IRS Refunds Drop, Potentially Delaying Consumer Spending
Federal tax refunds through early February dropped 78% compared with last year, thanks largely to a law requiring the Internal Revenue Service to delay checks to households claiming certain tax credits.
Refunds paid through Feb. 3 were $13.2 billion, down from $58.6 billion through Feb. 5, 2016. The average refund also declined, to $1,994 from $3,385. (…)
China’s Exports Rebound Sharply as Global Demand Grows Chinese exports grew much faster than expected in January on rising global demand, producing the highest monthly trade surplus in nearly half a year.
Exports jumped 7.9% in January from a year earlier, reversing December’s 6.1% decline, the General Administration of Customs said Friday. This compared with a median forecast of 3.1% growth from 11 economists polled by The Wall Street Journal.
Imports in January also surged by a greater-than-expected 16.7% from a year earlier, compared with 3.1% growth in December. China’s trade surplus widened in January to $51.35 billion, its highest level since August, from $40.82 billion in December. (…)
Economists attributed last month’s export turnaround in China—its first monthly increase since March 2016—to stronger global demand, led by the U.S., and to rising inflation, which tends to boost exports in value terms. (…)
China’s January imports, meanwhile, picked up on higher commodity prices, restocking of inventory and a favorable comparison with weak January 2016 data, economists said. But they also cautioned against reading too much into the monthly figures given the usual volatility around the floating Lunar New Year holiday, which started in late January this year, when factories close for several days and workers return home to celebrate.
The China Daily has the data in volume, not in value. But note the very low base last year:
China’s yuan-denominated exports rose 15.9 percent year on year in January, up from 0.6 percent in December, while imports increased 25.2 percent, up from 10.8 percent, customs data showed Friday.
Foreign trade volume reached 2.18 trillion yuan ($3,141.66 billion) in January, up 19.6 percent year on year. (…)
In the same period, foreign trade with the United States, China’s second-biggest trade partner, rose 21.9 percent, and that with ASEAN, its third-largest trade partner, increased 18.8 percent. (…)
Trump Commits to ‘One China’ Policy in Call With Xi Jinping In a call with Chinese President Xi Jinping, Donald Trump affirmed the “One China” policy that has long underpinned Sino-U.S. relations, a declaration that appeared aimed at ending weeks of uncertainty.
(…) The White House said the pair had a lengthy, “extremely cordial” call in which Mr. Trump agreed to honor the policy “at the request of President Xi.” Before his inauguration, Mr. Trump had indicated he planned to use the policy as a bargaining chip in broader negotiations with Beijing on economic and security issues. (…)
Mr. Xi said China was willing to strengthen cooperation with the U.S. on a number of areas, including trade and investment, according to Xinhua. It said Mr. Xi “appreciated” that Mr. Trump had stressed the U.S. government’s adherence to the One China policy. (…)
The risk of rising inflation monitored by EU Sector PMI data
Inflation is currently impacting the manufacturing sector more than services. Looking at the PMI Input Prices Indices for goods producers worldwide, the trend appears to be global, although it seems that the European Union is experiencing even stronger cost inflationary pressures. Whereas the global Input Prices Index was at 61.9 in January, its highest level for over five-and-a-half years, the EU Input Prices Index was at 69.0 (also the highest since May 2011).
Manufacturing cost inflation
Companies are transferring rising costs
The Output Prices Index for the consumer goods sector has signalled rising selling prices in every month since June 2016 as firms pass on higher costs to customers, with the index at its highest level since September 2011 in January. (…)
EU Consumer Goods: output prices
In the case of the consumer goods sector, there was a broad-based accumulation of post-production inventories in November 2016 and again in January, with the Stocks of Finished Goods Index for the food sub-sector at a ten-month high of 52.8 in January. This seems to reveal a change in the sales environment compared to the third quarter of 2016, when companies were indicating a solid pace of destocking. Rising inventories has the potential to weigh on future output as companies seek to control their levels of working capital.
There has been no significant drop in new work for any of the consumer goods sub-sectors in the eight months since June 2016. However, the New Orders Index fell to a three-month low in January, reflecting stagnation in food and beverages new orders. The main factor supporting ongoing solid growth in new work was resilience in the automobiles & auto parts sub-sector. This sub-sector was among the strongest performers in January.
EU consumer goods: new orders
The signs of potential negative impacts from rising inflation on demand have so far been minor and there’s little to suggest they will intensify in the short-term.
Foreigners Dump Debt, Offering Up a Test for Rates Foreign buyers, led by China, are taking a smaller slice of the debt issued by the U.S. and other major economies, a change that may test the long-held belief that overseas money has kept interest rates low in the developed world.
(…) Foreigners are steadily pulling back: As of November, for the first time since 2009, less than 30% of the $20 trillion market for U.S. government debt was held overseas, according to the latest official data, released in January, from the Treasury Department and Federal Reserve. In the U.K., it is now 27%, compared with a record of 36% in 2008. In Germany, it is 49%, down from a peak of 57% in 2014.
The consequences from this shift are uncertain. Strong demand helps push up prices, and lower yields, of government bonds, at least in the short term. And buyers such as the Chinese state have been ravenous sources of demand. Between 2000 and 2014, Chinese authorities built up a $4 trillion currency reserve, mainly through buying Treasurys to keep the yuan weak and help the country’s exporters. In January, its reserves fell below $3 trillion, the lowest level in almost six years. China is now trying to boost its currency, and its Treasury holdings fell by about $200 billion between May and November. (…)
China’s currency reserves fell by $1T last year. In just the last 2 months, the drop has reached $1.3T annualized. China seems caught up in a virtuous circle..
IEA Says OPEC Reaches Record Compliance With Agreed Cuts OPEC has largely respected its pledge to reduce crude output, according to the International Energy Agency, though elevated oil supplies from Iraq and Libya have partly offset hefty cuts by the organization’s leader Saudi Arabia.
In its closely watched monthly report, the IEA, which advises industrialized nations on energy policies, said the cartel’s production fell to 32.06 million b/d in January, a decline of about 1 million barrels a day compared with OPEC’s October baseline and to last month.
Members bound by restrictions reached 90% of their commitments in January. By comparison, it took OPEC two months to reach about 80% back in 2009—the last time the group agreed to pull back its output. (…)
Saudi Arabia, Qatar and Angola cut more than they had pledged. The Kingdom—which is the world’s largest oil exporter—reduced its production by 560,000 b/d from the reference point of October, about 70,000 b/d above its targeted cut.
In contrast, Iraq complied to about half of its agreed cuts and Venezuela—which was first to campaign for an output cap—met just 18% of its targeted commitments. (…)
Production in Russia, which has committed to carry more than half of the reductions agreed by non-OPEC producers in a phased manner, fell by 100,000 b/d, one-third of its committed cuts.
Overall, global oil supplies plunged nearly 1.5 million b/d in January, the IEA said. (…)
If the January level of OPEC compliance is maintained, this would lead to draw of 0.6 million b/d, the agency said. But the organization’s current plan to cut output for only six-months won’t be enough to rebalance the market, the IEA said.
The current “stock draw is from a great height,” it said. “By the end of [the first half of 2017] they will remain significantly above average levels.” (…)
EARNINGS WATCH
- 353 companies (81.6% of the S&P 500’s market cap) have reported. Earnings are beating by 3.5% (3.0% ex-Fins) while revenues are surprising by 0.3%.
- Expectations are for revenue, earnings, and EPS growth of 4.3%, 6.3%, and 8.4%, respectively. (6.3% ex-Fin.)
- EPS is on pace for 9.0%, assuming the current beat rate for the remainder of the season. This would be 7.5% excluding the benefit of easy comps at AIG and GS.
Trump vows ‘phenomenal’ tax announcement, offers no details
U.S. President Donald Trump plans to announce the most ambitious tax reform plan since the Reagan era in the next few weeks, the White House said on Thursday, sending stock prices and the dollar higher on hopes for a cut in corporate tax rates.
In a White House meeting with airline executives, Trump promised a “phenomenal” tax plan, but offered no specifics other than citing the need to a lower tax burden on businesses.
“That’s coming along very well. We’re way ahead of schedule,” the president said. “We’re going to be announcing something I would say over the next two or three weeks that will be phenomenal in terms of tax and developing our aviation infrastructure.”
White House spokesman Sean Spicer later told reporters that Trump would unveil a comprehensive tax plan including tax cuts for individuals as well as businesses. (…)
Before Trump’s comments on Thursday, tax reform appeared to be losing momentum in Congress. (…)