NEW$ & VIEW$ (17 SEPTEMBER 2014)

Today: German economy rebounds. Fedex  delivers more thanks to buybacks.

U.S. Producer Prices Unchanged in August A gauge of U.S. inflation was unchanged in August, a sign that price pressures remain tame amid subdued economic growth.

August producer prices rose 1.8% over the same period a year earlier. Prices rose at an 1.7% annual rate in July and by 1.9% in June. Tuesday’s report showed energy prices falling by 1.5% in August from July and food prices down 0.5%. Services prices rose 0.3%.

U.S. Incomes End 6-Year Decline, Just Barely

The median annual household income—the level at which half are above and half below—rose 0.3% in 2013, or a total of $180, to an inflation-adjusted $51,939, the Census Bureau’s latest snapshot of U.S. living standards showed Tuesday. The increase, which wasn’t statistically significant, leaves incomes around 8% below their level of 2007, when the recession officially started. (…)

Since the recession ended in 2009, median incomes are down 4%, back to levels last seen in 1996. By contrast, incomes grew 13% during the expansion that ran from 1991 through 2000. Since 2009, incomes have risen only for the top 5% of earners. (…)

German industrial production rebounds in July

German industrial production rose 1.9% in July, according to the Federal Statistical Office (Destatis). Economists polled by Reuters had expected a mere 0.3% increase. The solid rise in industrial production was the sharpest in over two years and follows a revised 0.4% increase in June (previously reported as +0.3%).

Even more encouraging was a sign that business investment picked up. Destatis reported that capital goods manufacturers saw the steepest rise, with production in the sector up 5.0%. Intermediate goods output meanwhile rose 0.8% and the production of consumer goods increased 0.1%. Energy production fell 3.7% on the month, however, but construction was up 1.7%.

With the exclusion of construction and energy, manufacturing output was up 2.6%, the largest monthly rise in three years.

The upturn in production followed a surge in new orders. Official data released on Thursday showed that factory orders rebounded by 4.6%, having dropped 2.7% in June. The increase was the steepest since June 2013. While domestic orders increased 1.7%, new export work jumped by 6.9%, showing resilience to the geopolitical tensions in Ukraine and the Middle East.

Both PMI results and official data therefore now bode well for a rebound in gross domestic product in the third quarter, after GDP contracted 0.2% in the three months to June.

German Bond Sale Secures Record Low Funding Investors paid a hefty price for German government debt on Wednesday–a fresh sign of how the ECB’s monetary easing policies are upending the region’s bond markets.

The German Finance Agency sold €3.341 billion ($4.33 billion) of a September 2016-dated treasury note at a record low average yield of -0.07%, the Bundesbank said. That effectively means investors have paid to buy the debt for the first time since December 2012. At its previous similar sale in August, Germany sold debt for a 0% yield.

PBOC Pumps $81 Billion Into China’s Top State-Owned Banks China’s central bank is injecting $81 billion into major state-owned banks to counter a worse-than-expected slowdown. But economists warned the move may not be enough.

(…) While there are no explicit conditions attached to this targeted lending, the PBOC is expected to guide the big banks to channel credit into areas the government has deemed as important to the economy, such as public housing and private and small businesses, the executive said.

The move has a similar impact as a 0.5-percentage-point cut in the amount of reserves China’s commercial banks set aside with the People’s Bank of China. But a reserve-rate cut would be seen as a broader-based, longer-lasting move, and Chinese officials would have less say in where the money ended up. (…)

A credit official from Bank of China said loan demand has been sagging over the past two months given the cooling economy. The official said the injection was unlikely to boost lending significantly because of weak demand from borrowers. (…)

But FT’s Lex column warns:

(…) So maybe the market is wrong. In two weeks, China celebrates national holidays. Its citizens get on the road for one of the largest annual human migrations. Shops have Golden Week sales. The demand for cash jumps. So the PBOC’s move may just be as short-term as the three-month tenor implies. Craftily, with this manoeuvre, China does not need to commit either way.

Fed Dims Emerging Markets’ Allure Fears of higher U.S. interest rates are prompting fund managers to cut back on investments in emerging markets.

How FedEx Just Beat EPS By A Whopping 14 Cents

Moments ago FedEx reported first quarter earnings ended August 31, which blew expectations out of the water, because instead of the consensus EPS print of $1.96, EPS reported a whopping $2.10 for Q1, a massive 14 cent beat, and up 37% from last year’s $1.53 reported EPS.

Wow: it must be a great operating environment, with logistics and global trade humming for FDX to beat so impressively, right? Wrong.

Here’s how it happened, from the company’s own press release:

During the quarter, the company acquired 5.3 million shares of FedEx  common stock. As of August 31, 2014, no shares remained under the existing share repurchase authorizations. Share repurchases benefited earnings in the quarter by $0.15 per diluted share.

And BTW,

As previously announced, FedEx Express, FedEx Ground and FedEx Freight  will increase shipping rates effective January 5, 2015.

FedEx Express will increase shipping rates by an average of 4.9% for U.S.  domestic, U.S. export and U.S. import services. 

FedEx Ground and FedEx Home Delivery will increase shipping rates by an  average of 4.9%. In addition, as announced in May, FedEx Ground will also  begin applying dimensional weight pricing to all shipments. 

FedEx Freight will increase shipping rates by an average of 4.9%. This rate  change applies to eligible FedEx Freight shipments within the U.S. (including  Alaska, Hawaii, Puerto Rico and the U.S. Virgin Islands), between the  contiguous U.S. and Canada, within Canada, between the contiguous U.S.  and Mexico, and within Mexico

Calpers Shows Masters of Hedge-Fund Universe Have No Clothes Calpers’s decision to get out of hedge funds underscores that the rapid growth of alternative investment managers hasn’t been matched by stellar performance.