Growth of worldwide factory activity edged higher for a second successive month in July to reach an eight-month high.
The upturn provides a tentative indication that – despite the UK being hit hard in the immediate aftermath of the Brexit vote – global production may be starting to shift up a gear after an especially weak second quarter. Prior months had seen the weakest period of manufacturing expansion since late-2012, a time when the world was struggling in the face of the escalating eurozone debt crisis.
The upturn in the PMI signals an acceleration in annual global manufacturing output growth to just under 2%, up from stagnation in recent months.
Although the UK PMI suffered its largest fall since 2008 and Japan’s exporting producers once again struggled to live with a strong currency, growth slowed only slightly in the Eurozone, the US enjoyed a marked improvement in performance and China’s factories showed a tentative return to growth.
The JPMorgan Global PMI, compiled by Markit from its worldwide business surveys, rose from 50.4 in June to 51.0 in July. While still indicating only a marginal improvement in business conditions, the rise was the best seen since last November.
Exports rose, albeit only marginally, for the first time in six months, helping drive stronger order book growth. With inventories of finished goods falling, the orders: inventory ratio rose to one of the highest seen over the past year-and-a-half, boding well for further production gains in August.
There was also brighter news on inflation. Input costs rose for a fourth successive month, with July seeing the largest monthly increase since August 2014 as commodity prices continued to firm.
These higher costs were increasingly passed through to customers, with average factory gate prices also up for a fourth month running, showing the biggest monthly rise for two years. (…)
The improvement was by no means broad-based, however, with marked variations in performance. Of the 23 countries for which latest data were available at the time of the calculation of the global aggregate, PMI numbers fell in 13 countries, with the steepest drop seen in the UK. (…)
However, only ten countries recorded sub-50 PMI readings signalling a deterioration in manufacturing activity.
(…) The European Union’s statistics agency said Tuesday that producer prices rose 0.7% from May, and were down 3.1% from June 2015. That was the second straight month-to-month rise in prices, and the largest since August 2012. (…)
Excluding a 2.4% increase in energy charges, producer prices rose by just 0.2% on the month, the same rate as recorded in May.
PPI ex-Energy has increased for 3 consecutive months now at a 2% annual rate. Intermediate goods inflation has also accelerated sharply.
Inflation in the advanced world has climbed to its highest level in four months, hitting 0.9 per cent, according to the Organisation for Economic Co-operation and Development (OECD).
Consumer prices are up from the 0.8 per cent reached in May, with the UK, France, Germany all seeing rising inflation in June. (…)
Overall core inflation in the OECD – which strips out volatile elements such as oil and food – registered 1.8 per cent, down 1.9 per cent in May.
(…) The sale from the triple-A rated company, one of only two US corporates to hold the opinion from Standard & Poor’s, was met with intense demand as portfolio managers search out income. Trillions of dollars of sovereign and corporate debt are currently trading with a yield below zero. (…)
Order books for the Microsoft sale eclipsed $50bn, the three people said, with demand strongest for 10- and 30-year paper.(…)
The transaction included $4bn of 10-year notes, which priced with a yield 90 basis points above the benchmark US Treasury, or roughly 2.42 per cent. New 30-year bonds priced with a yield of 3.73 per cent, 5 bps above existing debt that matures in 2045. (…)
“The US investment grade marketplace is one of the last markets to offer any yield,” said Dan Mead, head of Bank of America Merrill Lynch’s US investment grade syndicate. “This is driving investors from around the globe to the US market.” (…)
From The Daily Shot:
US investment grade debt now accounts for 75% of global corporate yield income. And investors want more.
Meanwhile, lending standards are tightening in the U.S.:
Regarding loans to businesses, the July survey results indicated that, on balance, banks tightened their standards on commercial and industrial (C&I) and commercial real estate (CRE) loans over the second quarter of 2016. The survey results indicated that demand for C&I loans was little changed, while demand for CRE loans had strengthened during the second quarter on net. (Fed)
Auto Loans
Yet, 
All weak!
(…) Hedge funds and other money managers added the equivalent of 56m barrels of extra short positions in Brent and WTI futures and options contracts in the week ending July 26. Bullish bets on crude are at their smallest in five months. (…)
Separately, the state oil company for Saudi Arabia — Opec’s largest producer and the world’s top exporter — on Sunday reduced its export prices for Asian customers.
It cut the official selling price for the benchmark Arab Light grade for September-loading cargos by $1.30 a barrel to a discount of $1.10 compared with the Oman/Dubai benchmark.
That’s the sharpest cut in almost a year, which industry participants took to mean a more aggressive push for market share as it competed with other big producers, from Russia to Iraq and Iran.
The price reduction came ahead of an expected pullback in demand in October when Asian refinery maintenance season got under way.
In the US, oil companies added drilling rigs for a fifth consecutive week, according to services company Baker Hughes. The data published on Friday showed an increase of three rigs to 374 and made up the biggest monthly jump in more than two years.
Japan Cabinet Approves $274 Billion Stimulus Package Japanese Prime Minister Shinzo Abe’s cabinet approved a $274 billion stimulus package, the latest effort by Mr. Abe to jolt the nation’s economy back to life.
(…) By total size, the stimulus package ranks among Japan’s biggest since the global financial crisis, but three quarters of the stated value comprises targeted low-interest loans from the government and state-owned companies.
Actual new, direct spending will total only about ¥7.5 trillion, most of it over the next two years. The government will draw up a supplementary budget later this month to provide for extra stimulus spending of some ¥4 trillion in the year ending in March.
The program will include money for infrastructure projects, including a magnetic-levitation train line connecting Tokyo and Osaka. It also will pay for cash handouts of ¥15,000 each to 22 million low-income people, as well as reconstruction projects in a southern region hit by earthquakes in April.
Economists predict the spending will provide only a modest increase to economic growth next year. (…)
EARNINGS WATCH
- 327 companies (74.9% of the S&P 500’s market cap) have reported. Earnings are beating by 4.5% while revenues are surprising by 0.5%.
- Expectations are for declines in revenue, earnings, and EPS of -0.8%, -4.3%, and -2.1%, respectively. EPS is on pace for -1.0%, assuming the current beat rate for the remainder of the season. This would be +3.7% excluding Energy and the Big-5 Banks. (RBC)
Student-Loan Defaulters in Standoff With Government Some seven million Americans have gone at least a year without making a payment, ignoring phone calls, emails, text messages and letters from debt collectors. Their failure to pay threatens to leave taxpayers on the hook for $125 billion.
(…) Borrowers in long-term default represent about 16% of the roughly 43 million Americans with student debt, now totaling $1.3 trillion across the U.S., and their numbers have continued to climb despite the expanding labor market. (…)
The rising number of borrowers in default weakens the economy as underwater homeowners did after the housing crash: by damaged credit, an inability to spend and save for the future, and a lack of resources to move to better jobs.
In the case of homeowners, though, foreclosures offered a chance to start fresh and slowly rebuild their lives. There is generally no such option for student debtors—federal law prohibits them from expunging their debts in bankruptcy, except in extremely rare circumstances. (…)
Here’s the rub:
ENOUGH POUNDING?
Speculative net short British pound positions hit a record. Short GBP/USD is quickly becoming a crowded trade. (The Daily Shot)
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