NEW$ & VIEW$ (16 OCTOBER 2012)

Smile  Consumers Step Up Spending

Retail and restaurant sales rose a seasonally adjusted 1.1% in September from August, and the Commerce Department boosted its estimate for sales over the summer. Sales have now climbed for three consecutive months after flagging during the spring. (…)

The three-month average rose 1% in September, the second consecutive monthly increase. Over the past year, the three-month average is up 4.8% compared with 5.4% for the unaveraged data.

Markit gives more details:

imageCore sales, which exclude building materials, motor vehicle & parts & gasoline, rose 0.9%.

Over the third quarter as a whole, retail sales are up 1.4%. That compares with a decline of 0.3% in the second quarter and highlights the positive contribution consumer spending is likely to make to economic
growth in the third quarter.

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Pointing up  The Apple Effect (Bespoke Investment)

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No big deal though. I calculate that “core” retail sales (ex-food, cars and gas) were up 1.0% MoM in September. Taking out Electronic Stores, the gain is 0.85%, still quite good.

Weekly chain store sales were flat last week and are not showing much strength during this important shopping season. The 4-wk moving average is up 2.7% YoY.

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U.S. INFLATION STICKY

Total CPI + 0.6% in September, +2.0% YoY, up from 1.7% in August and 1.4% in July. Core CPI rose 0.1% as for the previous 2 months. It is up 2.0% YoY

EUROZONE INFLATION STICKY

Total CPI rose 2.6% in September 2012, unchanged compared with August. Monthly inflation was 0.7% in September. Core inflation was up 0.8% MoM as clothing costs jumped 14%! Core CPI was up 0.2% in August, up from 1.9% in August.

U.K. Inflation Cools to 2.2%, Least in Almost Three Years

Storm cloud  EMPIRE STATE MANUFACTURING REMAINS WEAK

The October Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to decline for a third consecutive month. The general business conditions index increased four points but remained negative at -6.2.

imageThe new orders index rose five points to -9.0, while the shipments index fell nine points to -6.4, its first negative reading in more than a year.

imageEmployment conditions weakened, with the index for number of employees declining five points to -1.1 and the average workweek index falling three points to -4.3.

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Spain Considers EU Credit Line

Spain is considering a request for a line of credit from the EU’s new bailout mechanism, giving the first details of the country’s plans for seeking help to avoid its debt problems spinning out of control.

(…) To qualify for ECB support, a government would first have to apply for one of two kinds of help from the new European Stability Mechanism, which will have an eventual lending capacity of €500 billion ($643 billion).

Under one option, the ESM would become that government’s sole lender, buying up all its debt—as the European Union and other international lenders did when they bailed out Greece, Portugal and Ireland. Spain, the official said, would prefer a second option available under the new bailout arrangements: It would apply for a credit line, a request that the ESM make money available only if needed.

(…) The official said that once Spain made a bailout requests, those costs would drop and Spain wouldn’t need a disbursement of ESM credit.

“One could say it’s a virtual credit line,” the official said.

By opening a credit line and qualifying for the ECB’s bond-buying program, he said, Spain would gain enough of a financial backstop to significantly lower its borrowing costs to manageable levels. The day following a Spanish bailout request, the official predicted, interest rate on 10-year notes of Spanish government debt could fall by 1.5 percentage points while the Spanish stock market could surge 15%. (…)

Smile  Euro-Zone Exports Surge  Exports of goods from the 17 countries that share the euro rose sharply in August.

For weaker economies in the euro zone that are seeing subdued domestic demand as a result of austerity programs, there were also encouraging signs in the trade figures for August. Exports from Portugal rose by 14.5%, while exports from Ireland, Spain and Italy were up 7.6%, 5.4% and 3.3%, respectively. Greece was the main exception, as exports rose by just 0.9%.

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Hmmm…

GOOD READ: Euroland’s debt strategy is an economic and moral disgrace

Drastic fiscal tightening in a string of interlinked countries does two to three times more damage than assumed, especially if there is no offsetting monetary stimulus.

Pushed beyond the therapeutic dose, it is self-defeating. At a certain point it becomes pain for pain’s sake. (…)

The authorities have repeated the blunders of the Great Depression, but with fewer excuses. (…)

One might expect a flicker of recognition from Germany’s Wolfgang Schauble that something must change. But no, with half Europe sliding into a second and more menacing leg of depression, and with unemployment already at 25.1pc in Greece and Spain, and 15.9pc in Portugal, he refuses to brook deviation.

“Increasing public debt doesn’t create growth, it destroys growth,” he snapped back. There is “no alternative” to debt reduction. Always the same pedantry. (…)

Pointing up  In Reversal, Cash Leaks Out of China

A Journal analysis of Chinese economic data suggests that capital is pouring out of the country—about $225 billion in the 12 months through September, equivalent to about 3% of China’s economic output.

imageWealthy Chinese citizens are buying beachfront condos in Cyprus, paying big U.S. tuition bills for their children and stocking up on luxury goods in Singapore, frequently moving cash secretly through a flourishing network of money-transfer agents. Chinese companies, for their part, are making big-ticket foreign acquisitions, buying up natural resources and letting foreign profits accumulate overseas. (…)

Chinese individuals aren’t allowed to move more than $50,000 per year out of the country. Chinese companies can exchange yuan for foreign currencies only for approved business purposes, such as paying for imports or approved foreign investments.

In reality, the closed system has become more porous and the rules are routinely ignored. “The wealthy in China have always had an open capital account,” says Eswar Prasad, a Cornell University economist and former International Monetary Fund official. (…)

The outflow helps explain why China’s banks have been slow to increase lending this year. Accelerated outflows might force China’s central bank to push the yuan to appreciate more strongly against foreign currencies, to encourage Chinese investors to keep their money in the country. (…)

Big cracks in the “system”. A remarkable piece from the WSJ. Worth reading in its entirety.

Money  LVMH Revenue Growth Slows

Revenue growth slowed for the second consecutive quarter at French holding company LVMH Moët Hennessy Louis Vuitton which is a barometer in the luxury-goods industry.

LVMH—whose design and lifestyle brands include Louis Vuitton accessories, Veuve Clicquot champagne and the Céline fashion label—said third-quarter sales increased 6% from the year-earlier period, stripping out acquisitions and exchange-rate fluctuations. That marked a slowdown from the 10% and 14% growth rates posted in the second and first quarters, respectively.

Surprised smile  Canada Household Debt Hits Record

Canadian household debt hit another record high in the second quarter as demand for loans grew, and past data covering debt were revised sharply higher.

Statistics Canada, the country’s data agency, said the ratio of household credit-market debt to disposable income hit 163.4% in the April-to-June period, an increase from the upwardly revised 161.8% recorded in the first quarter. The original first-quarter figure was 152%. The ratio for 2011 was also raised, to 161.7% from 150.6%.

While the upward revisions were technical in nature—reflecting changes in the agency’s methodology—their size caught many economists by surprise. The risks posed to the Canadian economy by overindebted consumers are now “elevated, absolutely,” said Glen Hodgson, chief economist at the Conference Board of Canada, a nonpartisan think tank in Ottawa. “The reality hasn’t changed, but we are having a better look at what the reality is, and it’s not pretty.” (…)

Paul Ferley, economist at Royal Bank of Canada, said the newly revised debt levels are close to the peak witnessed in the U.S. at the height of the subprime mortgage crisis. The U.S. debt-to-income ratio is now in the 140% range after Americans deleveraged after the recession. But the comparison isn’t perfect, Mr. Ferley and other economists said, because Canada and the U.S. deploy different methodologies in tracking the data. (Chart below from BMO Capital).

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Home Loans May Get Shield

Federal regulators are considering giving mortgage lenders protection from certain lawsuits, a move designed to encourage lending to well-qualified borrowers.

(…) Small and midsize lenders have been the most vocal in calling for such a “safe harbor,” contending that their biggest competitors (…) can more easily absorb the risk of lawsuits.

“A safe harbor creates more certainty and competition in the mortgage market, which benefits consumers,” a spokeswoman for Regions Financial Corp. said Monday. (…)

Lawsuits aren’t the only worry for mortgage lenders. Banks have also kept underwriting standards tight in recent years due to uncertainty about whether they’ll be forced to buy back loans made in the housing boom.

The regulation doesn’t address this issue.(…)

 

One thought on “NEW$ & VIEW$ (16 OCTOBER 2012)

  1. allways nice nice analysis ..to day i have to do just one small comment .
    life is luxery ..when we meet people who have one bagag..high level .i am luck because i have .i read every day very intristing and usefull analysis like yours
    tomorrow i will make comment
    thank you

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