U.S. Consumer Borrowing Strengthens
Consumer credit outstanding increased $20.5 billion (6.9% y/y) during March following a $14.8 billion February rise, initially reported as $15.5 billion. The gain was the strongest since July. Expectations were for a $16.0 billion increase, according to the Action Economics Forecast Survey. During the last ten years, there has been a 49% correlation between the y/y growth in consumer credit and the y/y growth in personal consumption expenditures.
Non-revolving credit usage ramped up $16.2 billion (8.2% y/y) after a $17.2 billion rise.
Revolving consumer credit increased $4.4 billion (3.3% y/y) following declines during the prior two months.
German Industrial Output Well Below Forecasts Slump in capital goods shows Germany’s upswing may not be as robust as previously thought
Industrial production, adjusted for inflation and seasonal swings, declined 0.5% in March from the previous month, after having broadly stagnated in the previous two months. By contrast, economists polled by The Wall Street Journal had forecast a 0.4% gain.
Official data published Thursday showed that manufacturing orders in the first quarter were down 1.5% from the fourth quarter of 2014, owing to weak foreign demand and despite a weaker euro, which makes German goods more competitive outside the eurozone.
Manufacturing output in March was down 0.8% from February as a result of a 1.4% drop in capital goods’ production, according to official data published Friday. Mild temperatures and favorable financing conditions meanwhile helped boost construction output, which climbed 2.1% from the previous month.
From Haver Analytics:
German real orders rose by 0.9% in March after two months of falling. Orders, however, are still falling at a 6.1% annual rate in the just completed first quarter. But this drop is not the reason for my pessimism over this report.
What distresses me about this report is that with Germany as the hands-down most competitive economy in Europe and running one of the largest current account surpluses in the world and with the euro exchange rate having fallen substantially this year, German foreign orders are still contracting. Overall orders are up in March wholly on the back of a 4.3% hike in domestic orders as foreign orders are lower by 1.6%. Foreign orders are lower for three months in a row and in four of the last five months. Foreign orders are falling at a 23.6% annual rate over three months. That’s not good news.
If German foreign orders are doing this badly, what can we expect from anyone else? Or, put another way, if the most competitive advanced economy in the world that is further underpinned by a very weak exchange rate cannot mount an increase in foreign orders, then the global economy must be doing even worse than we thought. That is a frightening thought. Everyone has been looking for growth to accelerate. The U.S. was accelerating. The ECB implemented a new QE program. The global economy was supposed to be on the mend. Has it instead caught a snag and is it unraveling? (…)
Germany is an economy led by its foreign sector and capital goods prowess. What we see instead is a German economy forced to limp ahead and being led by its services sector – that is very un-German. While there appears to be some domestic business on the books, I am very worried about what the weakness in German foreign orders means for the rest of the world as well for Germany.
Is growth worldwide slowing faster than we thought? Is there some German idiosyncrasy operating? Of course, with the strong dollar we are seeing a sympathetic weakness in the U.S. economy and even worse weakness in the U.S. manufacturing PMI gauge (the manufacturing ISM). In the U.S. as in Germany, the nonmanufacturing sector is helping move growth ahead but the lack of manufacturing strength is still a worry.
Markit this a.m.on Europe sector PMI:
Eight of the top 11 fastest growing sub-sectors were based in services during April. (…) Construction & engineering slipped to the foot of the sector rankings, while general industrials output fell for the first time in two years. Meanwhile, activity stabilised in both the metals & mining and forestry & paper products sectors, having fallen in the previous two months.
And on global sector PMI:
Among the 21 sectors to record growth, 15 indicated weaker rates of expansion in April. (…) Other sectors to drop down the rankings were construction materials and technology equipment, down eight and ten places since March respectively. (…) The bottom-six sectors in April were all manufacturing-related. Metals & mining registered a third successive monthly drop in output, while technology equipment was the only other sector to post a decline. Construction materials, forestry & paper products, automobiles & auto parts and chemicals all registered modest rates of output growth in April.
Markit’s Eurozone Retail PMI remains generally weakish:
Latest Eurozone Retail PMI® data pointed to near- stability in sales at the start of the second quarter. Growth of retail sales in Germany offset further, albeit slower, falls in both Italy and France, the former of which posted its least marked decrease for a year.
At 49.5 in April, up from 48.6 in March, the headline Markit Eurozone Retail PMI – which tracks month-on-month changes in like-for-like retail sales across the bloc’s biggest three economies combined – signalled only a fractional decrease in sales, the slowest in the current ten-month sequence of contraction. Year-on-year sales were broadly flat.
Germany promises €1.5bn tax cut for 2016
Angela Merkel’s government is planning to give German taxpayers a €1.5bn tax cut next year, in a surprise handout from a generally parsimonious administration.
But at around 0.05 per cent of gross domestic product it will put only a modest amount of extra money into consumers’ pockets and so may do little to quell demands from foreign critics, led by the International Monetary Fund, that Berlin should do more to stimulate domestic growth.
China Exports Fall in April China’s exports unexpectedly fell in the latest sign of headwinds for both the Chinese and the global economy.
China’s exports fell 6.4% from a year earlier in dollar terms, after a drop of 15% in March, data from the General Administration of Customs showed Friday. The result was well below the median forecast of a 2.5% increase by 13 economists in a survey by The Wall Street Journal.
Imports in April slipped 16.2% from a year earlier, compared with a 12.7% drop in March, Customs said. That also was worse than expected, pushing up China’s trade surplus to $34.1 billion from its $3.1 billion level in March. (…)
China’s Vice Commerce Minister Zhong Shan had last month sounded a note of caution on the foreign trade outlook. Beijing has set a target of 6% growth for trade this year against actual growth of 3.4% last year as momentum weakens.
“Foreign trade this year may be complicated and tough,” Mr. Zhong said at the annual international Canton trade fair in southern China, according to the official Xinhua News Agency. The fair, an unofficial barometer of China’s global trade prospects, saw visitor numbers decline by 0.7% and the value of deals fall by 3.9%, its organizers said.
That said, elsewhere in the same WSJ:
Some of the blame for the bad export numbers falls to Europe, which bought 10% less from China in April compared with last year. But China’s trade data is notoriously chunky. For the year so far, China exports to Europe are actually down just 1%, which isn’t so bad considering the euro has lost a fifth of its purchasing power against the yuan over the past year. Exports to the U.S., China’s biggest customer, were up a sluggish last 3% month, but for the year are up a relatively healthy 9%.
The double digit drop in imports isn’t as bad as it seems, either. But nor does it inspire confidence about the domestic economy. Much of the plunge can be pinned on the fall in commodity prices compared with last year. Oil and iron ore, two of China’s biggest imports, are both substantially cheaper than a year ago.
On volume terms the numbers look less bad, but hardly look good. Oil imports are up 8.6% so far this year in terms of barrels of oil, but oil product exports are up 23%. China isn’t using the oil to fuel the domestic economy, but refining it and selling it abroad. Iron ore imports are flat for the year in tonnage terms. Lack of demand for iron ore to turn into steel indicates property investment continues to sputter.
CEBM Research has been right on China’s continued weakening.
Property sales have responded to recent monetary loosening, as evidenced by a substantial lift in April sales activity. However, CEBM’s monthly sector survey results indicate doubts that the pick up in sales will spillover into other areas of the economy tied to property market demand.
The PMI readings for April support the notion that GDP growth has likely decelerated further from the slide observed in 1Q15. April PMI readings received a leg up from a weak March PMI reading; The March reading was partially due to Chinese Lunar New Year distortions. However, averaging the sum of the manufacturing PMI and service sector PMI readings for April, we observe overall economic activity was much lower than the level observed in April 2014. It should be noted that last March and April saw a significant boost in fiscal spending. In addition, another sign of weak activity can be observed in looking at the manufacturing PMI new order index, which dropped below the lower side a range that it has moved within over the past 3 year.
Latest figures from the Canton Fair (China’s Import and Export Trade Fair) show that export orders dropped nearly 10% Y/Y. Although orders made during the Canton Fair only represent a small and declining share of China’s total exports, historical trends indicate that overall exports in the ensuing five months tend to follow directional changes in Canton Fair export orders. We still view Canton Fair orders as a good proxy indicator of China’s export outlook. The Chinese government is still expecting low positive growth in exports, but we feel we are more likely to see a contraction in exports going forward. This contraction will be an additional drag against growth.
Here we go again:
A side effect of trying to stabilize short-term growth is that it may actually destabilize the RMB exchange rate in the medium-term. After adjustment for fake trade invoicing, we estimate that China’s current account is already balanced. The need to stabilize the short-term growth rate implies the PBoC and commercial banks in China collectively need to achieve relatively stable growth in the supply of base currency, at the same time, the drop in exports and a possible tightening of US monetary policy in 2016 would suggest much less dollar supply in China’s domestic market. The supply-demand dynamics between the RMB and USD will likely change. In fact, if we use M2 as a proxy for RMB supply in China’s domestic market, and the sum of FX reserve and the balance of FX deposit as the proxy for dollar supply inside China, the ratio of these two indicators dropped continuously until 2008 and then stayed roughly flat until late 2014. We hold the view that this ratio may start to rise, indicating greater depreciation pressure for the RMB over the medium-term.
Indonesia Growth Slows to More Than Five-Year Low Southeast Asia’s largest economy grew 4.71% in the first quarter
Gross domestic product in Southeast Asia’s largest economy grew 4.71% from a year earlier, slowing from 5.01% the previous quarter, the country’s official statistics agency said Tuesday. It came in under the 5.0% consensus growth forecast, in part due to continued weak demand from China and low prices for Indonesia’s exports of nickel, coal and tin. Neither of these factors is expected to improve in the short term, with China’s economy likely to continue facing headwinds.
On a quarterly basis, the economy shrank 0.18% after posting a 2.06% contraction in the October to December period.
Sluggish exports are hindering Bank Indonesia’s efforts to narrow the country’s current-account deficit to a more sustainable level, leaving little room for the central bank to relax its tight monetary stance and boost economic growth.
Car and motorcycle sales, an indicator of domestic demand, fell 14% and 19%, respectively, in the first quarter from a year earlier.
The statistics agency said household consumption grew 5.01% year-over-year during the first quarter, investment gained 4.36%, government spending rose 2.21% and exports contracted 0.53%. But compared with the previous quarter, household consumption grew 0.11%, investment shrank 4.72%, government spending plunged 48.68% and exports fell 5.98%.
China upbeat on gasoline demand as gas guzzlers become popular
The Chinese bought nearly 49% more gasoline-guzzling sports utility vehicles, or SUVs, in the first quarter of 2015 compared with Q1 2014 — a statistic that is expected to support China’s gasoline demand growth.
According to data from the China Association of Automobile Manufacturers, sales of multi-purpose vehicles, or MPVs, rose by 19.3% year on year in Q1.
The trend of strong sales growth in these gasoline guzzlers more than offset the adverse impact on gasoline demand due to overall slowdown in vehicle sales growth in China.According to CAAM, total vehicle sales rose just 4% year on year in Q1 compared with 9% a year earlier. In a research note covering state-owned PetroChina published April 29, Nomura Research said the increasing popularity of SUVs in China could translate into higher-than-expected gasoline sales.
According to CAAM, SUV sales are expected to grow by 25% to 5.1 million units, and MPV sales are expected to increase by 35% to 2.58 million units in 2015.
Based on the forecast from CAAM, SUV and MPV sales will account for 30% of total auto sales this year, up from 25% seen in 2014, according to Platts calculations.This proportion of SUVs and MPVs in China is still lower than the proportion of SUVs and crossovers, or CUVs, in the US, which accounted for 36.5% of the total auto sales in 2014, according to data from IHS Automotive. This may imply that China’s SUV and MPV sales volume has the potential to still rise in the future. (…)
Not surprisingly, China’s apparent demand for gasoline — calculated by taking into account domestic production and subtracting net exports — rose 8% year on year during the first quarter to 27.67 million mt, or an average of 2.61 million b/d. The strength of this Q1 growth was not accounted for by inventory changes.
According to Xinhua OGP data, gasoline stocks declined in Q1 2015 whereas they actually rose over the same period in 2014, suggesting actual consumption growth was higher than apparent demand in the first quarter. This was slightly firmer than the growth rate of 7.8% seen in Q1 2014, and compares with a growth rate of 4% year on year to 10.48 million b/d for overall oil demand in Q1 2015. (…)
EARNINGS WATCH
- 445 companies (91.2% of the S&P 500’s market cap) have reported. Earnings are beating by 7.3% while revenues have met expectations.
- Expectations are for revenue, earnings, and EPS of -3.1%, +1.4%, and +3.2%. Excluding Energy, growth would be 2.2%, 8.6%, and 10.8%, respectively. This excludes the likelihood of beats for unreported companies.
No doubt about it, Q1 earnings were much stronger than anybody expected.
Interesting Zerohedge finding:
“Mystery” Buyer Of Stocks In The First Quarter Has Been Identified
Grim stuff indeed, but who’s surprised?: Saudis Consider Nuclear Weapons to Offset Iran