MANUFACTURING PMIs

Renewed decline in US manufacturing performance as demand wanes

The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI) posted 49.4 in November, unchanged from the earlier released ‘flash’ estimate, but down from 50.0 in October. The fall in the headline figure signalled a renewed decline in the health of the manufacturing sector and one that was the strongest since August.

Contributing to the lower headline reading was a sixth drop in new order inflows in the last seven months. Orders have in fact risen in only three of the past 18 months. Goods producers noted that, although only marginal, the decrease in new sales was linked to weak client demand, economic uncertainty and customers continuing to run down stock levels.

The fall in total new orders was focused on the domestic market as new export sales returned to growth for the first time since May 2022 in November. Foreign client demand reportedly improved, especially for specialist items, with new export orders rising at a modest pace.

Encouragingly, there are some signs of the inventory cycle starting to turn, with producers of intermediate goods (inputs supplied to other firms) now reporting modest order book growth.

Nonetheless, subdued overall demand conditions across the sector resulted in a slower uptick in output. The expansion in production was only marginal, with firms often attributing growth to greater efficiencies in production processes. The pace of upturn was the slowest in the current three-month sequence of increase.

At the same time, manufacturers recorded a notable moderation in the pace of input price inflation during November. The pace of increase eased to the slowest since August and was well below the historic trend rate. Although resin and steel prices continued to place particular pressure on costs, lower energy and other material expenses led to am softer uptick, according to panellists.

In response to a less marked rise in cost burdens, and in an effort to drive sales, the pace of charge inflation eased in November. Selling prices rose at the joint-slowest pace since July.

US manufacturing employment fell for the second successive month during November. Workforce numbers decreased at the second-fastest rate since June 2020 as some firms used natural attrition to lower staffing levels. That said, other companies noted redundancies following lower new order inflows.

The decline in employment did not hamper firms’ efforts to clear backlogs, as unfinished work fell at a quicker and solid pace.

Meanwhile, firms reported little-change to input buying during November compared to the previous month. Nonetheless, manufacturers continued to work through their current holdings of finished goods and purchases in a bid to cut costs.

• ISM Manufacturing & All Major Components in Contraction

(…) Activity remained stuck in the same rut in November with the headline ISM number at 46.7, unchanged from where it stood in October, not even budging a tenth in either direction. All five sub-components that feed into the headline were in contraction in November. Production came in at 48.5, down 1.9 points which, while not a huge move, crosses the 50 line and signals mild contraction versus slow expansion.

With less work to be done, industry-oriented businesses are cutting back on hiring with the employment component falling deeper into contraction at 45.8. Orders are also still falling, though not as much as last month, but the production pipeline is looking worryingly thin with the index for backlog of orders falling to 39.3. (…)

Source: Institute for Supply Management and Wells Fargo Economics

“Economy appears to be slowing dramatically. Customer orders are pushing out, and all efforts are being made to right-size inventory levels, both to mitigate carrying costs on pushed-out orders and to load up on inventory where costs are exploding, like cold-rolled steel.” (…)

In my November 6 Really Slowing? post, I noted the very weak October Services PMI reports (“muted demand conditions, new orders down for the third month running, modest job creation”) along with the much weaker employment and wage data for the August to October period after the BLS revised August and September jobs down 101k (-18%), concluding that

weak consumer economics indicate difficult demand conditions ahead. The October PMIs confirm the sudden change, across the board, but particularly in services, supposed to take the slack from goods.

Last week, BRP Inc., a leading manufacturer of off-road recreational vehicles, said that industry demand suddenly dropped in October/November. The ORV industry was the poster child of the splurge on goods from “excess savings” showing solid demand through September 2023. BRP is now reducing production and cutting costs to cope with the new reality.

Two weeks ago, many retailers including behemoths Walmart and Target revealed weakening across-the-board sales in October.

From the ISM survey:

• “Economy appears to be slowing dramatically. Customer orders are pushing out, and all efforts are being made to right-size inventory levels.” [Computer & Electronic Products]
  

• “Starting to feel softening in the economy, with labor still a challenge to backfill critical roles. The 2024 forecast looks challenging, specially from a cost perspective.” [Chemical Products]
• “Our executives have requested that we bring down inventory levels considerably…” [Food, Beverage & Tobacco Products]
• “Automotive sales still impacted by UAW strike. Still waiting for orders to come in, and we also need to work down inventory levels that increased during the strike period. This will most likely happen in December.” [Fabricated Metal Products]
• “Customer orders have pushed into the first quarter of 2024, resulting in inflated end-of-year inventory.” [Miscellaneous Manufacturing]
  

November employment data will be released Friday but the PMIs are not optimistic:

• US manufacturing employment fell for the second successive month during November. Workforce numbers decreased at the second-fastest rate since June 2020 as some firms used natural attrition to lower staffing levels. That said, other companies noted redundancies following lower new order inflows.
• Barring the early months of the pandemic, the survey has not seen such a back-to-back monthly fall in factory employment since 2009.
• Job shedding has spread beyond the manufacturing sector, as services firms signalled a renewed drop in staff in November as cost savings were sought. (Flash PMI)

The share of industries in the ISM saying they are now expanding is all the way down to a grand total of 17%. The chart says we’ll be drawing a fresh shaded region before long. @EconguyRosie

• Overall, the findings paint an economy that is losing momentum and “poised to slow sharply in 2024,” said Capital Economics. The firm’s Beige Book Activity Index slipped into negative — but not recessionary — territory for the first time since the start of the pandemic. (Bloomberg’s John Authers)

Source: Oxford Economics

Powell Brushes Off Rate-Cut Bets as Fed Moves Carefully Chair says policy is ‘well into restrictive territory’

(…) “Having come so far so quickly, the FOMC is moving forward carefully, as the risks of under- and over-tightening are becoming more balanced,” Powell said at Spelman College, a historically Black school in Atlanta. (…)

“Monetary policy is thought to affect economic conditions with a lag, and the full effects of our tightening have likely not yet been felt,” Powell said. (…)

In addition, the Fed chair described the labor market as “very strong,” though he noted that with recent slowing, “the economy is returning to a better balance between the demand for and supply of workers.” (…)

(…) “It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” Powell said Friday in Atlanta. “We are prepared to tighten policy further if it becomes appropriate to do so.” (…)

But not the other way around? The “very strong” labor market is Powell backward looking. Recent corporate surveys and presentations seem to increasingly emphasize “cost cuttings” and labor “redundancies” as higher interest rates bite into new orders and backlogs.

Forward looking financial markets bet the other way around but John Authers reminds us that

Neither the Fed nor the market is much good at predicting the fed funds rate. This chart from Jim Bianco or Bianco Research LLC shows the implied future course of the rate (derived from the futures market) at each meeting of the FOMC. They persistently predicted hikes throughout the post-GFC decade when rates stayed at or close to zero, and also persistently understated how far the Fed would go during the most recent cycle:

There’s no particular reason to believe that the market is right about its latest move, then. As for guidance from the Fed, this is the “dot plot” of the predicted course for the fed funds rate from each member of the FOMC that was published in March 2021. Most thought that rates would still effectively be zero now, at the end of 2023. Then core inflation tripled over the next three months, and the rest is history:

• This week features important jobs data with the JOLTS report tomorrow, productivity and labor costs on Wednesday and the NFP on Friday. Ed Yardeni says that “comparable indicators suggest that job openings remained high around 9.5 million.”

But Indeed’s Job Postings data through November 24 hint at 9.0-9.2mn.

Canada: Manufacturing sector downturn intensifies in November

The seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index™ (PMI^®) posted below the 50.0 no-change mark during November. Recording 47.7, down from 48.6 in October, the index signalled an accelerated rate of contraction that was close to September’s 40-month record.

There were concurrent falls in production and new orders during November. Rates of decline accelerated in both cases, with the net reduction in sales the sharpest since August 2022.

Panellists commented on client hesitancy in product markets, in part due to global conflicts like the war in Ukraine. Elevated inflation also continued to eat into client budgets, according to panellists. Reflective of the international nature of these factors, new export orders declined during November for a third month running, and to the greatest degree since March.

Manufacturers remained circumspect when it came to buying in new inputs during November. Latest data showed that purchasing activity declined for a sixteenth successive month, against a backdrop of falling orders and production requirements. Firms also signalled a preference for utilising stocks,which were lowered for a sixteenth successive month.

This in part reflected the high cost of buying new inputs. Input cost inflation accelerated to the highest since April 2023, but remained below the long-run survey average. Vendors were reported to have raised their list prices for goods like steel, driven in some cases by stock shortages, which in turn contributed to another month of mildly worsening delivery times.

Manufacturers sought to protect their margins by raising their own charges to a greater extent. Overall, output price inflation rose to a nine-month high in November.

Despite cost pressures and deteriorating sales demand, manufacturing employment rose slightly in the latest survey period. It was the first time in seven months that a rise in staffing levels has been recorded amid reports that leavers were being replaced and long-held vacancies filled. Positive projections for production also supported employment growth, as seen by a tick-up in confidence about the future.

• Canada Unemployment Rate Continued to Inch Up in November

The number of employed working-aged people in Canada rose a modest 24,900 in November from the month before, while the unemployment rate was 0.1 percentage point higher at 5.8%, the first time it has broken above pre-pandemic levels since January 2022, Statistics Canada reported Friday.

The jobless rate increased for a second straight month and has now climbed 0.8 percentage point since April. Though still low historically, that compares with the record low of 4.9% in the middle of last year as the labor market continues to loosen despite high levels of immigration. (…)

At the same time, the country’s working-age population climbed by 77,700 during November and the employment rate—the proportion of people 15 years and older with a job—slipped 0.1 point to 61.8%. Statistics Canada has estimated that monthly job gains of roughly 50,000 a month are needed for the employment rate to hold steady given the growing population. (…)

Average hourly wages for permanent employees again rose 5.0% in November, a signal of lingering inflationary pressures and well above the central bank’s 2% target for consumer price inflation.

The November data showed total hours worked was down 0.7% in November, though up 1.3% from a year earlier.

All of the jobs added in November were in full-time employment, which rose by 59,600 from the previous month to more than offset a drop of 34,700 in part-time jobs. (…)

• Bank of Canada expected to end year with another interest-rate hold

China Evergrande Avoids a Debt Disaster—for Now The company was given until late January 2024 to reach a debt restructuring deal after Hong Kong’s High Court postponed a hearing that could have pushed it into liquidation.

(…) The unexpected delay came as the original petitioner didn’t push for an immediate liquidation on Monday, an about-turn that caught Evergrande and other creditors off guard and marked the latest twist in a lawsuit that has dragged on for more than a year. (…)

The petition for liquidation was filed in June 2022 by Top Shine Global Limited of Intershore Consult (Samoa) Ltd., which was a strategic investor in the homebuilder’s online sales platform, and subsequently became a consolidated class action for other frustrated creditors.

Top Shine’s lawyer declined to elaborate on its position change on Monday. Judge Chan asked Top Shine to notify others before the next hearing should it choose not to seek liquidation.

When asked whether the ad-hoc group would step in to continue to push for a wind-up if the petitioner dropped the lawsuit, McDonald, the legal advisor for creditors, said “likely, yes.” (…)

• China’s property developer China South City Holdings asks bondholders to exempt some covenants, extend bond payment deadlines, and lower principal repayment as the group has no sufficient funds to make interest payments before 20 December 2023, which may trigger an event of #default. (@Sino_Market)

Chinese borrowers default in record numbers as economic crisis deepens More than 8mn people are blacklisted by authorities after missed payments on mortgages and business loans

The FT says that is equivalent to about 1% of working-age Chinese adults, and is up from 5.7mn defaulters in early 2020.

“Under Chinese law, blacklisted defaulters are blocked from a range of economic activities, including purchasing aeroplane tickets and making payments through mobile apps such as Alipay and WeChat Pay.”

The FT adds that “household debt as a percentage of gross domestic product almost doubled over the past decade to 64.”

This adds to the real estate crisis, already significantly hurting banks balance sheets and ability to lend. The FT reveals that “China Merchants Bank said this month that bad loans from credit card payments that were 90 days overdue had increased 26 per cent in 2022 from the year before. China Index Academy, a Shanghai-based consultancy, reported 584,000 foreclosures in China in the first nine months of 2023, up almost a third from a year earlier.”

(Bloomberg)

• CHINA IMPLODING? NO, EXPLODING!

SENTIMENT WATCH

Three chart from Callum Thomas:

• Investor Sentiment vs Economic Sentiment:  On a similar note, as of the latest data investor sentiment has surged back towards the heights of extreme bullishness… while economic sentiment (combined signal from consumer, small business, manufacturing, services, housing surveys) remains deeply depressed, recessionary. So who’s right?

(Wall Street says: Bull Market, Main Street says: Recession)

• Growth Gain Gridlock:  Last year value stocks gained the upper hand (and growth stocks took a step back) — this year that was all completely reversed. And now?We’re back to that growth vs value relative performance line hitting its head on the ceiling…

Source:  @meanstoatrend

• Concentrate! So the definition here is a bit of a mouthful, but basically it’s saying the biggest stocks are bigger than usual vs the rest of the market. Again, passive market-cap index-following investors are blindly piling into an increasingly concentrated bet.

Source:  The Crude Chronicles

• From NDR:

• From Steve Blumenthal: S&P 500 Large Cap Index – 13/34–Week EMA Trend Chart:

Consumers Pulled Back on Spending, Inflation Eased in October Weakening price pressures likely end Fed rate hikes

Consumer spending rose 0.2% in October, down sharply from a 0.7% rise in September, the Commerce Department said Thursday. The October reading marked the slowest increase since May. The combination of ebbing income growth, high interest rates and prices, dwindling pandemic savings and the resumption of student-loan payments is eroding Americans’ ability to keep boosting their spending as briskly as they did through the summer, economists say. (…)

Core prices, which exclude volatile food and energy items, were up 3.5% from a year ago. They rose 2.5% at a six-month annualized rate, down from 4.5% in the six months through April, a dramatic improvement. (…)

In remarks Thursday morning, New York Fed President John Williams suggested the Fed might be done raising interest rates and said he thought interest-rate policy was tighter than at any time in the past 25 years.

But Williams, a top lieutenant to Fed Chair Jerome Powell, said he expected it would be appropriate to maintain a restrictive interest-rate stance “for quite some time” to ensure inflation doesn’t flare up again. (…)

Personal income—which includes income from investments and other sources as well as wages—rose 0.2% in October from September, down from September’s 0.4% gain, the Commerce Department said Thursday. (…)

Here’s the Wells Fargo detailed table:

Note the 4th line: Wages and Salaries rose only 0.14% MoM in October. If this is not a statistical quirk it would mark a major and potentially significant break in wage trends. Good for inflation, particularly on services, but a big headwind for consumer spending.

• Over the last six months, the trimmed mean has been rising at an annualized rate of less than 3%, suggesting that the target is growing coming within range:

• Most importantly, the inflation rate of PCED services excluding energy and housing is falling. It has been stuck around 5.0% in 2022 and earlier this year. But it was down to 3.9% y/y in October. Fed Chair Jerome Powell and his colleagues have said that they are concerned about the stickiness of this “super-core” measure of inflation. Now, they should be less concerned as it seems to be coming unstuck. (Ed Yardeni)

• 6-month changes annualized (GS)

US Continued Jobless Claims Jump to Highest Since Late 2021

Continuing claims, which are a proxy for the number of people receiving unemployment benefits, rose to 1.93 million in the week ended Nov. 18, higher than all estimates in a Bloomberg survey of economists. This figure has climbed since September, suggesting out-of-work Americans are finding it more difficult to secure new employment.

Meanwhile initial jobless claims rose by 7,000 to 218,000 in the week ended Nov. 25, a period that included the Thanksgiving holiday. Given the figures tend to be particularly volatile around holidays, the four-week moving average offers a clearer picture of the trend in applications. That measure was little changed last week, according to a Labor Department report. (…)

The Federal Reserve’s Beige Book survey of regional business contacts — published Wednesday and containing information gathered on or before Nov. 17 — showed a continued easing in labor demand. Most regional Fed banks reported flat to modest increases in employment in their districts, and reductions in headcounts through layoffs or attrition were reported. (…)

The 4-week moving average of continuing claims is now exceeding its pre-pandemic level.

Job postings on Indeed keep falling but are not collapsing. The next JOLTS report on December 5 should be weak however.

Pending Home Sales Fall to Record Low

The index fell 1.5% in October to 71.4, the index’s lowest reading since the NAR began tracking data in 2001, and is down 8.5% compared to one year ago. (…)

Oil Holds Drop as ‘Voluntary’ OPEC+ Cuts Leave Mass of Confusion Oil steadies following a vague output cut plan.

The alliance announced roughly 900,000 barrels a day of fresh output cuts from January, but the curbs are voluntary, with Angola already rejecting its quota. Saudi Arabia, meanwhile, said it will prolong its separate 1 million barrel-a-day reduction through the first quarter. (…)

“These are all still voluntary cuts, and that’s one of the reasons for the disappointment,” she said, adding that whether the extra 900,000 barrels a day of additional curbs are delivered over the first quarter remains to be seen. (…)

• Despite the extra cut, we still see the risks to our unchanged December 2024 Brent forecast of $93/bbl as tilted moderately to the downside for two reasons. First, the extra cut is a temporary response to recent large upside surprises to inventories and supply, including in the US, worth around -$10/bbl on December 2024 Brent, if they mostly persist. Second, the further rise in spare capacity and the voluntary nature of today’s cut imply that any additional cuts become increasingly difficult to implement. (GS)

MANUFACTURING PMIs

Eurozone factory downturn remains strong in November, but reductions in output, new orders and inventories ease

The HCOB Eurozone Manufacturing PMI, compiled by S&P Global, posted below the 50.0 threshold that separates growth and contraction for a seventeenth month in a row during November, signalling a further worsening of conditions within the goods-producing sector. However, while the latest reading of 44.2 pointed to another strong deterioration, this was up from 43.1 in October and the highest since May. (…)

Factory production across the euro area continued to decrease during November. That said, while the pace of decline was strong overall, it eased to its softest since May. A slower fall in output coincided with a weaker contraction in new orders, and the slump in new export sales (which has been ongoing since March 2022) also moderated.

Eurozone manufacturers were less aggressive with their destocking efforts, November survey data showed, with pre- and post-production inventory levels falling at weaker rates. The fall in stocks of purchases was nevertheless the second-fastest seen since December 2012 amid another substantial month-on-month reduction in manufacturers’ buying activity.

Backlogs of work declined in November, extending the current period of depletion in outstanding business to a year-and-a-half. Lower volumes of incomplete orders, in tandem with a continued and marked deterioration in demand, led eurozone manufacturers to reduce their staffing capacity for a sixth month in a row midway through the fourth quarter.

Furthermore, the rate of job shedding was the fastest since August 2020. That said, although employment cuts worsened, there was a pick-up in business confidence during November, with growth expectations at their strongest for three months. (…)

Lastly, the latest survey data signalled a further sharp reduction in costs faced by eurozone factories. This was despite the rate of decrease in input prices cooling to its softest since April. Output charges continued to be discounted, as has been the case since May, as lower costs enabled businesses to offer more competitive prices to their clients.

China: PMI improves to three-month high in November

The headline seasonally adjusted Purchasing Managers’ Index™ (PMI®) increased from 49.5 in October to a three-month high of 50.7 in November, to signal a renewed improvement in manufacturing conditions. Though only marginal, it marked the third time in the past four months that the health of the sector has strengthened.

Supporting the above 50.0 PMI figure was a sustained and quicker rise in overall new business received by Chinese goods producers in November. Though modest, the rate of new order growth was the best seen since June, with firms often noting that firmer market conditions had helped to lift sales. However, new work from overseas continued to fall slightly, underscoring a relatively challenging external demand environment. (…)

In line with the trend seen for output, purchasing activity also returned to expansion in November. Input buying has now increased in three of the past four months, though the latest rise was only slight. (…)

Although employment across China’s manufacturing sector continued to contract, the rate of job shedding eased in November. Notably, the rate of payroll cuts was the slowest seen in the current three-month sequence of falling headcounts and only marginal. (…)

Prices data indicated that cost pressures remained subdued in November, with average input costs rising at a modest pace that was slower than in October. At the same time, efforts to attract and secure sales curbed overall pricing power, and output charges were broadly unchanged on the month.

Sustained contraction in Japan’s manufacturing sector

The headline au Jibun Bank Japan Manufacturing Purchasing Managers’ Index™ (PMI®) fell from 48.7 in October to 48.3 November to signal a deterioration in the overall health of the Japanese manufacturing sector. While only modest, the reduction was the strongest seen since February.

Contributing to the sub-50.0 PMI reading was a further contraction in output levels, and one that was the strongest seen in nine months. The downturn reportedly reflected production adjustments in response to weaker demand and a lack of new product launches. There was also a sustained contraction in new orders midway through the final quarter of 2023. The rate of decline sharpened from October amid cooling demand in both domestic and international markets. As such, foreign sales of Japanese manufactured goods reduced for the twenty-first month in a row. Moreover, the rate of reduction was the strongest recorded since June.

Mirroring demand developments, firms reduced input purchases in November, extending the current contractionary sequence to 16 months. The rate of decrease was sharp and the steepest since February. Latest data also provided evidence of stockpiling.

On the prices front, cost pressures remained historically elevated in the latest survey period. Input prices rose at a marked pace that was nonetheless the softest since August. Average cost burdens were driven up by higher raw material prices and unfavourable exchange rate trends. Charged price inflation eased for the first time in three months to reach the lowest since July 2021.

Weak customer demand allowed firms to work through existing orders, as signalled by a stronger fall in backlogs of work. Moreover, the rate of depletion was the strongest since March. Firms often indicated they had enough capacity to work through outstanding business. In fact, manufacturers lowered employment levels for the second month in a row, as firms opted to not replace voluntary leavers.

‘Struggling to grow’: Canada’s economy shrinks in third quarter amid higher interest rates

Real gross domestic product, which is adjusted for inflation, shrank at an annualized pace of 1.1 per cent in the third quarter, according to figures published by Statistics Canada on Thursday. The results were considerably weaker than the Bank of Canada’s estimate of 0.8-per-cent growth and Bay Street’s expectations of a slim 0.1-per-cent increase.

Canada’s economic performance has increasingly diverged from that of the U.S., which posted a 5.2-per-cent expansion in the third quarter.

Canada did, however, avoid two consecutive quarters of GDP decline – what some economists refer to as a “technical recession.” Statscan made sharp upward revisions to its second-quarter figures, which are now showing annualized growth of 1.4 per cent, where previously they showed a slight decline. (…)

Thursday’s report showed how higher borrowing costs are weighing on economic activity, although the summer months were also affected by wildfires and more striking workers than usual.

In a preliminary estimate, Statscan said that GDP rose 0.2 per cent in October, and many analysts project growth will swing back into positive territory in the fourth quarter.

Still, the economic situation looks more grim when soaring population growth is accounted for. GDP per capita – a popular measure of living standards – has fallen for five consecutive quarters. (…)

The GDP figures showed several areas of weakness. Business investment fell at an annualized rate of 10.1 per cent in the third quarter, while exports shrank by 5.1 per cent. Statscan noted that inventories accumulated at the slowest pace in two years. Household spending was essentially flat for a second consecutive quarter.

The household savings rate picked up to 5.1 per cent in the third quarter from 4.7 per cent in the second quarter. Canadians have been squirrelling away more money than usual; the average savings rate between 2015 and 2019 was 2.2 per cent. (…)

Government spending rose by 7.3 per cent annualized during the third quarter, which saw Ottawa send a “grocery rebate” to millions of households. (…)

Final domestic demand – a metric that includes household and government consumption, along with capital investments – rose at an annualized pace of 1.3 per cent, similar to growth in the second quarter. (…)

• Bank of Canada preview: Dovish pressure mounting

The Bank of Canada is widely expected to hold the target for the overnight rate at 5% at the upcoming policy meeting on 6 December. At the October policy meeting, the accompanying statement warned that “progress towards price stability is slow and inflationary risks have increased, and [the BoC] is prepared to raise the policy rate further if needed”.

However, since that meeting the activity data has softened, the labour market has shown evidence of some cooling and inflation has continued to slow. Consequently, the threshold for a rate hike does not appear to have been met.

Moreover, Governor Tiff Macklem has since conceded that “the excess demand in the economy that made it too easy to raise prices is now gone” and that the “economy is approaching balance”.

The economy contracted at an annualised rate -1.1% rate in the third quarter, with month-on-month increases having effectively stalled since June. Meanwhile, the unemployment rate is trending higher and wage pressures appear to be topping out.

Macklem admitted that this softening in activity means “more downward pressure on inflation is in the pipeline”. We agree and expect CPI to slow to 2% in the second quarter of 2024, especially if gasoline prices remain at the current low levels. (…)

Given this situation we feel the BoC will cut sooner and more aggressively than the market and consensus are expecting. We look for 150bp of rate cuts in 2024, starting at the April policy meeting.

Canada’s quarterly GDP annualised

Source: ING, Refinitiv

The Big Risk Causing Investors to Shun China More than $24 billion of foreign money has left mainland China’s stock market since August as geopolitical risks turn people off investing there.

(…) This past summer, the U.S. restricted Americans from investing in Chinese companies in certain high-tech industries. The U.S. has also imposed export restrictions on advanced semiconductor chips that can be used to develop artificial intelligence and related manufacturing equipment, to limit their use by China’s military. (…)

American investors have been forced to sell shares in companies that the U.S. says are aiding China’s military. That led to the delisting of Chinese state-owned telecom carriers and energy companies from U.S. stock exchanges. Americans have also been barred from investing in other blacklisted Chinese companies.

International venture-capital and private-equity investors also have to tread extra carefully when assessing Chinese companies. (…)

Morgan Stanley strategists have warned investors of “sustained geopolitical complexity” in 2024 and an election year in both the U.S. and Taiwan. 

Goldman Sachs said in a Nov. 12 report that under what it called a very harsh scenario, investors could sell $170 billion more in Chinese shares—if U.S. pension funds completely liquidate their China holdings due to policy and geopolitical reasons and active mutual funds and hedge funds revert to their lowest China allocations. (…)

• Xi Takes Flurry of Small Steps to Open China After US Trip China unleashes a flurry of market access concessions.

(…) Beijing approved a long-delayed Mastercard Inc. joint venture, then followed up by green lighting one of the world’s largest technology mergers between US chipmaker Broadcom Inc. and cloud company VMWare Inc. Last week, officials announced visa-free access to China for six countries.

Translating “the San Francisco vision into actual policies and concrete steps” is a matter of “first-rate importance,” the official Xinhua News Agency wrote this week. A meeting of the Politburo that Xi chaired on Monday called for “high-level opening up,” a slogan associated with more market access.

The Chinese leader also visited commerce and finance hub Shanghai this week for the first time since 2020, a trip viewed by some analysts as a signal of his determination to reinvigorate investor confidence.

The spate of conciliatory acts since the Biden meeting signals China’s vast bureaucracy, which waits on clear instructions from Xi, is ramping up efforts to stop an exodus in capital. (…)

• Putin Seizes Rights to St. Petersburg Airport From Foreign Investors Presidential decree transfers Pulkovo stakes to Russian entity

President Vladimir Putin ordered the transfer of all the rights to managing St. Petersburg’s Pulkovo airport from foreign shareholders that include Germany’s Fraport AG and the Qatari wealth fund by shifting their stakes into a new Russian entity.

Under a decree published late Thursday, shareholdings in the Cyprus-registered concession that runs the airport of Russia’s second-largest city will be consolidated in a new domestic company. Existing investors, which also include a consortium with Abu Dhabi sovereign fund Mubadala Investment Co., will retain their stakes but won’t be able to vote because those rights will be held only by Russian shareholders in the new company.

German airport operator Fraport, the Qatar Investment Authority, and Russia’s VTB Bank each hold about 25% of Pulkovo’s concession. The remainder is controlled by a consortium of investors including Russia’s sovereign wealth fund, RDIF, Mubadala and Baring Vostok, according to the Interfax news service. (…)

Putin’s decree raised the possibility that stakeholders’ voting rights can be restored “upon their application, subject to the conclusion of corporate agreements with other participants in the company and upon the assumption of obligations to comply with Russian legislation.”

That potentially opens the door for the Middle East investors to restore their voting rights. (…)