U.S. Orders for Big-Ticket Products Fell in September Amid Supply Constraints Decline for items such as washers, computers and cars comes as manufacturers face higher costs, parts and labor shortages
New orders for products meant to last at least three years decreased 0.4% to a seasonally adjusted $261.3 billion in September when compared with August, the Commerce Department said Wednesday. Orders last fell in April, followed by four months of gains.
Economists surveyed by The Wall Street Journal had forecast a 1% decline.
Orders increased a revised 1.3% in August from the prior month, down from an earlier estimate that had shown a 1.8% gain. (…)
New orders for nondefense capital goods excluding aircraft—so-called core capital-goods, a closely watched proxy for business investment—were up 0.8% in September compared with the previous month. (…)
Mr. Faucher pointed to declines in shipments and new orders for motor vehicles and parts for a second straight month in September, indicating supply-chain issues in the auto industry continued to weigh on production and sales. “That was the only big area of weakness, suggesting that the supply chain problems are less of a concern for other industries,” he said. (…)
Nondef cap. goods ex-air orders grew 7.1% annualized in Q3, down from +15.1% a.r. in the first half, but still very strong with a solid September. The series is up 18.9% from its pre-pandemic level.
Unfilled orders for durable goods rose 0.7% in September (4.7% YoY) following a +0.9% in August. Order backlogs for durable goods ex-transportation advanced 0.9% in September (15.2% YoY), following August’s +1.1%, continuing to reflect supply-chain disruptions.
Bank of Canada: Getting ready to hike
In a hawkish shift, the Bank of Canada has decided to end its QE asset purchases immediately and has brought forward its guidance on the first rate hike to mid-2022. With the economy growing strongly, creating jobs and experiencing more sustained inflation, there is the real prospect of 100bp of rate hikes next year, and CAD should remain broadly supported.
Ahead of the meeting, the expectation was for the Bank of Canada to taper its weekly asset purchases from C$2tn to C$1tn and indicate that they would likely be concluded in December. Instead, we got a decidedly more hawkish outcome with a decision to end QE immediately and forward guidance on the timing of a likely rate hike moved from the second half of 2022 to “the middle quarters” of 2022.
The accompanying statement is very upbeat on both global and domestic economic prospects. Canadian GDP growth is forecast at 5% this year, 4.25% in 2022 and 3.75% in 2023, which is above the economists’ consensus of 5%, 4% and 2.4%, respectively. The BoC expects growth to be supported by strong consumer demand, business investment and a robust US growth story that will boost exports. Remember, too, that the energy sector makes up around 10% of the Canadian economy and the surge in prices will stimulate more drilling.
The Bank is also more wary on inflation. September CPI came in at an 18-year high of 4.3% year-on-year, while the core trimmed measure is at a 30-year high, with the statement acknowledging that inflation pressures have been “stronger and more persistent than expected“. The BoC highlights labour shortages in key sectors and manufacturing shortages and transportation bottlenecks, with rising energy costs set to further fan the flames.
BoC Governor Tiff Macklem has already admitted that supply chain strains and production bottlenecks “are not easing as quickly as we expected” which means that inflation is “probably going to take a little longer to come back down”. (…)
Consequently, the risks appear to be increasingly skewed towards the Bank of Canada hiking interest rates by a full percentage point in 2022. (…)
We doubt rate expectations can reasonably get more hawkish than this, but the Canadian dollar has now clearly cemented its role as a very attractive bullish bet, standing on the good side of the energy story and counting on an imminent tightening cycle. We’ll be monitoring positioning indicators closely to see whether the loonie is seeing some overcrowding of speculative buyers.
Looking at CAD’s outlook for the rest of 2021, our view is that we’d likely need to see some deterioration in market sentiment or witness a correction in oil prices for USD/CAD to stage a sustained rebound. That’s because we do not expect the forthcoming data-flow in Canada to be detrimental to the loonie or to cause a significant re-pricing of rate expectations.
We are currently targeting 1.23 in USD/CAD as a year-end forecast, but given the faster-than-expected move by the BoC and seasonal USD weakness in December, we see downside risks (i.e. USD/CAD closer to 1.20) to our scenario.
John Authers today: “Remarkably, next March is now regarded as a “live” FOMC meeting, where a rate hike is possible. Not long ago, the assumption was that the Fed would do nothing all of next year.”
McDonald’s higher U.S. menu prices fuel earnings beat; chain raises sales forecast
The fast-food giant’s menu prices are roughly 6% higher compared with a year ago, offsetting increased labor and commodity costs. Executives said the company and its franchisees use a pricing advisory service to understand how much customers are willing to pay. (…)
In McDonald’s home market, same-store sales increased by 9.6% from a year earlier, when the fast-food giant started to see demand bounce back. On a two-year basis, same-store sales are up 14.6%. (…) In October, the chain is seeing same-store sales growth in the low double digits on a two-year basis. (…)
The chain is also forecasting full-year commodity costs to rise 3.5% to 4%, with more pressure coming in the fourth quarter.
LABOR
Job Seeker Interest Shifting Toward Higher Wage Jobs Indeed’s new Relative Job Seeker Interest metric shows workers are drawn to jobs advertising higher wages and that offer more opportunity to work remotely.
- Job seekers are substantially less interested in lower-wage, in-person sectors like loading & stocking and personal care & home health than they were before the pandemic.
- Median advertised hourly wages are strongly correlated with rising job seeker interest, even more than a sector’s share of remote work.
- For employers in low-wage, in-person sectors, raising wages may be the only significant way to attract more applicants.
Workers Press for Power in Rare Advance for U.S. Labor Movement Along with the Great Resignation and #Striketober, jobless Americans are fighting for unemployment reform that could translate into lasting leverage.
(…) Private-sector union members are authorizing strikes at a rate rarely seen in modern America, with more than 100,000 workers recently threatening or mounting work stoppages in health care, higher education, telecommunications, transportation, television, mining, manufacturing, music, metals, oil, carpentry, whiskey, and cereal. The internet dubbed October #Striketober. (…)
On Oct. 12 the U.S. Bureau of Labor Statistics reported that an unprecedented 2.9% of the entire workforce, some 4.3 million people, quit their jobs in the month of August, even as the government was confirming it would nuke extra jobless benefits in hopes of forcing people to work. (…)
Without Covid supplements, U.S. unemployment insurance is meager compared with benefits in peer countries, delivering beneficiaries roughly 40% of their prior income on average—too little to stave off a crisis for those most in need. It also excludes millions of people, including many temps, part-timers, gig workers classified as contractors, undocumented immigrants, and people who quit their jobs because of domestic violence or child-care needs. Also the present system doesn’t require employers to tell workers such a benefit exists. (…)
The Biden infrastructure package is Unemployed Action’s biggest test so far. Wyden and Ocasio-Cortez have put forward measures for the final bill that would require states to offer 26 weeks of unemployment benefits, add eligibility for workers looking for part-time jobs, and demand that employers tell departing workers how to apply for the benefits. Lawmakers plan to use the reconciliation process to ease passage of the massive infrastructure bill. But that will still require the votes of every Senate Democrat, including Manchin and others who’ve been pushing to shrink the bill’s price tag. (…)
(…) There is little evidence to suggest that people here are resigning en masse. Instead, it appears that Canadians are exercising some caution as the economy recovers from the worst shock in generations.
“It doesn’t look like we’ve seen a huge wave of resignations,” said Brendon Bernard, senior economist at job-search portal Indeed Canada. “We don’t have any hard data in Canada to really show that there’s a sustained upswing in employed workers voluntarily leaving their jobs – at least more so than normal times.” (…)
The U.S. numbers suggest a very different situation is playing out. In August, 2.9 per cent of American workers (or 4.3 million people) quit their jobs, the highest share ever recorded in data that go back two decades. The quits rate was especially high in the hard-hit retail (4.7 per cent) and hospitality (6.8 per cent) industries. (…)
It may simply take time for Canada to exhibit more signs of labour churn. A recent Bank of Canada survey found people are growing more confident in the job market. When asked about the probability of leaving a job voluntarily in the next year, the median respondent said there was a 19.2-per-cent chance of that happening, the highest since the survey began in 2014.
“This suggests that some people are more willing to change jobs now that the economy has reopened and vaccination rates have increased,” the bank said. “It could also reflect pent-up demand for changing jobs. That is, some workers may have delayed looking for a different job while labour markets were weak earlier in the pandemic and when people were more concerned about the virus.” (…)
(Source: Macrobond, ING)
Euro-Area Consumers Most Concerned About Inflation Since 1993
The Russian leader ordered Gazprom PJSC late Wednesday to focus on filling its European storage sites from Nov. 8, a day after it completes the process in Russia. He said it should ease supply tightness in Europe, where high prices are squeezing industry and fueling inflation. (…)
It’s the latest intervention in the market from Putin to talk down gas prices, even as some European officials suspect he’s been holding back supply to pressure Europe into approving a controversial new pipeline. Russia is also concerned that excessively high prices could destroy demand, and would like to see them fall by about 60%, according to people familiar with the situation.
Higher Norwegian gas flows and a drop in Chinese coal prices are also adding downward pressure to prices, Engie EnergyScan said in a note. Norway’s Equinor ASA promised Wednesday to boost exports. Maintenance at its giant Troll field in December will be shorter than previously planned, system operator Gassco said Thursday, also a bearish factor. (…)
While benchmark European gas has halved from breaking record after record earlier in October, there’s still concern that prices could soar again in the event of a cold winter as supplies from Russia remain capped and competition with Asia for cargoes of liquefied natural gas is intense. (…) Europe started the heating season with the lowest inventories in more than a decade. (…)
CHINA SALES MANAGERS INDEX (SMI): A Buoyant October but Very High Price Rises Feeding Through
The combined China Manufacturing and Services Index reflected the overall buoyant conditions prevailing in the Chinese economy in October. Business Confidence improved over the month to a high 54 reading.
The month-on-month Sales Growth Index increased again to a very high 55.8 level.
The only negative was the Prices Charged Index now up at a eight and a half year high, mainly but not exclusively due to the pressure on Manufacturing prices.
The above “Profit Margins” chart consolidates manufacturing and services. Here’s the chart on manufacturing margins illustrating the sudden and significant cost squeeze:
Hence:
EARNINGS WATCH
We now have 192 reports in, an 83% beat rate and a +12.4% surprise factor.
Trailing EPS are now $195.34. 2021e: $201.35. 2022e: $220.77.
In Europe, 76 of 327 STOXX 600 companies have reported Q3. The beat rate is 66%, high for Europe, and the surprise factor +15.6% (L.T. avg. +5.7%), also heavily skewed by banks reversing loan-loss provisions.
TECHNICALS WATCH
Yesterday, the S&P 500 Index declined 0.4% but its equal-weighted clone dropped 1.3%!
- The iShares Russell MidCap Index lost 1.5% while the S&P 600 and the Russell 2000 shed 2.0% and 1.8% respectively.
Increasingly concentrated…
Amazing!!
GS via The Market Ear
CHINESE COCKROACHES
Another Chinese Developer Is Sinking as Junk Bonds Sell Off
Kaisa Group Holdings Ltd. shares plunged a record 18% in Hong Kong after two credit assessors downgraded the Shenzhen-based developer and said it may struggle to refinance dollar debt. The company’s 6.5% bond due Dec. 7 fell 5.9 cents to 52.1 cents on the dollar, poised for a record low, amid a broad selloff in debt issued by Chinese developers. (…)
Kaisa has a $400 million note due on Dec. 7, and $2.8 billion of dollar bonds maturing in 2022, according to data compiled by Bloomberg. That’s on top of about $1.1 billion of interest payments for next year. While Evergrande hasn’t tapped the dollar bond market since early last year, Kaisa sold $2.4 billion of the notes in 2021. (…)
“We [S&P] view the company’s capital structure as unsustainable amid challenging operating conditions and a tight funding environment.” (…)