Global business confidence hits post-crisis low
The Markit Global Business Outlook Survey of 11,000 companies worldwide shows that optimism dropped in October to its lowest since global data were first available in October 2009.
Although the percentage of companies expecting their business activity to rise over the next 12 months outnumbered those anticipating a decline, at +30% it is the smallest positive net balance in the three-year series history. The latest reading is down from +37% in June and well below February’s level of +44%, representing a scaling back of growth expectations amid a weakening global economic backdrop.
The continuing debt crisis in the eurozone has taken a further toll on sentiment in the single currency area, with the net balance of optimism dropping from +16% in June to just +8%, the lowest since the start of 2009. France in particular has seen a steep decline in confidence, with firms now expecting stagnation of business activity over the coming year (0% down from +16%). Germany (+9% down from +16%) and Spain
(+1% down from +11%) also reported markedly weaker business sentiment.
Expectations for business activity growth remain strong in the U.S., with optimism the second-highest of all monitored countries behind only Brazil. That said, the latest confidence reading of +50% is down from +57% in the June survey and the lowest for a year.
The mood among firms in the BRIC countries is again upbeat, with the overall net balance at +33% in October. Although down slightly from +36% in June to a one-year low, the latest figure is above the global
average of +30%. This masks divergences between countries, with markedly improved confidence in Russia offsetting declines in India and China. Brazilian companies remain comfortably the most upbeat overall,
with sentiment unchanged since the June survey.
Capital expenditure is set to rise at a slower pace than previously forecast, reaching a near post-crisis low, as the dimmer outlook has taken its toll on companies’ investment plans.
The eurozone is set to see a fall in capital spending as the outlook for capex hit a post-recession low, primarily reflecting sharp downturns in France and Spain. Firms in the U.S. and Japan also anticipate weaker increases compared to the June survey, but the capex outlook in the BRIC region is unchanged.
U.S. SMALL BUSINESS REMAIN DOWNBEAT
From today’s NFIB report:
U.S. CONSUMERS ARE UPBEAT
Gallup’s U.S. Economic Confidence Index was -11 for the week ending Nov. 11, little changed from -10 the week prior. Economic confidence has maintained its improved level during the first part of November — with the most favorable readings of the year and since the economic downturn in 2008.
(…) The tax relief comes into play when an “underwater” homeowner finds a buyer willing to pay less than his mortgage but doesn’t have — or is unwilling to come up with — the extra money needed to pay off the loan. In that case, he can ask the bank to agree to a “short sale,” in which the bank accepts whatever price the homeowner gets — even though it’s less than what’s owed — and forgives the remainder.
Before amended under Bush, the tax code required the homeowner to pay tax on the forgiven debt, which it treated as income. So, if a homeowner in the 30 percent bracket owed $400,000 and got the bank to take $300,000 on a short sale, he would get socked with a $30,000 tax bill, even though there would be no cash income to pay it.
Included in the Bush-era tax relief was the Mortgage Debt Relief Act, which gives homeowners a pass on the tax they would otherwise have to pay when part of their primary residence mortgage balance (up to $2 million) is forgiven. Once that break expires, along with the Bush tax rates next year, homeowners again will have to pay tax on forgiven debt.
Housing’s nascent recovery is due in significant part to sales of foreclosed homes and short sales; they’re steeply discounted and amounted to nearly one in three existing home sales last year and account for one in four today. (…)
Economic slowdown bites China’s employment China’s job market is feeling the pressure from the country’s economic downshift, as new job growth slows and more people become unemployed.
“The impact of economic slowdown on the job market is starting to emerge,” said Vice-Minister of Human Resources and Social Security Yang Zhiming at a press conference on the sidelines of the 18th National Congress of the Communist Party of China, which opened on November 8.
The growth of newly added jobs in cities has been narrowing since April, while job vacancies have dropped with higher registered unemployed number, Yang said. (…)
China’s job market is under great pressure this year as nearly 7 million college graduates have entered the job market, while migrant workers and unemployed urbanites still have difficulty getting full employment, said Yang. (…)
Europe Gives Greece 2 More Years to Reach Deficit Targets Euro finance chiefs left unanswered how they’ll fill a fresh hole in Greece’s balance sheet without tapping their own bailout-weary taxpayers for money after giving the country two extra years to trim its budget deficit.
In the latest compromise in three years of crisis fighting, creditors led by Germany opted late yesterday to keep money flowing to Greece instead of risking a default that could lead to the nation’s exit from the euro and stir more turmoil for the countries that remain in the single-currency bloc.
Romney adviser signals fiscal cliff resolution
(…) Writing for the Financial Times, Glenn Hubbard, who advised Barack Obama’s rival Mitt Romney on his losing presidential bid, is the latest prominent conservative to suggest Republicans should change tack and accept the president’s structure for impending budget talks.
“The first step is to raise average (not marginal) tax rates on upper-income taxpayers,” he wrote. “Revenues should come first from these individuals.” (…)
This was on the table in 2011 as part of the “bigger deal” but Republicans insist that higher revenues be accompanied with significant, tangible and immediate spending reforms that would not only materialize in the distant future if they ever do.
(Chart via FT Alphaville)
THE OIL GAME CHANGER: The Risks:
(…) One point to keep in mind is that this U.S. energy revolution wasn’t inevitable and could still be undone. The Sierra Club and other environmentalists are demonizing fracking the way they have coal, never mind that increased use of natural gas instead of coal is helping to reduce carbon emissions. They hate carbon energy—period.
New York state has imposed a moratorium on fracking, even while the economy of neighboring Pennsylvania is being transformed by the exploitation of the Marcellus Shale that lies under both states. The French, who import 98% of their natural gas, have also banned fracking, despite sitting on shale reserves estimated to be the second-largest in Europe. The British, unsure of what to do, are supposed to make a fracking announcement sometime next month.
The biggest potential threat may come from federal regulation in Mr. Obama’s second term. Though he tried to take credit for the fracking revolution in his second debate with Mitt Romney, his EPA has long wanted to supplant state regulators and will grab any opportunity to do so. Perhaps the election of pro-fracking Democrats like soon-to-be Senator Heidi Heitkamp of North Dakota (home to the monster Bakken Shale field) can give the new energy revolution some needed bipartisan buy-in. (…)
Don’t Expect Lower Oil Prices Even as U.S. Output Surges The U.S. is set to overtake Saudi Arabia as the world’s largest oil producer. But don’t expect that to translate into lower prices at the pump.
(…) The IEA expects a surge in non-OPEC production this decade due to newly tapped deep-water and shale resources in the U.S., Canada and Brazil, but after that the world will rely increasingly on oil from OPEC countries, especially Iraq.
The other half of the equation is demand. The U.S. and other western countries are using less oil due to improved fuel efficiency, increased use of renewable fuels and other factors. But soaring demand in China and other developing countries more than offsets that decline. (…)
I don’t agree with this:
- U.S. export of oil is currently forbidden for security reasons. American oil is thus trapped and not available to world markets. The current significant pipeline constraints also curtail the free flow of oil within the U.S. As a result, U.S. oil prices have already declined and are likely to remain meaningfully below world markets for many years (see FT chart below NYMEX vs Brent)
- Other countries with shale oil deposits will need to react if they want to remain competitive. Non-Opec supply could keep rising much more than the IEA currently forecasts. China, for one, has huge shale reserves.
- The OPEC cartel, already weak and weakening, could (will) unravel.
BHP Billiton on push to harness shale energy boom BHP Billiton, the world’s largest miner, is attempting to ride the shale oil and gas revolution in the US – and says it is the biggest thing to hit energy in decades.
(…) “This is absolutely stupendous,” says Mike Yeager, chief executive of its petroleum division and a 35-year energy industry veteran. “This is the biggest thing that has happened in my career.”
For once, the company line could be an understatement. The shift taking place in the energy industry is of a scale to rival anything seen in several decades, say industry watchers. As one puts it: first there was nuclear, then China’s growth explosion – and now shale. (…)
The implications for the world’s biggest economy are profound, since it happens to be endowed with the stuff. (…)
As Yeager notes, the US also enjoys helpful factors including “supportive” regulators, shale riches lying in areas boasting “more cows than people” and a system which hands landowners the royalties, incentivising them to accept drilling.(…)
BHP, the Anglo-Australian mining colossus, has only been in the shale arena for 18 months, but by spending some $20bn (£13bn) buying up assets it has key positions in four major US shale formations: Fayetteville, Haynesville, Permian and Eagle Ford. (…)
But every revolution must have its losers too, and in the shale phenomenon they are still being decided. (…) Headline concerns around fracking may focus on people setting fire to what comes out of their taps and fears about earthquakes, but locals are more bothered about the dustclouds and road damage from the huge trucks rolling to and from the shale gas operations. (…)
There are national-level political considerations too. While the 1.75m jobs created by the shale boom have surely smoothed its acceptance by President Obama, he is not seen as a fan. The fall in the gas price driven by the flood of shale supplies has made many renewable energy sources uneconomic. (…)
“Our grandchildren are going to be drilling wells in these fields,” he reflects. “They are that large.”
China to be main buyer of Iraqi oil by 2030, says IEA China will become the main customer for Iraqi oil by the 2030s, with Iran overtaking Russia to become the world’s second-largest oil exporter by then.
The agency predicts that oil output in Iraq will exceed 6 million barrels per day (mb/d) in 2020 and rise to more than 8 mb/d by 2035.
BASEL III DELAYED
Last week US regulators finally capitulated and announced a delay in the implementation of the Basel III bank capital rules. We hear that a serious reassessment is underway. The reasons for the delay are many, but more than practical concerns about how to implement the complex rules is the realization that higher capital rules and other regulatory initiatives will likely put the western economies into a prolonged recession. (…) (IRA)