FLASH PMIs
Prices rise at record rate as eurozone growth rebounds in February
The headline IHS Markit Eurozone Composite PMI® surged 3.5 points in February (its largest monthly gain since March of last year), up from 52.3 in January to 55.8, to signal a sharp acceleration of economic growth, according to the preliminary ‘flash’ estimate. The latest reading indicates the fastest rate of output growth since last September.
The acceleration in growth follows two months of subdued expansions as the rise in COVID-19 infections associated with the Omicron variant prompted an increase in virus containment measures. February saw these restrictions ease to the lowest since November.
The greatest improvement was seen in the service sector. Having almost stalled in January amid the tightened virus-fighting measures, service sector activity growth rebounded in February to the fastest since last November. Looser restrictions enabled a particularly strong rise in consumer-facing activity and travel and tourism.
Manufacturing output growth also accelerated slightly, attaining the fastest expansion since last September, thanks in part to improved supply availability. The incidence of supplier delivery delays was the lowest since January of last year.
Demand also picked up during the month. Overall, new orders rose to the greatest extent since last August, with six-month highs seen in both manufacturing and services, linked to easing supply constraints and the opening up of the economy.
The upturn in demand led to a steep rise in backlogs of uncompleted work, which showed the largest increase for six months. Backlogs rose especially sharply in manufacturing, as the inflow of new orders exceeded the gain in production recorded during the month, though also rose at an increased rate in services.
The combination of rising demand, an easing of COVID-19 containment measures and fewer supply bottlenecks helped push future output expectations to the highest since last June, with improved optimism recorded in both manufacturing and services.
With optimism improving, firms took on more staff to deal with the rising workloads. Employment growth accelerated for a second month running to reach the highest since November, albeit constrained by staff shortages in many cases. Jobs growth in manufacturing nevertheless hit the highest since last July, while service sector job gains rose to a more modest three-month high.
The easing of supply constraints recorded during February also helped moderate manufacturers’ input cost inflation. Although average prices paid for materials rose sharply again, the rate of increase was the slowest since March of last year. However, service sector input cost inflation accelerated to a record high reflecting rising wages and soaring energy costs. The resulting overall rate of input cost inflation seen across both sectors rose to the second-highest on record, surpassed over the past 24 years only by that seen last November.
Average prices charged for goods and services rose at the sharpest rate yet recorded by the survey as firms increasingly sought to pass persistent higher cost inflation on to customers. A record high rate of inflation in the service sector was accompanied by a near-record rate in manufacturing.
By country, business activity rebounded most sharply in France, where growth reached the highest since last June, though growth in Germany also picked up to the fastest since last August, representing a further marked improvement after the mild contraction seen in December. The rest of the region as a whole continued to lag, but nonetheless reported a strong recovery after a near-stalling in January. Across the board improvements were seen in terms of service sector performance, though Germany bucked a broader acceleration in manufacturing growth, albeit still seeing output rise at a pace just below the eurozone average.
From Markit’s UK flash PMI report:
(…) Severe inflationary pressures persisted in February, as higher wages, energy bills and raw material costs all contributed to rising operating expenses. The overall rate of input cost inflation was the steepest since last November and the second-highest since the index began in January 1998. This resulted in another sharp increase in average prices charged by private sector firms, although the latest rise was softer than at the start of the year. (…)
With February’s rate of cost inflation the second highest on record, wage rises, energy costs and continuing raw materials shortages took a sizeable chunk out of business profits. (…)
Japan: Private sector output falls sharply amid Omicron wave
The headline au Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index™ (PMI)® dipped from 55.4 in January to 52.9 in February, signalling a moderate improvement in operating conditions that was nonetheless the softest since last September. Output reduced for the first time in five months while new order growth eased to the softest in the current sequence of expansion. Moreover, supply chain disruption continued to hinder manufacturing activity in February as a marked lengthening of delivery times exacerbated material shortages, leading to a further rapid rise in input cost inflation. To protect against delays and rising costs, stockpiles of raw materials and other inputs were raised at the sharpest pace in the survey history.
At 42.7 in February, the au Jibun Bank Flash Japan Services Business Activity Index fell from 47.6 in January to indicate the steepest reduction since May 2020 amid a rapid rise in COVID-19 cases. At the same time, new business fell further with the rate of reduction the quickest for six months. With demand conditions weakened by the ongoing pandemic, Japanese service providers attempted to draw in customers with a renewed reduction in prices charged, the first since last August. This was despite the joint-sharpest rise in input prices for 13-and-a-half years.
HOW TIGHT ARE U.S. LABOR MARKETS? A National Bureau of Economic Research working paper by Alex Domash and
Lawrence H. Summers
(…) Using national time series and state cross-section data, we find (i) unemployment is a better predictor of wage inflation than non-employment and (ii) vacancy rates and quit rates have substantial predictive power for wage inflation. We highlight the fact that vacancy and quit rates currently experienced in the United States correspond to a degree of labor market tightness previously associated with sub-2 percent unemployment rates.
Finally, we show that predicted firm-side unemployment has dominant explanatory power with respect to subsequent inflation. Our results, along with a cursory analysis of labor force participation information, suggest that labor market tightness is likely to contribute significantly to inflationary pressure in the United States for some time to come. (…)
- For White-Collar Workers, It’s Prime Time for a Raise Pay increases for people in business and professional sectors are starting to outpace gains for lower-wage workers.
(…) Wall Street banks are boosting compensation for employees. Consumer lenders are seeing their biggest pay bumps in more than a decade. Legal firms are raising wages aggressively as burned-out workers flee the industry.
Pay for finance, information and professional employees rose 4.4% in January from a year earlier, outpacing 4% wage growth for all workers, according to the Atlanta Fed’s wage tracker.
Workers in higher-wage sectors experienced the fastest month-over-month earnings growth in January, Labor Department data showed. Wages in the professional and business services sector—which includes jobs in management, law and engineering—rose 0.8% in January from a month earlier. (…)
Ms. Estrin is helping fill a senior corporate paralegal role for up to $195,000 a year, plus overtime, a hiring bonus and a year-end bonus—a higher rate than she has ever seen.
“They could come away with $300,000, easily,” Ms. Estrin said. “You could buy a house for that.” (…)
What CEOs Are Saying: ‘Even Wealthier Families Become More Price-Sensitive’ Leaders from Walmart, Kraft Heinz, Nvidia and other companies share their thoughts about inflation, the supply chain and future tech.
- “When we saw container rates at this, I think, maybe highest cost ever in October, at least from my recollection over my 30 years…we didn’t think it could go up from there. And they went up from there, and they went up from there like almost 50% in December, January…Where I might have felt like, as a business leader, how could it possibly get any worse than this? And then it gets worse than that. It’s just difficult to pin that down.” Weber Inc. Chief Executive Chris Scherzinger (Feb. 14)
- “It’s worth noting that our supply base will likely remain challenged throughout fiscal year 2022. Issues continue to arise, and our guidance contemplates successful resolution of these issues without significant disruptions. Components with heavy labor content remain in tight supply, and of course, semiconductor availability will continue to be limited throughout the year.” Deere & Co. Chief Executive John May (Feb. 18)
- “Our Q4 inflation were higher than we expected in our October call. We ended up with low double-digit. But for 2022, we are likely to see, or are expecting today, a year of inflation of low teens for the full year. … And we expect this inflation to be higher in the first half than in the second half.” Kraft Heinz Co. KHC 1.77% Chief Financial Officer Paulo Basilio (Feb. 16) (…)
More from The Transcript:
- “The short answer to your question on margin pressure in 2022 is 100% yes, it is all about commodity cost inflation. Those are very widespread. We’re seeing a doubling of costs on a variety of agricultural raw materials, petrochemical-derived raw materials, energy. You know the data on freight and distribution. It’s up by multiples. Packaging components.” – Unilever (UL) CEO Alan Jope
- “We have some work to do. Economy-wide bottlenecks and shortages persist.” – Kellogg Company (K) CEO Steve Cahillane
- “In terms of the inventory flow, this supply chain situation is going to continue on for at least the next 6 months. We don’t see it actually improving. Many of the ports are quite backed up.” – Capri (CPRI) CEO John Idol
- “Our year-end inventory balance was $333 million or 92 days. In 2020, the year-end inventory was $182 million or 55 days. I’d like to spend a moment on this topic because the inventory balance is higher than historical norms. As I mentioned earlier, Q4 was particularly difficult due to both extended shipping time frames and supply constraints. Our year-end 2021 inventory balance and DII increase was primarily driven by a meaningful increase in in-transit inventory, which added 22 days to our DII.” – iRobot (IRBT) CFO Julie Zeiler
U.S. Home Sales Jumped 6.7% in January Home sales jumped at the start of the year as buyers rushed to purchase properties in the face of record-low inventory and climbing mortgage rates.
Existing-home sales rose 6.7% in January from the prior month to a seasonally adjusted annual rate of 6.5 million, the National Association of Realtors said Friday, with home sales increasing in regions across the country. January sales fell 2.3% from a year earlier. (…)
Rising mortgage-interest rates in recent weeks have prompted buyers to move quickly in case rates climb further, real-estate agents say. Homes are frequently selling within days for more than their list prices. More houses are being purchased with cash and first-time buyers are getting squeezed out. (…)
The median existing-home price rose 15.4% in January from a year earlier, NAR said, to $350,300. (…)
So far, rising mortgage-interest rates have hardly dented buyer demand, which still far outpaces supply, say market participants.
One reason is that rent prices are also rising quickly, so prospective first-time home buyers are reluctant to wait.
“People’s leases are coming due and they’re seeing just massive increases,” said Christopher Maher, chief executive of OceanFirst Financial Corp. in New Jersey. “That really squeezes the first-time home buyer.”
There were 860,000 homes for sale at the end of January, down 2.3% from December and down 16.5% from January 2021, NAR said. This is the lowest level on record since NAR began tracking total existing-home inventory in 1999. At the current sales pace, there was a 1.6-month supply of homes on the market at the end of January, also a record low. (…)
Excluding pending sales, the inventory shortage is even steeper. In the four weeks ended Feb. 13, the number of active listings fell 27% from a year earlier to 447,000, according to real-estate brokerage Redfin Corp. (…)
About 27% of January existing-home sales were purchased in cash, up from 19% a year earlier, NAR said. (…)
The share of first-time buyers in the market fell to 27%, down from 33% a year earlier. (…)
From Redfin:
- Investors bought 18.4% of the U.S. homes that were purchased in the fourth quarter, a record high.
- Mid-priced homes are becoming more popular with investors, making up 32% of investor purchases in the fourth quarter, a record high. Low-priced homes are still most popular with investors, making up 37% of purchases.
- New York City Renters Are Lining Up to Fight Brutal Bidding Wars Finding an apartment with extra space and amenities in NYC has become as competitive as buying a home.
(…) Some people who left New York during the pandemic are moving back. And those who stayed are looking for more space or an extra bedroom they can turn into an office as they continue to work from home. That hunt for breathing room and amenities has led to record-high rents and low inventory, leaving apartment hunters with a new reality that used to be the purview of buyers alone: Bidding wars. (…)
Low vacancy rates have led to a rapid drop in listing inventory and to record prices, according to brokerage Douglas Elliman Real Estate. Manhattan median rent jumped 18.3% in January from a year earlier to $3,550, according to a report by appraiser Miller Samuel Inc. and Douglas Elliman. That’s just shy of the median rent of $3,595 reached in January 2020, before the pandemic exodus sent rates sliding. (…)
Fed Officials Dispel Prospect of Half-Point Increase in March Officials have suggested they could raise rates in quarter-point increments unless inflation doesn’t diminish as expected. New York Fed President John Williams and others hinted the central bank wouldn’t need to begin with a more aggressive move.
(…) New York Fed President John Williams, who is one of the most senior advisers to Chairman Jerome Powell and helps shape the policy agenda, hinted that the Fed wouldn’t need to begin what is expected to be a series of interest rate increases with the more aggressive, half-point move.
“There’s really no kind of compelling argument that you have to be faster right in the beginning” with rate increases, Mr. Williams told reporters on Friday. “There’s no need to do something ‘extra’ at the beginning of the process of liftoff. We can…steadily move up interest rates and reassess. I don’t feel a need that we’d have to move really fast at the beginning.” (…)
Ms. Brainard suggested that because markets are properly understanding the Fed’s anticipated rate increases and plans to shrink its asset portfolio, the Fed’s communications about tighter policy were already having an effect to withdraw stimulus. Her comments implicitly pushed back against expectations of a larger rate rise.
“We’ve already seen the kinds of tightening in the financial conditions facing many households and businesses that is consistent with the forward-looking nature of markets,” she said during a panel discussion at a policy conference in New York. “The market has brought forward the changes” in financing costs that will result from anticipated rate increases, she said. (…)
On Thursday, Cleveland Fed President Loretta Mester said it would be appropriate to continue raising interest rates after an initial increase in March and that the Fed could consider large moves in the second half of the year, “if by midyear I assess that inflation is not going to moderate as expected.” (…)
So, that was the March meeting.
Frackers Hold Back Production as Oil Nears $100 a Barrel Prices are the highest since 2014, but top shale companies like Devon and Pioneer are choosing to grow slowly rather than drill more.
(…) All three said they would continue to limit production growth this year. (…)
Oklahoma-based Devon, the top performer in the S&P 500 last year, said it has expanded a share-buyback program by 60% and raised its dividend to a record level. The company also said it collected $2.8 billion in profit last year, its highest since 2007. Devon expects costs to rise 15% because of inflation and supply-chain disruptions but aims to pump about the same amount of oil as last year. (…)
Energy consultant Wood Mackenzie expects output in the contiguous U.S. by year-end to increase by 240,000 barrels a day, almost solely in the Permian, which would be offset by declines elsewhere. (…)
“There’s no change for us,” [Pioneer CEO] Mr. Sheffield told investors Thursday. “$100 oil, $150 oil, we’re not going to change our growth rate.” (…) He warned that companies growing 15% to 20% a year will “fairly quickly” face inventory limitations.
Meanwhile, Continental CTTAY -2.26% lifted its share-repurchase program 50%, increased its quarterly dividend 15% and recorded an annual profit of $1.66 billion last year, the highest in at least two decades, according to FactSet. It also collected a record $2.6 billion in freed-up cash. (…)
EARNINGS WATCH
From Refinitiv/IBES:
Through Feb. 18, 417 companies in the S&P 500 Index have reported earnings for Q4 2021. Of these companies, 77.9% reported earnings above analyst expectations and 18.9% reported earnings below analyst expectations. In a typical quarter (since 1994), 66% of companies beat estimates and 20% miss estimates. Over the past four quarters, 84% of companies beat the estimates and 13% missed estimates.
In aggregate, companies are reporting earnings that are 5.5% above estimates, which compares to a long-term (since 1994) average surprise factor of 4.1% and the average surprise factor over the prior four quarters of 16.0%.
Of these companies, 77.9% reported revenue above analyst expectations and 22.1% reported revenue below analyst expectations. In a typical quarter (since 2002), 62% of companies beat estimates and 38% miss estimates. Over the past four quarters, 79% of companies beat the estimates and 21% missed estimates.
In aggregate, companies are reporting revenues that are 2.4% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.2% and the average surprise factor over the prior four quarters of 4.0%.
The estimated earnings growth rate for the S&P 500 for 21Q4 is 31.8%. If the energy sector is excluded, the growth rate declines to 23.3%.
The estimated revenue growth rate for the S&P 500 for 21Q4 is 14.5%. If the energy sector is excluded, the growth rate declines to 10.3%.
The estimated earnings growth rate for the S&P 500 for 22Q1 is 6.7%. If the energy sector is excluded, the growth rate declines to 2.2%.
The most recent batch of earnings reports prompted analysts to revised upwards, particularly on larger caps.
Q1’22 earnings are now seen up 6.7% vs 6.5% one week ago but 7.5% on January 1. Estimates for Q2 and Q3 also increased but Q4 estimates came down to +8.8% from +14.1% on January 1. For 2022 as a whole, earnings are forecast to rise 7.5%, down from 8.4% on January 1.
This is in spite of more negative guidance compared to Q4’21.
Last week, of the 20 companies that offered guidance, 7 were positive and 13 negative, a 1.9 N/P ratio for the week.
Bloomberg has its own rendering for guidance:
(…) “It is a safe assumption that our input cost increases for 2022 will be higher than 2021, that is something that we have to reflect in our pricing,” Nestle CEO Mark Schneider told reporters on Thursday, declining to give a precise inflation forecast in a “super volatile environment”.
“There is almost no place in the company that is exempt of inflation now,” he said. (…)
Nestle stepped up price increases throughout the year to 3.1% in the fourth quarter and said it would continue this year, while seeking efficiencies in the business.
It expects a broadly stable underlying trading operating profit margin of 17.0%-17.5%, after delays between cost inflation and price hikes saw it dip to 17.4% last year. (…)
(…) The maker of brands including Tiger, Sol and Strongbow cider – as well as Heineken, Europe’s top-selling lager – said it would offset input cost increases with higher prices, but this could lead to lower beer consumption. (…)
“These kind of price increases and inflation, I think we have not seen in a generation,” he told Reuters. “The big unknown is how this will affect the more developed markets that have not seen this kind of pricing before.” (…)
The Dutch brewer said input costs would rise by a mid-teens percentage rate, with barley double its price of a year ago and aluminium up by some 50%. Energy and freight costs have also risen sharply. (…)
(…) Louis Vuitton (LVMH.PA), the world’s largest luxury label, raised its prices on Wednesday, citing higher manufacturing and transport costs – one of the first major luxury brands to do so this year. read more
The LVMH-owned label increased prices worldwide by around 7% overall, and by around 8% for leather goods, analysts at Exane BNP Paribas said. The price of popular handbags like the Coussin, Neverfull and Capucines rose by 20-25%, the analysts said. (…)
Consumers came out of lockdowns eager to spend their cash on luxury fashion and accessories, after months of being stuck at home. Brands are taking advantage of that spending power to make their wares even more costly and exclusive. (…)
Gucci’s small Marmont shoulder bag, which currently costs 16,500 yuan ($2,602), is seen going up around 3%, while other Gucci accessories could climb 10-15%. (…)
Chanel raised the prices of some of its most sought after handbags three times last year, with its small classic handbag now costing around $8,200, or 60% more than in 2019. (…)
Trailing EPS are now $209.31 and full year 2022 are $225.13 from $208.30 in 2021.
Since the end of July 2021 when the S&P 500 closed at 4385, 0.8% above last Friday’s close, trailing EPS have risen 15.4%, cutting the trailing P/E from 24.2 to 20.6 and the forward P/E from 21.5 to 19.2, still historically elevated.
During the same June-February period, core inflation rose from 3.8% to 6.0%. As a result, the Rule of 20 P/E only declined from 28.2 to 26.6.
Fair value on the Rule of 20 would be 2930, another 33% drop! Let’s hope we get there gradually with a combo of rising profits and lower inflation rates.
From 52-week highs:
- S&P 500 Index: -9.4% weighted (weighted P/E: 20.9)
- Average S&P 500 stock: -17.0% unweighted (average P/E: 30.2 unweighted)
- 348 stocks (70%) did worse than -9.4%: -22.4% (average P/E: 32.9 unweighted)
- 180 stocks (36%) are in bear mode: -29.3% (average P/E: 31.2 unweighted)
- 152 stocks (30%) did better than -9.4%: -5.5% (average P/E: 24.4 unweighted)
Year-To-Date:
- S&P 500 Index: -8.4%
- 10 largest S&P stocks weighing 30.7%: -12.1% (average P/E: 41.9 unweighted)
- 250 highest P/E stocks (average 47.5x) weighing 63.6%: -9.9% on average
- 250 lowest P/E stocks (average 14.2x) weighing 36.4%: -2.0% on average
The impact of higher interest rates is clear: so far, this has primarily been a P/E correction, initially hitting small and mid-caps and unprofitable companies, but now impacting larger caps, including the 10 stalwarts still carrying very high P/Es (FB and JPM have P/Es < 15; excluding these 2, the other 8 trade at 46.3x; AMZN, TSLA and NVDA = 84.3x average).
Market peaks are processes that initially hurt small caps as investors seek liquidity. Then mid-caps get targeted. Then the most expensive and less liquid S&P 500 stocks. Throughout this process, many investors seek to remain well invested and rotate from less liquid, more expensive to more liquid stocks. Lastly, TINA leaves the dance floor and cash becomes king: everything goes, but the largest weights, universally owned, get dumped as people exit funds to raise cash.
We probably have not reached the last phase when the buy-the-dippers capitulate. Measures of volume supply have been steadily rising but volume demand did not decline much as people have simply been rotating amid this increasingly volatile (read uncertain, nervous) market.
“Net Retail investment flow” (cumulative dollars bought minus dollar sold)
(Goldman Sachs via The Market Ear)
The result of this rotation: The 250 lowest forward P/E stocks average 12.1x (median 13.6x) compared with 30.3x (median 27.2) for the highest 250.
The quest for liquidity: S&P 500 vs 52-w high: -9.4%; S&P 400: -9.9%; S&P 600: -12.3%.
The S&P 500 index remains expensive but its PEG ratio is low, much lower than in 1998-2000 as Ed Yardeni shows. The PEG ratio is based on the consensus 5-year growth rate. Can S&P 500 EPS grow 18.5% annually during the next 5 years? 2014 to 2019: +7.4%; 2017 to 2022e: +14.0%.
Mid and small-caps are cheap, but can their profits grow 19.6% and 20.6% per year respectively?
This Yardeni.com log chart suggests that cheaper mid and small caps can compete with larger caps on growth:
TECHNICALS WATCH
Most technical indicators suggest continued caution. The topping process has reached larger caps. The recent increase in volatility was on heavy volume without much support. Selling bias remains stronger than buying interest.
@FadingRallies offers another way to look at liquidity: a gauge of the price impact of flows. “Bids are vanishing & real deleveraging will trigger feedback loops”.
Sentiment has deteriorated but is not at its worst. The percentage of bulls has declined but bears remain scarce. Most chips are on the correction slot (38.4%). At -9.4% on the S&P 500, we’re there. But what’s next?
The “Speculation Barometer” is another measure of sentiment. Collapsed but not quite at its low. (H/T Callum Thomas)
The S&P 500 is now 2.7% below its (still rising) 200dma (4447):
A reversal in economic surprises is generally needed for a market reversal back up.
There’s an air of December 2018 on this 13-34-Week EMA chart:
And there’s Ukraine! Geopolitical Futures had this yesterday:
- (…) it seems that Russia still doesn’t want to start on outright war. The number of troops on the border with Ukraine are less than the number of troops in the Ukrainian army, and Russia has not prepared any additional reserves. The West is ill prepared too, judging by a still modest troop presence, and military supplies from the United States and NATO have dropped sharply since Feb. 16.
- Russia wants to convey a sense that its moves are a symmetrical response to the evacuation of Western embassies and citizens from Kiev.
- Ukraine notes that the situation in the east of Ukraine is under control. The president went to the Munich conference today.
- Donbass is ready for a constructive dialogue in the contact group on specific issues and with specific proposals
- Area behind the front lines are not panicked. Stores are full of goods and products, and managers say vendors will carry groceries without interruption.
- The situation in the front-line settlements from where the evacuation is taking place (given by the telegrams of the Donbass channel) is also not very similar to martial law
Behind China’s Warning Against a Russian Invasion Is a Desire to Protect Ties With the U.S. After strongly supporting Moscow’s standoff with the West over Ukraine, Beijing aligns its position closer to Washington’s
(…) Speaking to Europe’s pre-eminent annual strategic forum Saturday, China’s Foreign Minister Wang Yi used some of the clearest language yet by a senior Chinese official in seeking to temper a Russian offensive against Ukraine. “The sovereignty, independence and territorial integrity of any country should be respected and safeguarded,” Mr. Wang told the Munich Security Conference by video link. “Ukraine is no exception.”
His comments followed Mr. Xi’s remarks three days earlier, when the Chinese leader, in a phone conversation with French President Emmanuel Macron, also called for dialogue to resolve the Russia-Ukraine crisis, remarks indicating a desire not to push European countries further away. (…)
Crisis in China’s Property Industry Deepens With No End in Sight
(…) Home sales continue to plunge and elevated borrowing costs mean offshore refinancing is off the table for many developers. Global agencies are pulling their ratings on property bonds, while a string of auditor resignations is adding to doubts over financial transparency only weeks before earnings season. An 81% stock plunge in Zhenro Properties Group Ltd. highlighted the risks of margin calls as companies struggle to repay debt. (…)
A Bloomberg index of Chinese junk dollar debt fell every day this week through Thursday, driving yields above 20%. A gauge of Chinese property shares is down 3.4% this week, taking its losses over the past 12 months to 28%, even after rallying on Friday. (…)
“While the government has become more supportive, measures have remained marginal and have not solved the liquidity crisis,” said Paul Lukaszewski, head of corporate debt for Asia Pacific at abrdn Plc in Singapore, which has portfolios with exposure to developers. (…)
China Fortune Land Development Co. failed to repay a $530 million dollar bond due Feb. 28., 2021, becoming the nation’s first real estate firm to default since Beijing drafted new financing limits for the sector in 2020. Since then, at least 11 developers defaulted, according to a Feb. 3 report by Standard Chartered Plc.
More may follow. Property firms have to find almost $100 billion to repay debt this year, even as their income streams shrink. Sales at China’s 100 biggest developers fell about 40% in January from a year earlier, compared with a 35% decline in December, according to preliminary data by China Real Estate Information Corp. (…)
Net financing [in January], which subtracts maturities from issuance, was a negative $7.3 billion, CICC analysts led by Eric Yu Zhang wrote in a Friday note. (…)
- China Vows to Contain Bond Default Risks, Deepen Reforms China could see another record year of debt defaults this year, driven by the ongoing debt crisis in the property sector
China has been proud of its attempt to successfully reform into a more consumption-based economy. But consumption is currently rising very slowly, growing only 1.7% year-on-year in December. In contrast, fixed asset investment grew 4.9% year-to-date YoY, and production grew 4.3% YoY in December.
Industrial production is somewhat difficult to control given that it is partly affected by export demand. But domestic demand for production comes from consumption and investment, which can be affected by government policy.
Consumption growth is very flat, which could be a sign that jobs and wages have not grown fast enough to trigger more consumption.
Source: National Bureau of Statistics China, ING
Among investment, consumption and production, investment growth has been the strongest, but it is still very slow by Chinese standards, which usually sees growth in the mid-teens. This part of the economy has been affected by the deleveraging of the real estate sector. Local government officials have been busy restructuring their own real estate market policies, and infrastructure investment plans have been left behind. (…)
Consequently, we are now revising our GDP forecast for China in 2022 to 4.8% from 5.4%. (…)
Illegal border crossings push Hong Kong Covid outbreak into China Pressure from Beijing to eradicate outbreak raises prospect of stricter controls
China’s New Crackdown Shows $1.5 Trillion Tech Rout Not Over Yet
- China Orders Cuts for Food-Delivery Fees, Sparking Tech Selloff Shares of online delivery giant Meituan slide to a 19-month low
(…) Its shares tumbled 15% in Friday afternoon trading in Hong Kong to their lowest close since July 2020. The drop shaved $26 billion off Meituan’s market capitalization, taking it to the equivalent of about $148 billion, according to FactSet.
Meituan has lost more than half its value over the past year following Beijing’s wide-ranging crackdown on internet-technology companies. On Friday, the Hong Kong-listed shares of e-commerce giant Alibaba Group Holding Ltd., which has a food-delivery business called Ele.me, fell 2.8%, while Tencent Holdings Ltd. —a big Meituan shareholder—dropped 1.9%.
China’s state planner and 13 other Chinese government bodies said in a joint statement that authorities would guide delivery-platform operators on lowering the fees charged to restaurant owners to reduce catering businesses’ operating costs. (…)
On Friday, Chinese authorities also introduced other measures to support the service sector, which has been a persistent laggard in China’s post-pandemic recovery. They included tax breaks and additional financial support for struggling businesses, as well as monthslong rent exemptions for small service companies that lease properties from state landlords.