Sunday morning, my laptop suddenly died on me. I will be working on a less effective backup and limited resources for about 2 weeks. 
U.S., China Signal Progress Toward Initial Trump-Xi Trade Deal
(…) “We’re relatively close to an agreement,” O’Brien told reporters in Bangkok on Monday, adding that Trump invited Xi to the U.S. if the two sides are ready to sign the phase one agreement. “I’m cautiously optimistic about it.”
In an interview with Bloomberg on Sunday, Ross expressed optimism the U.S. would conclude an initial agreement with China this month before working on additional phases. He also said licenses would be coming “very shortly” for U.S. firms to sell components to China’s Huawei Technologies Co.(…)
Job Gains Help Extend U.S. Economic Growth The U.S. economy has cooled but continues to expand with employers hiring, consumers spending and growth stabilizing.
Employment grew by a seasonally adjusted 128,000 jobs in October, the Labor Department reported Friday, a solid performance considering a strike at General Motors plants and a decline in the federal workforce temporarily reduced payrolls by more than 50,000.
The unemployment rate ticked up from a 50-year low to 3.6% in October as hundreds of thousands of Americans joined the labor force. Wage growth remained steady, up 3% from a year earlier.
Friday’s figures also showed job growth was stronger in August and September than previously reported. (…)
Employers added an average 167,000 jobs to payrolls each month this year. That is a slowdown from the 223,000 jobs added each month, on average, last year, and on pace to be the worst year for job creation since 2010.
But job growth remains strong in areas of the economy that serve U.S. consumers and are generally shielded from global trends and trade disputes. Health care and social services added 34,200 jobs in October, business services added 22,000, and hospitality, including restaurants, added 61,000. (…)
Employment in auto manufacturing fell by 41,600 “reflecting strike activity,” according to the Labor Department. The 40-day GM strike ended last week, but the government didn’t count those workers on payrolls in October because they were on picket lines the week of the employer survey. The federal government shed 17,000 jobs because many temporary workers completed their jobs for the 2020 census. The Census is planning to add a half-million temporary jobs next year. (…)
David Rosenberg (@EconguyRosie) seemed frustrated by the NFP:
Wow! What a jobs report!! Fully 80% of the HH gain was in part-time work because of lousy biz conditions. And 100% of the NFP jump were teachers, nurses, state-local civil servants, burger flippers, bell boys, bus captains and folks who work in waste management
Total employment growth keeps slowing, now at +1.4% YoY. Main bread-winners: +0.5%.
Aggregate payrolls growth hanging in at +4.5%:
Average hourly earnings: +3.5%:
Are We in a Recession? Experts Agree: Ask Claudia Sahm Sahm rule is reassuring to economists looking for new ideas on stimulus when interest rates are already low
(…) For now, the so-called Sahm rule is sending a reassuring signal: The economy may be slowing but no recession has begun. (…) If the average of unemployment rate over three months rises a half-percentage point or more above its low over the previous year, the economy is in a recession. Her formula would have accurately called every recession since 1970 within two to four months of when it started, with no false positives, which could trigger unnecessary and costly fiscal stimulus. (…)
Eurozone PMI little-changed at seven-year low in October
The euro area manufacturing sector continued to contract during October, according to the latest PMI® data from IHS Markit. After accounting for usual seasonal influences, the IHS Markit Eurozone Manufacturing PMI recorded 45.9 in October. Although up from September’s 45.7 and the earlier flash reading, the index remained well below the 50.0 no-change mark to indicate a rate of contraction that was the second-sharpest in the past seven years. All three market groups covered by the survey once again recorded a deterioration in operating conditions on the previous month. Investment goods and intermediate goods producers both registered marked contractions, compared to consumer goods where the rate of deterioration remained marginal.
Germany remained the principal source of manufacturing weakness in the region, despite experiencing a slight improvement in its respective PMI. Austria also registered another month of sharply deteriorating operating conditions, whilst Spain saw its manufacturing PMI fall to a six-and-a-half year low. Italy also recorded a sub-50.0 PMI reading, whilst the Netherlands, Ireland and France barely expanded. (…) Sharply falling volumes of incoming new orders remained a key depressor of overall operating conditions during October. Whilst not as severe as September’s near seven-year record, the drop in new orders remained notable and extended the current period of contraction to over a year.
Demand weakness was apparent across domestic and international markets. Export orders* fell during October to a considerable degree, again led by sharp reductions in Austria and Germany. Against the backdrop of deteriorating order books, euro area manufacturers made further cuts to both their output and purchasing activity in October. Whilst rates of decline eased since September, they nonetheless remained historically marked. Firms also made notable inroads into their backlogs of work to extend the current period of contraction to 14 months.
With evidence of continued spare capacity in the sector, job cuts were registered for a sixth month in a row. Moreover, the degree of job shedding was the sharpest recorded by the survey since the start of 2013. Employment fell to the greatest degree in Germany, where the rate of job shedding was the sharpest in nearly a decade.
There was a renewed effort amongst manufacturers in October to reduce their stock holdings. Input inventories were lowered to the greatest degree since March 2013, whilst finished goods inventories deteriorated to the greatest degree for over three years.
On the price front, average input costs fell the most since March 2016 during October. Commodities such as copper and steel, plus plastics, were amongst the inputs reported to be down in price. Manufacturers responded by making downward adjustments to their own charges for a fourth month in a row.
Finally, economic and political uncertainties (such as Brexit and US trade policy) continued to weigh on sentiment during October. Although expectations were at their highest for three months, confidence remained historically low.
Chris Williamson, Chief Business Economist at IHS Markit:
Eurozone manufacturing remained stuck in its steepest decline for seven years in October, meaning the goods producing sector is on course to act as a severe drag on GDP again in the fourth quarter. The survey data are consistent with industrial production falling at a quarterly rate in excess of 1%. (…)
Meanwhile in China:
New orders rose at the fastest rate for over six-and-a-half years, supported by a return to growth of export sales. Foreign demand for Chinese goods increased at the quickest pace since February 2018 during October. However, firms also perceived that sales had gained momentum and the business environment had improved on the back of policy support.
The ‘mother of all bubbles’ could blow up the economy if profits don’t improve, warns Blackstone strategist
(…) Among the recent troubles he thinks are connected are repo market woes, negative-yielding debt, global trade conflicts and collapsing manufacturing. And every cycle ends with excess. (…)
The “mother of all bubbles” in the sovereign debt market, Zidle says, is the catalyst that will likely trigger the next recession. He expects that to happen between mid-2020 and the end of 2021.
The good news for investors is a rise in quarterly profits that will boost markets in the near term. “The first three quarters of 2019 faced the toughest [comparables] since this profits cycle started in 2016,” he writes. “Earnings are flat this year. Next year, year-over-year comps should be easier.” (…)
EARNINGS WATCH
Actual earnings growth for the 356 companies having reported so far is +1.2% on revenue growth of +4.9%. The beat rate is 76%, the surprise factor +4.6% and the blended growth rate –0.8% (+1.6% ex-Energy), down from +0.3% on July 1
By comparison, after 355 reports during Q2, the beat rate was 74%, the surprise factor +6.1% and the blended growth rate +2.5%, up from +0.3% on July 1. Actual earnings growth for the 355 companies having reported was +5.9% on revenue growth of +3.6%.
Trailing EPS are now $163.59, still down from $163.69 at the same time in Q2 and 0.5% lower than the $164.43 and $164.31 at the end of August.and September respectively.
Revisions were somewhat positive last week (second consecutive week) but Q4 estimates keep being ratcheted down to +1.1% (+3.3% ex-Energy from +5.0% last week). This is down from +4.1% on Oct.1. and +2.2% last Friday.
TECHNICALS WATCH
Lowry’s Research says that, “on balance, the weight of evidence continues to point to healthy primary and intermediate-term uptrends in the market. Any signs of potential weakness are strictly short term in nature. These include signs that Demand has been growing more selective over the past few weeks (…). At the same time, while short-term measures of Demand have been falling (…), there has been no corresponding increase in measures of Supply (…). Historically, a lack of Demand, rather than rising Supply, is a characteristic shared by minor, short-term market tops. In summary, the dominant trends in Supply and Demand, along with expanding breadth and improving strength in Small Cap stocks, all suggest a bull market that remains alive and well.”
The Key to Electric Cars Is Batteries. One Chinese Firm Dominates the Industry. Beijing built the world’s largest EV market, then pressured foreign car makers to use its batteries
(…) China is by far the biggest EV market, and to boost its standing in the fast-growing industry, China began pressuring foreign auto makers to use locally-made batteries in the country several years ago. One company—Contemporary Amperex Technology Ltd., known as CATL—was the only shop capable of producing them at scale. (…)
China accounted for 60% of the 2.1 million electric vehicles sold world-wide last year. By 2030, global plug-in car sales are expected to be between 23 million and 43 million annually, according to the International Energy Agency. In its highest estimate, EVs will comprise 57% of vehicle sales in China, 26% in Europe and 8% in the U.S.
To meet demand, auto makers will need millions of lithium-ion batteries—by far the most lucrative part of an EV.
Leading the charge is CATL, which became the world’s biggest EV battery maker by installed production capacity this year—the number of battery factories and their combined scale—according to Benchmark Minerals Intelligence, a research firm. CATL modeled itself after another Chinese company, telecommunications giant Huawei Technologies Co., copying its departmental structures and culture of demanding workloads, employees said. CATL also mimicked Huawei’s practice of prioritizing research and development to deliver frequent technology improvements. (…)
China has also been seeking to lock up much of the world’s supply chain for cobalt, a vital battery component, through purchases from mines in places like the Democratic Republic of Congo. (…)
While Asian companies took the lead in EV battery technology, the European automotive sector was focused on developing diesel-engine technology until recently, and U.S. companies have doubted the business case for electric vehicles at home.
The U.S., which accounted for 13% of global EV sales in the first half of 2019, has so far let the free market take its course. (…)
By 2028 [CATL] will have enough capacity to supply 4.2 million EVs annually, narrowly ahead of South Korea’s LG Chem Ltd. and way ahead of the industry’s other major players, including Samsung SDI Co. and Panasonic.
CATL is branching out beyond China. The company is investing $2 billion in its first overseas plant in Germany, to open in 2021, with BMW AG as its first major customer. It also opened a U.S. sales office in Detroit in December, though U.S. trade battles with China make its prospects uncertain. The shortage of U.S.-based battery production makes the opening of a CATL plant in North America a likely next step, politics allowing, said Simon Moores, managing director of Benchmark Minerals Intelligence. (…)
Beijing rolled out a subsidy program starting in 2013 to encourage local and foreign auto makers to sell more EVs. China promoted EVs as part of a program to boost its capabilities in future industries, and as a way to combat pollution and reduce its dependency on foreign oil. (…)
As the market took off, in 2015, the government told auto makers they would only qualify for subsidies if they used batteries from a list of approved suppliers, which included dozens of Chinese firms but excluded foreign ones.
Auto makers willing to forgo subsidies were still free to use foreign batteries. But executives at global car companies say they were warned by Chinese officials to use local batteries or face reprisals in a country where foreign companies face a constant struggle to stay on good terms with the authorities. (…)
People in the battery business say CATL has now substantially closed the gap in cost and power output on Korean and Japanese companies, and will draw level within three years as it plows funds into research. It is in position to be at the top of the market pyramid, with many auto makers having already factored the company into their long-term plans. (…)
In June, Beijing announced plans to scrap its controversial restrictions on foreign EV batteries and reopen its market to the big Korean and Japanese players. China needs them, said Mr. Moores at Benchmark Minerals Intelligence, with total demand for EV batteries forecast to far exceed levels Chinese producers can meet by themselves. (…)