MANUFACTURING PMIs

Euro area manufacturing production stabilises in February as supplier delivery times see most rapid improvement since 2009

• Final Eurozone Manufacturing PMI at 48.5 (Jan: 48.8). 2-month low.
• New orders fell for a tenth successive month as client destocking, inflation and general economic uncertainty weighed on sales performances.
• A notable and stronger drag on demand came from international markets, as evidenced by a quicker decline in new export orders1 during February.
• Overall, purchase prices rose only marginally and to the weakest extent since September 2020.
• Output price inflation proved to be more rigid, however, with the rate of increase in selling prices staying sharp and well above its long-run average. This was despite factory gate charges rising at the softest pace in two years.  

U.K.: New orders fall but show signs of stabilising

China: Manufacturing sector returns to growth in February

• PMI at 51.6 vs 49.2.
• Total new business expanded for the first time in seven months, and
  at the quickest rate since May 2021.
• Companies noted an improvement in foreign demand for Chinese manufactured goods, with new export orders rising for the first time since July 2022.
• Backlogs of work rose for the second straight month and at the quickest rate since October 2021.
• Purchasing activity increased for the first time in four months, and at the fastest rate since June 2021
• Prices data indicated that inflationary pressures remained relatively muted, with input costs rising only modestly in February. Average selling prices were meanwhile lifted for the first time in ten months, albeit only slightly.

  

Japan: Further falls in manufacturing output and new orders in February

• Sharpest reductions in output and new orders since July 2020
• New sales fell for the eighth month running, and at the fastest pace since July 2020. Firms commented that orders were dampened by weaknesses in domestic and global economic conditions. Export orders also fell at a steeper rate that was the fastest for 31 months, and meant that foreign demand for Japanese manufactured goods had fallen consistently for a year.
• Backlogs of work decrease at quickest pace for 29 months
• Slowest rise in input prices for a year-and-a-half
• The rate of factory gate inflation accelerated for the first time in four months.

ASEAN: New order inflows rose for the second consecutive month, and at a quickened pace.

Long-Robust U.S. Labor Market Shows Signs of Cooling Private-sector readings show job postings receding more than government reports of job openings

ZipRecruiter Inc. and Recruit Holdings Co., two large online recruiting companies, say their data show the number of job postings is declining more than Labor Department reports of job openings. (…)

The National Federation of Independent Business, which represents small businesses, and LinkUp, a research firm that tracks job listings that companies place on their own websites, also show a sharper drop in postings than recent government reports on openings. (…)

ZipRecruiter’s weak quarterly revenue numbers sent its share price down more than 20% in a day. “We are seeing a surge in job seekers,” Mr. Siegel said. (…)

“We are seeing a decline in employers’ willingness to spend to hire in many industries despite the labor shortage as they become increasingly cautious due to a potential recession in the U.S.,” Hisayuki Idekoba, chief executive of Recruit Holdings, said in a February call. (…)

The reliability of the Labor Department’s job-openings estimates has declined in recent years because fewer businesses have been responding to survey questions, said Paul Calhoun Jr., an economist at the Labor Department. The response rate for the survey fell to 30.6% last September from 56.4% in February 2020. The department increased its sample size in 2019 because of the declining response rates. (…)

From Goldman Sachs:

Brisk Sales Power Restaurant Stocks Even though inflation has remained stubbornly high of late, that hasn’t prevented restaurant companies—and their stocks—from thriving.

(…) Restaurants haven’t been immune to rising labor and food costs, but prices at grocery stores have actually risen more quickly than on restaurant menus over the past year, driving more traffic to restaurants. (…)

The industry had a strong fourth-quarter earnings season. Hotel, restaurant and leisure companies in the S&P 500 increased revenue by 25% from a year earlier, according to FactSet. Comparable-store sales in the U.S., a metric carefully watched by analysts and investors, rose 10% from a year earlier at Starbucks Corp., 8.7% at Wingstop and 5.9% at McDonald’s Corp. (…)

The good times have continued in 2023: Consumer spending at restaurants and bars rose 7.2% in January, the most since March 2021. (…)

Sales at food services and drinking places were 30.4% above their pre-pandemic level in December vs +28.4% for other retail sales (black). But restaurant sales surged 7.2% in January (mild weather, seasonal adjustments?) and are up 11% since June 2022 while other retail sales are only up 0.6% in nominal terms.

On a YoY basis, restaurant sales are up 25.2% in January (from +13.5% in December!) while other retail sales are up only 3.9%.

CPI-Food-away-from-home is up 19.3% since February 2020, slightly slower that Food-at-home prices (+23.7%).

Car Debt Is Piling Up as More Americans Owe Thousands More Than Vehicles Are Worth

(…) “As trade-in values begin to cool, each month more and more consumers will find themselves falling from positive to negative equity,” said Ivan Drury, director of insights at auto-market researcher Edmunds. (…)

The average new-car interest rate rose to 6.9% in January from 4.3% a year earlier, according to Edmunds. (…)

Today, about two out of 13 people are making monthly car payments of $1,000 or more. (…)

For trade-ins that carry negative equity, the average amount is approaching prepandemic levels at $5,500, according to Edmunds data. The surge in prices and prevalence of 84-month loans are fueling concern among consumer advocates and within the auto industry. (…)

In January, severely delinquent auto loans hit their highest rate since 2006, based on Cox Automotive data. (…)

• Auto loan debt is the third-largest debt category behind mortgages and student loans. Overall, Americans owe $1.52 trillion in auto loan debt, according to the Federal Reserve Bank of New York, accounting for 9.2% of American consumer debt.
• Borrowers with credit scores 661 and higher account for 66.0% of retail vehicle financing, according to Experian, versus 15.8% for subprime borrowers.
• Average auto loan amounts have steadily increased in the past decade, reaching $41,665 for new vehicles and $28,506 for used vehicles in the third quarter of 2022, according to Experian.

Pimco Is Saddled With a $1.7 Billion Default in Office-Market Meltdown Columbia Property Trust feels the fallout of rising interest rates

(…) The company suffered from the rise in borrowing costs and plateauing return-to-office rates in big cities, issues that are hammering many office owners. But Columbia also faced unusual circumstances, such as when Twitter Inc. stopped making rent payments in New York and San Francisco, say people familiar with the matter.

The default marks the latest sign that a meltdown is unfolding in the office market as more high-profile landlords default on debt or engage lenders in restructuring discussions. (…)

The U.S. return-to-office rate has increased slightly this year, but remains at about 50% of what it was before the pandemic started. (…)

TOPSY-CURVY

From Bloomberg’s Joe Weisenthal:

The 3M-2Y portion of the yield curve has almost totally un-inverted. This is in keeping with our new “higher for longer” and “no landing” times.

But what’s interesting is that while one curve un-inverts, another curve’s inversion gets deeper and deeper.

The 2Y-10Y spread is now at -90.4. That’s a level we haven’t seen since October 1981, more than 40 years ago. Of course, this is the part of the curve that for years people have generally talked about as having recession-predictive power. Now setting aside whether that’s true, or why it would be true, it’s arguably still flashing a deep red, perhaps signaling that ultimately the tightening the Fed will have to do to kill inflation will induce that recession after all.

Here’s the long-term relationship:

Combining both lines, we see the increasingly unstable situation. This “normally normalizes” with the 3-M falling fast as the economy weakens and the Fed eases. Unlikely at this point… What if long rates are the normalizing factor?

Bill White, former BIS chief economist,  William White in a recent The Market interview:

(…) the important point is that we should have higher real interest rates than in the recent past. But to get real rates up, nominal rates need to go up even more than the rate of inflation. The question is whether central banks will allow that to happen or not.

What I see lying ahead are two impediments to central banks being willing to allow rates to move up the amount that they should: The potential for financial system instability and the potential for fiscal instability.

On the financial instability side, there are just so many indicators that tell us that the system is fragile. We’ve had ultra easy money for decades, which in a nutshell has encouraged people to take out debt to do dumb things. If you look at aggregate debt numbers of corporates, households and governments, debt ratios have been going up and up and up.

As per the Institute of International Finance, total debt to world GDP was 250% in 2008, and then it went to about 320% just before the pandemic, and subsequently peaked at about 360%. These are numbers that we have never seen before in peacetime.

On top of this, there has been a decade-long deterioration of the quality of this debt. Closely related, a fascinating recent study by the McKinsey Global Institute showed that up until about the year 2000, broad measures of wealth basically tracked income or GDP. But since then, there’s been a huge discrepancy, with wealth rising much faster than GDP.

But if the production hasn’t gone up, while the wealth has, the conclusion you can come to is that it’s not really wealth. It was merely a rise in the prices measuring that wealth. I wrote a rather prescient paper about this, at the BIS in 2006, called «Real Wealth, Measured Wealth and the Illusion of Saving».

Tech Relative Strength Still Negative

(Bespoke)

A CENTURY OF IMPACT TIME revisits 100 years of making history—through the eyes of the people who lived it

Sharp Rebound in Core Capex Orders and Shipments

New orders for durable goods decreased 4.5% MoM, driven by a $15.0bn decrease in new orders for nondefense aircraft. Durable goods ex-transport (+0.7%), core capital goods orders (+0.8%), and core capital goods shipments (+1.1%) all increased in January.

Is this a reacceleration, or just a better month (weather, seasonal adjustments?) within a pretty bad trend (flat in the last 5 months)?

Pending Home Sales Improved for Second Straight Month, Up 8.1% in January

The Pending Home Sales Index (PHSI) — a forward-looking indicator of home sales based on contract signings — improved 8.1% to 82.5 in January. Year-over-year, pending transactions dropped by 24.1%.

The FOMC is primarily focused on the non-housing core services PCE inflation, which registered its biggest monthly increase in over a year.

Source: Normura Securities (via The Daily Shot)

Other CPI surprises. European bond yields climbed as investors digested hotter-than-expected inflation prints in France and Spain. Traders cranked up wagers for the ECB deposit rate to hit 4% for the first time, sending the yield on two-year German debt to the highest since 2008. (Bloomberg)

Disability employment hits record high

Here’s a segment of the U.S. population that did not leave the labor force:

Data: Bureau of Labor Statistics; Chart: Axios Visuals

That’s 1M additional workers:

Subprime Auto Lender American Car Center Closes for Business

American Car Center told employees the business was closing its doors, a day after it pulled a $222 million bond sale from the market, according to people familiar with the matter.

The used car retailer, which tends to target consumers regardless of their credit history, said in an email to employees on Friday the firm was ceasing all operations, closing its headquarters in Memphis, Tennessee, and that all employees would be terminated by the end of the business day, the people said. The headquarters has about 288 people. (…)

The shutdown comes as more Americans are starting to fall behind on their car payments, and the distress cycle is rapidly accelerating. (…)

• Used car wholesale auction prices have jumped 7½% [in the last 2 months], reflecting a combination of temporary disruptions to new car production and a more persistent drag on used car supply. (GS)

The subprime market is imploding with rising inflation and interest rates.

(ZeroHedge)

Delinquencies on credit cards are at record levels at smaller banks.

CNBC reported Wednesday that Google has instructed employees and contractors within its cloud division to share desk space and alternate in-office workdays to improve “real estate efficiency.” That move will impact staffers in Google’s five largest corporate locations, including New York, San Francisco and Seattle. (ADG)

Apple Suppliers Are Racing to Exit China, AirPods Maker Says

(…) Behind the scenes, 9 out of 10 of Apple’s most important suppliers may be preparing large-scale moves to countries like India, which is dangling incentives to drive Narendra Modi’s Make in India initiative. Bloomberg Intelligence estimates it could take eight years to move just 10% of Apple’s capacity outside of China.

The GoerTek executive argues it’ll be far quicker.

Most Chinese tech manufacturers are experiencing the same pressure. “I would say currently 90% of them, they’re looking at that,” he added. “It’s the brand companies’ decisions.” (…)

“There will be blood”… : The SPAC Fad Is Ending in a Pile of Bankruptcies and Fire Sales