Sharpest expansion of US private sector output for six months in July
- Flash U.S. Composite Output Index at 54.2 (53.9 in June). 6-month high.
- Flash U.S. Services Business Activity Index at 54.2 (54.2 in June). Unchanged vs. last month.
- Flash U.S. Manufacturing PMI at 53.2 (52.0 in June). 4-month high.
- Flash U.S. Manufacturing Output Index at 54.3 (52.6 in June), 4-month high.
(…) Higher levels of business activity were supported by a robust and accelerated upturn in new work during July. Measured overall, the latest increase in new orders received by private sector companies was the strongest for six months.
(…) latest data revealed the strongest upturn in new work received by service sector firms for exactly two years.
Private sector payroll numbers expanded at a solid pace in July, with the rate of job creation the fastest so far in 2017. (…)
Anecdotal evidence suggested that higher staff salaries had placed upward pressure on costs, which lower fuel bills had helped moderate the overall pace of input cost inflation in July. Softer cost inflation led to the slowest rise in average prices charged for three months. (…)
Manufacturers linked higher volumes of new work to improving demand conditions and signs of reduced risk aversion among clients. Greater sales contributed to robust and accelerated rise in input buying in July, with the rate of expansion the fastest for five months. (…)
The surveys are historically consistent with annualized GDP growth of approximately 2%, but the signs are that growth could accelerate further in coming months.
Most encouraging was an upturn in new order inflows to the second-highest seen over the past two years, which helped push the rate of job creation to the highest so far this year, indicative of non-farm payrolls growing at a rate of around 200,000.
The principal weak spot in the economy remained exports, with foreign goods orders dropping – albeit only marginally – for the first time since last September, often blamed on the strength of the dollar.
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Markit vs ISM:
Source: Capital Economics (via The Daily Shot)
Existing-Home Sales Slide as Prices Surge on Tight Supply
Existing home sales fell 1.8% in June from the previous month to a seasonally adjusted annual rate of 5.52 million, the National Association of Realtors said Monday.
The median sales price in June hit a record high of $263,800, up 6.5% from a year earlier. Adjusted for inflation, prices remained about 9% below the 2006 peak. (…)
First-time buyers accounted for 32% of sales in June, down slightly from 33% both in May and a year ago. NAR said the annual share of first-time buyers in 2016 was 35%, a significant improvement from recent years.
Foreign buyers also are putting pressure on demand. NAR revealed a surprising jump in Canadians buying U.S. properties in the year ending in March. In all, foreign buyers and recent immigrants purchased $153 billion of residential property in the U.S. in the year ended in March, a nearly 50% jump from a year earlier, according to a National Association of Realtors report released Tuesday. Foreigners purchased roughly 10% of existing U.S. homes, compared with 8% a year earlier. (…)
OPEC Takes Blame for Low Oil Prices Internal discord among OPEC members and big oil-producing allies spilled into public view as the group struggles with its efforts to raise prices for crude. Officials said they were contemplating a crackdown on members that aren’t keeping their promises to limit output.
(…) OPEC officials expressed frustration with a new truth of the oil market: The group no longer has much power to lift prices, but it can certainly send prices lower with too much production. Iraq, the United Arab Emirates and others haven’t cut as much output as promised.
“We are not doing this to allow other countries to free ride and undercut the agreement by overproducing,” said Khalid al-Falih, the Saudi Arabian energy minister, in unusually blunt remarks following a meeting Monday with national representatives from oil-producing countries.
Mr. Falih said Saudi Arabia, the world’s top oil exporter, announced it would go further than cutting its production and would also limit its exports at 6.6 million barrels a day in August. He said he wanted other countries to follow suit, noting troubling figures that showed some were still exporting huge amounts of oil even as they say they are cutting output. (…)
Mr. Falih’s focus on exports was new. He pointed to discrepancies between countries’ production and export figures, calling the difference “a matter of concern.” (…)
A new Saudi cut to its exports could have a real effect on the balance of supply and demand, said Bjarne Schieldrop, a commodity analyst with the Nordic bank SEB. The kingdom exported an average of 7.2 million barrels a day from January to May, he said, so the new action would theoretically remove an additional 600,000 barrels a day from the market.
But Saudi Arabia generally reduces exports in the summer when it faces rising domestic demand for crude oil to be burned to create electricity for air conditioning.
The limit on Nigeria, however, is less likely to result in helping reduce the oil glut. Nigeria has agreed to limit its production to 1.8 million barrels a day, OPEC officials said. The African country produced about 1.6 million barrels a day in June, giving it substantial room to keep increasing.
Another OPEC member exempted from last year’s deal, Libya, has a target of 1.25 million barrels a day, still higher than its June production of 820,000 million barrels a day.
Beyond Libya and Nigeria, Iraq, OPEC’s second-biggest producer, and the U.A.E. have been pumping more than their agreed-upon limits. (…)
(…) “Today, rig count growth is showing signs of plateauing, and customers are tapping the brakes,” said Dave Lesar, Executive Chairman.
“This tapping of the brakes is happening all over the place in North America.”
Earlier this month, senior vice president for global business development and marketing at Halliburton, Mark Richard, told Reuters the U.S. shale drilling boom is likely to ease next year as demand on the industry’s service sector is unsustainable.
Richard expected rig count to rise to 1,000 by the end of the year, but not beyond that. (…)
(…) Hours after Halliburton Co. warned Monday that explorers are “tapping the brakes” on drilling, Anadarko Petroleum Corp. said it’s trimming spending in the first earnings report this quarter from a major shale producer. (…)
“The current market conditions require lower capital intensity” given the “volatility” facing the market, Chief Executive Officer Al Walker said in the statement. “As such, we are reducing our level of investments.” (…)
SEASONALITY STATS
From Callum Thomas (info@topdowncharts.com)
BANKING ON BANKERS
According to Moody’s, the investment banks’ total legacy litigation provisions between the 2008 global financial crisis and 2016 amounts to $273 billion. About half of those total provisions were connected to lawsuits around residential mortgage-backed securities. The second-biggest category was mis-selling and misrepresentation, which was about a third of the total. (Via ValueWalk)
The BKX index is still 21% below its 2007 peak level…partly because of the likes of GS and MS but mainly because of C which, you may need to be recalled, peaked at $564 in December 2007 and now trades at $66. Chuck Prince to the FT in July 2007:
The Citigroup chief executive told the Financial Times that the party would end at some point but there was so much liquidity it would not be disrupted by the turmoil in the US subprime mortgage market.
He denied that Citigroup, one of the biggest providers of finance to private equity deals, was pulling back.
“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,” he said in an interview with the FT in Japan.
Well, the music did stop, didn’t it. But Prince is still dancing, like most other bankers of that period…
BTW:
GLOBAL DEBT
According to the highly-respected Institute of International Finance (IIF), global debt levels reached an astronomical $217 trillion in the first quarter of 2017—that’s 327 percent of world gross domestic product (GDP). Notice that before the financial crisis, global debt was “only” around $150 trillion, meaning we’ve added close to $120 trillion in as little as a decade. Much of the leveraging occurred in emerging markets, specifically China, which is spending big on international infrastructure projects. (Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors)
(…) Regulators had thought it was equivalent to 42pc of on-balance sheet business at the end of 2015. They have revised this drastically, admitting that it reached 110pc by the end of last year. (…)
In a move that will send shivers up the spines of local party officials, President Xi Jinping said they will be held accountable for the rest of their lives for debts that go wrong. Any failure to identify and tackle risks will be deemed “malfeasance”. (…)
The PBOC is particularly worried about an array of asset management products (AMPs) issued by securities firms, funds, and insurers. These are a key reason why Chinese banks have built up exposure to assets equal to 650pc of GDP. (…)
Nearly 60pc of new credit this year is being used to repay old loans. It takes four times as much new credit to generate a given amount of extra of GDP as it did a decade ago. (…)
The credit-to-GDP gap tracked by the Bank for International Settlements as an early warning indicator is currently at 24pc, far above the threshold level of 10pc that usually foretells a banking crisis within three years.
Most of the debt is domestic, the local savings rate is high, and foreign reserves are huge. All this offers some protection but JP Morgan argues that much the same was true of Japan before it slid into intractable slump. (…)
