BLACK FRIDAY SALE AT EDGE AND ODDS

I receive so many Black Friday discount offers from content providers, I feel bad not doing the same for my readers. So here it is:

All new or past donators will now have free access to Edge and Odds and be allowed to double their donation, free of charge, yearly!

Readers who subscribe to the Daily Edge will receive it daily in their mailbox, free of charge!

That’s nearly 250 deliveries per year! There surely is something useful once in a while.

And readers who recommend Edge and Odds to a friend will see their subscription extended indefinitely.

That could be 2500 Daily Edges, maybe even more…who knows? It’s been 14 years already.

I know, not that big a deal, but that’s all I can do

What’s a big deal to me is readers supporting the blog with donations. Lately, I have been very bad at taking the time to thank them personally.

Please forgive me Constantin Z., Richard B., Robert K., Joseph T., Joshua F., Jasec, Donald M., David M., Massimo B., Lawrence M., Stephen C.. I hope I forgot nobody. You are truly helping this blog survive during this not so transitory inflation period.

Happy Thanksgiving all!

FLASH PMIs

Eurozone economic contraction eases in November, price pressures cool

The seasonally adjusted S&P Global Eurozone PMI® Composite Output Index rose from 47.3 in October to 47.8 in November, according to the preliminary ‘flash’ reading based on approximately 85% of usual survey responses. The PMI has now registered below the neutral 50.0 level, indicating falling business activity levels, for five consecutive months, albeit with the latest data signalling a moderation in the rate of contraction. Nevertheless, the PMI data for the fourth quarter so far put the eurozone economy on course for its steepest quarterly contraction since late-2012, excluding pandemic lockdown months. Manufacturing continued to lead the downturn, with factory output dropping for a sixth successive month. Although the rate of production decline eased, the latest fall was still the second-strongest recorded over the past decade if the height of the pandemic is excluded. Service sector output also fell, down for a fourth consecutive month, contracting at an unchanged rate compared to October. However, such a rate of decline had not been witnessed outside of pandemic lockdowns since June 2013. Within the euro area, Germany again reported the steepest downturn, the composite PMI at 46.4 to register a fifth monthly drop in output in as many months. Although the latest decline was the weakest since August, it was still the third largest since 2009 barring pandemic lockdowns. While Germany’s manufacturing and service sectors both suffered similarly steep rates of contraction, the former saw a marked cooling in the rate of decline. Output meanwhile fell in France, the composite PMI registering 48.8 to signal the first drop in business activity since February 2021. Service sector output contracted for the first time since March 2021 and manufacturing output fell for a sixth straight month, albeit the rate of decline moderating to the slowest since August. Output fell in the rest of the eurozone for a third month in a row, albeit with November’s decline being the smallest seen over this sequence. A marginal return to growth in the service sector contrasted with a steepening fall in factory production, which fell at a rate not seen since March 2013 barring pandemic lockdown months. By sector, any growth was confined to industrial and software services, media and pharmaceuticals & biotech firms. The steepest downturn was again seen in chemical & plastics, with notably steep declines also recorded for basic resources (linked in part to high energy costs). Especially marked falls also continued to be seen for real estate, transportation, tourism & recreation and autos. New orders for goods and services meanwhile fell for a fifth month running to signal a further marked drop in demand. Although the rate of loss eased from October, the drop in orders was the second-largest seen in the past two years. While new orders fell at a reduced rate in manufacturing, the rate of loss intensified slightly in services. The drop in new orders meant companies were again reliant on existing backlogs of work to help maintain business activity levels, causing backlogs of orders to fall for a fifth consecutive month, dropping at the sharpest rate for two years. A particularly sharp decline was again recorded in manufacturing, but backlogs of work also showed a renewed decline in services. The deteriorating order book situation led to a growing reluctance to add to workforce numbers, resulting in the smallest monthly increase in employment since March 2021. The hiring slowdown was led by the service sector, though factory payroll growth also remained subdued. By country, jobs growth picked up in Germany but deteriorated in France. One positive consequence of weaker demand was a marked reduction in supply chain delays as input buying fell sharply again. Average supplier delivery times faced by eurozone factories lengthened to the least extent since August 2020. Factories in Germany even reported the first improvement in supplier performance since July 2020. In addition to facilitating higher production in some cases, the improving supply situation – combined with weakened demand – took further pressure off prices. Average input prices paid by manufacturers rose at a markedly reduced rate as a result, showing the smallest monthly gain since December 2020. Service sector input cost inflation also moderated, down to the second-lowest in the past nine months. Measured across both sectors, input cost inflation cooled to the lowest since September 2021, albeit remaining elevated by historical standards thanks principally to high energy costs. Average prices charged for goods and services also rose at a reduced rate, albeit likewise continuing to climb sharply, the rate of inflation cooling for a second month in a row to register the smallest increase since August. Rates of selling price inflation eased in both manufacturing and services, most notably to a 20-month low in the former. Finally, business expectations for the year ahead remained subdued, improving slightly for a second successive month but still running at the third-lowest since the early pandemic lockdowns. Confidence continued to be stymied by concerns over the growth outlook, the rising cost of living and the energy crisis, in turn linked to the Ukraine war, as well as rising interest rates. Pessimism about the year ahead nevertheless eased considerably in manufacturing compared to the historically gloomy levels seen in September and October, linked to hopes of fewer energy-led constraints and improving component supply chains, while optimism improved slightly in the service sector to suggest that the overall degree of concern about the outlook has peaked for now. By country, a less gloomy picture in Germany contrasted with a less positive, yet still optimistic, view of the year ahead in France. Greater optimism was meanwhile seen in the rest of the region. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence: “A further fall in business activity in November adds to the chances of the eurozone economy slipping into recession. So far, the data for the fourth quarter are consistent with GDP contracting at a quarterly rate of just over 0.2%. (…)” Sharpest fall in new orders since January 2021 as cost of living pressures continue to hit the UK economy

(…) Companies reporting a downturn in business activity typically cited cutbacks to non-essential client spending in response to rising costs and weaker economic conditions. Overall volumes of new work decreased for the fourth month in a row and the rate of decline accelerated to its fastest since January 2021. Survey respondents often commented on subdued business and consumer confidence, alongside softer customer demand due to cost of living pressures and rising interest rates.

Lower volumes of new business from abroad contributed to the deterioration in order books during November, especially in the manufacturing sector. Latest data pointed to the steepest fall in export sales among manufacturing companies since May 2020. (…)

Strong input cost pressures continued in November and the overall rate of inflation eased only slight since October. This was mostly driven by surging energy bills and higher wages, alongside rising import prices due to exchange rate depreciation against the US dollar. Service sector businesses signalled a much steeper rate of input cost inflation than manufacturing firms. Prices charged by UK private sector companies meanwhile increased at the slowest pace since August 2021, which a number of survey respondents attributed to weaker customer demand and greater competitive pressures. (…)

  

• BoF Retail Survey Reveals That Sales Weaken Further

The Bank of France retail survey fell by 3.7% in October showing a significant decline in sales volumes in the month. The decline interrupts a two-month string of sales volumes rising as volumes rose by 0.2% in August and by 2.5% in September.

Across the seven product categories for the month, all of them decline in addition to a decline in all industrial goods sales volume and then overall volume. October was a bad month for French consumers. Food purchases fell by 3.3% in October following declines in three of the four most recent months. Industrial goods sales volumes declined 3.9%, which is only their first to decline in the last three months but the third decline in the last five months.

Among other selected nonfood categories, textile sales volumes fell by 6.1% in October, footwear sales volumes fell by 8.2%, furniture volumes fell by 2.9%, household appliances saw sales volumes fall by 2.5%, electronics volumes fell by 7%, and new auto purchases fell by 9%. The declines across the various categories are relatively large declines for a single month. (…)

German inflation to stay in double digits despite gas price brake, Bundesbank says

Canada Economy Quickens, Upending Forecasts for Tepid Growth

Statistics Canada released advance estimates on Tuesday for retail that showed sales rising 1.5% in October. Separately, the agency said wholesale activity rose 1.3% during the month, while factory sales were up 2%. The agency provided few details, however, and it’s not clear how much rising prices were driving the gains. (…)

The 1.5% increase in retail sales would be the largest since May and followed a small drop in retail sales of 0.5% in September. A big part of the rebound last month may reflect rising gasoline prices, though the statistics agency didn’t provide details of what drove the October number. Retail sales likely benefited from a 9.2% rise in prices for gasoline. (…)

Retail sales were down 1% in the third quarter, or 1.4% in volume terms, Statistics Canada said.

Scholz Pledges to End Germany’s Over-Reliance on China, Russia

Xiaomi’s Revenue Dives 10% After Smartphone Demand Tanks Sales of mobile devices fell 11%, leading declines across business divisions encompassing smart electronics and internet services.

• Apple iPhone factory workers clash with police in China

China backs 2 stronger property companies with $16.8bn credit line

@Sino_Market

China Property Developers Outlook 2023 (Fitch)

(…) We expect no material improvement in the operating environment, as homebuyers’ confidence remains fragile amid weak economic prospects and uncertainty surrounding delivery of pre-sold properties. Fitch expects a 0%-5% year-on-year decline in annual contracted sales, underscoring our deteriorating sector outlook.

We believe national home prices will be under moderate pressure across most cities. However, transactions tilting towards higher-tier cities – which typically have higher prices – will alter the primary property sales mix, resulting in broadly stable primary-property average selling price data.

We expect the government to take further steps to stabilise the sector. However, policies aimed at supporting home demand will remain measured and selective, as the government avoids policies that could lead to home-price reflation. The direction of the ‘”zero-Covid” policy and timely delivery of pre-sold homes are also key factors to homebuyers’ sentiment. Effective implementation of recently announced measures to support private developers is also important for liquidity.

China Buys Fewer Chip-Making Machines as US Restrictions Start

China’s purchases of machines to make computer chips fell 27% last month from a year earlier as the US imposed new, sweeping sanctions to try and derail the country’s chip ambitions. (…)

Purchases from major exporters such as Japan and the US were down in October, according to Bloomberg analysis of official trade data released Monday. Shipments from the Netherlands doubled in the month. That is where ASML Holding NV, the leading producer of chip-making equipment, is headquartered. (…)

The new US restrictions only apply to US firms at the moment, and while President Joe Biden’s administration is negotiating with Japan and the Netherlands to try and convince them to limit what can be sold to Chinese firms, Washington doesn’t expect they will agree soon. (…)

It may also be hard for China to try and ramp up purchases of these goods from non-US suppliers anytime soon. Tokyo Electron Ltd said recently it’s operating at near-full capacity, with months-long wait times for equipment delivery.

Credit Suisse Warns of $1.6 Billion Loss After Clients Pull Money The customer outflows come at a precarious time for the bank, which weeks ago launched a sweeping overhaul of its operations.

Switzerland’s No. 2 bank by assets said outflows were around 6% of its total $1.47 trillion assets, or around $88.3 billion, between Sept. 30 and Nov. 11. Customers in its wealth-management arm—its main business serving the world’s rich—removed $66.7 billion from the bank. Credit Suisse in late October said a social-media frenzy around its health was causing large outflows.

The fast pace of withdrawals meant the bank’s liquidity fell below some local-level requirements, the bank said. It said it maintained its required group-level liquidity and funding ratios at all times. Banks must keep enough liquid assets on hand to meet expected cash outflows in a 30-day period, under post-financial-crisis-era rules. (…)

In all, more than $100 billion has left the bank since June, according to Credit Suisse’s filings. It said client balances have stabilized in its Swiss bank and that the outflows have slowed in wealth management, but haven’t reversed. (…)

JPM clients responding to whether they will increase or decrease equity exposure. The question is will they do as they say, especially if FOMO kicks in? (The Market Ear)

JPM

Sequoia Capital Regrets Backing FTX But Defends Vetting Process

(…) Sequoia told its investors that when it initially backed FTX in July 2021, it had reviewed unaudited statements, the person said. In response to a question about audited versus unaudited statements, one of the partners suggested the firm might push its startups to use Big Four accounting firms in the future.

Chicago Fed National Activity Index Turns Negative in October

The Federal Reserve Bank of Chicago reported that the Chicago Fed National Activity Index (CFNAI) fell to -0.05 in October after rising to 0.17 in September, revised from no change. The August reading of 0.14 was revised from 0.10.

The index’s three-month moving average fell to 0.09 in October after rising to 0.19 in September. The figure remained down from a recent high of 0.48 in December, 2021. During the last 10 years, there has been an 85% correlation between the change in the Chicago Fed Index and quarterly growth in real GDP.

(Advisor Perspectives)

US Sales Managers see continued pricing power

The most negative aspect of the November data is without doubt the Prices Index, which increased from the October reading of 56 to 56.6 in November, indicating the continuing presence of significant price inflation in producer markets generally. Price inflation has very not yet been vanquished.

(World Economics)

NY Fed’s Services Business Leaders Survey

Activity continued to decline in the region’s service sector, according to firms responding to the Federal Reserve Bank of New York’s November 2022 Business Leaders Survey. The survey’s headline business activity index moved up four points but remained below zero at -11.8, its third negative reading in the past four months. The business climate index edged down to -43.6.

Despite the decline in activity, employment continued to expand. The wages index, while elevated, fell to its lowest level in more than a year, pointing to a slowing of wage growth.

The pace of input price increases was little changed, while the pace of selling price increases slowed somewhat.

Looking ahead, firms grew more pessimistic about the six-month outlook.

• NY Fed’s Supplementary questions in the November 2022 Business Leaders Survey and Empire State Manufacturing Survey focused on expected changes in firms’ workforces, factors underlying the changes, and recent trends in wages. Similar but not identical questions were asked in the November 2021 and earlier surveys.

Fewer firms currently need more employees:

They are hoarding employees:

Attracting new employees requires increased compensation:

Which triggers higher comp for existing employees:

Railroad Unions Split Over Labor Contract Members of the conductors union narrowly voted to reject a new wage deal brokered by the White House, while the engineers union narrowly ratified the deal.

(…) Four out of 12 unions have now rejected the proposed contract, while the other eight have ratified the deal. Both sides have agreed to a cooling-off period until early December.

Members of the SMART Transportation Division, which represents about 36,000 rail workers, narrowly rejected the contract proposal, while the Brotherhood of Locomotive Engineers and Trainmen, which has 24,000 members, narrowly ratified it. The groups were the final two unions reporting the ratification of votes in the protracted labor dispute.

Leaders of SMART-TD said they would head back to the negotiating table with the railroads for a revised deal with a Dec. 8 deadline. Without another agreement, workers will be allowed to strike on Dec. 9. (…)

The five-year agreement, which replaces a contract that lapsed, offers railroad workers a 24% increase in wages from 2020 through 2024. It allows for one additional paid day off, on top of existing vacation and paid time off. (…)

• Germany’s IG Metall union agreed to pay increases of 5.2% starting in June 2023, and a further 3.3% in May 2024 for workers in the metals and electronics industries. In addition, employees are to receive EUR 1,500 one-off post-tax payments in each of February 2023 and 2024. The contract runs until September 30, 2024, and compares to the union’s demand of pay increases of between 7-8% over one year for nearly 3.7 million employees. While this settlement is only valid for the state of Baden Wurttemberg, IG Metall’s other six districts have indicated that they want to adopt the settlement in due course.
• In a seperate agreement, verdi union agreed to a pay increase of 6% for union members of RWE (18,000 employees) from February 2023, plus two one-off payments of EUR 1,500 each. The agreement runs from for 13 months from February 2023.
• Taken together, we view these settlements as upside risks to our Euro area wage projection of 4.8% in 2023. While the settlements are below the current rate of inflation, they are above the wage inflation rate of about 3% per year that we see as consistent with the ECB’s 2% inflation target. The ratio of settlements to demands has also increased from its historical average of about 50%, suggesting increased employee bargaining power. (Goldman Sachs)

OPEC+ Eyes Output Boost Ahead of Russian-Oil Limits The move could help heal a rift with the Biden administration and keep energy flowing amid new attempts to blunt Russia’s oil industry over the Ukraine war.

A production increase of up to 500,000 barrels a day is now under discussion for OPEC+’s Dec. 4 meeting, delegates said. The move would come a day before the European Union is set to impose an embargo on Russian oil and the Group of Seven wealthy nations’ plans to launch a price cap on Russian crude sales, potentially taking Moscow’s petroleum supplies off the market.

After The Wall Street Journal and other news organizations reported on the discussions Monday, Saudi energy minister Prince Abdulaziz bin Salman denied the reports and said a production cut was possible instead.

Any output increase would mark a partial reversal of a controversial decision last month to cut production by 2 million barrels a day at the most recent meeting of the Organization of the Petroleum Exporting Countries and their Russia-led allies, a group known collectively as OPEC+. (…)

Talk of a production increase has emerged after the Biden administration told a federal court judge that Saudi Crown Prince Mohammed bin Salman should have sovereign immunity from a U.S. federal lawsuit related to the brutal killing of Saudi journalist Jamal Khashoggi. The immunity decision amounted to a concession to Prince Mohammed, bolstering his standing as the kingdom’s de facto ruler after the Biden administration tried for months to isolate him. (…)

Russia has said it wouldn’t sell oil to any country participating in the price cap, potentially resulting in another effective production cut from Moscow—one of the world’s top three oil producers. (…)

OPEC members have signaled to Western countries that they would step up if Russian output fell.

Talk of a production increase sets up a potential fight between OPEC+’s two heavyweight producers, Saudi Arabia and Russia. The countries have an oil-production alliance that industry officials in both nations have described as a marriage of convenience, and they have clashed before.

Saudi officials have been adamant that their decision to cut production last month wasn’t designed to support Russia’s war in Ukraine. Instead, they say, the cut was intended to get ahead of flagging demand for oil caused by a global economy showing signs of slowing down.

Raising oil production ahead of the price cap and EU embargo could give the Saudis another argument that they are acting in their own interests, and not Russia’s.

Another factor driving discussion around raising output: Two big OPEC members, Iraq and the United Arab Emirates, want to pump more oil, OPEC delegates said. Both countries are pushing the oil-producing group to allow them a higher daily-production ceiling, delegates said, a change that, if granted, could account for more oil production. (…)

• China lockdowns reach record level as coronavirus cases spiral

U.S. and Chinese Defense Chiefs Meet in Reflection of Easing Tensions The bilateral meeting in Cambodia follows a summit between President Biden and Xi Jinping this month

(…) The meeting suggested that leaders of the world’s two largest economies are engaging again after several months of deep freeze between Washington and Beijing. (…)

On Saturday, Vice President Kamala Harris met with Mr. Xi at another summit in the Thai capital of Bangkok. There, Mr. Xi described his meeting with Mr. Biden as “strategic and constructive,” adding that he hoped the two countries could reduce misunderstanding, according to China’s Foreign Ministry. Ms. Harris said the U.S. didn’t seek confrontation and that both sides should cooperate on global issues, the statement said. (…)

Earlier this month, Mr. Xi approved the dispatching of a delegation of senior policy advisers and business executives to New York to meet with a group of former top U.S. officials. (…)