China, U.S. Conclude Shanghai Talks Without Signaling Progress
(…) China’s trade minister Zhong Shan played a more prominent role in the discussions than in previous rounds. His greater involvement had caused concerns among some U.S. delegates as he is perceived as tougher negotiator. (…)
Xinhua:
China has agreed to buy more agricultural goods from the United States after “frank, efficient, and constructive” trade talks on Wednesday, the first between the two countries’ top negotiators since discussions were suspended in May.
While the Chinese side did not specify what products it would purchase, it said in a statement it would consider its internal demand, after half a day of discussions in Shanghai on Wednesday, according to official news agency Xinhua. The statement also said the US would “create favourable conditions” for the imports.
The next round of talks will take place in September in the US, Xinhua said.
Seems the ball is in the U.S. camp to first “create favourable conditions” for the imports. Huawei!
China Data Suggest Economy Is Still Weak Gauge of manufacturing activity picked up in July, but remained in contractionary territory
The manufacturing purchasing managers index edged up to 49.7 in July from 49.4 in June, the National Bureau of Statistics said Wednesday. (…)
Wednesday’s data showed modest recoveries across production and demand, although most measures remained in contractionary territory.
The new export subindex, an indicator of external demand for Chinese goods, increased to 46.9 from 46.3 in June. The new import subindex, an indicator of domestic demand, rose to 47.4 from 46.8. A subindex measuring production edged up to 52.1 from June’s 51.3.
Adding to the strains, an official gauge of business activity outside factory floors, also released Wednesday, showed slower expansion in July. (…)
Europe’s Stalling Economy Sounds Alarm for Global Growth The region’s economy is slowing again as its factories count the cost of increased uncertainty about global trade rules, underpinning worries at the Federal Reserve about the impact of weaker world demand on U.S. growth.
(…) Figures released Wednesday by the European Union’s statistics agency showed (…) gross domestic product growing at an annualized 0.8% rate in the three months through June, a slowdown from 1.8%. During the same period, the U.S. economy grew 2.1%.
That slowdown has been led by manufacturing, particularly factories in Germany and Italy, the two eurozone economies that are most dependent on the sector. Germany has yet to release official figures for the second quarter, although its central bank estimates that GDP fell during the period. Italy on Wednesday reported that its economy stagnated in the three months through June, while growth in France and Spain slowed.
Manufacturers say some of the slowdown in activity is due to a reluctance on the part of customers to place big new orders that would keep them busy for months to come. (…)
U.S. Pending Home Sales Jump in June
The National Association of Realtors (NAR) reported that pending home sales rose a larger-than-expected 2.8% m/m in June (+1.6% y/y) on top of a 1.1% m/m gain in May. This was the highest reading for the index since December 2017. Meanwhile, mortgage rates continue to decline. The effective rate on a 15-year fixed-rate mortgage fell to 3.54% in June, the seventh consecutive monthly decline and the lowest level since September 2017, from 3.85% in May. The declining trend in interest rates has had a positive impact on housing activity. Pending sales are up 9.7% since the four-and-a-half year low reached last December.
The June increase was widely spread across every major region. Pending sales rose 2.7% m/m (0.9% y/y) in the Northeast, increased 3.3% m/m (1.7% y/y) in the Midwest and edged up 1.3% m/m (1.4% y/y) in the South. They surged 5.4% m/m (2.5% y/y) in the West following declines in each of the previous two months. (…)
What began on the coasts, in areas like New York and San Francisco, is now radiating into the nation’s heartland, as well as to cities from Las Vegas to Charleston, South Carolina. Entry-level buyers are scrambling to purchase homes that are in short supply, sending values soaring. (…)
Recent months have shown a growing divergence between the high and low ends of the U.S. market. Prices in the bottom third jumped about 9% in June from a year earlier, compared with 1.1% growth for the top third, data from Redfin show. Meanwhile, sales for lower-priced homes plunged almost 20% as buyers struggled to find properties in their range, according to Zillow.
“We have a lot more buyers pre-approved for mortgages than people closing on homes,” said Jeff Davis, Rusch’s agent. “What that means is the struggle is not in the financing. The struggle is in the inventory.” (…)
The number of new homeowners created in the second quarter was the lowest since 2006, and just a third as many as a year earlier, the Census Bureau reported last week. Black homeownership fell to the lowest level since at least 1970. (…)
In Louisville, fewer than one-fifth of listings were affordable to buyers in the bottom 30% of incomes in April, according to Realtor.com. That’s down from 23% a year earlier and 38% in 2015. The trends are similar in other low-cost cities from Grand Rapids, Michigan, to Charleston, where only 6% of listings meet that affordability threshold. (…)
“It’s not the interest rate; it’s the sheer cost,” he said. “You’re spending $300,000 on a home that’s 1,000 square feet. You get two bedrooms, one bath and it needs a lot of work.”
- No place to hide (see reference below):
- Sentier Research’s chart below shows that 50% of U.S. households’ income rose by less than 4.7% during the last 20 years. The S&P/Case-Shiller National Home Price Index is up 30% in real terms during that period.
- While top earners are cornering the market:
Good reads:
EARNINGS WATCH
Before yesterday, we had 261 reports in, a 76% beat rate and a +6.1% surprise factor leading to a +0.9% blended earnings growth rate, up from +0.3% on July 1. Trailing EPS inched up to $163.69.
Q3 estimates have been coming down, now –0.7% from +0.8% on July 1. Q4: now +5.7% from +7.2%.
Refinitiv has yet to publish its tally of pre-announcements for Q3 but RBC has its own tally:
39 S&P 500 companies have issued 3Q guidance so far this reporting season. Of those, 69% have been negative (up from 55% last week), 18% have been inline, and 13% have been positive (down from 27% last week).
29 Russell 2000 companies have issued 3Q guidance to date. So far 62% have been negative guides. Positive guidance for 3Q is tracking higher than 2Q levels so far.
From yesterday’s post, recall that from the S&P 500 large caps, to 400 mid-caps to 600 small caps, the beat rate in Q2 goes from 76% to 66% to 58% and the current blended earnings growth rate goes from +0.3% to –4.4% to –9.3%. Revenues: +3.6% to +2.2% to +2.2%.
Unsurprisingly, since the September 2018 highs, mid caps have underperformed by 6% and small caps by 11%.
RBC, listening to conf call, says that “most companies say demand/macro is healthy and among those who say it’s a problem, roughly half say things are getting better. (…) But the list of negative trends/outright problems is just as long. (…) cost cutting continues to take up a lot of air time on earnings calls.”
1 thought on “THE DAILY EDGE: 31 JULY 2019”
Slightly stale news, but news that may cause temper tantrum down the road:
The Establishment Survey’s nonfarm jobs figures will clearly be revised down as the QCEW data show job growth averaging only 177,000 a month in 2018. That means the Establishment Survey may be overstating the real numbers by more than 25%.
Since the unemployment rate is the ratio of the number unemployed to the labor force, the numerator has seen a bigger proportionate drop than the denominator. This is why the jobless rate has fallen from 3.9% to a half-century low of 3.6%. While that makes a great headline, it isn’t good news. Said another way, employment as measured by the Household Survey has actually declined this year by almost 200,000, while twice as many who were earlier unemployed have apparently given up looking for jobs.
https://www.bloomberg.com/opinion/articles/2019-07-05/the-myth-of-the-tight-u-s-labor-market
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