Today: Car sales hold, Capex revival, E.U. woes.
August Auto Sales Aim for Record
Overall, industry sales rose to an annualized 17.5 million pace, according to researcher Autodata Corp., the fastest since January 2006.
Small Firms Poised to Spend More on Plants, Equipment There are signs that small businesses are moving from slashing costs to spending more on new plants and equipment. Among small private firms, 51% said they planned to increase capital outlays in the next 12 months.
(…) Among 798 small private firms with less than $20 million in revenue, for instance, 51% said in August that they planned to increase their capital outlays in the next 12 months.
That is a record high, and it is also up from 42% a year ago, according to the survey by The Wall Street Journal and Vistage International, a San Diego executive-advisory group.
(…) Those who planned to increase capital outlays were owners and CEOs at firms in a range of industries, including service (17%), manufacturing (10%) and finance and insurance (nearly 5%). (…)
Small firms’ recent pattern of increasing their fixed expenditures is in sync with that of their larger compatriots.
Small publicly listed businesses, with annual sales of less than $25 million, increased their capital spending by 13% from a year earlier, to $8.06 billion for the 12 months ended June 30. In comparison, companies that are part of the S&P 500—an index comprised of some of the largest companies in the U.S. with average sales over $5 billion—increased their fixed investments by 16% in the second quarter, compared with a year earlier, according to a rate calculated by S&P Indices that is based on data from 450 of the 50 companies.
That outpaced the 4.6% growth in spending on share buybacks and the 13% rise in spending on dividend payments among S&P 500 companies. (…)
More evidence? First item in this post: NEW$ & VIEW$ (27 AUGUST 2014)
Fed Survey: Economic Outlook Brightened Economic activity largely picked up during the summer after hitting a soft patch at the start of the year, though the Federal Reserve’s latest survey of regional conditions showed few signs of pressure on wages.
While Wednesday’s report said more employers are voicing concerns about shortages of certain skilled workers, there were few signs of broad-based wage growth. (…)
“Businesses still mentioned difficulties in finding qualified workers, which seem to be both intensifying and broadening across skills and occupations,” the Atlanta Fed reported, pointing to shortages in trucking, engineering, construction and information-technology sectors. (…)
Several regions said that housing demand, which has lagged behind economists’ expectations this year, firmed up a bit during the late-summer period, though mortgage demand was still soft.
The report said that most districts had witnessed stronger consumer spending and tourist spending during the survey period. Auto dealers in Pennsylvania said that car sales had hit record highs in July before easing somewhat in August. Lending was up across nearly all districts, the report said, led by gains in San Francisco.
German Manufacturing Growth Robust in July
Manufacturing orders rose 4.6% on the month in July according to Germany’s economics ministry. June’s decline wasn’t as pronounced as originally estimated, with the decline revised to 2.7%, versus a 3.2% drop. (…) The strongest growth numbers were recorded in the volatile capital goods sector, leading some analysts to suggest that the foundation for renewed growth in German manufacturing remains unsteady. (…)
Orders from other euro-zone members increased just 1.7%, an indication that “downside risks for the German economy do currently not mainly come from geopolitical tensions but rather from longer-than-expected weak demand from eurozone peers,” said ING economist Carsten Brzeski.
Orders in capital goods, generally a volatile category, grew 8.5% on the month, with a particularly strong figure coming from orders from outside of the euro zone, which grew by 14.6%.
But the decline in domestic orders for both intermediate and consumer goods, two less volatile categories, and a foreign order decline in consumer goods are signs of still “underlying weakness,” said Berenberg economist Christian Schulz.
Markit’s August German PMI manufacturing survey revealed that
In line with the weaker trend for output, new orders rose at the slowest pace in the current 14-month period of continuous expansion. New export orders also increased at a lower rate, which some companies linked to the Russian sanctions. Increased demand from Asian markets meanwhile resulted in the overall rise in new export work.
Furthermore, Markit’s German Retail PMI today showed that
August data signalled a decline in German retail sales, ending a 15-month period of continuous growth. This was highlighted by the seasonally adjusted Germany Retail PMI – which measures month-on-month sales on a like-for-like basis – dropping below the neutral mark of 50.0. At 49.4, down from 52.1 in July however, the reading was indicative of only a marginal drop in sales. Surveyed companies partly linked the decline to increased competition, poor weather and a weakening economic environment.
Sales also fell on an annual basis in August, and for the first time in 2014 so far. The pace of contraction was the sharpest in nearly one-and-a-half years, with more than one third of the survey panel signalling a contraction.
E.U. RETAIL SALES WEAKEN
EU retail sales declined 0.4% in July, erasing more than half the 0.7% gains between March and June. Core sales declined 0.2% and are essentially flat (+0.1%) since March.
The above was for July. Here’s a preview of August:
August Eurozone Retail PMI® figures from Markit pointed to a deepening downturn in consumer spending within the currency union. Retail sales decreased for the second month running and at the fastest rate since April 2013 as Germany posted its first, albeit marginal, reduction in trade for 16 months.
The headline Markit Eurozone Retail PMI – which tracks month-on-month changes in like-for-like retail sales – registered 45.8 in August, down from 47.6 in July and its third sub-50 reading in the past four months. Sales were also down sharply on an annual basis, the rate of decline likewise a 16-month record.
August saw decreases in retail sales in each of the big-three eurozone economies covered by the survey, the most marked of which was recorded in Italy. France meanwhile posted a solid contraction in trade that was its third in successive months and the fastest since May 2013. Germany’s retail sales also fell in August for the first time in 16 months, albeit only marginally. (…)
Retailers’ buying levels on the other hand followed patterns more consistent with the trends in sales, falling at a solid and accelerated pace that was the fastest in nine months. Furthermore, the decrease in purchasing activity was broad-based by country. (…)
Finally, August data showed a further sharp reduction in eurozone retailers’ gross margins, and one that was more marked than in the preceding survey period.
ECB cuts rates to record low Euro tumbles after central bank’s surprise decision
Euro Sinks to 14-Month Low
SENTIMENT WATCH
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Yields Driven Under 1% on Almost Half World’s Government Bonds
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Icahn, Soros, Druckenmiller, And Now Zell: The Billionaires Are All Quietly Preparing For The Plunge
“The stock market is at an all-time, but economic activity is not at an all-time,” explains billionaire investor Sam Zell to CNBC this morning, adding that, “every company that’s missed has missed on the revenue side, which is a reflection that there’s a demand issue; and when you got a demand issue it’s hard to imagine the stock market at an all-time high.” Zell said he is being very cautious adding to stocks and cutting some positions because “I don’t remember any time in my career where there have been as many wildcards floating out there that have the potential to be very significant and alter people’s thinking.” Zell also discussed his view on Obama’s Fed encouraging disparity and on tax inversions, but concludes, rather ominously, “this is the first time I ever remember where having cash isn’t such a terrible thing.” Zell’s calls should not be shocking following George Soros. Stan Druckenmiller, and Carl Icahn’s warnings that there is trouble ahead. (…)
Geopolitics is on the lips of every investor.
Use of the term in Bloomberg News stories reached the highest last month since the height of the financial crisis in 2008. Bank of America Corp. analysts reckon 11 percent of the world’s population is now affected by conflicts; 86 percent of investors cited geopolitics as the top market risk, according to a survey by the Charlotte, North Carolina-based bank.
Less worried about the impact of Ukraine, Syria and Gaza on returns is Mouhammed Choukeir, who helps manage 5.7 billion pounds ($9.4 billion) as chief investment officer at Kleinwort Benson in London. He argues history is on his side.
“It’s easy to draw the conclusion that one’s asset positioning should be defensive during times of heightened conflict or stress,” Choukeir said in a report this week. “However, financial history teaches a different lesson: geopolitics rarely impact equity markets over the medium to long term.”
Of 16 geopolitical crises since 1950 that Choukeir reviewed, four left the Standard & Poor’s 500 Index (SPX) lower a year after they began.
Take the Cuban missile crisis in October 1962. An investor in the S&P 500 would have been up 34 percent a year later.
Investing in the index at the start of the 1967 Six-Day War between Israel and its neighbors would have returned 13 percent in the next year; a wager in December 1979 when the Soviet Union invaded Afghanistan would have returned 30 percent in the subsequent 12 months. In the year after the U.S. went into Iraq in 2003, the S&P 500 added 35 percent.
That’s not to say conflicts are a buy signal. The Arab-Israeli war of 1973 triggered a 35 percent slump in the U.S. benchmark as an oil embargo spurred inflation. The Sept. 11, 2001, attacks saw investors lose 16 percent in the following year.
To Choukeir, the main reason to worry now is if the tensions spark a run of faster inflation. He sees that risk as low; the price of crude fell 5 percent this year.
“Geopolitical tensions are likely to continue dominating the headlines in the coming months,” he said. “While they will undoubtedly create jitters in markets in the short run, their impact on medium- and longer-term performance is likely to be minimal.”
