National Association of Credit Management
(…) in a marked change from recent prior months of the CMI survey, credit managers are sounding the alarm
on account performance, ranging from more accounts delinquent, poor application quality, and more bankruptcies. (…)
- Half of the six unfavorable factor indexes deteriorated in the November survey which records credit
performance for the prior month; the index for filings of bankruptcies led with a decline of 2.6 points to an index value of 47.8, its lowest level since June 2020.- The index for accounts placed for collection deteriorated by 1.0 point to 44.6, its 18th month below 50
points the lowest level recorded for this factor index.- The index for the rejections of credit applications declined 1.0 point in the November CMI survey to a level
of 48.7, the third consecutive month of decline for this index.“It’s almost like a switch was flipped in the comments provided by survey respondents,” said Cutts. “We went from a gradual subsiding of comments regarding supply chains to sort of random comments and then this month they all aligned on worry about account performance.
The US Courts reports filings of bankruptcies and year-to-date through September their data show a 39% increase in business bankruptcies over 2022. While the level is not yet fully back to pre-pandemic it won’t be long before business failure surpasses that mark at this rate.” (…)
“Respondents in this month’s CMI survey representing companies in the manufacturing sector stated that orders are slowing and payments slowing even more, not at all in line with the news reports indicating a strong economy,” Cutts said. (…)
“The Service Sector CMI index is managing to stay in expansion but there is a troubling narrative emerging in the unfavorable factors indexes,” said Cutts. “Not only are all of the factors in contraction, some are deeply so and have been for a long while.
More accounts are beyond terms, more and more are being referred to collections, disputes over invoices are increasing—these are all signs that businesses are stressed. (…) The only bright spot is that dollar collections are still strong once the hammer is brought down on customers.”
“Service sector respondents to the CMI survey noted that more bankruptcies and business closures. As the cost of money increases, we are likely to see more accounts stretching their terms and being less responsive as they work to conserve cash. Unfortunately for credit managers it means their work is getting harder and harder.”
Six defaults in the last 30 days have brought the US trailing twelve month (TTM) leveraged loan default rate back above 3%, Fitch Ratings says. Operational issues and free cash flow challenges, in tandem with elevated leverage, high interest expense and weak liquidity, pushed several issuers to file Chapter 11 or engage in distressed debt exchanges (DDEs) to address near-term maturities.
The U.S. Leveraged Loan TTM Default Rate stands at 3.0% by volume and 3.5% by issuer count in October, up from 2.9% and 3.4% in September. YTD default volume as of Nov. 20 is $49.7 billion from 61 issuers, compared with $25.1 billion from 23 issuers over the same period in 2022. There were six defaults over the past month, four of which were DDEs and two were issuers in healthcare. (…)
Ed Yardeni:
The bond market liked today’s Beige Book, the collection of regional surveys of economic activity conducted by each of the 12 Fed district banks. While Q3’s real GDP growth was revised up to a red hot 5.2%, the latest survey from October 6 to November 17 was more like a cool beige color. Six of the 12 Fed banks reported slight declines in economic activity. Two others were “flat to slightly down.” Demand for labor “continued to ease, as most districts reported flat to modest increases in overall employment,” the Beige Book said. Wages also grew a bit more slowly. Price increases “largely moderated” across the country, the Beige Book found, and “most districts expect moderate price increases to continue into next year.”
Eurozone inflation drops much more than expected again in November
Headline inflation fell from 2.9 to 2.4% in November, while core inflation dropped more, from 4.2 to 3.6%. This shows that signs of an imminent victory on inflation are mounting for the European Central Bank. When will they dare to admit so themselves? We expect a first rate cut before the summer
The decline in inflation was seen across the board in November. Energy inflation is still driven by significant base effects (-11.5% year-on-year), and food inflation dropped from 7.4 to 6.9% year-on-year. Goods and services inflation also both fell significantly, to 2.9% and 4% year-on-year, respectively.
In fact, on a monthly basis, core inflation was negative.
We always expected inflation to drop significantly in the final months of the year, but the process of disinflation is happening even more quickly than we expected, particularly for core inflation, where expectations were for price pressures to remain more stubborn.
But weak demand and quickly fading supply-side problems have set core inflation on a much quicker path down than thought a few months ago. Taking the monthly pace of price increases seen in the past three months, core inflation will drop below 2% well before the end of next year. While we think that might be a bit optimistic given the remaining price pressures coming from wages, for example, it does show that inflation is now much more benign than earlier in the year.
For the ECB, signs of an imminent victory on inflation are mounting. The central bank worries about factors like wage growth and possible spikes in the energy market that could put inflation on a higher path again. But current monetary policy is sufficiently restrictive as bank lending data out earlier this week showed that the effects of higher rates are impacting lending significantly. Also, there is still a lot more of the impact of tightening to come as interest payments are still increasing. The market is therefore right to start looking at rate cuts for 2024. We think the first one could well happen before the summer.
China Factory, Services Activity Shrink in Snag for Recovery Services sector gauge records first drop below 50 this year
The official manufacturing purchasing managers index fell to 49.4, the second straight month of contraction, according to a Thursday statement from the National Bureau of Statistics. While economists expected a decline in the index, the number was lower than estimates.
A gauge of non-manufacturing activity — which measures the construction and services sectors — unexpectedly eased to 50.2, barely clearing the 50 mark above which indicates expansion. An underlying measure of services activity fell to 49.3, the first contraction for that gauge this year. (…)
A sub-measure of new orders placed with Chinese factories dipped to a five-month low of 49.4 in November, with a shrinkage in new export orders even worse, according to the NBS. The sub-gauge of employees was entrenched in contraction at 48.1.
The government has in recent months worked to support activity by ramping up bond sales for infrastructure investment. A gauge of construction activity rose in November to 55 from 53.5 the prior month, the NBS data showed. (…)
The value of new home sales among the 100 biggest real estate companies fell 29.6% from a year earlier to 390.19 billion yuan ($54.6 billion), according to preliminary data from China Real Estate Information Corp. on Thursday. That follows a 27.5% decline in October.
Sales were down 4.1% from a month earlier. The top 100 developers’ aggregate annual sales are expected to fall 15% from 2022, according to the report. (…)
China’s home prices fell the most in eight years in October, signaling the property slump is worsening even after the government ramped up efforts to revive demand.
The WSJ adds:
China’s huge real-estate sector is mired in a protracted downturn, putting the squeeze on consumer confidence and households’ willingness to spend. House prices fell in 70 major cities at a faster clip in October than a month earlier, while nationwide the amount of new home sales measured in floor space was around 20% lower than a year earlier. (…)
The November sales were also 4% lower than October, ending a short-lived period of sequential growth. Traditionally, September and October are the busiest months for property sales in China, as developers often offer discounts around the mid-autumn festival and weeklong national holiday. CRIC estimated that new home sales from the top 100 developers in 2023 will be down 15% from 2022, to their lowest level in recent years. (…)
- China Investment Bank Bans Displays of Wealth CICC also asks analysts to avoid negative macro market commentary.
Analysts at China International Capital Corp. are barred from sharing negative comments about the economy or markets in both public and private discussions, according to an internal memo sent to the research department this month and seen by Bloomberg News. Employees should also avoid wearing luxury brands or revealing their compensation to third parties, the memo said.
The directive underscores the increasing level of self-scrutiny at Chinese financial institutions after authorities lashed out this year at bankers’ “hedonistic” lifestyles, and ordered them to comply with President Xi Jinping’s “common prosperity” drive. It also highlights concern among international investors that China is increasingly restricting access to transparent data and research in the world’s second-largest economy. (…)
Among recent examples of pushback against negative commentary, Goldman Sachs Group Inc. analysts attracted a wave of criticism in July after publishing a bearish report on Chinese banks. (…)
At least two other major investment banks have given verbal guidance to analysts over the past year barring them from making negative comments on the domestic economy or bragging about their pay, people familiar with the matter said, asking not to be identified discussing private information. A Shenzhen-based brokerage discouraged its economists from discussing topics including deflation and the yuan exchange rate, one of the people said. (…)