FLASH PMIs
Eurozone downturn moderates at start of 2024, but price pressures intensify
The seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index, based on approximately 85% of usual survey responses and compiled by S&P Global, rose from 47.6 in December to 47.9 in January. Although signalling an eighth successive month of falling output, January’s decline was the smallest registered since last July. The reading nevertheless suggests that the eurozone’s deepest contraction since 2013 (if early pandemic months are excluded) has persisted into the new year.
Although goods producers continued to lead the downturn, with manufacturing output falling for a tenth consecutive month in January, the fall in factory production was the smallest witnessed since last April. New orders for goods likewise showed the smallest decline for nine months.
Although services activity fell for a sixth straight month, the pace of decline gathering momentum slightly to register the steepest fall since last October, new business placed at service providers fell at the slowest rate since last July, providing a further hint of a cooling in the demand downturn.
January also saw the region’s export decline easing, with overall new export orders dropping at the slowest rate for nine months thanks to reduced losses for both goods and services.
Despite rising in January, the seasonally adjusted New Orders Index was below that of output for a twenty-third successive month, meaning companies relied on backlogs of work to help sustain current operating levels. Backlogs of orders consequently fell for the eighteenth time in the past 19 months, the rate of decline unchanged on the marked pace seen in December to point to a further depletion of the order book pipeline. Manufacturing backlogs continued to fall especially sharply, albeit less steeply than in December, while service sector backlogs were eroded at the fastest pace since February 2021.
Employment increased fractionally in January as a slight upturn in net hiring in the service sector offset an eighth successive monthly fall in manufacturing payroll numbers. Although the marginal overall rise in employment signalled by the flash PMI represented a modest improvement on the minor declines seen in the closing two months of 2023, the largely unchanged picture continues to reflect a reluctance to add to headcounts amid a weak demand environment.
As well as reducing employment, manufacturers cut their purchasing activity for a nineteenth successive month in response to lower production needs in the months ahead, resulting in a twelfth consecutive monthly fall in inventories of inputs. However, inventories were also impacted by delays in the supply of inputs. Supplier delivery times lengthened on average for the first time in a year in January, widely linked to shipping delays caused by disruptions in the Red Sea. The extent to which supplier lead times lengthened on average nevertheless remained far less severe than recorded throughout much of the 2020-2022 pandemic period.
Despite additional costs associated with shipping delays, manufacturers’ average input costs fell sharply in January for an eleventh successive month, albeit with the rate of decline easing slightly to register the smallest fall since last April. Eurozone service providers meanwhile reported an increased rate of cost growth, to the highest in eight months, causing overall cost growth across goods and services to accelerate to the fastest recorded since last May.
Faster input cost inflation was matched by an upturn in selling price inflation in January. Average prices charged for goods and services also rose at the steepest rate since last May. Having fallen to a 32-month low last October, the rate of selling price inflation has now ticked higher for three successive months to therefore remain elevated by the historical standards of the survey. Although goods prices fell at a slightly increased rate, down for a ninth straight month, charges for services rose in January at a rate not seen since last June. (…)
Japan: Strongest rise in private sector activity for four months
The Japanese private sector economy signalled a renewed expansion in output at the start of 2024 following the stagnation seen at the end of last year. While only modest, the rate of growth was the strongest seen since September. Service providers continued to lead the way with a steeper increase in business activity, with the expansion strengthening to a four-month high.
Manufacturers meanwhile signalled an eighth consecutive deterioration in operating conditions that nonetheless eased from that seen in December.
Forward-looking indicators from the survey suggest the potential for demand and activity to rise over the coming months. Composite new orders rose for the first time in four months, albeit only marginally. There was a further rise among services firms, while Japanese manufacturers indicated a sustained and sharp decrease in new order inflows. Backlogs of work broadly stabilised in January, providing an early sign that output was starting to be supported by improved demand rather than the fulfilling of prior orders
On the price front, the rate of input price inflation remained elevated by historical standards, with the latest rise in operating expenses little-changed from the marked uptick seen in December. That said, Japanese private sector firms looked to absorb some of these costs, as the rate of output charge inflation eased to the softest since February 2022.
The US flash PMI is out later today.
China’s Stock-Market Rout Has Become a Political Problem The country’s cabinet has urged action, and state firms have started buying
(…) The State Council, the country’s top government body, said Monday that authorities should take stronger and more effective measures to stabilize markets and boost confidence. It called for better regulations, more transparency and an attempt to improve the quality of listed companies.
The cabinet meeting, which analysts said was a direct response to the stock market selloff, was chaired by Chinese Premier Li Qiang—the country’s No. 2 leader. It led to speculation that China is planning a big stimulus package to boost the stock market, although market participants said the details are murky. (…)
The meeting came days after stock analysts noticed another sign of strong government support: a rash of buying by the so-called national team, a group of state-linked firms that Beijing sometimes pushes to buy shares and other assets. The national team is typically defined by analysts to include insurers, pension funds and China’s sovereign-wealth fund.
These investors started scooping up exchange-traded funds as early as last week, according to people familiar with the matter. Five of China’s biggest ETFs got a combined $5 billion of net inflows on Monday, the biggest on record, data from research firm Z-Ben Advisors shows. (…)
- China Boosts Stimulus by Allowing Banks to Keep Smaller Reserves
- China Earnings to Deepen Woes of Worst-Performing Stock Market
(…) “The upcoming 2023 annual report/4Q 2023 result season will be another miss,” Morgan Stanley strategists Laura Wang and Catherine Chen in Hong Kong wrote this week in a research note. “Major downward earnings estimates revisions are likely, which will cap valuation re-rating opportunities.” (…)
Compiling profit forecasts for China’s companies is relatively difficult given a general lack of transparency and the reluctance of the firms to provide accurate earnings guidance. The nation’s listed enterprises are expected to say earnings rose 5.8% in the fourth quarter from a year earlier when the nation was largely under a lockdown, according to an analysis by China Merchants Securities based on the CSI 300 Index. (…)
Earnings from the financial sector are set to remain tepid given the shrinking net interest margin and weak capital market, while property will for sure be “very weak,” Chen said. Consumer companies may also underperform considering the sentiment and macro outlook, he said.
(…) The order from Premier Li Qiang, meant to calm investors, seems to have done the opposite. China’s history of botched market rescue efforts contributed to that, fueled by uncertainties over Beijing’s long-term policy roadmap. For a metric of how much shares have slumped, consider this: The value of China’s equity market has never been this far behind the US. (…)
China’s recession is hiding in plain sight. It is the result of a major negative wealth effect on consumers caused by plunging real estate and stock prices. (…)
For starters, the Shenzhen Real Estate stock price index is down a whopping 58% since July 9, 2020. The China MSCI stock price index has plunged 62% since February 17, 2021.
How bad is it? More than $6 trillion has been wiped out from the market value of Chinese and Hong Kong stocks since the 2021 peak, a January 23 Bloomberg article reports. Furthermore: “Policymakers are seeking to mobilize about 2 trillion yuan ($278 billion), mainly from the offshore accounts of Chinese state-owned enterprises, as part of a stabilization fund to buy shares onshore through the Hong Kong exchange link, said the people, asking not to be identified discussing a private matter.”
THE ROBOTS ARE COMING!
Following yesterday’s Humanoid robots will join BMW’s production line:
A restaurant robot might mix your next cocktail
He can make 65-70 drinks an hour, never needs a bathroom break and doesn’t ask for a tip — and soon, he’ll be able to make conversation and take your order.
- Adam the robotic bartender is an example of a new breed of restaurant robots that are moving from novelty items to hospitality mainstays.
- A dozen Adam robots have been deployed nationwide so far, in venues such as the Courtyard by Marriott in downtown Los Angeles, the Cloutea boba shop at Caesar’s Palace in Las Vegas, and the Botbar Coffee chain.
- Adam also gets rented out for parties and conferences.
- A complete Adam with a custom setup table and equipment sells for $180,000, though Casella says they’re experimenting with other pricing models and partnerships.
- Robot servers and bartenders interact with customers, while kitchen robots shoot kale into salads, fry tortilla chips and cook burgers.
- Chipotle, for one, is investing in a “digital makeline” where robots prepare salads and bowls. (It already uses a machine named Chippy to make tortilla chips and a contraption called the Autocado to mash up the green stuff.)
- Sweetgreen’s new automated chop-and-prep system “can produce up to 100 salads in 15 minutes, with improved accuracy,” per Restaurant Business.
- Chipotle’s founder, Steve Ells, is opening a chain of robot-run vegetarian fast-casual restaurants in New York City called Kernel, Eater reports.
Yesterday, my son David sent me this link to a Jim Fan Ted Talk with this note:
This morning you had a section on humanoid robots. This year, many humanoid robot companies will reach landmarks. And yet, so far, the only use-case of economic value is manipulating totes in a warehouse. This is about to change massively – not only for humanoid robots but for any form of digital or physical “agent”.
In this video Jim Fan recounts his personal achievements from 2023 and dreams of a foundational universal AGI model. He is quite exceptional, and I had heard of all his projects before, but his are of course only a fraction of the work being done.
Note once again that he is another Chinese (or Taiwanese) researcher trained in the USA. To add even more water to the wheel, there is something stunning about AI conferences. At any other academic conference, English is spoken overwhelmingly. But at an AI conference, language heard was about 50/50, Chinese/English, and that only around 20% were native English speakers.
MORE FOOD FOR THOUGHT
(Sponsored by Ozempic manufacturers) 
The restaurant industry has a heartbeat after years on life support
- Nearly 53,800 restaurants opened their doors last year, up 10% from 2022, based on new Yelp listings.
- Some of the fastest-growing restaurant categories include dessert shops (up 66% in 2023 compared to 2022), creperies (+63%) and hot pot joints (+53%).
McDonald’s doubles down with Double Big Mac
- The nutrition for the Double Big Mac is not yet available. But the regular Big Mac has 590 calories.
- The Double Big Mac arrives two days after Subway released a trio of footlong snacks and follows Costco’s new giant cookie that packs 750 calories.
Alaska Air CEO says loose bolts found in ‘many’ Boeing jets.