Sunday noon, our 5-year old American grandson walked into our house saying: “Grand-maman, I wish I could vote!”
U.S. Manufacturing PMI improves to highest since January 2019
October PMITM data from IHS Markit signalled a further improvement in the health of the U.S. manufacturing sector. The rise in the PMI stemmed largely from rates of output and new order growth accelerating during the month, despite export orders contracting. Meanwhile, signs of reduced pressure on capacity led to a slower rise in employment, with business confidence also historically subdued though picking up compared to September. At the same time, input prices rose at the fastest rate since the start of 2019 fuelled by supplier shortages, but average charges increased only modestly.
The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posted 53.4 at the start of the fourth quarter, up slightly from 53.2 in September and broadly in line with the earlier released ‘flash’ estimate of 53.3. The latest improvement in operating conditions was solid overall and the fastest since January 2019, marking a further move away from April’s nadir.
Contributing to the rise in the headline figure was a quicker upturn in production in October. The rate of output growth accelerated to the sharpest since November 2019. Companies often stated that greater output was driven by stronger client demand and higher new order inflows.
The rate of new order growth picked up once again in October, following a slight slowdown in September. The increase in total sales was attributed to more robust client demand, with some firms noting larger orders being placed. Although domestic demand ticked higher, new export orders fell for the first time since July. The decline was only marginal overall, but was reportedly due to reimposed coronavirus disease 2019 (COVID19) lockdown restrictions across key export destinations in Europe.
Chris Williamson, Chief Business Economist at IHS Markit:
Producers of investment goods such as business equipment and machinery are leading the upturn in a welcome sign of rising business confidence and corporate investment, but it was worrying to see consumer goods producers report weakened order book growth, reflecting rising virus-related worries. Going forward, much will naturally depend on the extent to which the economy can remain open and functioning in the face of rising virus case numbers.
The WSJ notes that
Many households are also running out of rope. Goldman Sachs economists note that surveys show 7% of households with mortgages and 41% with student loans were either making reduced payments or skipping them entirely at the start of this quarter. Student-loan forbearance under the $2 trillion stimulus plan passed last spring, and since extended by an executive order, expires at the end of December. Mortgage forbearance is set to expire either 180 or 360 days after being granted. Many renters are in especially difficult straits. In a recent Census Bureau survey, 10% said they had no confidence in their ability to make their next rent payment.
This might surprise many of you:
ASEAN manufacturing sector remains mired in a downturn
Overall, conditions in the ASEAN manufacturing sector remained challenging in October. Further reductions in factory production and new orders were primarily responsible for the overall deterioration in conditions. However, rates of decline were not as marked as those seen in September. Weak demand abroad also remained a key drag, as new export orders continued to fall sharply.
The ASEAN PMI is a tally of the 7 Asian tigers: Indonesia, Malaysia, Myanmar, Philippines,Singapore, Thailand and Vietnam.
18.5 Million Americans Could Lower Mortgage Interest Rate
18.5 million Americans with a current mortgage and good credit could lower their interest rate by at least 0.75 percentage points if they refinanced today, according to an analysis from the data analytics company Black Knight.
The typical interest rate on a 30-year fixed rate mortgage is now just 2.8%. That is the lowest it’s ever been, and far lower than the 4% average mortgage rate that is prevailed over the past few years. Many Americans who got mortgages recently—even as recently as the end of last year—are in a good position to save money by refinancing.
Black Knight estimates the average mortgage borrower would save roughly $300 each month after refinancing, with 2.5 million borrowers saving more than $500 each month. (Barron’s)
New Yorkers and Londoners Are Ditching Cities for Suburbs
Aramco Sticks by $18.75 Billion Dividend, Despite Sharp Fall in Profit Saudi Aramco, the world’s largest oil producer, said it remains committed to paying its quarterly dividend, amounting to $18.75 billion every three months, despite a sharp drop in profit driven by lower crude prices.
(…) The Saudi Arabia Oil Co., as it is officially called, said Tuesday that free cash flow came in at $12.4 billion in the quarter, significantly below the dividend payout. (…) The Saudi government still owns 98% of the company and relies on Aramco dividends for much of its funding. (..)
Aramco said it posted net income of 44.2 billion Saudi riyals, equivalent to $11.8 billion, down 45% compared with the same quarter a year ago. Sales fell 25% to 200 billion riyals, hit by refining and chemicals margins, the company said Tuesday. (…)
In its December IPO, Dhahran-based Aramco promised shareholders $75 billion in annual dividends for the next five years. That pledge helped convince private investors to pay a premium for the thin slice of Aramco shares the government floated. (…)
Aramco said its third-quarter capital expenditures stood at $6.4 billion as the company continues to cut costs. It has previously said its capex for this year is expected to be at the lower end of a $25 billion to $30 billion range.
$25B shortfall even after cutting capex…
The headline IHS Markit Saudi Arabia PMI is a composite single figure
indicator of non-oil private sector performance.
SENTIMENT WATCH
(…) Corporate insiders, whose buying correctly signaled the bottom in March, have refrained from bargain hunting this time. Fewer than 380 corporate executives and officers snapped up shares of their own firms last month, the second-lowest showing in at least two years, according to data compiled by the Washington Service. While sellers also retreated, they did so at a slower rate than buyers. As a result, insider purchases trailed sales by the most since January. (…)
Trepidation on the part of investors who may have the best knowledge of their own businesses is a troubling sign to Malcolm Polley, president and chief investment officer at Stewart Capital Advisors LLC. (…)
- Speculators in S&P 500 futures contracts pushed their net long position to the highest in almost 2 years – Bloomberg
- From SentimenTrader: The drop in speculative activity among options traders has helped to push Dumb Money Confidence lower, now just below 60% after peaking above 75% a couple of weeks ago. Declining Confidence from a high level is not a good thing. In the strongest bull markets, we usually see Confidence drop to 50% or below before stocks form a low. During bear markets – or even neutral environments – it usually drops to 30% or below. Over the past few years, when the S&P 500 troughed at its lowest point in a month, Confidence was below 50% every time, except for the rebound in September when it only dropped to 55%.
Because stocks generally rise, and investors are generally an optimistic bunch, Dumb Money Confidence spends a lot of time at higher levels. Its median reading since 1999 is 58%. Even so, when Confidence is above that threshold, forward returns tend to be muted, with an annualized gain of only +2.0% in the S&P. When it’s below 58%, that rises to +11.3%.
If the S&P bottomed on Friday with Dumb Money Confidence at 59%, then it would be the highest reading we’ve ever seen at a 1-month bottom when the S&P had lost at least 7%. In other words, it would be extremely unusual to see stocks form a low while Confidence was still so high. (…)
Currently, we’re in a precarious position. Some of the breadth and momentum we saw earlier this month has been an excellent sign for medium- to long-term returns, but we’re still seeing relatively high (and declining) optimism during a mostly neutral-to-slightly-positive market environment. That’s usually a recipe for choppy conditions at best, with a more typical scenario of enough weak price action to drive sentiment to a below-neutral level. We’re still quite a ways from that.
- Per an Oppenheimer investor poll (tks Terry):
- The share of Republicans who say they’d get a coronavirus vaccine topped 1 in 2 for the first time since mid-August, reaching 51 percent last week. Republicans are now only 4 points less likely than Democrats to say they’d get vaccinated, while independents remain the least likely to say they’d seek a vaccine, at 44 percent. (Morning Consult)
PANDEMONIUM
China to Halt Key Australian Imports in Sweeping Retaliation
China has ordered traders to stop purchasing at least seven categories of Australian commodities, ratcheting up tensions with a key trading partner in its most sweeping retaliation yet.
Commodities traders in China won’t be able to import products including coal, barley, copper ore and concentrate, sugar, timber, wine and lobster, according to people familiar with the situation. The government has ordered the halt to begin on Friday, one of the people said, asking not to be identified as the information is sensitive.
The notice was verbally relayed to major traders in meetings in recent weeks, one of the people said. Iron ore, Australia’s biggest export to China, won’t be included in the halt, the people said.
The order represents a dramatic deterioration in ties, which have been strained since Australia barred Huawei Technologies Co. from building its 5G network in 2018 on national security grounds. Relations have been in free fall since Prime Minister Scott Morrison’s government in April called for an independent probe into the origins of the coronavirus. (…)
China has already barred meat imports from four Australian slaughterhouses, delayed lobster shipments from clearing customs, slapped tariffs of more than 80% on barley, and said it won’t allow timber from Queensland state because of pests. Wine is also under an anti-dumping investigation while Chinese power stations and steel mills have been told to stop using Australian coal. Cotton purchases have also been suspended.
China’s relevant departments conducted inspection and general quarantine measures on certain Australian goods according to laws and regulations, Foreign Ministry spokesman Wang Wenbin told a briefing Tuesday in Beijing. (…)
China is Australia’s most important trading partner, with agricultural shipments alone totaling about A$16 billion ($11.3 billion) in 2018-19. With Australia in the midst of its first recession in almost 30 years, the widespread trade measures from Beijing couldn’t come at a worse time for Morrison’s government. (…)
PANDEMIC KILLS ROBOT JOBS!
Walmart Scraps Plan to Have Robots Scan Shelves The retail giant is ending its push to have machines developed by Bossa Nova Robotics rove stores to keep track of inventory, after discovering during the coronavirus pandemic that humans can help get similar results
(…) Walmart ended the partnership because it found different, sometimes simpler solutions that proved just as useful, said people familiar with the situation. As more shoppers flock to online delivery and pickup because of Covid-19 concerns, Walmart has more workers walking the aisles frequently to collect online orders, gleaning new data on inventory problems, said some of these people. The retailer is pursuing ways to use those workers to monitor product amounts and locations, as well as other automation technology, according to the people familiar with the situation. (…)