THE DAILY EDGE (11 October 2016):

Did you miss yesterday’s Daily Edge? Laboring Labor. Oil. Earnings Watch.

Ford Shuts Mustang Factory for One Week After Sales Plunge 32%

(…) The idling may be a sign of the growing weakness of the U.S. auto market, which had been a leading driver of economic growth. Automakers’ monthly sales have been coming up short — though they beat expectations in September — and many analysts are now predicting the U.S. auto industry won’t match last year’s record of 17.5 million cars and light trucks. (…)

CHINA NOT IMPLODING

China’s economic growth has shown stronger signs of stabilising during the third quarter, reflecting a turnaround in the manufacturing sector. Services activity has maintained a moderate pace of expansion, providing stability to overall economic growth.

Although the Caixin China Composite Output Index – which tracks business activity in the combined manufacturing and service sectors – showed that output growth lost slight momentum in September from August, dipping from 51.8 to 51.4, its average over the third quarter was the highest for two years, lifted by a rise in manufacturing activity, while services growth remained steady.

Greater new work inflows signalled improving client demand, which encouraged companies to raise production. Expansion in new orders during the third quarter as a whole was the highest since quarter four 2014, albeit still only moderate. (…)

The revival of growth in the manufacturing sector is a welcoming relief. But the modest rate of expansion of the service sector is a reminder that the rebalancing of China’s economy to a consumption-based growth model is a slow process.

• China sales accelerate for global automakers in September

Honda (7267.T) and Nissan (7201.T) reported on Tuesday their strongest monthly vehicles sales growth for China this year in September, thanks to a tax cut on small engine vehicles and comparatively weak growth for the same month last year.

Competitor Ford (F.N) posted its strongest growth since January, while Toyota (7203.T) sales increased the fastest since March. (…)

That tax cut will continue to drive strong growth as consumers rush to buy cars before its planned expiry at the end of the year, according to analysts and industry officials. (…)

The China Association of Automobile Manufacturers (CAAM) will report sales growth for the market overall on Wednesday, with Zhang predicting top-line growth of 25-30 percent.Honda posted the quickest growth among automakers reporting Tuesday, with a 46.5 percent year-on-year increase for the month. (…)

China’s auto sales have outstripped expectations this year, with CAAM reporting last month that sales grew 11.4 percent for January to August, compared to its projection in January of 6 percent annual growth for 2016.

Oil output record underlines Opec’s struggle to raise prices Impact of planned cut to cartel’s production ‘difficult to assess’, says International Energy Agency

The IEA said crude oil supply from Opec’s 14 members climbed to 33.6m b/d, an all-time high in September and would hover around that level in the run-up to the group’s next ministerial meeting in November.

Higher Russian and Kazakhstan production raised non-Opec output by 500,000 b/d last month, reversing more than a third of the production decline outside the cartel in the past 12 months.

The IEA said that “the market, if left to its own devices, may remain in oversupply through the first half of next year. If Opec sticks to its new target, the market’s rebalancing could come faster.”

• Putin Says Russia Ready to Join OPEC Effort to Limit Oil Supply

“Russia is ready to join in joint measures to limit output and calls on other oil exporters to do the same,” Putin said on Monday at the World Energy Congress in Istanbul. “In the current situation, we think that a freeze or even a cut in oil production is probably the only proper decision to preserve stability in the global energy market.” (…)

“We support OPEC’s recent initiative to cap output and think that at the OPEC meeting in November this idea will materialize in a specific agreement, giving a positive signal to the markets and investors,” Putin said. (…)

• Exclusive: Russia’s Rosneft boss Sechin says no to OPEC oil cap Igor Sechin, Russia’s most influential oil executive and the head of state-controlled energy giant Rosneft , said his company will not cap oil production as part of a possible agreement with OPEC.

• Saudi’s Falih says non-OPEC countries willing to help balance oil market Saudi Arabia’s Energy Minister Khalid al-Falih will not attend meetings on Wednesday between OPEC and non-OPEC countries in Istanbul but told Reuters he saw signs that countries outside OPEC were willing to contribute to balancing the oil market.

Meanwhile, in the USA:

Sinking Yuan Risks Dragging Down Banks

(…) Chinese savers will get even more spooked that the value of their funds is dropping in dollars and will seek to move more money out of the country.

Outflows in turn will further weigh on the yuan in a vicious cycle that could have serious effects on China Inc., especially given that the country’s corporations have taken on record amounts of foreign currency debt. This year alone, dollar- and euro-denominated loans taken out by Chinese companies have reached $195 billion, bringing the total outstanding to about $650 billion. That’s equivalent to the total amount of subprime mortgage loans outstanding in the U.S. in 2008.

Foreign currency losses were already a major topic for publicly traded Chinese companies. The yuan has declined 3.3 percent against the dollar this year after dropping 4.4 percent in 2015. If the carnage continues in tandem with the rise in offshore debt, this will be an even more dominant theme in 2017. More losses could mean additional bankruptcies after what’s already been a record year for corporate failures. (…)

S&P predicts that problematic credit in bank balance sheets could triple to 17 percent of all loans by 2020.

If the yuan continues to depreciate at this pace, that number may arrive much earlier.

• Goldman Warns China’s Outflows May Be Worse Than They Look

SENTIMENT WATCH

Investors See New Risk in Trump Swoon: A Democratic Congress As the chances of Donald Trump taking the White House decline, investors must weight the possibility of the Democrats taking the House.

(…) That outcome—a Clinton presidency with a Democratic congress—is still seen as unlikely, but is potentially devastating for industries such as finance, pharmaceuticals and energy, and bad news for high-income taxpayers. (…)

“There’s a real chance that the House could go into Democratic hands,” says Cornerstone Macro political strategist Andy Laperriere. “As an investor, that’s what you have to contend with.” (…)

  S&P 500’s ‘triangle’ chart pattern warns of a big selloff, analyst says

(…) Many technicians believe triangles represent continuation patterns, or periods of pause in a bigger trend, which means they should eventually be resolved in the direction of the preceding trend. In the S&P 500’s case, that would mean a big rally is coming.

But Worth said that based on his interpretation of the charts, the S&P 500’s triangle looks more like a reversal pattern.

“We believe the current formation is a setup for a move lower,” Worth said. (…)

Brain Exercises Don’t Live Up to the Hype, Researchers Say Computerized brain-training exercises and games, touted for their ability to improve overall cognitive function, may actually only help you get better at the specific game you’re playing.