China Economy Flashes New Warning Signs Industrial production slows and retail sales growth falls to lowest level in more than 15 years
(…) Value-added industrial output in China rose 5.4% in November from a year earlier, slowing from a 5.9% on-year increase in October, the National Bureau of Statistics said. A median of forecasts from economists expected 5.9% growth for November. They thought industries would get a boost after the government scaled back wintertime production restrictions intended to ease pollution. (…)
Automobile production shrank 3.2% last month from a year earlier, extending a 0.7% contraction in October. Chemical materials and products rose 1.9%, decelerating from 4.4% growth. Retail sales rose 8.1% in November from a year earlier, slowing from an 8.6% year-over-year gain in October. (…)
Separately, central bank Governor Yi Gang told a forum on Thursday that China needs “relatively loose†monetary conditions to counter an economic downturn, though he said that could affect the yuan’s value, according to a transcript posted on Chinese news portal Sina.com. (…)
Government efforts to bolster growth and confidence did appear to show up in investments in factories, buildings and other fixed assets. Such investment outside Chinese rural households climbed 5.9% in the January-November period from a year earlier. It was faster than the 5.7% increase recorded in the January-October period and slightly exceeds economists’ expectations.
Mr. Ding of Standard Chartered said November’s data points to slower economic growth in the fourth quarter of this year, of about 6.4%, a tick down from 6.5% growth in the third quarter, with full-year growth likely at 6.6%.
Seaborne Exports Plummet at Southern California Ports Retaliatory tariffs from China likely cut into demand after exporters pulled forward outbound shipments in earlier months
Outbound container volume at the neighboring ports of Los Angeles and Long Beach fell 11.8% in November from the same month last year, the first decline since the spring after seven straight months of export growth.
Much of the goods trade between the U.S. and China flows through the Southern California ports and this year’s trade dispute between the two nations has played out at port terminals and on roads and railways in this region—often hitting earlier and more directly than at other seaports around the country. (…)
Exports at California’s Port of Oakland were flat in November, while Georgia’s Port of Savannah, the East Coast’s second-largest gateway, reported a 4.4% annual decline.
Source: @acemaxx, @PictetWM (via The Daily Shot)
White House to Officially Delay China Tariff Hike to March 1, Sources Say
China says to halt additional tariffs on U.S.-made cars from Jan. 1
U.S. confirms soybean sale to China, but size disappoints
The U.S. Department of Agriculture (USDA) announced private sales of 1.13 million tonnes of U.S. soybeans to China, confirming sales Reuters reported a day earlier. (…)
“Having a million, million-and-a-half tonnes is great, it’s wonderful, it’s a great step,†USDA Deputy Secretary Steve Censky said at an Iowa Soybean Association annual meeting on Thursday. “But there needs to be a lot more as well, especially if you consider it in a normal, typical year, we’ll be selling 30 to 35 million metric tonnes to China.†(…)
U.S. Import Prices Weaken As Petroleum Prices Fall; Export Prices Also Decline
The implications of tighter conditions (BlackRock)
The recent correction in risk asset markets has caused a noticeable tightening in financial conditions. This means financial conditions are providing less of a boost to economic growth – and could potentially cause the Federal Reserve to alter its policy decision making, we believe. (…)
Tighter financial conditions suggest that growth in the US and Europe will likely decelerate in the coming twelve months. The sell-off in financial markets since the summer and ongoing Fed policy tightening would be consistent with US GDP growth slowing to just under 2.5% next year from almost 3% now. The market sell-off since September has
alone caused a tightening in financial conditions equivalent to a 35 basis point decline in the US Growth GPS. (…)We believe monetary policy tightening – beyond that priced by the market – would only be required by the Fed to engineer a “soft landing†if other factors do not bring growth down to around 2%. Growth at 2% is the level that we and the Fed believe to be sustainable because it is in line with the pace of growth of potential output.
In the eurozone, our FCI suggests a slowdown in GDP growth to substantially less than 1.5% next year – financial conditions are already tight enough for growth to moderate to a level close to potential. We believe this implies that the ECB may decide to keep interest rates at record lows for most of 2019. But fiscal stimulus among member states could also support eurozone growth, changing the picture for the ECB. (…)
Economic Outlook from Freight’s Perspective
(…) The current level of volume and pricing growth is suggesting that, while it’s still growing, the U.S. economy is simply not growing at the rate it was and that it may have reached its short-term expansion limit. The 0.6% YoY increase in the November Cass Shipments is a deceleration from the 6.2% achieved last month and is an even more marked deceleration from the low double-digit levels achieved in the first five months of 2018.(…) many modes are continuing to report “limited amounts of capacity†or even “no capacity†at any price shippers are willing to pay. (…)
ECB Cuts Growth Forecasts as It Ends Bond-Buying Program The European Central Bank cut its economic growth forecasts Thursday, highlighting the risks confronting Europe’s economy even as it ended its massive four-year stimulus program.
“It’s a climate of great uncertainty,†ECB President Mario Draghi said at a press conference, citing trade tensions, vulnerabilities in emerging markets and volatility in financial markets. He spoke after the ECB confirmed it would keep its key interest rates—which include a minus 0.4% rate on bank deposits held at the central bank—unchanged at least through the summer of 2019. (…)
The ECB lowered its 2018 forecast for gross domestic product growth in the eurozone by 0.1 percentage point to 1.9% and shaved its 2020 forecast by a similar amount to 1.7%. (…)
The ECB softened its decision on QE by pledging to hold its €2.6 trillion stock of bonds for “an extended period of time†after its first interest-rate rise, which investors have penciled in for late 2019. (…)
U.S. Budget Deficit Widened in First Two Months of Fiscal 2019 Tariff revenue rose 86% in October, November from same period a year ago
The government ran a $305 billion deficit in October and November, compared with $202 billion during the same period a year earlier, the Treasury Department said Thursday.
Federal outlays climbed 18% the first two months of fiscal 2019, which began Oct. 1, and total receipts rose 3%.
Much of the increase in the deficit was attributable to a shift in the timing of certain payments, the Treasury said. The first day of December fell on a Saturday this year, so payments that would have been made then were moved up to Nov. 30, boosting spending for the period.
If not for the timing shift, outlays would have risen 4% from a year earlier, and the deficit would have been $20 billion higher.
Revenue in October and November was bolstered by a significant boost in customs duties, which rose 86% to $11.8 billion due to an increase in tariffs. (…)
The budget deficit rose to $882.6 billion for the 12 months ended November, or 4.3% of gross domestic product. The last time the 12-month deficit exceeded 4.3% of GDP was in May 2013.
On a 12-month basis, revenues were up just 0.2% from a year earlier, while outlays were up 5.1%.
The federal budget deficit is projected to hit $1 trillion in the current fiscal year, up from $779 billion in the previous fiscal year, the White House and Congressional Budget Office have said. (…)
Net interest costs on the debt rose 7% in October and November, reflecting a gradual rise in interest rates since last fall. (…)
BUBBLE WATCH
The biggest bubble this cycle is in the fixed income market, particularly in leveraged loans. Something just pricked the bubble:
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Wall Street banks turn skittish on leveraged loans Borrowers forced to be more flexible on terms as power shifts to investors
Consider that, as Grant’s explains, “the well-informed leveraged-loan market usually does not move without reason. (…) Leveraged-loan borrowers report monthly – and those monthly reports, addressed to the creditors alone, are rich in detail, including internal financial projections. (…) More likely, then, we judge, the recent softness in loan prices is an augury of something not bullish.â€
We’ve been there before as this ETF illustrates. The recent drop may again be a reaction to lower oil prices but it sure bears watching.
There are no signs of significant deterioration in overall corporate earnings for Q4 2018. Analysts estimates for Q4 S&P 500 earnings were reduced in the last week but still point to a 16.4% growth rate. As well, corporate preannouncements are also not signalling distress half way into the last month of the quarter.
But everybody’s pretty nervous.
U.S. Stock Market Exodus Is Second-Biggest on Record, BofA Says Investors flee equity funds in the second-biggest weekly exit, in a rush for havens.
U.S. stock funds bled $27.6 billion in the days through Dec. 12, which includes last Friday’s plunge in the S&P 500 Index that capped the worst week for the gauge since March, according to BofA’s note, which cited EPFR Global data. This is the second-biggest redemption since February’s spike in the VIX volatility measure, according to Jefferies Financial Group Inc.
Instead of U.S. equities, market players flocked to Japanese and emerging-market equity funds, as well as government bonds as global equity funds saw a record weekly outflow of $39 billion, according to BofA. Investment-grade bond funds also set a historical precedent with an $8.4 billion redemption, the data show.
These charts from Steve Blumenthal are as of Dec. 12:
Volume Demand vs. Volume Supply (NDR)
13/34–Week EMA Trend Chart
Note: I will be on vacation next week.