NEW$ & VIEW$ (9 NOVEMBER 2012)

Rainbow  China data herald end of slowdown
Industrial production, investment and retail sales accelerate

Industrial output growth rose to 9.6 per cent year on year in October from 9.2 per cent in September, while retail sales increased to 14.5 per cent year-on-year growth from 14.2 per cent.

Fixed-asset investment also picked up, as did newly started projects, an important predictor of future spending.

Spending on central government-invested projects rose 5.1 percent in the 10-month period from a year earlier, more than double the January-September pace, the data show.

Pointing up Growth in power generation, which had been lagging behind, finally caught up in October, rising 6.4% YoY after a 1.5% rise in September, as heavy-industry output accelerated.  Average daily production of steel (+11.7% vs. 4.9% in September), non-ferrous metals (+14% vs. 7.1%) and cement (+11.5% vs. 12%) were all strong.(CLSA)

China’s inflation rises 1.7% in Oct

On a month-on-month basis, October’s CPI fell 0.1 percent from the previous month, according to a statement posted on the NBS’s website.

Food prices, which account for nearly one-third of the weighting in the calculation of China’s CPI, rose 1.8 percent last month from one year earlier, which was down from the 2.5-percent increase in September.




China’s Oct PPI drops 2.8%  China’s PPI, which measures inflation at the wholesale level, dropped 2.8 percent year-on-year in October, compared with a 3.6-percent decline in September. On a month-on-month basis, the PPI moved up 0.2 percent in October, according to the NBS.



Smile  China’s Auto Sales Rebound in October

Sales in the world’s biggest auto market rose 6.4 percent to 1.3 million vehicles, according to the government-sanctioned China Association of Automobile Manufacturers. That was a recovery from September’s 0.3 percent contraction — the first monthly decline this year. (…)

Sales growth declined from June’s 15.8 percent to 11 percent in July and 3.7 percent in August.

In October, total vehicle sales rose 5.3 percent to 1.6 million units, according to the CAAM.


Pressure Mounts on Fiscal Crisis

The White House and GOP lawmakers faced pressure to reach a solution to the looming budget crisis after new warnings from the CBO.

If We Step Away From the EdgeThe CBO on Thursday detailed its view that if Washington policy makers don’t act before the end of the year, the economy would contract by 0.5% in 2013. The unemployment rate would jump from 7.9% to 9.1% by the end of 2013, according to the CBO—a nonpartisan arm of Congress.

If all the spending cuts and tax increases are avoided, CBO forecast the U.S. economy would grow by about 1.7% next year.

In a 14-page analysis, CBO economists offered Congress an itemized list of choices and consequences. Waiving cuts in domestic and defense spending would, for instance, add three-quarters of a percentage point to economic growth by the end of 2013. Extending all Bush-era tax cuts—but excluding the payroll tax holiday—would add about 1.5 percentage points. (…)

CBO also projected that avoiding the fiscal cliff would take the federal debt from last year’s 73% of gross domestic product to 86% in 2020. (…) Before the 2007-09 recession, the debt-to-GDP ratio was below 65%.


Eurozone economic data have lately been somewhat better, even slightly encouraging, but that seems to be changing for the worst. Markit writes:

Having enjoyed surprising buoyancy in the summer, exports from both countries are now waning, corresponding with signals from the business surveys that the region’s core nations are suffering not just in the face of dwindling demand from their euro neighbours, but also from softening demand further afield, notably Asia and to a lesser extent the US.

Exports from Germany fell 2.5% in September, according to the Federal Statistics Office, the biggest monthly fall since last December. The decline pushed the less volatile three-month-on-three-month comparison down, registering a 1.5% increase in September; the weakest increase since February.

Both the PMI and IFO surveys suggest the weakening in Germany’s foreign trade is not a one-off. Export indices from both surveys are running at levels broadly consistent with a 5% rate of decline in exports (three-months-on-three-months), suggesting the official data have some way to fall before coming into line with the recent downbeat tone of the surveys.

image image

It was not just the export data which provided an indication of a slowing German economy – imports fell 1.6%, pointing to a slowing domestic economy. The disappointing trade data also follow recent news that both German manufacturing output and orders fell 2.3% and 3.3% respectively in September.

imageA slowing of French trade was also signalled in September, with official data registering a 1.5% decline in exports in September, alongside a 1.9% drop in imports.

The rate of growth for exports meanwhile picked up to  2.1% in the three months to September, but the improvement largely reflected what looks like temporary strength in August. As with Germany, the survey data suggest that the underlying trend in exports is firmly negative, suggesting the official data looks set to disappoint again in October.

French Recession Looms as Industrial Production Slumps

Production fell 2.7 percent in September from August, Paris-based statistics office Insee said today.

In Italy, industrial output declined the most in five months in September, signaling the country remained mired in recession in the third quarter. Output fell 1.5 percent from August, when it rose 1.7 percent, national statistics office Istat said in Rome today.

Reuters Exclusive: Worried Germany seeks study on French economy – sources

(…) Two officials, speaking on condition of anonymity, told Reuters this week that Schaeuble asked the council of economic advisers to the German government, known as the “wise men”, to consider drafting a report on what France should do.

Schaeuble’s request denotes growing concern in Berlin and among private economists over the health of the euro zone’s second largest economy, which is set to miss a European Union goal for reducing its public deficit next year.

Maersk Forecasts Slowing Europe Trade

A.P. Moller-Maersk said global demand for seaborne containers will grow 3% this year, down from its earlier projections, because of declining trade to Europe, and reported a sharp rise in third-quarter net profit

In its previous forecast, given in August, Maersk said it expected global demand for seaborne containers to increase 4% in 2012. The global market for shipping grew 7% in last year, according to Drewry Shipping Consultants Ltd., as quoted in Maersk’s 2011 annual report.

Eurozone faces brinkmanship on Greece
Athens pushed close to default on €5bn debt payment

(…) according to officials involved in negotiations, international lenders remain far apart on how much debt relief for Greece is needed and who will bear the losses from lower debt repayments.

“It is absolutely clear that we will need another round after next Monday,” said one senior eurozone official involved in the talks. “There are a number of issues that still need to be wrapped up.”

Although negotiators insisted they are narrowing the differences, time may be running out. One senior official said the European Central Bank, which holds the €5bn in debt due next Friday, is resisting rolling the payment over, putting pressure on all sides to reach a deal quickly. (…)

Call me  Mario Draghi, the ECB president, said on Thursday he had agreed to allow the profits to be passed back to Greece, but added he was unwilling to take further measures to help lower Athens’ debt burden, putting additional pressure on eurozone governments to take the hit.

The ECB is by and large done,” Mr Draghi said.


The U.S. employments data just keep being revised upward. During the last 4 months, the monthly gains averaged 173k. A few charts to consider:

  • Private employment has improved.


  • Weekly hours worked have plateaued at a high level. Companies will need to add employees if demand improves.


  • Construction employment, the big lagger, is no longer declining. It even surged last month…


  • …in spite of further declines in residential construction employment.Confused smile


  • Surprisingly, non-resid. construction employment rose in the last 2 months after 6 weak monthly showings.


  • But why is resid. construction employment flat in the face of rising housing starts? Maybe because many construction workers have “unofficial status” which would explain the lags in every turns. Housing-related employment should turn up shortly. These are well paid jobs.



Following up on my Oct. 18 Facts & Trends: The U.S. Energy Game Changer. The oil market is undergoing a major change with potentially huge consequences for the world.

OPEC Sees Demand for Its Crude Falling to 2016 on Economy, Shale

Global need for fuel from the Organization of Petroleum Exporting Countries will shrink to 29.7 million barrels a day in 2016, 1.4 million less than this year, the group said today in its annual World Oil Outlook. The estimate for 2015 is 1.6 million barrels lower than that forecast in last year’s report. OPEC predicts it may have more than 5 million barrels of daily spare production capacity as early as next year. (…)

“Shale oil represents a large change to the supply picture.” (…)

OPEC reduced estimates for global consumption in 2016 by 1 million barrels to 92.9 million a day, meaning demand will advance by 5.1 million, or 4.7 percent, from last year. Seventy percent of the increase will come from emerging nations in Asia, while fuel use in developed nations, which peaked in 2005, will decline by 0.9 percent to 45.7 million a day from this year to 2016, according to the report.

Supplies from outside OPEC will increase in excess of 4 million barrels a day from 2011 to 2016, reaching 56.6 million. The gain will be driven by output of U.S. shale oil, Canadian oil sands, and crude from the Caspian Sea and Brazil. The assessment for non-OPEC supply to 2015 is 2 million barrels a day more than in last year’s report.

American Oil Boom Shrinks Trade Deficit  America’s oil boom is pumping up exports and driving down the trade deficit.

The U.S. spent $32.8 billion on oil imports in September and sold $11.2 billion in oil — virtually all of it in the form of gasoline, diesel and other so-called petroleum products — to customers in other countries, for a trade deficit of $21.7 billion. A year ago, that deficit stood at $26.3 billion. Adjusting for inflation, the deficit has shrunk by nearly 40% over the past five years.

What’s going on? Lower demand is part of the story. U.S. oil consumption rose steadily in the 1990s and early 2000s, hitting 20.8 million barrels per days in 2005. But demand leveled off in the mid-2000s due to improved fuel efficiency, changed driving habits and increased consumption of ethanol, then plunged at the end of the decade due to the recession. Consumption bottomed out at 18.8 million barrels per day in 2009, and has hardly rebounded from there.

The major driver, however, is supply. U.S. oil production has risen more than 20% over the past five years, reversing two decades of decline. Drilling techniques that first revolutionized the natural-gas industry have now unlocked vast new oil fields in North Dakota, Texas and perhaps even Ohio. North Dakota’s oil production has more than doubled in just the past two years.

The U.S. still imports far more oil than it exports, a fact that isn’t likely to change any time soon. But the gap is getting narrower: The U.S. now imports about 40% of its oil, down from 60% just a few years ago. That’s shaving billions off the trade deficit and giving a boost to the economy — Thursday’s trade report led Barclays to boost its estimate of third-quarter economic growth by four tenths of a point to 2.8%.

Smile  U.S. Trade Deficit Narrows in September as Exports Rebound

The September improvement came in a rebound in exports to $187.0B, up 3.1% from August and 3.5% from a year ago. Imports also increased, by 1.5%, to $228.5B, also up 1.5% from a year ago. In chained 2005 dollars, the deficit in goods improved to $46.8B from $48.2B in August. Real exports were up 3.1% (+4.3% y/y) after falling 2.6% in August, while real imports increased 1.2% (+3.1% y/y), reversing a 1.1% decline the previous month.

The rebound in real exports came in food, feeds and beverages, up 7.9%, industrial materials and supplies, up 6.1%, and non auto consumer goods, up 3.1%, all reversing August drops of similar magnitude. Capital goods and “other” goods grew modestly, while auto vehicles, parts and engines declined for a third consecutive month.

High five  However, Moody’s warns that

the recent drop by the global composite PMI portends a further slowing by the year-to-year growth rate for US business sales excluding sales of identifiable energy products from the prospective 3.4% of Q3-2012 to approximately 1.0%. During 2003-2007, this version of core business sales grew by 5.3% annualized, on average.


The global slowdown has already pared the year-over-year growth of US exports from Q3-2011’s unsustainably rapid 15.4% to the 2.6% of Q3-2012. A drop by the moving-five-month average of the ISM-derived composite index of US export orders to the contractive 48.2 of October 2012 warns of an impending yearly contraction by US exports. Export orders’ moving five month average underwent similar dives in 2008, 2001, and 1998 and, in each incident, exports would contract year-to-year quickly enough.



October’s global composite PMI also warns of at least a 100 bp swelling by the recent US high-yield bond spread of 558 bp. By comparison, when the global composite PMI averaged 56.8 during 2003-2007, the median US high yield bond spread of that span was a much thinner 371 bp. (Figure 3.)



The latest S&P tally (Nov. 6) estimates Q3 earnings at $24.63 down 1.2% from the previous week. That would put EPS 2.6% below their Q311 level. Trailing 12 months EPS would thus be $98.03, down 0.7% from their level 3 months ago.

Q4 estimates are tumbling fast and are now $26.11, down 2.8% since September 28 but still up 10% YoY. Even though Q4 estimates are down 8% since March, they remain vulnerable to further downward revisions.

With 414 companies in, 63% beat estimates while 24% missed.

Financial companies have provided a large part of the surprise and the growth in Q3. This Moody’s table illustrates this:



In all, earnings are not collapsing, at least just yet. The recent decline in oil prices should bring inflation down in coming months, providing valuation support to equities which, by the way, are now sitting on their 200 day moving average.



California Voters Approve Higher Taxes

(…) In approving a ballot measure sought by Gov. Jerry Brown to raise taxes for several years, Californians took a step toward improving the state’s fiscal situation and avoiding education cuts.

According to the California Secretary of State’s website, 53.9% of voters backed the measure, Proposition 30, while 46.1% voted against it, with all votes counted except for provisional and some mailed-in ballots. (…)

Under the measure, Californians from calendar years 2013 through 2016 will see their sales-tax rate rise by a quarter of a percentage point. For individuals making more than $250,000 annually or couples making more than $500,000, the income-tax rate for the 2012 through 2018 calendar years also will rise, by one to three percentage points.

Proposition 30 is expected to generate an additional $6 billion a year for the state’s general fund through the fiscal year ending in June 2017, with a smaller sum in the 2018 and 2019 fiscal years. A state law generally requires education spending to grow along with revenue.

Hard line Republicans might take notice.

SNB warns on challenge of forex reserves

Fears that debt stockpile could destabilise markets

The Swiss National Bank warned that managing its ballooning foreign exchange reserves had become a “major challenge” and said it was in talks with other central banks about how to avoid distorting local markets with its hefty purchases of overseas government debt.

Switzerland has built up the fifth-largest stockpile of foreign currency reserves in the world as its central bank battled heavy inflows this year from overseas investors seeking a haven in the Swiss franc amid the market turmoil in the eurozone.

While pressure on the franc has lifted recently, the SNB has accumulated SFr424bn in overseas currencies on its balance sheet owing to its policy of keeping the Swiss franc weak to help its country’s exporters. Since September 2011, the central bank has promised to buy euros to keep its exchange rate against the franc at SFr1.20.

Iran Fired on U.S. Drone

Iranian fighter planes shot at an unarmed U.S. drone last week, in an unprecedented air attack that raises military tensions in the Persian Gulf.


One thought on “NEW$ & VIEW$ (9 NOVEMBER 2012)

  1. is nice to read your analysis ..
    ”watch global economy”.
    thank you
    situation in chine is slow ..this is the economy up-down and consequences is because USA and EU crisis
    gas oil ..what to say is problem nr.1
    will continue ..all the war is because ..we have learned to see everyday in news something bad (this situation make me feel old) i am not ….

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