U.S. Small Business Optimism Nears Two-Year High
The National Federation of Independent Business reported that its Small Business Optimism Index jumped 3.7% during November (4.1% y/y) to 98.4. It was the strongest level of optimism since December 2014.
A strengthened 12% of firms reported they were expecting the economy to improve, also the most since December 2014. Another area of strength was that 11 percent expected higher real sales in six months, up from one percent in October. Fifteen percent of firms expected to increase employment, the most since December of this year.
Also on the labor front, a sharply increased 52% of firms indicated they had few or no qualified candidates to fill job openings. That was the most since October 1999. Thirty one of firms indicated they had positions they were unable to fill right now, up from 9% during all of 2009. Despite hiring difficulty, a lessened 21% percent of firms were raising worker compensation. That’s down from 25% in October, and below January’s 27% high. A lessened 15% were planning to raise worker compensation, below December’s 21% high.
An the price inflation front, an increased 5% of firms were raising average selling prices, the most since January of last year. Expectations for pricing also remained strong as 19% planned to raise prices, the most since December.
U.S. Crude Oil and Natural Gas Prices Surge
(…) Natural gas prices increased to $3.70/mmbtu last week, and have nearly doubled y/y. It was the highest level since November 2014. Prices eased to $3.57 yesterday.
Regular gasoline prices increased to $2.24 per gallon (9.8% y/y) last week, the highest level since late October. Prices remained down versus a 2014 high of $3.71 per gallon. Haver Analytics constructs factors adjusting for the seasonal variation in these pump prices. The adjusted price rose last week to $2.46 per gallon, and prices have firmed substantially since mid-year.
Last week, gasoline demand declined 1.2% y/y, while demand for all petroleum products fell 1.0% y/y.
This plus rising interest rates won’t help that:
- US subprime auto loans seem to be trending in the wrong direction. It’s not a major problem yet but something to keep an eye on. (The Daily Shot)
OPEC points to larger 2017 oil surplus, unless cuts implemented
OPEC Says Supply Cuts Won’t Re-Balance Market Until Second Half
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Oil Markets’ New Threat: Demand Even as oil has rallied following OPEC’s agreement to cut supply, demand next year could increase at its slowest pace since 2014.
(…) Emerging giants such as China aren’t increasing their demand for oil at the speed they once were. Analysts also expect higher U.S. interest rates to hit emerging market demand. Higher U.S. rates have historically hit crude consumption there.
The recent run-up in oil prices may also be self-defeating, as the extra expense curbs consumption. (…)
The International Energy Agency, a top energy watchdog, said Tuesday that global oil demand next year would rise by 1.3 million barrels a day, down from 1.4 million this year and 1.9 million in 2015.
Even that is too rosy a prediction for some institutions. OPEC itself forecasts oil demand will grow by 1.15 million barrels a day next year. Citigroup pegs demand growth at 1.1 million barrels a day. (…)
Michal Meidan, Asia analyst at consultancy Energy Aspects, estimates that China deposited about 120 million barrels in the SPR this year, a number that he believes could fall to 80 million barrels in 2017. (…)
THE TRUMP PLAN
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Trump’s Pledge to Loosen Regulations on Businesses Is a Heavy Lift The president-elect has a handful of ways to reach his goal, but they mostly point to a slow death of attrition for Obama rules rather than immediate elimination.
President-elect Donald Trump’s promise to eliminate regulations on U.S. businesses will likely take years to fulfill given the complex steps involved in reversing them and political and legal challenges from Democratic lawmakers and state attorneys general. (…)
In some cases, replacing rules will be as arduous as making them in the first place, particularly in the financial sector where some regulations have been issued by multiple agencies. The Volcker rule, which bans banks from making hedge-fund-like wagers, was adopted by five financial regulatory agencies. All five agencies would need to agree to changes for them to apply broadly. (…)
Eight years ago the incoming Obama team pledged to review rules from the George W. Bush administration, including many so-called “midnight regulations” that were pushed through as Mr. Bush was preparing to leave office.
But of the more than 4,500 proposed or final regulatory actions cleared by the Bush White House, Mr. Obama repealed just 74 in his first nine months in office, when rules are most-often revisited, according to a 2009 presentation by a former official of the White House Office of Management and Budget. Of those, only 34 were final rules. (…)
Some rules will be particularly difficult to undo. The Federal Reserve has issued a litany of regulations impacting large banks, such as annual “stress tests” of banks’ resilience. Those rules took the Fed years to draft, and could in turn take years to revise. (…)
Mr. Trump’s team also wouldn’t be able to do away with certain rules because they are baked into existing law. The 2010 Dodd-Frank law requires a litany of financial rules, including stress tests at banks with more than $50 billion in assets and restrictions on executive compensation. (…)
(…) While there may be some relaxation of the Volcker rule, which curbs banks’ trading with their own money, lenders don’t want to go back to the pre-crisis state, Flint said in a Bloomberg Television interview with Francine Lacqua. Even if the U.S. rules soften, Europe probably wouldn’t follow, he said.
“Our biggest risk is our own industry, so you don’t want a part of the world where people are able to do things with much less capital than is economically advisable because we are all exposed to each other,” said Flint, 61. “Light-touch regulation and competing to see who can have the lowest standards is a really, really bad form of banking.” (…)
(…) J.P. Morgan’s Jamie Dimon and Lloyd Blankfein of Goldman Sachs have urged against repeal, and other bank CEOs are also suggesting policy small-ball rather than wholesale reform. Mr. Blankfein, who will have former colleagues as senior policy makers in the Trump Administration, in particular is in a position to encourage significant change.
But last year he explained why that’s not necessarily in Goldman’s interest. After describing how regulatory costs have helped raise the barriers to entry in his business “higher than at any other time in modern history,” Mr. Blankfein forecast more opportunities for global giants like Goldman to gain market share, as “only a handful of players” will likely be able “to effectively compete on a global basis.”
Last week the presidents of four trade associations representing banks and credit unions also urged deregulatory restraint in a letter to Senate leaders regarding Dodd-Frank’s Consumer Financial Protection Bureau. (…)
But what’s also interesting is that the letter writers include the leaders of outfits like the Independent Community Bankers of America, which represents many of the smallest banks.
Small banks often complain—with good reason—about their regulatory burden, and they want relief from various bureau rule-makings. But perhaps they understand that regulation can also be a useful weapon against finance companies and tech start-ups operating outside of traditional banking.
All of this vindicates what students of Washington have long understood as regulatory capture. More than 45 years ago, George Stigler wrote that “as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit.”
He went on to win a Nobel Prize in economics, but it may take liberal activists another half century to understand that federal agencies inevitably end up serving the businesses they are supposed to oversee. Incumbent firms learn how to navigate complex rules and this gives them an advantage over new competitors. If Americans want financial reform that allows for more innovation, competition and growth, they shouldn’t expect help from Wall Street.
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Investors make record bet on banks in Trump euphoria Shareholders have record overweight position in lenders, according to new survey
The allocation that investors made to bank stocks this month climbed to a weighting of 31 per cent above their benchmarks, up from 25 per cent in November, as portfolio managers anticipate that higher interest rates will bolster banks’ bottom lines, a survey from Bank of America Merrill Lynch showed on Tuesday. (…)
While money managers have invested their greatest hopes in banks, the BofA survey also showed that expectations about corporate profits are now at their rosiest for almost seven years. (…)
The survey questioned more than 200 investors in the first week of December. Collectively they manage almost $600bn.
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Trump Vows to Boost Drilling and Fracking Foes Turn to Courts
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Republicans face corporate tax rebellion Opponents from apparel makers to big retailers unite against a plan to penalise US importers
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Trump’s plans threatened by strong dollar conundrum
America’s growing strong dollar conundrum poses a threat to Mr Trump’s vows to slash the trade deficit. Some leading analysts fear the elevated currency could prompt the incoming administration to lash out with protectionist measures as it attempts to prove it is fighting for US exporters’ interests, with China the likely focal point of early clashes. (…)
[William Cline, a senior fellow at the Peterson Institute for International Economics] estimates in a new research report that as of mid-November the dollar was overvalued by roughly 11 per cent, and argues that fiscal stimulus and associated interest rate increases risk yet further increases in the dollar. The US current account deficit is on track to widen from 2.7 per cent of gross domestic product this year to nearly 4 per cent by 2021. (…)
The US can weather currency strength much better than many other major economies because of the relatively small role exports play in the economy. But that does not change the fact that a strong dollar would make Mr Trump’s stated goal of attracting manufacturing jobs back to the US more difficult and hurt US competitiveness. (…)
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China warns of anti-monopoly penalty for US carmaker Analysts say threat is response to president-elect Trump’s stance on Taiwan
S&P 50-Day Moving Average Spread Approaches +5%
(Bespoke)
Record Share and Bond Prices Aren’t Enough to Stem Pension Woes
Corporate pensions were left with a $414 billion funding deficit in November, $10 billion larger than it was at the end of last year, according to Mercer Investment Consulting. (…)
Companies must reallocate cash typically used for other purposes to close pension funding gaps. General Motors Co., International Paper Co. and CSX Corp. all have borrowed money this year to pump funds into their pension plans. S&P 1500 businesses have contributed $550 billion into their pension plans between 2008 and Nov. 30 of this year, according to Mercer. Even with those contributions, their funded status was 81.3% as of Nov. 30.
Although pension-funding levels fluctuate during the year, most companies lock in their pension obligations at the end of the year for accounting purposes.