NEW$ & VIEW$ (9 AUGUST 2013)

China slowdown shows signs of abating
Industrial production rises 9.7% in July

Industrial production at large enterprises, a closely watched measure that usually tracks China’s gross domestic product, increased 9.7 per cent from a year earlier in July, sharply up from 8.9 per cent growth in June and the fastest pace since February.

The unexpectedly strong performance was driven mostly by rebounding production of steel, cement, power and nonferrous metals, underscoring the fact that China’s growth remains disproportionately reliant on credit-fuelled infrastructure and property construction.

In contrast, growth in retail sales slipped slightly in July, increasing 13.2 per cent from a year earlier compared with 13.3 per cent growth in June.

Fixed asset investment, a key driver of China’s investment-led economy, stabilised in July with a 20.1 per cent rise in the first seven months from a year earlier, the same pace as in the six months to the end of June, following four consecutive months of deceleration.

Growth in real estate investment sped up in July, growing 20.5 per cent in the first seven months, compared with 20.3 per cent growth in the first six months.

Power production, another closely watched indicator, increased 8.1 per cent in July from a year earlier, up from 6 per cent growth in June and the fastest increase since December 2011.

On Friday, official figures showed consumer prices in China rose 2.7 per cent in July from a year earlier, the same pace as in June and well below Beijing’s 3.5 per cent upper limit. Meanwhile, producer prices stayed in deflationary territory for the 17th consecutive month, falling 2.3 per cent in July from a year earlier, compared with a 2.7 per cent drop in June.

China’s Credit Expansion Slows as Li Curbs Shadow Banking

Aggregate financing was 808.8 billion yuan ($132 billion), the People’s Bank of China said in Beijing today, compared with the 925 billion yuan median estimate of analysts surveyed by Bloomberg News. New yuan loans exceeded forecasts and accounted for about 87 percent of the total, the most since September 2011. M2 money supply growth unexpectedly accelerated to 14.5 percent.

New yuan loans were 699.9 billion yuan in July, compared with the 640 billion yuan median analyst estimate and 540 billion yuan a year earlier. Aggregate financing, which includes bond and equity sales, entrusted loans and bankers’ acceptance bills, compared with 1.04 trillion yuan in June and 1.05 trillion yuan a year ago.

Auto  China’s passenger-vehicle sales rose 10.5 percent in July as automakers increased production and dealerships stepped up discounts to clear inventory, figures from the state-backed China Association of Automobile Manufacturers showed today. Wholesale deliveries of 1.24 million units topped the median estimate of 1.22 million from six analysts surveyed by Bloomberg News.

Home Prices Rise In West, Sunbelt

Cities in the West and the Sunbelt, among the hardest hit during the real-estate downturn, continue to lead the nation’s housing recovery, posting double-digit gains in home prices.

imageIn the second quarter, median existing-home prices increased in 142 of the 163 metropolitan areas tracked by the National Association of Realtors, according to a survey released Thursday.

Nationally, the median existing-home price rose 12.2% in the second quarter from a year ago, to $203,500.

The fastest growth was the West, with 18.2% price growth, followed by the South (11.0%), the Midwest (7.9%) and the Northeast (6.9%).

U.K. Exports Rising to Record Signal Recovery Progress

Overseas sales increased increased 4.9 percent to 78.4 billion pounds ($122 billion), the most since the series began in 1998, the Office for National Statistics said today in London.

The growth in goods exports was led by demand outside the European Union, where sales surged 7.5 percent, exceeding 40 billion pounds for the first time. Exports to the EU increased 2.3 percent, though shipments to Germany dropped 7.9 percent, widening the U.K.’s trade gap with Europe’s largest economy.

French Industrial Output Unexpectedly Drops

Industrial production fell 1.4 percent from the previous month, state statistical institute Insee said today. The drop was worse than any of the predictions made by 22 economists in a Bloomberg survey, whose estimates ranged from a 0.5 percent decline to a 0.5 percent increase. The median forecast was for a 0.3 percent gain.

In Germany, the measure rose 2.4 percent in June, adding to signs that growth in Europe’s largest economy accelerated in the second quarter. Even Italy, mired in its worst recession in 30 years, saw a 0.3 percent increase in production, the second monthly increase in a row and its best since January.image

Weak Demand Dogs Shipping Companies

(…) “This is primarily caused by very, very weak demand and capacity oversupply, causing downward pressure on freight rates,” acting finance chief Alan Tung said, calling the results “disappointing.” “But we do hope for an improvement in the second half.”

Singapore-based Neptune Orient Lines said on Wednesday it sees few signs of a quick recovery in freight rates, (…)

“There’s hope in this and, yes, the high season is coming,” he said. “I don’t know how successful the high season will be, but the initial sign is that we see cargo growth and that’s good news.”

Dutch mood shifts against austerity

Support for government plunges as protests grow

(…) The growing protest marks a slow but significant shift, as this prosperous Calvinist country, once strongly committed to austerity, has gradually turned against it. The Dutch government was among the strongest advocates of tough European budget deficit rules and enforcement powers from the start of the euro crisis in 2010. Now that the EU is forcing the Dutch to slash their deficits, public support for Europe in this once strongly pro-European country has plunged.

Indeed, with the economy in a deep and prolonged recession, austerity measures have sent popular support for the government plummeting to just 28 per cent in the latest polls. Meanwhile, support for the two parties firmly opposed to austerity, the far-right Freedom Party of Geert Wilders and the far-left Socialist Party, has soared; some polls put the Freedom Party in the lead. (…)

The resistance to EU-driven austerity comes not just from the unions, but from business leaders. Bernard Wientjes, the head of the Netherlands’ VNO-NCW business group who is one of the most influential lobbyists in the country, called in June for the government to drop the €6bn austerity plan if it meant raising taxes further. (…)

The head of the country’s small-business organisation has attacked austerity measures as well.

The unions, meanwhile, demand that any new austerity measures should rely on raising taxes. They say they will withdraw from a so-called “social accord” reached between business, labour and the government in April if the government extends pay freezes for healthcare and government employees, which have already persisted for three years.(…)

US oil demand growth at two-year high
Industrial products such as gasoil and LPG fuel growth

Demand for oil in the US has grown in four of the past six months – the strongest run since early 2011 – leading the industrialised countries’ energy watchdog to upgrade its forecast for US demand this year from zero growth to 0.3 per cent, which would be the first in two years.

Refinery runs have increased 5.1m barrels a day since April, the largest seasonal increase in runs since the IEA began collecting data in 2004.

But the IEA also highlighted supply outages across the Opec oil producers’ cartel as a reason for price strength.

In Libya, production fell to 1m b/d in July, a sharp drop from June, when production was already at its lowest since the country’s civil war in 2011. A wave of strikes and militia activity have closed export terminals in the North African producer.

In Iraq production dipped below 3m b/d for the first time in six months. The IEA said planned maintenance to a key export terminal in September, which is expected to reduce exports by a further 500,000 b/d, could drag on for several months.

Saudi Arabia increased production to 9.8m b/d in July, according to the IEA, in part to meet domestic demand for electricity to run air conditioners in the summer months, but also to compensate for reduced supplies elsewhere. But Opec’s overall crude oil output fell to 30.4 mb/d in July, from 31 mb/d in May.

Auto  Energy Journal: America to Its Auto: Long May You Run The 247 million cars and trucks on U.S. roads are growing old together. New auto sales may have reached a five-year high in June, but Americans are keeping their vehicles longer.

The average age of an American car or truck in January was 11.4 years, the oldest on record and a nearly a full two years older than in 2007.

On top of this, Americans are driving less and, as Quartz explains, young Americans aren’t interested in a brand new Cadillac.

The IEA’s latest oil market report said that while U.S. demand has been rising in recent months for products that closely track industrial activity, such as liquefied petroleum gas, demand for fuel oil and gasoline has been eroding.

Some could benefit from such a shift—auto-repair shops or hire firms—but as Geoffrey Styles writes for Pacific Energy Development, if the number of Americans who drive continues to fall then this will require some serious thinking by fuel producers, established and upstart auto makers, transportation planners and policy makers.

Auto  Magna raises sales forecast after profit beats forecasts

Auto parts maker Magna International Inc reported a stronger-than-expected 19-per-cent rise in second-quarter profit and raised its sales forecast for the year, buoyed by increased vehicle production in North America.

  The company raised its sales forecast for the year to $33.3-billion (U.S.)-$34.7-billion from $32.6-billion-$34-billion.

Magna also raised its expected total production sales for the year to be between $27.7-billion and $28.7-billion, up from its previous forecast range of $27.2-billion-$28.2-billion.

Production sales are Magna’s core business of manufacturing vehicle parts and exclude its smaller vehicle assembly and tooling operations.

Aurora, Ont.-based Magna’s fortunes are closely linked to the health of the U.S. vehicle market and Detroit’s Big Three – Ford Motor Co., General Motors Co. and Fiat SpA’s Chrysler.


Of 442 companies in the S&P 500 that reported earnings through Thursday morning, Thomson Reuters data showed that 67 percent topped analysts’ expectations, matching the beat rate over the past four quarters. In terms of revenue, 53.6 percent exceeded estimates, more than the 48 percent rate over the past four quarters, but below the 61 percent average since 2002.

Pointing upBut here’s the meat from Moody’s:

(…) according to the 87% of the non-financials that have reported, Q2-2013’s operating income contracted by -1.3% annually, partly because of a weak 2.6% yearly rise by the group’s revenues. For the third-quarter, the consensus expects the operating income of the S&P 500’s nonfinancial companies to grow by a mediocre 3.5%. (…)

Nevertheless, the consensus somehow believes that the operating income of the S&P 500’s nonfinancial companies will recover to annual a growth rate of 8.8% by Q4-2013.

Fingers crossed  The hope:
New US listings at post-crisis high in Q3

A total of 28 companies have raised $5.2bn from US initial public offerings since July, which marks the fastest rate of activity and amount raised in the same period since 2007, according to data from Dealogic. A further six companies are looking to price deals and begin trading by the end of this week.

IPOs this year have gained an average of 13.2 per cent on their first day of public trading and are up on average just over 30 per cent from their listing price, Dealogic said.

Morning MoneyBeat: The Growing ‘1700 Club’ The number of Wall Street strategists who predict the S&P 500 will finish the year above 1700 keeps growing as stocks keep rallying.

At the beginning of 2013, when the S&P 500 was at 1426, none of Wall Street’s leading prognosticators had 1700 on their radars. Now, at least seven strategists expect the index will finish above 1700 by year’s end.

Wall Street’s 13 leading strategists, on average, expect the S&P 500 to finish the year at 1669, according to Mr. Birinyi. That estimate, while up from the 1544 forecast at the beginning of the year, is still below Thursday’s close.

Even the skeptics are turning a bit less bearish. Earlier this week Barry Knapp of Barclays boosted his year-end target to 1600 from 1525. “It appears that our bull case – faster-than-expected improvement in capital investment and better-than-expected consumer resiliency to tax hikes – may be playing out,” he said.

Stocks Start to Look Overvalued

For the past several years, stock-market bulls have been able to argue that stocks are cheap. That argument is increasingly on shaky ground.

The S&P 500 is trading at 14.5 times its expected earnings for the next 12 months, according to FactSet. That is above the index’s average P/E of 14.2 for the past 10 years, and the highest monthly reading since September 2009. The S&P 500’s forward P/E hasn’t crossed above 15 since October 2007.

The S&P 500 remains below its average valuation of 16.6 since 1988, according to S&P Dow Jones Indices. But that includes the dot-com bubble of 1999 and 2000, when investors paid as much as 27.6 times every dollar of the S&P 500’s expected earnings. Investors haven’t paid more than 20 times the coming year’s earnings for the S&P 500 since 2002, according to FactSet.

Stock futures lower, pointing towards worst week since June

Stock index futures were lower on Friday, putting major indexes on track for their worst week since June, as investors found few reasons buy with equity prices near record levels.


Leave a Reply

Your email address will not be published. Required fields are marked *