Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

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Edge and Odds

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NEW$ & VIEW$ (2 DECEMBER 2015): Chinese Green Shoots

Call me Did you miss THAT STINKY BULL

U.S. Light Vehicle Sales Remain Strong Despite Monthly Dip

Total sales of light vehicles eased 0.3% during November to 18.19 million units (SAAR) following a like increase in October. Sales have risen 6.2% since last November and were near the highest level since July 2005.

Passenger car sales led the way lower last month and fell 2.5% to 7.81 million after a 1.3% October rise. Sales were down by 4.0% versus one year earlier. Domestic car sales declined 3.0% to 5.71 million and were down 5.6% from the peak during August 2014. Sales of imported autos eased a lesser 0.9% to 2.10 and have been falling steadily since Q4’13.

Sales of light trucks increased 1.5% to 10.38 million after having been roughly unchanged m/m in October. Light truck sales share of the total new vehicle market rose to 57.1%, the highest level since a spike in July 2005. Purchases were up 15.5% versus a year earlier. Imported light truck sales rose 2.5% to 1.66 million, a record high. Sales of domestically made trucks gained 1.3% to 8.72 million.

(CalculatedRisk)

U.S. Construction Activity Continues to Strengthen

The value of construction put-in-place increased 1.0% during October following an unrevised 0.6% September increase. Three-month growth of 10.4% (AR) was steady with Q3 but down sharply from 29.2% during Q2. A 0.5% October rise had been expected in the Action Economics Forecast Survey.

Building activity in the private sector increased 0.8% following a 0.9% September gain. Activity increased at an 11.3% rate during the last three months. Residential building activity rose 1.0% (18.3% y/y), the seventh consecutive month of strong gain. The gain was led by a 1.6% increase in single-family building (11.3% y/y) which equaled the strongest rise of the year. Multi-family building rose 1.4% (27.2% y/y). Spending on improvements eased 0.3% (+21.5% y/y). Nonresidential building improved 0.6% (14.4% y/y) as factory sector construction rose 3.0% (37.6% y/y).

Public sector building increased 1.4% (5.6% y/y) following three months of little change. Water supply spending rose 2.5% (5.3% y/y) and office construction jumped 1.8% (7.2% y/y). Highway and street construction increased 1.1% (5.2% y/y) but power construction declined 5.2% (-8.7% y/y).

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CHINESE GREEN SHOOTS

Markit added some color to yesterday’s PMI:

The survey signalled the largest monthly rise in new export orders since October of last year, the second consecutive monthly improvement. The data therefore suggest that the downturn in foreign trade seen throughout much of 2015 is starting to reverse, albeit only modestly.

Despite the upturn in export sales, total orders inflows fell at a slightly increased rate in November, highlighting a further deterioration in demand for manufactured goods from domestic customers.

Large firms are seeing a steeper drop in order books compared to small and medium sized firms, linked to an ongoing deterioration in export performance at these larger firms. Large firms have seen exports slump in recent months at a rate not seen since the first half of 2009, at the height of the global financial crisis.

Large firms suffer in global markets

New export orders seem to be mending in Asia:

Meanwhile, China continues to export deflation:

Average producer selling prices meanwhile fell at the steepest rate for 20 months, indicating that the deflationary trend intensified in November. Input prices also dropped at an increased rate, the steepest seen for nine months. With suppliers’ delivery times improving in November, pointing to a healthy supply of inputs, the survey suggests there is an ongoing lack of inflationary pressures in supply chains.

Deflationary pressures intensify as supply glut continues

In fact all Asia is exporting deflation:

Average selling prices across Asia continued to fall at a rate unchanged on that seen in October, which was in turn the highest for just over one-and-a-half years. Firms in China, Taiwan, South Korea and Vietnam once again cut prices in an effort to boost sales, but prices were hiked in India, Japan, Indonesia and Malaysia, the latter seeing the steepest rate of increase, with selling price inflation hitting a three-and-a-half year survey high.

Manufacturers’ selling prices

Eurozone Inflation Remains Weak

The European Union’s statistics agency Wednesday said its broadest measure of prices for goods and services was 0.1% higher than in November 2014, a rate of increase that was unchanged from October. Economists surveyed by The Wall Street Journal last week had expected to see a rise in the inflation rate to 0.2%.

The core rate slipped to 0.9% from 1.1% in October, as prices for services and manufactured goods rose at a slower pace, indicating a weakening of inflationary pressures coming from within the currency area.

Core CPI declined 0.2% in November after +0.2% in October, +0.5% in September and +0.3% in August. Annualized last 2 months: 0%, last 3 months +2.0%, last 4 months +2.4%.

  • ECB’s Preferred Inflation-Outlook Gauge Climbs to 5-Month High

The five-year, five-year forward break-even rate, which measures the outlook for inflation over the five-year period from 2020, rose to 1.83 percent Tuesday. That’s still below the average of 2.26 percent over the past decade. The measure fell to as low as 1.48 percent in January. ECB officials have said the rate is among key gauges they monitor. (…)

Ghost Watch for U.S. recession, zero interest rates in China next year, Citi says

As the U.S. economy enters its seventh year of expansion following the 2008-09 crisis, the probability of recession will reach 65 percent, Citi’s rates strategists wrote in their 2016 outlook published late on Tuesday. A rapid flattening of the bond yield curve towards inversion would be an key warning sign.

“The cumulative probability of U.S. recession reaches 65 percent next year,” Citi’s rates strategists wrote in their 2016 outlook published late on Tuesday. “Curve inversion will likely come more quickly than the consensus thinks.” (…)

RBC Capital:

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Red rose Zuckerbergs to Give 99% of Facebook Shares to Charity

Facebook Inc. Chief Executive Mark Zuckerberg and his wife, Priscilla Chan, said Tuesday that over the course of their lives they would give away 99% of their Facebook shares, now valued at $45 billion, in what would be one of the world’s largest philanthropic gifts.

Mr. Zuckerberg and his wife, a pediatrician, revealed the donation pledge while announcing the birth of their first child, Maxima Chan Zuckerberg. In a 2,200-word letter to their daughter, Mr. Zuckerberg and Dr. Chan said they had created a new foundation that would initially focus on “personalized learning, curing disease, connecting people and building strong communities.” (…)

By creating a limited liability company to use the money for political activism and for-profit investing, as well as traditional giving, Mr Zuckerberg revealed how a new generation of Silicon Valley entrepreneurs may approach the philanthropic world. (…)

In contrast to traditional foundations, LLCs are able to engage in public policy advocacy and for-profit investments that can also advance their favoured causes. The structure will also allow the Zuckerbergs to keep direct control of the Facebook stock that is contributed to the company, to be called the Chan Zuckerberg Initiative. The couple say all investment profits will be ploughed back into additional philanthropic work.

U.S. MANUFACTURING PMI SOFTER ON WEAK EXPORT ORDERS

U.S. manufacturers signalled a loss of momentum in November, with business conditions improving at the slowest pace since October 2013. This was highlighted by a fall in the final seasonally adjusted Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) from 54.1 to 52.8 during November. Although still above the neutral 50.0 value, the latest reading was weaker than the post-crisis average (54.3) and signalled a relatively subdued manufacturing sector performance over the month.

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Softer new business growth was the main factor weighing on the manufacturing PMI in November. Volumes of new work rose at the weakest pace for just over two years, which survey respondents attributed to reduced client confidence and weak export demand. Latest data indicated a fall in new work from abroad for the first time since August, reflecting pressure from the strong dollar and less favourable global economic conditions.

Output growth moderated during the latest survey period, following a seven-month high recorded in October. Moreover, backlogs of work decreased for the first time since November 2014, suggesting a lack of pressure on operating capacity. Manufacturers sought to lower their stocks of finished goods in response to softer growth patterns, with post-production inventories decreasing for the fourth month running.

November data indicated that manufacturers were more cautious in terms of their staff hiring, as jobs growth moderated since the previous month and was below the post-crisis trend. Anecdotal evidence suggested that greater concerns about the economic outlook and a less upbeat assessment of near-term client demand had limited the latest rise in payroll numbers across the manufacturing sector.

At the same time, input buying also expanded at a slower pace than in October. This contributed to a weaker rise in pre-production inventories, but did not prevent another slight deterioration in supplier performance. That said, the latest lengthening of vendor lead-times was the least marked since July.

Average cost burdens continued to fall across the manufacturing sector in November, which extended the current period of decline to three months. Survey respondents mostly commented on lower commodity prices and reduced transportation costs. Meanwhile, factory gate charges were reported to have risen slightly during November, but the pace of inflation remained below the long-run survey average.

Markit’s final manufacturing PMI came in 0.2 above the flash PMI.

The ISM:

The November PMI® registered 48.6 percent, a decrease of 1.5 percentage points from the October reading of 50.1 percent. The New Orders Index registered 48.9 percent, a decrease of 4 percentage points from the reading of 52.9 percent in October. The Production Index registered 49.2 percent, 3.7 percentage points below the October reading of 52.9 percent. The Employment Index registered 51.3 percent, 3.7 percentage points above the October reading of 47.6 percent. The Prices Index registered 35.5 percent, a decrease of 3.5 percentage points from the October reading of 39 percent, indicating lower raw materials prices for the 13th consecutive month. The New Export Orders Index registered 47.5 percent, unchanged from October, and the Imports Index registered 49 percent, up 2 percentage points from the October reading of 47 percent. Ten out of 18 manufacturing industries reported contraction in November, with lower new orders, production and raw materials inventories accounting for the overall softness in November.

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