mohammed Bin Hamad Al Rumhy, whose country produces oil but isn’t a member of OPEC. “We are hurting, we are feeling the pain and we’re taking it like a God-driven crisis. Sorry I don’t buy this, I think we’ve created it ourselves.”
Mr. Rumhy’s comments came at a conference in Abu Dhabi as he shared a stage with Suhail al Mazrouei, the United Arab Emirate’s top oil official, who is a top advocate of the producer group’s strategy. (…)
Mr. Mazrouei and other Persian Gulf oil officials said low prices are forcing industrywide spending cuts that won’t be sustainable for a prolonged period. That bodes well for prices soon, they said. (…)
In Doha, Prince Abdulaziz bin Salman, Saudi Arabia’s deputy oil minister, rejected the idea that the current period of low prices represents a fundamental lasting shift.
“A prolonged period of low oil prices is…unsustainable, as it will induce large investment cuts and reduce the resilience of the oil industry, undermining the future security of supply and setting the scene for another sharp price rise,” Prince Abdulaziz said.
“Just as the assertions, heard a few years ago—that the oil price would reach $200 a barrel—were proved wrong, so the recent assertion that the oil price has shifted to a new low structural equilibrium—will also turn out to have been wrong,” he added.
Without naming the U.S., Prince Abdulaziz essentially rejected a commonly held theory in the oil industry that production cuts from high-cost producers will “quickly reverse when oil prices start rising again.”
“This is wishful thinking,” he said. “Previous cycles have shown that the impact of low oil prices is long lasting, and that the scars from a sustained period of low oil prices can’t be easily ‘erased.’”
The prince pointed to strong demand for oil in both established and emerging markets as a reason for an eventual rebound in the market.
“Rather than being a commodity in decline, as some would like to portray, supply and demand patterns indicate that the long-term fundamentals of the oil complex remain robust,” he said. (…)
“No one is happy with the current situation,” a Saudi oil industry official said. “The lower oil prices are lasting longer than initially expected and everyone wants the price to bounce back up soon.”