U.S. Consumer Confidence Surged in August to Near 18-Year High A measure of economic confidence among American households rose in August to its highest level since October 2000.
Not to be used as a timing tool:
U.S. Trade Deficit in Goods Widened to $72.2 Billion in July A preliminary report showed the deficit widened last month to $72.2 billion from $67.9 billion in June. The gap had narrowed slightly from February to May but now appears to have widened two months in a row.
(…) Exports of goods dipped to $140 billion last month from $142.5 billion in June, while imports of goods rose to $212.2 billion, up from $210.4 billion in June on a seasonally adjusted basis, according to the Commerce Department’s latest “Advance Economic Indicators” report, which provides an early and partial snapshot of trade and inventories data. (…)
Trade Deal Threatens Mexico’s Role as Car Hub Mexican government anticipates about 32% of vehicles manufactured in the country won’t meet new content rules to qualify for free trade
(…) But under the new agreement, many of those Mexican-built models may not meet the tougher content requirements, potentially forcing them to be subject to a 2.5% tariff.
“Auto makers are going to face some tough decisions,” said Kristin Dziczek, an industry expert at the Center for Automotive Research in Ann Arbor, Mich. Rather than make big changes to their production plans, car makers are more likely to pass along the 2.5% tariff to consumers or simply stop selling those lower-margin models in the U.S., she said. That could end up increasing prices or limiting the selection of cars typically bought by budget-minded consumers, analysts say.
(…) nearly a dozen models assembled in Mexico appear to run afoul of the new rules, according to a Wall Street Journal analysis of 2018 model-year data from the National Highway Traffic Safety Administration. (…)
NHTSA publishes an online database listing the share of parts coming from various countries for every vehicle on the market. Among the Mexican-made models that won’t likely meet the new requirements are the Honda HR-V, Nissan Sentra and Ford Fusion, according to the government content data. Also included are car models such as the Beetle and Golf, manufactured by Volkswagen AG in Mexico. Volkswagen builds 41% of its U.S.-sold vehicles in Mexico—more than double that of GM, the next-largest auto maker building cars in Mexico for shipment to the U.S. (…)
The U.S.-Mexico trade agreement comes as more Mexican exports are being shipped to markets outside of the U.S. and as American demand for traditional sedans has dropped in favor of larger vehicles such as sport-utility vehicles.
Mexico’s non-Nafta exports are projected to grow from 19% of its vehicle output in 2015 to 29% in 2023, according to estimates from the Center for Automotive Research.
BMW AG is expected to open a factory in Mexico next year to build its 3-Series sedan that it plans to sell in unspecified export markets.
The agreement could provide a disincentive to further direct investment by car companies in Mexico, said Manuel Montoya, head of the Automotive Cluster of Nuevo Leon, an industry group that represents suppliers in Mexico’s industrial north.
Mr. Montoya said the requirement that 40% to 45% of car components be made by workers earning at least $16 an hour would force “a large part of the production be done in Canada or the U.S., because in Mexico those types of jobs just don’t exist.”
Asian and European auto makers, with plants in Mexico are likely to have to redraw their supply chains to comply with the new rules, because these companies typically source parts from their home countries. Toyota, Nissan, Mazda , Kia, BMW and others all have assembly plants in Mexico.
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Trump’s Trade Deal About Nothing His Nafta renegotiation has involved a lot of pain for little reward.
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Donald Trump’s updated Nafta agreement will do more harm than good
Canada ready to make concessions on dairy to secure NAFTA deal Subscriber content Ottawa aims to protect dispute resolution, cultural industries and generic drugs
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A Chinese Tesla Rival Launches $1.3 Billion U.S. IPO Chinese electric-vehicle maker NIO launched a U.S. stock sale that could raise up to $1.32 billion, moving to tap the public markets before generating any substantial revenue.
(…) NIO is riding on strong growth in China’s booming electric-vehicle market. It has been spending heavily on lavish events and marketing efforts to attract attention in a country that is home to roughly 500 electric-car makers.(…) By September, NIO will operate about 20 showrooms in prime locations such as Shanghai Tower. But NIO doesn’t primarily sell cars in these spaces, which it describes as “clubs” for people to hang out and drink coffee. NIO is also building a network of battery-swap stations that allow NIO drivers to switch out their car batteries for freshly charged ones. (…)
Starting at about $68,000, the ES8 may be half the price of a Tesla Model X in China, but auto analysts stress that a new brand needs to bring something truly exceptional to market to generate sales momentum—and some doubt whether that secret sauce is evident in NIO’s first product.
Iran’s Oil Exports Dropping Faster Than Expected Before U.S. Sanctions Shipments are set to decline by a third as shippers pull back from the Islamic Republic months ahead of a Nov. 4 U.S. deadline.
(…) Officials at the state-run National Iranian Oil Co. provisionally expect crude shipments to drop to about 1.5 million barrels a day next month, down from about 2.3 million barrels a day in June, say people familiar with the country’s ports loading program.
Many experts had expected oil shipments to decline by about 1 million barrels by year’s end. Now some of them say that fall may have already happened. Iran hasn’t yet announced its exports this month or its forecast for next month. (…)
The Europe Union, China and other countries have vowed to resist the unilateral U.S. sanctions and are trying to find ways to keep buying crude from Iran. But they have struggled to find banks, shipping companies and insurers that are willing to risk running afoul of the U.S. (…)
“Many markets participants still seem to believe that the decline will be smaller because President Trump would not dare risk overt tightening the market” before the mid-terms U.S. elections.
So far, Iranian oil exports to Europe and India have halved in recent months and, in August, fell by 25% in China, said Reid I’Anson, economic analyst at Paris-based shipping-data tracker Kpler. (…)
Shipping is emerging as Iran’s main Achille’s Heel. Starting Nov. 4, the Trump administration’s sanctions will also ban insurance coverage for Iran oil tankers. Shippers from China, India, Greece or Spain that transported Iranian oil as recently as July have stopped dealing with Tehran, according to tracker FleetMon and some of the shippers. Many of the shippers are insured with European firms that think dealing with Iran is not worth the risk of falling afoul of the U.S., said Mike Salthouse, chairman of the Sanctions subcommittee at the International Group of Protection & Indemnity Clubs.
The P&I Clubs’ reinsurers cover around 90% of the world’s shipping tonnage, including oil tankers. Mr. Salthouse said “if we provide insurance in breach U.S. sanctions, that would deny us access to U.S. financial system, that would put us out of business overnight.”
SENTIMENT WATCH
Melt-Up on the Mind as Relentless U.S. Stocks Approach Euphoria
(…) Wall Street’s biggest cohort of bulls has ratcheted up estimates for where stocks end the year, with Barclays and Weeden & Co. now expecting the S&P 500 to hit 3,000 — 3.5 percent higher than Tuesday’s close. That’d give the equity benchmark a 12 percent gain for the year. (…)
The correlation between the S&P 500 and an index of hedge funds is near its weakest in the past five years, a sign that buy-side investors might feel pressure to boost their exposure to risk assets to avoid being left further behind. (…)
Bright-eyed investors have cause to cheer a de-escalation of risk to the global economy that’s helped foster a rebound in overseas equities. Chinese policymakers have moved to push back against a potential disorderly depreciation of the yuan, Mexico and the U.S. have made progress on trade negotiations and the European economic surprise index has broken into positive territory for the first time since February. (…)
There are also some signs investors still think stocks are the only game in town, with brokerage commissions falling even as U.S. stocks climb, according to Bank of America Merill Lynch. That implies retail investors are holding onto stocks at or near records instead of chasing the rising returns from short-term debt. (…)
“The bottom line: market participants appear not to be buying arguments of peak earnings and care little about valuation (with the S&P trading at 2.2x revenue),” he writes. “Our stance must evolve with what U.S. equity market price action is telling us: i.e. – don’t fight the tape!”
US stocks: full to capacity
Jim Paulsen’s Stock Market Utilization Rate. The index combines the S&P 500 trailing price/earnings ratio; the inverse of the 10-year Treasury bond yield; the University of Michigan consumer sentiment index; US corporate profits as a percentage of GDP; and the inverse of the unemployment rate.
This measure, unlike most other, has a current reading higher than in 1999-2000, likely due to the current unusually low bond yields and historically high profit margins which have yet to show any signs of mean reverting.
The Rule of 20 remains the best and most consistent valuation indicator. It is also the simplest! Anybody can understand and use it, which might be why no stock gurus use it.
EARNINGS WATCH
Meanwhile, earnings continue to provide the main fuel. We now have 487 companies in with an 80% beat rate and a +5.3% surprise factor. Q2 EPS are up 24.8% (21.7% ex-Energy) vs and expected +20.7% on July 1. Revenues are up 9.5% (8.3% ex-E)!!!
Trailing EPS are now $148.54 which I recalculate as $153.00 pro forma the tax reform for 12 months assuming a 7% accretion. Full year 2018 estimates are now $162.14.
OUT OF BREADTH!
As Wildfires Burn Miles Away, Smog Blankets the Northwest
This ain’t no fake news. We had to cancel the British Columbia leg of our trip because of the forest fires. Air quality was so bad, it became a serious health risk. The smoke was so thick, even in Jasper, Alberta, that the Rocky Mountains totally disappeared. I mean, totally. You could not even see their outline. Chinese visitors thought they were back in Beijing!
Equity markets are not out of breadth as per The S&P 500 and The Nasdaq 100 Equal Weight Indices show:
Just looking at the Wilshire 5000 could leave you out of breath:
