FIBER: Industrial Commodity Prices Are Little Changed
The Foundation for International Business and Economic Research (FIBER) also has its own leading economic index. It has levelled off in the past year but is still very high compared with its pre-pandemic level as Rosenberg Research illustrates.
Fixed income investors are getting more angsty about inflation. Post GFC, 10Y breakevens remained above the 5Y as most everybody expected QEs to stoke inflation. They proved wrong. This time the 10Y are mostly in transitory camp and are voting against the 5Y, again…
Coca-Cola Is Having a Moment Beverage giant is outperforming even other consumer-staples companies in ability to pass on rising costs
- Inflationary cost pressures are broad-based and continue to increase with little sign of near-term relief and have resulted in consumer price increases across CPG categories and beyond.” – The Procter & Gamble Company (PG) CFO Andre Schulten
- Four in Ten U.S. Small Businesses Plan to Raise Prices by at Least 10% Many businesses are planning increases that are above the current rate of national inflation.
(…) Overall, more than two-thirds of the respondents plan to increase prices in the next three months, according to the [NFIB] survey, conducted between April 14 and April 17 among 540 business owners. Almost half of the small firms are planning increases of 4% to 9%. (…)
The NFIB found that price increases are having a “substantial” impact on 62% of the respondents and a “moderate” impact on almost a third of them. No one said inflation had no impact on their business. (…)
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‘Super Dry’ Brewer Asahi Joins Japan Businesses Raising Prices Retail prices will increase 6% to 10%, a company spokesman said.
(…) shoppers in Japan have become accustomed to flat prices, and even deflation, for the better part of three decades. (…)
Earlier this month, convenience-store operator Lawson said it will raise the price of its popular “Karaage-Kun” chicken nugget snack for the first time in 36 years, by 10% to 238 yen ($1.86). McDonald’s, which once slashed the price of its burger to as little as 59 yen in 2002, said in March that it will add 10 to 20 yen to prices of some products, citing higher costs for beef, wages and transport. (…)
Global Supply Chain Crisis Flares Up Again Where It All Began Ports are already snarled, with the $22 trillion trade in global goods facing months of severe disruption.
(…) “We expect a bigger mess than last year,” said Jacques Vandermeiren, the chief executive officer of the Port of Antwerp, Europe’s second-busiest for container volume, in an interview. “It will have a negative impact, and a big negative impact, for the whole of 2022.” (…)
Key policy makers are coming around to the idea that a sea change in the developed world’s supply lines is necessary. U.S. Treasury Secretary Janet Yellen calls her idea for more resilient trade linkages “friend-shoring” — a not-so subtle jab at China and Russia. Much of the shift hinges on whether the pandemic has convinced consumers to accept higher prices for products made closer to home, and at least one consultant’s analysis says they are. (…)
- The tides are turning 2021 Reshoring Index
(…) This redefinition of reshoring is emerging as more companies pursue the best cost instead of the lowest cost and weigh cost against other factors such as supply chain resiliency and sustainability. And more companies are looking at each other to assess if there will be enough critical mass in this redefined reshoring movement to build a supplier ecosystem, either domestically or in a nearshore location, that can rival what China has built. (…)
It won’t be classic reshoring but an agile and dynamic rethinking of reshoring, incorporating and leveraging models where, for example, components and materials supplies are nearshored and final automated assembly and testing is done in the United States. It’s an evolving definition that allows manufacturers to source a portion of their materials and components in nearby locations such as Mexico, Central America, and even Canada while still being able to say their products are manufactured in the United States.
In this year’s survey, 92 percent of executives express positive sentiments toward reshoring.
Following some of the trends described above, 79 percent of executives who have manufacturing operations in China have either already moved part of their operations to the United States or plan to do so in the next three years, and another 15 percent are evaluating similar moves.
Kearney’s China Diversification Index, which first appeared in the 2018 Reshoring Index report and tracks the shift in US manufacturing imports away from China to other Asian LCCs, found that China’s share continues to decrease, from 66 percent back in 2018 to 55 percent in 2021.
Starting in Q4 2020, US reliance on China diminished as the other Asian LCCs started to recover from the pandemic and American companies began to again diversify away from China as they had begun to do before COVID-19.
- U.S. Energy Secretary touts continental alliance to thwart ‘petro-dictators’ The United States backs a continental approach to clean energy that would see the U.S. and Canada working together on critical minerals and other resources to bolster security against threats such as the war in Ukraine, says U.S. Energy Secretary Jennifer Granholm.
(…) “It’s the cost, but it is also the security crisis in Ukraine. It just makes us all want to work even harder to accelerate the clean energy transition and to bolster the supply chains that depend on our allies alone, so we can be much less vulnerable to being under the thumb of petro-dictators like [Russian President Vladimir] Putin,” she said. (…)
From The Transcript (my emphasis):
There is a big gap between supply and demand currently in semis
“…the demand that we’re currently seeing comes from so many places in the industry. Technology-wise, market-wise, geography-wise, it’s so widespread that we have significantly underestimated, let’s say, the width of the demand. And I think that I don’t think is going to go away.
And it just — it’s an anecdote, but I met a very large — the executive of a very large industrial company, a conglomerate, last week. And actually, they told me that they’re buying washing machines to rip out the semiconductors to put them in industrial modules. I mean, that’s happening these days. Now, you could say, that’s an anecdote. But, to be honest, it happens everywhere. It is — like I said, it is 15, 20, 25-year old semiconductor technology that is now being used everywhere –.
But currently, we see no signs of any weakening in our customer base, zero. And even if the demand weakens, there’s a big gap between the demand and our capacity.” – ASML Holding N.V. (ASML) CEO Peter Wennink
There is a shortage of electric-car batteries that is even bigger than the computer chip shortage
“Semiconductors are a small appetizer to what we are about to feel on battery cells over the next two decades. Put very simply, all the world’s cell production combined represents well under 10% of what we will need in 10 years. Meaning, 90% to 95% of the supply chain does not exist” – Rivian (RIVN) CEO RJ Scaringe
Workers Are Changing Jobs, Raking In Big Raises—and Keeping Inflation High Around 20% of prime-age workers expect to leave their job within a year, an exclusive ZipRecruiter survey found
About 64% of job-switchers said their current job provides more pay than their previous job. Among these workers, nearly half received a raise of 11% or more, according to a ZipRecruiter survey provided exclusively to The Wall Street Journal. Nearly 9% are now making at least 50% more.
Elevated rates of job switching could continue: Among prime-age workers aged 25 to 54, around 20% anticipate leaving within a year, while another 26% said they see staying one to two years, the survey said. Historically, the average job lasts four years, said Julia Pollak, chief economist at ZipRecruiter. (…)
Annual wage growth for the typical worker hit 6% in March, averaged over three months, according to the Federal Reserve Bank of Atlanta’s wage tracker. That is up from 3.4% a year earlier and above the 3.7% rate in February 2020, before the pandemic, when the unemployment rate was at a 50-year low. (…)
Annual wage growth for the typical job-switcher was 7.1% in March, averaged over three months, up from 4% a year earlier and the fastest pace since records began in 1997, Atlanta Fed data show. Those wage pressures are filtering through to everyone else as employers compete to keep staff. Wage growth for those who stayed in their jobs rose at 5.3% in March, near the fastest pace since at least 1997. (…)
About 2.9% of workers quit their jobs in February—far above the prepandemic February 2020 rate of 2.3%, as workers are confident in their job prospects. (…)
As discussed yesterday, housing will be the first casualty of rising rates:
Whirlpool Says Appliance Demand Is Waning, as Costs Mount The appliance maker cut its sales forecast and began a strategic review of its Europe, Middle East and Africa division.
Whirlpool said Monday that sales fell 8.2% in its first quarter of this year compared with the same quarter a year before. The company said revenue over the three months ended March 31 remained 14% higher than the first quarter of 2020, indicating that people are continuing to spend more on appliances than before the pandemic. (…)
Whirlpool said that industrywide volumes in North America declined 4% in the quarter from a year before, but remained 24% above 2019 levels.
Whirlpool said it now expects that the appliance industry in North America won’t grow this year. The company had previously expected up to 3% growth. (…)
Whirlpool said that being a large player in a specific region or country has gained importance compared to having a big global presence, because of geopolitical tension, rising freight costs and increased tariffs. (…)
Whirlpool projected up to $1.75 billion of additional material inflation this year, primarily driven by rising steel and resin costs. That is $600 million more than its previous estimate.
The company also cut its revenue forecast, forecasting up to 3% revenue growth this year, instead of the 6% it was aiming for previously. (…)
Funny note here: could it be that some of the demand Whirlpool is seeing is actually demand for semis as per ASML’s CEO’s anecdote above?
- Mattress Companies Trim Costs, Delay Launches as Demand Falls Makers of mattresses are cutting costs and delaying product launches amid falling demand for big-ticket items, marking a reversal for a sector that benefited from increased home-improvement spending early in the pandemic.
Housing demand is down in China
“Well, today, we are talking about minus 15% latest forecast on China. And the main reason behind that is that the construction industry situation has further worsened. In particular, the consumption of the housing inventory, where last time figures showed that it was still within healthy levels. And today, unfortunately, the latest figures released from China show that in Tier 2, 3, and 4 cities, the housing inventory, unfortunately, is shifting to alert levels, while at the same time, housing stats continue to fall. So the China market, which of course is large in the world, is providing itself another challenge. So this was the overall picture.” – Schindler Holding AG (SHLAF) CEO Silvio Napoli (via The Transcript)
Goldman Sachs’ construction proxy for China will likely remain weak for a while…
Source: Haver Analytics, Goldman Sachs Global Investment Research
…dragging its CAI even lower:
Source: Goldman Sachs Global Investment Research, NBS, CEIC
SENTIMENT WATCH
The Big Money is fleeing stocks again
The latest semi-annual poll of large money managers from Barron’s showed a sharp drop in bulls. The survey represents the attitudes of hundreds of managers with influence over hundreds of billions of dollars under management.
While half of them were optimistic about the prospects for stocks last October, only a third of them are now. That’s the 2nd-lowest percentage of bulls in the survey’s history, next to October 2019, when only 27% of managers were bullish.
Even though they’re not optimistic, they still expect the S&P 500 to gain nearly 9% from mid-April through December. That’s par for the course – they almost always expect the S&P to gain about 7% over the next six months.
The percentage of bears rose, so the net difference between bullish and bearish managers plunged from +38% to only +11%, again the 2nd-lowest reading in 23 years.
We’ve looked at this survey many times over the years, concluding that the managers can be a slight contrary indicator at extremes, but it’s not a decisive edge. While some of the market’s better long-term returns came after depressed sentiment, the S&P 500 performed better when managers were bullish and worse when they were bearish. (…)
When fewer than half of managers were optimistic, the S&P 500 returned an average of -1.1% and showed a positive return 55% of the time. The worst losses came when managers were not inclined to step in and buy.
But when more than half of managers were bullish, the index jumped an average of +7.3%, with 83% of periods showing a positive return. Most notably, the losses were small, none more than -4%.
Investors always seem to have a knee-jerk contrarian response to any survey of other investors. Maybe it’s an inherent need to feel superior to others, even though the vast majority are trend-followers when actually putting money to work. People want to feel superior, but they need to be comforted by a crowd. When it comes to the kinds of large money managers surveyed by Barron’s, there is compelling evidence that we should avoid this tendency in ourselves and not take their current pessimism as a sign that we should feel more optimistic. Quite the opposite, in fact. If those with influence over such large piles of money do not feel inclined to buy the dip, then stocks tend to struggle much more than when those people are feeling better about things. Add this to the pile of recent headwinds.
Germany to Send Heavy Weapons to Ukraine
Pentagon Chief Says Stakes of War Reach Beyond Europe
Russia’s Lavrov Says NATO Risks Turning Ukraine Conflict Into a World War
THE OTHER WAR
We’re Fighting Covid With Faulty Data Measurements of illnesses and vaccinations haven’t kept up with the changing nature of the pandemic.
