Wholesale inventories up, sales rebound
U.S. wholesale inventories rose at a slower pace in February than in the prior month, which could support views that restocking will not help the economy in the first quarter.
The Commerce Department said on Wednesday wholesale inventories increased 0.5 percent after a revised 0.8 percent gain in January.
Inventories are a key component of gross domestic product changes. The component that goes into the calculation of GDP – wholesale stocks excluding autos – rose 0.5 percent in February. Farm inventories jumped 2.7 percent after falling 0.9 percent the prior month.
Businesses accumulated too much stock in the second half of last year and are placing fewer orders with manufacturers while they work through the pile of unsold goods.
That, together with severe weather, the expiration of long-term unemployment benefits and food stamps cuts, is expected to weigh down on first-quarter GDP growth.
In February, sales at wholesalers rebounded 0.7 percent. Sales had declined 1.8 percent in January.
OECD LEADING INDICATORS
Composite leading indicators (CLIs), designed to anticipate turning points in economic activity relative to trend, point to weakening growth in major emerging economies, with the exception of China, where the CLI points to growth remaining around trend. CLIs point to growth below trend in Brazil and India, and to growth losing momentum in Russia.
For the OECD as a whole, and for the United States and Canada, CLIs point to growth remaining around trend. CLIs point to growth returning to trend in Japan1 and tentatively losing momentum while remaining above trend in the United Kingdom.
In the Euro Area as a whole, and in Italy, CLIs continue to indicate a positive change in momentum. In Germany, the CLI points to growth above trend, and for France the CLI points to stable growth momentum.
IMF Trims Growth Forecast The International Monetary Fund has trimmed its outlook for global economic growth, as anemic output in Europe and Japan hobble the recovery and emerging markets struggle with rising borrowing costs.
The fund forecast the world economy will expand 3.6% this year. That marked a slight downgrade from its 3.7% estimate in January, but would be stronger than last year’s 3% expansion. It comes amid a darker outlook for key emerging markets such as Russia, Brazil and South Africa, despite healthier recoveries in the U.S., Germany and the U.K.
The IMF downgraded Russia’s growth forecast by 0.6 percentage point to 1.3%, as Moscow’s standoff with the West over Ukraine has cut investments and sent capital fleeing.
“Downside risks continue to dominate the global growth outlook,” the IMF said in its World Economic Outlook report. The forecast sets the stage for a gathering of the world’s finance ministers and central bankers here this week to discuss the global economy.
Despite lower expectations, IMF chief economist Olivier Blanchard said the recovery is strengthening and risks of the euro zone returning to recession are receding. He said U.S. growth of 2.8% this year should help perk up prospects for many emerging markets, where output is slowing.
“There are no brakes on U.S. growth,” Mr. Blanchard said in an interview. “It’s an economy that is fundamentally robust.”
That situation is in contrast to the weak recoveries in Japan and many euro-zone nations. (…)
The IMF is pushing the European Central Bank and the Bank of Japan to be more aggressive in fighting persistently low inflation. Falling prices can cause debt levels to rise. That is a major problem for countries such as Portugal and Greece where authorities are still struggling to fix heavily indebted economies and convince investors they can pay their bills.
Some euro-area countries with particularly high unemployment rates are already experiencing deflation, the IMF noted. And inflation levels for the currency union as a whole are likely to undershoot the ECB’s target by “substantial margins,” the IMF said. That is a clear signal more resolute policy action is needed, it said. (…)
Although the IMF kept its growth forecast for China at 7.5% for the year, it also indicated the world’s second-largest economy could slow more than expected as authorities tackle the country’s borrowing problems. The IMF said China needs to do more to rein in credit growth to prevent a buildup of bad loans, even if it means lower growth than currently forecast.
TWO CHARTS, TWO VIEWS…
A chart is worth a thousand words…
…depends what impression one tries to convey. First chart from Haver Analytics, next from the horse’s mouth:
If Haver wanted to give the impression that things look pretty good, their choice of date range was optimal for all the charts in this particular post.
THE U.S. LABOR SUPPLY DEBATE
While economists debate, things are happening in the real world (THE U.S. LABOR MARKET: WHERE IS GODOT?)
And this to help explain missing workers:
More Moms Staying Home, Reversing Decades long Decline After decades of decline, the share of mothers who stay home with their children has steadily risen over the last several years, a new report has found.
In 2012, 29% of all mothers with children under age 18 stayed at home, a figure that has steadily risen since 1999 when 23% of mothers were stay-at-home, the Pew Research Center reported Tuesday. The share of stay-at-home moms had been dropping since 1967, when about half of all moms stayed home.
Pew attributed the rise of stay-at-home mothers to a mix of demographic, economic and societal factors. The vast majority of married stay-at-home mothers, 85%, say they are doing so by choice in order to care for their families. That rate is much lower for single stay-at-home mothers, at 41%, and cohabitating mothers, at 64%.
The report also found a drop in women working because of the recession, a trend that has lingered as the economy recovers. Pew cited an increase in immigrant families, for whom it is more common to have a mother stay at home with her children, and an increase in the number of women who said they were disabled and unable to work. (…)
The share of stay-at-home mothers is now higher than it was during the recession in 2008, when it reached 26%. About 6% of moms say they are home because they can’t find a job, up from just 1% in 2000. (…)
Frigid Winter’s Effects Will Hit Produce Aisle
The unusually cold temperatures and heavy snowfall that enveloped much of the U.S. this past winter have taken a toll on farms—from New York to Kansas to California—that grow everything from grapes used to make wine to wheat for baking bread.
BMW, Daimler Upbeat on Luxury Car Outlook German luxury auto makers were upbeat about the outlook for sales this year as BMW turned in record sales for the month of March.
(…)The German auto maker said sales at its BMW, Mini, and Roll-Royce brands rose nearly 9% to 487,024 vehicles. Sales were buoyed by BMW’s X-series sport-utility vehicles and the 3-Series sedan.
That compared with a 12% rise in Audi’s first-quarter sales and a 14% rise at Daimler’ Mercedes-Benz unit as Germany’s leading auto makers all turned in record sales for the period.(…)
At BMW, the strong performance of the BMW brand, helping the group notch up record monthly sales of 212,908 vehicles in March, offset a loss of momentum at the auto maker’s U.K.-band Mini unit as its lineup of new cars was delivered to dealers only at the end of the month, BMW said.
“This is the first time in the company’s history that over 200,000 vehicles were delivered to customers in a single month,” said Ian Robertson, BMW’ head of sales. “Despite continuing economic uncertainties, we are experiencing steady improvement in almost all regions,” Mr. Robertson said.
Daimler was also upbeat about its outlook for this year.
“We are beginning 2014 at the same pace with which we finished 2013,” Daimler Chief Executive Dieter Zetsche said at the company’s annual shareholder meeting.
Volkswagen Reports Sales Boost
Global sales of VW brand cars grew 3.9% from a year earlier to 1.48 million cars in the quarter, rising 4.8% in March alone. Sales in Europe were up a robust 6.6%. Volkswagen noted that the sales situation in Europe has regained momentum so far this year, but hasn’t given any regional forecasts.
The increase helped offset weakness in the U.S. and in Russia, where sales declined 2.7% in the latest three-month period.
Volkswagen said demand from China also contributed to first-quarter growth, while sales in South America and India declined.
Sports-car maker Porsche said on Tuesday that world-wide deliveries in March rose 6%, to 15,377. Luxury car maker Audi on Monday said its global sales grew 15%, to 170,450.
March data for France showed new registrations there up 8.9%. Germany and Italy rose roughly 5.4% and 5%, respectively, over the same month a year earlier.
Renzi cuts Italy growth forecast to 0.8% New PM repeats pledge to push on with income tax cuts
Matteo Renzi has lowered Italy’s 2014 growth forecasts but says he intends to maintain his pledge to cut income taxes for low-paid workers by cutting public spending and by raising taxes on banks and through higher projected VAT revenues.
Presenting the government’s annual economic and financial review on Tuesday evening, Italy’s new prime minister cut this year’s projected growth to 0.8 per cent from the 1.1 per cent forecast late last year by the previous left-right coalition led by Enrico Letta.
(…) the deficit for this year was projected to reach 2.6 per cent of GDP, up from the previous forecast of 2.5 per cent but still below the 3 per cent limit set by Brussels. (…)
French PM pledges €11bn in extra tax cuts Valls prioritises growth over EU-enforced austerity
In a clear move to reinforce a pro-business policy shift adopted this year by President François Hollande, Mr Valls said he would remove over the next three years a production tax on companies worth €6bn and pledged to cut France’s main corporate tax rate from 2016.
Presenting his policy programme to parliament, he also promised €5bn in cuts to employee social charges on the low paid and to taxes on poorer households by 2017, when Mr Hollande’s term ends. (…)
Living up to his reputation as a market-friendly reformer, Mr Valls condemned recent governments of both right and left for hoisting France’s tax burden to one of the highest in Europe.
“We have got to stop inventing new taxes that cause our citizens such anguish,” he said.
He said a heavy surtax on corporation tax for big companies, which has boosted the current rate above 35 per cent, would be removed in 2016. He said the government would plan to cut the standard rate, currently at 33 per cent, to 28 per cent by 2020. (…)
Korean Won Surges to 5-Year High
(…) “The Bank of Korea has finally allowed [the exchange rate] to break to fresh post-Lehman lows this morning,” Geoff Kendrick, head of Asian currencies and rates at Morgan Stanley noted, referring to the currency’s strength against the U.S. dollar.
Recently, adding to the positive sentiment, the central bank forecasts growth at 3.8% this year and 4% in 2015, up from 2.8% last year. The won is also showing resilience even as the Chinese yuan falls, while benefiting from a weakening U.S. dollar as Treasury yields dip. China is South Korea’s largest trading partner.
The Korean won’s gains “are a result of a solid fundamental under-footing for the economy, a return of portfolio inflow, lack of contagion from the recent squeeze” in the Chinese currency, Patrick Bennett, a macrostrategist at CIBC World Markets in Hong Kong wrote in a note on Wednesday.
In recent days and weeks, there have also been signs that stimulus from the U.S., Japan and European central banks will be kept up to keep growth humming, moves that may also help Asian currencies that are typically sensitive to U.S. dollar sentiment swings.
There is “an emerging view that accommodative global monetary policies are not going to be as swiftly unwound as had been feared,” said Mr. Bennett. (…)
Emerging-Market Currencies Continue to Rally
(…) Against a backdrop of falling U.S. Treasury yields, as expectations of early rate rises from the Federal Reserve recede, emerging-market currencies have performed strongly of late.
Interest rate rises from several emerging-market countries, including Turkey and South Africa, have provided further support, encouraging investors to enter so-called carry trades, whereby they borrow money in currencies where rates are low and seek higher-yielding investments elsewhere. (…)
China Is in No Hurry to Halt Yuan’s Fall
Interviews with a Chinese central-bank official, bankers and analysts suggest Beijing won’t move in the near term to stop the currency from weakening.
Big US banks forced to hold extra $68bn Regulators ratchet up limits with new 5% leverage ratio
A new “leverage ratio” will force the eight largest US banks to hold a minimum of 5 per cent equity to total assets to absorb losses in a crisis and proposes adopting a more stringent way of calculating the rule.
The leverage ratio is supposed to be a backstop to other capital rules that are “risk-weighted”. It does not allow banks to use their own models, which some critics have warned allows institutions to game the system.
It is tougher than a new international metric that requires banks to reach a 3 per cent minimum of equity to assets and potentially hinders the profitability of the eight banks affected – Bank of America, Bank of New York Mellon, Citigroup, Goldman, JPMorgan, Morgan Stanley, State Street and Wells Fargo – compared with their rivals in Europe.
Dan Tarullo, the Fed governor in charge of regulation, indicated that he wanted to go further. He signalled that the Fed might impose an additional risk-based capital charge on the biggest US banks, bringing it “to a higher level than the minimum agreed to internationally” to discourage short-term wholesale funding.
Investment banks such as Morgan Stanley and Goldman, which do not have the same deposit base as retail banks such as Wells Fargo, might have most to lose if Mr Tarullo succeeded in imposing an additional capital surcharge.
He has highlighted the problem of bank dependence on short-term wholesale funding on numerous occasions. But his comments were a new hint at the potential severity of the regulatory response. (…)
Banks have until January 1, 2018 to comply with the leverage ratio. (…)
SENTIMENT WATCH
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Stock Selloff’s Mystery Momentum The most troubling aspect of the recent selloff in stocks is the lack of an obvious catalyst.
The stock market’s recent drop might not have been so unsettling to investors but for one thing: The lack of a clear reason as to why it happened. (…)
Some perspective is needed, though. On the Richter scale of what the stock market has been through in recent years, the past week doesn’t register very highly. The Nasdaq’s historical volatility—a measure of how wide its swings have been over the past 30 trading days—shows that while it has been a bit shakier lately, it isn’t even close to as jittery as it was through the summer of 2011.
Back then, the selling was driven by widespread fears that a weakening U.S. economy could tip back into recession. In contrast, this month’s selloff has come amid economic data that would normally be highly supportive for stocks. (…)
On one hand, this is reassuring: Investors are taking a breather after a breakneck dash.
But it is also troubling. Usually there is some event that can be pointed to—a bad economic report, a big earnings miss, a fight in Washington—that explains why stocks have fallen. Share prices crumbling just because prices have reached a point that investors can no longer stomach them can signal real trouble. When the dot-com bubble began losing air in March 2000, for example, there was no compelling cause.
The market is nowhere near the heights of ridiculousness it reached back then, both in terms of average valuation multiples and initial public offerings. But like the relative valuations used to justify many popular stocks today, using such an extreme situation as your touchstone for investing isn’t advisable.
Perhaps it is because good news has become bad news since Yellen’s 6 month slip. Did you notice that 5Y rates have gone from 1.45% to 1.7% in the last 3 weeks, touching 1.8% en route.
Lance Roberts had this in his April 8 post (No One Will Ring The Bell At The Top), first quoting Seth Klarman
Can we say when it will end? No. Can we say that it will end? Yes. And when it ends and the trend reverses, here is what we can say for sure. Few will be ready. Few will be prepared.”
It is in that statement that we find the unfortunate truth. Individuals are once again told that this time will be different. Anyone who dares speak against the clergy of bullishness is immediately chastised for heresy. Yet, in the end, no one will ring the bell at the top and ask everyone to please exit the building in an orderly fashion.
Ben Hunt adds:
Bottom line: “don’t fight the Fed” is a reflection of the institutional power of the Fed and the Narrative of Central Bank Omnipotence. It cuts both ways. You don’t want to be short anything when the Fed is easing, and it’s hard to be long anything when the Fed is tightening. The crowd is picking up on a shift in the easing/tightening Narrative and is beginning to act on that by selling, just as they acted on prior market-positive shifts in the easing/tightening Narrative by buying. Different monarchs; same monarchy. What’s to come? More of the same, I suspect. Good real world news is bad market news, and vice versa, for as far as the eye can see. Why? Because the crowd is not going to fight the Fed.
Meanwhile, back at the ranch, there are more serious matters:
HOLY COW!
Scientists seek climate-friendly cow Burping bovines exceed methane emissions from landfill
A White House climate initiative has boosted a quixotic search for the “cow of the future”, a next-generation creature whose greenhouse gas emissions would be cut by anti-methane pills, burp scanners and gas backpacks.
Carbon dioxide from fossil fuels is the primary man-made gas warming the planet, but methane is far more potent and the US’s biggest source of it is its 88m cattle, which produce more than landfill sites, natural gas leaks or hydraulic fracturing.
The Obama administration’s launch last month of a plan to curb methane emissions has given fresh relevance to climate-friendly technologies for cattle that range from dietary supplements and DNA gut tests to strap-on gas tanks. (…)
“Ninety-seven per cent of all the methane gas is released by the front end through burps, not from the back end,” he said.
Based on his research priorities, the dairy cow of the future will be the unstressed inhabitant of spacious accommodation, munching on anti-methane gourmet grains that are processed by an efficient, best-in-species digestive system.
“We want it to be more productive, we want it to be healthier, we want it to be a problem-free cow,” said Mr Tricarico. (…)
C-Lock, a South Dakota company, sells a feeding station that gives animals dietary supplements such as basil to cut methane production and measures the content of their breath by pulling it towards trace gas sensors with a vacuum.
Patrick Zimmerman, C-Lock’s founder, says prices start at $45,000 but stresses the economic benefits of improved efficiency. “Of the energy the animals eat, 3 to 15 per cent is lost as methane and that’s a waste,” he says.
At Argentina’s National Institute of Agricultural Technology, scientists have created backpacks that collect gas via tubes plugged into cows’ stomachs. A typical animal emits 250-300 litres of methane a day and researchers say this could be used to power a car or a refrigerator for a day, but Jorge Antonio Hilbert of the institute says the tanks’ use on a large scale is “totally improbable”.
Jonathan Gelbard of the Natural Resources Defense Council, an environmental group, says: “Anyone who can come up with a cost-effective way to harness that methane is going to make a lot of money.”
Ilmi Granoff of the Overseas Development Institute said an alternative to controlling cattle emissions would be to cut the number of cows.
“Forget coal, Forget cars. The fastest way to address climate change would be to dramatically reduce the amount of meat people eat,” he said. “But that involves cultural preferences and they are difficult to touch.”
To assess the influence of cold weather on housing starts, we analyzed temperature data from January 1984 to February 2014 and compared it to historical housing starts data. Because the question is whether or not the abnormally cold weather influenced building activity, we compared the temperature in a given calendar month to the average temperature for that calendar month for the 30-year time span. For example, the average temperature in the U.S. in February for all years was 35.3 degrees, and the U.S. temperature in February 2014 was 32.2 degrees, making February 2014 3.1 degrees colder than normal. While this year’s winter was colder than normal for the U.S. overall, when broken out by region, it is clear that some parts of the country experienced more severe temperatures than others. Figure 1 shows the degree difference from the average temperature from November 2013 to February 2014 by Census region. The midwest region was hit particularly hard this winter, with temperatures in February at almost 10 degrees colder than average. The Northeast and South didn’t fare much better. 
Total outstanding consumer credit across the economy rose at a seasonally adjusted annual rate of 6.4% in February to more than $3.129 trillion, the Federal Reserve said Monday. 
(…) Although the S&P 500 is down only modestly from its 52-week highs, individual stocks have seen much larger declines. The chart below and to the right summarizes an analysis from our most recent 
The FT then goes on trying to explain the rout. The only explanation is that valuations became excessive and needed to correct. Sometimes that process needs a specific catalyst, often it just happens. This is where the Rule of 20 valuation barometer is useful. It helps objectively assess valuations and measure risk vs reward. It will not tell you when things will actually change, only that they eventually will, because they need to. It requires discipline and patience, however. 
Some people must be hurting out there!
BUT, SURELY, SOMEBODY WILL SOON BUY THE DIP!
OK, let’s read this again before extrapolating: “Historically, when fewer companies than average beat estimates, the trend continues throughout the full earnings season, and vice versa.” Thomson Reuters does not give us much data to verify but of the 15 quarters shown here, 5 “preseasons” were below average, of which only one ended the full season below average.