Global Stocks Jump on Hopes for U.S.-China Trade Truce Global stocks and the Chinese yuan rose sharply on indications that trade tensions between the U.S. and China are de-escalating.
(…) A tweet from Mr. Trump about what he called a “long and very good conversation” with Mr. Xi helped kick off the first leg of the rally in Asia on Friday. (…) Market gains accelerated after a Bloomberg report said Mr. Trump asked U.S. officials to draft terms of a trade agreement with the Chinese government ahead of a G-20 summit—where the two leaders are expected to meet—at the end of this month. (…)
Mr. Trump said the two leaders discussed many issues by telephone on Thursday, including the trade dispute that has sparked tit-for-tat tariffs on hundreds of billions of dollars of goods flowing between the two countries, worrying U.S. businesses and investors.
“Those discussions are moving along nicely with meetings being scheduled at the G-20 in Argentina,” he tweeted, buoying the stock market.
The president’s top economic adviser, Larry Kudlow, echoed the president’s optimism, saying in an interview the call represented “a thaw” in relations. (…)
In their conversation, Mr. Xi told Mr. Trump that economic and trade disputes risked harming both of their countries, according to Chinese state broadcaster China Central Television.
CCTV also reported Mr. Trump had initiated the phone call and said Mr. Xi was willing to meet the president at the G-20 summit to “exchange in-depth views on China-U.S. relations and other major issues.” A Trump administration official confirmed that the U.S. requested the call. (…)
A business official who tracks U.S.-China talks closely says that the Treasury, which plays a big role in the Group of 20 meetings, has been pressing to use the occasion for the two sides to agree on a wide negotiating agenda, including the bilateral trade deficit, technology transfer and the practices of state-owned enterprises. (…)
Let’s recap what was reported here recently:
In an interview with the Financial Times, Larry Kudlow, director of the National Economic Council, complained that China had offered no sign that it was willing to meet US demands in a way that could lead to a breakthrough.
Kudlow said that the problem is that “they don’t respond. Nothing. Nada.” “I’ve never seen anything like it”.
The White House had been hoping that the Chinese economy would get so weak that China would come begging. Neither was happening, nothing, nada. That was 10 days ago. Kudlow went on saying “he believed the weakness of the Chinese currency recently was because of market forces rather than any deliberate policy” when Trump and just about every Administration official were accusing China of currency manipulation. Unsurprisingly, the renminbi just kept sliding until today.
Kudlow then said the essential: “The thing that worries me the most is a blue wave in two weeks”.
The U.S. door was thus cracked open. Trump added in a television interview last Monday he thinks there will be “a great deal” with China on trade. To make sure the Chinese got the message, Kudlow added Wednesday that “Trump has not “set in stone” any decisions on escalating tariffs on Chinese goods and may withdraw some duties if there are promising policy discussions with China”.
Coincidentally, the same day, Chinese Premier Li Keqiang, finally acknowledged having received the message and, per Reuters, “told a group of visiting U.S. politicians on Thursday.
(…) “The sound and stable growth of China-U.S. relations serves the common interests and the fundamental interests of the people of our two countries,” Li said.
“We do hope that China and the United States will meet each other halfway and work together in the spirit of mutual respect and equality,” he added.
Then Trump called Xi and tweeted the news so that the world, including American voters, would know he made the good gesture.
That will feed the hopes until the meeting at the end of the month, after the mid-terms…
Meanwhile, to make sure there remains a proper balance between the carrot and the stick:
The U.S. Justice Department accused Chinese state-owned Fujian Jinhua Integrated Circuit Co., its Taiwanese partner United Microelectronics Corp. and three Taiwan nationals of stealing trade secrets from the largest U.S. memory-chip maker, Micron Technology Inc., in a grand jury indictment unsealed on Thursday.
The move came days after the Commerce Department dealt a potentially fatal blow to Jinhua by barring exports and transfers of U.S.-origin technology to the firm, which depends on the technology to produce its own chips. Jinhua, a startup backed by $5.7 billion in Chinese state funds, is central to China’s plan to build a world-class semiconductor industry and wean itself off dependence on foreign technology.
Attorney General Jeff Sessions also criticized China on Thursday, saying recent activity showed it was violating an accord reached with the Obama administration under which both governments agreed not to support cyberattacks to steal corporate secrets from one another.
“In 2015, China committed publicly that it would not target American companies for economic gain,” Mr. Sessions said. “Obviously, that commitment has not been kept.” (…)
Also on Thursday, Mr. Sessions announced a new “China initiative” to better combat theft of trade secrets, bribery, illegal foreign lobbying and business deals that could give foreign investors access to critical U.S. technology.
Mr. Sessions said a new working group of Justice Department officials, including the top federal prosecutors from districts in California, Texas and other states, would increase law-enforcement engagement with U.S. universities, where the Justice Department contends that Chinese Communist party initiatives target technology and threaten academic freedom. (…)
But U.S. Trade Representative Robert Lighthizer, some U.S. officials say, has been arguing that the time isn’t ripe yet for negotiations because China hasn’t yet felt the full brunt of U.S. tariffs.
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‘I Don’t Buy the Story’
“I don’t buy the story for a second,” said Michael Every, head of Asia financial markets research at Rabobank in Hong Kong. “This seems a perfect way to ensure equities rally into election day, put Xi into a box in terms of what is expected of him and then have someone to blame when the deal then falls through.” (Bloomberg)
Trump, at a campaign rally in Columbia, Missouri, on Thursday night said, “they want to make a deal.” “He wants to do it,” Trump said of Xi. “They all want to do it.”
He probably then ran out of time ‘cause he could have added, “WE want to do it, and YES we can!”
Europeans are also shouting “Yes you can!”:
Eurozone manufacturing growth falls to 26-month low in October
The ongoing growth slowdown of the eurozone manufacturing economy continued at the start of the fourth quarter. Falling for a third month in succession and remaining well down on the record highs seen around the turn of the year, the IHS Markit Eurozone Manufacturing PMI declined to a level of 52.0 in October. That compared to 53.2 in September and was broadly unchanged on the earlier flash reading of 52.1.
Market groups data showed that the slowdown in growth was broad-based. Intermediate goods producers fared worst recording concurrent falls in output, new orders and exports. Consumer goods showed some resilience, registering solid rises in both output and new work.
Slower manufacturing growth was recorded across much of the single currency area in October. Most notably, Italy slipped into contraction territory, registering its lowest PMI reading in just short of four years. Growth in Germany was the weakest in nearly two-and-a-half years, whilst France and Spain registered only modest gains in manufacturing
activity. (…)The downturn in overall growth was closely linked to a deterioration in overall order books. Although marginal, the net fall in new work was the first recorded by the survey since November 2014 and was closely linked to the weakening global trade cycle. This was highlighted by a decline in new export orders for the first time since mid-2013. By country, declines in export sales were recorded in Austria, France, Germany and Italy, whilst there were notable slowdowns in export growth seen in the Netherlands and Ireland.
Despite the fall in new orders, the manufacturing sector nonetheless recorded a net increase in production during October. However, growth was modest and the weakest since December 2014. An excess of production relative to new order book flows led to a marginal rise in warehouse inventories and a slight reduction in manufacturers’ backlogs of work.
(…) the survey suggests that the manufacturing sector could contract in the fourth quarter unless the data revive in coming months. However, with backlogs of work falling for a second successive month, and business expectations sliding to the lowest for nearly six years, risks seem firmly tilted towards the downside heading towards the end of the year.
Employment growth was sustained in October but continued to slow, easing to the weakest recorded by the survey since December 2016. Although all nations recorded higher employment, growth rates varied noticeably. Austria, Germany and the Netherlands continued to register the strongest net gains in employment, in contrast to broad stagnation
in France. Only modest jobs growth occurred in Italy and Spain.Meanwhile, input price pressures intensified on the back of rising energy, food, fuel and metals prices. Latest data showed input price inflation accelerating since September and remaining at an elevated level.
Output charges were raised where possible in response, with the net increase remaining historically marked, albeit the lowest in 14 months.
Finally, business confidence slumped in October to the lowest level since the end of 2012. There remained widespread worries amongst manufacturers with regards to the development of global trade protectionism measures, potentially higher tariffs and ongoing political uncertainties. All nations recorded a fall in confidence, with German
manufacturers recording outright pessimism for the first time in four years.
So are U.S. manufacturers:
Source: Pantheon Macroeconomics (via The Daily Shot)
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A Synchronized Slowdown Is Looming Europe wobbles, China sputters and stock markets around the world keep crumbling.
Last January, the word was “synchronized growth”, just to show how things can change very rapidly. Americans would better understand that the U.S. economy is not an island unaffected by storms around it. Even more so when the Fed is hiking and hiking:
Consumers who carry balances on their credit cards from month to month are starting to pay much more for the privilege. According to a Federal Reserve survey of banks and credit unions, the average annual percentage rate (APR) jumped 0.92 percentage points, to 16.46%. Higher interest rates will grow holiday credit card balances — and minimum monthly payments — even faster than last year, when the average APR was 14.99%
Source: LendingTree; Read full article
Payroll employment rises by 250,000 in October; unemployment rate unchanged at 3.7% Total nonfarm payroll employment rose by 250,000 in October, and the unemployment rate was unchanged at 3.7 percent. Job gains occurred in health care, in manufacturing, in construction, and in transportation and warehousing.
The average workweek for all employees on private nonfarm payrolls increased by 0.1 hour to 34.5 hours in October. In manufacturing, the workweek edged down by 0.1 hour to 40.8 hours, and overtime was unchanged at 3.5 hours.
In October, average hourly earnings for all employees on private nonfarm payrolls rose by 5 cents to $27.30. Over the year, average hourly earnings have increased by 83 cents, or 3.1 percent. Average hourly earnings of private-sector production and nonsupervisory employees increased by 7 cents to $22.89 in October (+3.2%)
U.S. Light Vehicle Sales Improve with Rise in Passenger Car Sales
Sales of light vehicles increased 0.7% (-2.2% y/y) during October to 17.57 million units (SAAR), the highest level since November 2017. The latest gain followed a 4.3% September jump.
Passenger car sales rose 4.8% (-12.8% y/y) last month to 5.67 million units. The rise brought them to the highest level since February. Sales of domestically made cars rose 6.6% (-11.9% y/y) to 4.17 million units and added to a strong September increase. Sales of imported passenger cars rose 0.7% (-15.2% y/y) to 1.50 million units. That gain followed an 8.9% jump during September.
Light truck sales declined 1.1% in October to 11.90 million units. Sales remained up, nevertheless, by 3.9% during the last 12 months. Sales of domestically-produced light trucks fell 1.3% (+0.6% y/y) to 9.50 million units. Sales had been moving steadily upward toward a record high. Sales of imported light trucks improved 0.4% (19.5% y/y) to a new record of 2.41 million units. (…)
Worker-Productivity Gains Coming Up Short in Stronger Economy Output per hour for workers in nonfarm businesses rose 1.3% in the third quarter from a year earlier, marking the 32nd straight quarter of yearly growth below 2%
(…) For a six-month period between April and September, worker productivity gains beat a 2% annualized growth rate. (…) If the latest six-month stretch doesn’t hold up, some economists say, the economy’s fast overall growth rate won’t be sustained.
“Since we’re getting slow growth of productivity, and…relatively slow growth of the workforce, that means we’re going to get slower growth of gross domestic product,” said Martin Baily, senior fellow at the Brookings Institution in Washington and former adviser to President Clinton. (…)
During the late 1990s and early 2000s, yearly productivity gains routinely beat 3%, sometimes exceeding 4%. Without productivity gains, economic growth depends on growing the workforce, something that is hard to accomplish now because so many baby boomers are retiring. (…)
The historically low unemployment rate means companies are hiring less-skilled workers to fill jobs, a potential drag on productivity. (…)
EARNINGS WATCH
The good news is that the beat goes on with 77% of the 348 S&P 500 companies having exceeded estimates by a significant 6.4% with all sectors but 2 beating by more than 4.0%. Q3 earnings are now seen jumping 26.2% from 21.6% four weeks ago while revenue growth is now set at 7.9% from 7.4%.
Trailing EPS are now $157.09 or about $159.60 pro forma the tax reform for a full 12 months.
Q4 earnings are expected up 18.7%, down from 20.1% on Oct. 1 and from 19.2% 2 days ago. Not very bad news but bad news nonetheless since analysts are revising down along with corporate guidance which has turned more cautious: as of Nov. 1, Refinitiv numbers reveal that 59.3% of the 54 guidance issued were negative, up from 50.0% and 54.0% at the same time during Q4’17 and Q3’18 respectively.
This is spilling into 2019 estimates which now show profits rising 7.6% in Q1’19 (from +8.1% on Oct.1). Full year 2019 estimates are +9.3% from +10.2% on Oct.1.
Apple warns on holiday sales, sending value below $1 trillion
Apple Inc on Thursday warned that sales for the crucial holiday quarter would likely miss Wall Street expectations, which Chief Executive Tim Cook blamed on weakness in emerging markets and foreign exchange costs. (…)
Apple said it expects between $89 billion and $93 billion in revenue for its fiscal first quarter ending in December, with a midpoint of $91 billion coming in below Wall Street expectations of $93 billion, according to IBES data from Refinitiv. (…)
Cook in an interview with Reuters said that Apple is “seeing some macroeconomic weakness in some of the emerging markets.” He later told investors on a conference call that weak markets included Brazil, India, Russia and Turkey. Sales were flat in the fourth quarter in India, Cook said. (…)
While one door is cracked open, another one seems to want to close:
The Global Debt Boom Looks Like It’s On Borrowed Time U.S. investment-grade issuance slipped 34% from September, according to Dealogic
(…) while high-yield issuance was down 50% from October last year. Even before October’s selloff, American companies had been raising less money. By the end of September, total investment-grade issuance in 2018 was down 12% compared with the first nine months of last year, and high-yield issuance had fallen by almost a third.
The value of new investment-grade corporate bonds in Europe was 75% lower in October than in September and down 40% from October 2017. High-yield issuance slumped 82% from a year ago.
Investors pulled $3.1 billion from investment-grade corporate-bond funds last week, according to Bank of America Merrill Lynch, bringing outflows over the past two months to a record $25.2 billion. High-yield funds have also seen big withdrawals. By contrast, equity funds drew in $8.5 billion last week despite stocks’ fall. (…)
But on Wednesday, oil and gas company GEP Haynesville became the third speculative-grade company to cancel a U.S. bond sale in recent days, following pulled deals from brokerage firm INTL FCStone Inc. and environmental services businesses GFL Environmental Inc. Both GEP Haynesville and INTL FCStone had been hoping to raise cash to repay existing revolving-credit borrowings.
Looking to fund a merger with Waste Industries, GFL Environmental was able to raise the requisite funds in the leveraged-loan market, which has generally stood up better than the bond market in recent weeks.
On Wednesday, the spread between yields on investment-grade bonds and those on safer government debt had still reached 1.5 percentage points in the U.S. and 1.46 points in Europe, according to IHS Markit’s iBoxx indexes. That is up from postcrisis lows of 1.08 and 0.82 points reached in early February.
High-yield bonds, until recently a rare bright spot in fixed income, have declined particularly sharply in recent weeks. The spread on the Bloomberg Barclays U.S. Corporate High-Yield index has shot up 0.54 percentage points since Sept. 20, the day the S&P 500 closed at a record high. (…)
Source: @markets; Read full article (via The Daily Shot)