Global Output and new orders rise at fastest rates since February 2011
At 53.2 in November, up from 52.1 in October, the J.P.Morgan Global Manufacturing PMI™ registered its highest level since May 2011. The headline PMI has signalled expansion for 11 successive months. The faster improvement in overall operating conditions was underpinned by stronger expansions of production, new orders and further job creation.
Among the largest industrial regions covered by the survey, the PMI for the US bounced back to reach a ten-month high, after slowing sharply to a one-year low in October. Growth meanwhile remained solid in Japan and the UK, with the PMI in each of these nations at their highest levels since July 2006 and February 2011 respectively. The modest and fragile
recovery in the euro area continued, while the China PMI also posted slightly above the 50.0 mark.
Global manufacturing output and new business both expanded at the quickest pace since February 2011. The trend in international trade also showed further signs of improvement, as the growth rate of new export orders hit a 32-month record.
A sign that current capacity was being tested by the combination of solid demand growth and lacklustre job creation was provided by a third successive increase in backlogs of work. Outstanding business rose at the quickest pace since March 2011.
Companies reported some success in passing on higher input costs to their clients, as average factory gate prices increased for the fourth month in a row.
October’s U.S. construction data offered a surprise for era of penny-pinching governments: A surge in public spending more than offset a decline in private building.
Spending on construction increased at a seasonally adjusted annual rate of 0.8% in October from the month before, beating the 0.4% gain forecast by economists.
The strength came from an unexpected source. State and local governments, which fund the majority of public construction, boosted spending at 3.2% pace.
The federal government boosted outlays by 10.9% in October, the largest monthly gain since January 2011. The October increase, the first month of the new fiscal year, more than reversed declines the prior two months. Federal construction spending had been weak most of the year due to across-the-board cuts put in place in March.
Meanwhile, private construction slipped in October. Private home building declined 0.6%, the third decrease in the last four months. Spending on communication, power infrastructure and recreation also fell during the month. (…) (Chart from Haver Analytics)
Millions of Bangladeshi garment workers—key players in a supply chain that produces inexpensive clothing for Western retailers—got a pay raise over the weekend, as a new government-mandated minimum wage of $67 a month kicked in.
That puts Bangladesh into roughly the same league as other low-cost apparel exporters such as India, Sri Lanka and Cambodia. But factory owners here said the increase risks making the industry, a mainstay of the impoverished country’s economy, less competitive. (…)
For years, extremely low wages helped Bangladeshi apparel makers win contracts by offsetting other weaknesses that plague the industry—from inefficient factories to poor shipping infrastructure and frequent political upheaval that disrupts production.
An appreciating local currency is also adding to the challenges facing Bangladeshi exporters. The Bangladeshi taka is now trading at around 77 to the dollar, considerably stronger than January’s rate of about 84 to the dollar.
That has the effect of making Bangladeshi products more expensive overseas, at the same time that some of the country’s garment-making rivals benefitted from falling currencies. The rupee in neighboring India, for instance, is down about 12% from where it started the year, giving exporters there a boost. (…)
Factory owners said the wage increase means they will need to charge more. “At an average, we’re looking at a 20-30 cents rise on every product and that’s a surprise leap for any brand or any producer,” said Mohammadi’s Ms. Huq. (…)
A recent World Bank study found that the unit cost of producing a basic polo shirt in Bangladesh is approximately $3.46 per shirt, excluding margins and the cost of transportation to port, compared with a cost of $3.93 per shirt in China. But Bangladeshi workers produce 13-27 polo shirts per person per day, lower than the 18-35 pieces per person per day in China, the study found. (…)
Periphery banks looking better, but crisis is far from over
(…) This is typical of how banks are getting to their Basel III numbers – small disposals, exits from a few capital-intensive business lines and other changes to the asset side of the balance sheet.
But capital-raising on a different scale looms, spurred on by the European Central Bank’s Asset Quality Review next year, a new regulatory focus on the leverage ratio (capital as a proportion of total assets), and the growing tide of conduct fines. PwC estimates that Europe’s banks have a shortfall of €280bn and that €180bn of that will have to come from new equity. That is well over the new equity that the sector has raised in any year since 2008. Berenberg puts the capital shortfall at €350bn-€400bn.
So the stage is set for a tricky sales pitch to investors. Return on equity at most European banks is poor, barely scraping into double digits despite promises from some that they can make it into the mid teens. Adding more equity will not help. Offsetting that is a fall in the cost of equity – PwC says that for 16 US and European banks it has fallen from 11.5 per cent in 2011 to 9.8 per cent now. Banks might beat their cost of equity after all, but not by much. So the investment case might centre on dividends. But a sector with so much uncertainty about the amount of capital it needs is in a weak position to be making generous dividend promises.
This could rock markets in 2014.
One by one, the bears have fallen.
(…) And now there are precious few leading investors who admit to taking bearish positions on U.S. equities. Indeed, various surveys show that among investment advisers and individual investors the ratio of bears to bulls has rarely, if ever been as low as it is now.
Whisper it quietly, but this is a classic signal for contrarian investors.
The latest high profile bear to capitulate is Hugh Hendry, at the hedge fund Eclectica Asset Management. Although relatively small–Eclectica had $1.3 billion under management at the start of the year–Mr. Hendry has had a high profile for much of the past decade, having been a prominent bear in the run up to the 2007 crash.
But having taken pain from being on the wrong side of a soaring market during the past couple of years, he said recently that he’d thrown in the towel. He hates the market, but is now positioned for it to go up further.
Jeremy Grantham of the giant fund GMO and another prominent bear recently figured the U.S. market could advance another 30%, despite being some 50% overvalued. John Hussman, of Hussman funds and another bear, also figures there are risks of a further market “blowoff”–i.e. a continuation of the recent upward trend. As does Bob Janjuah at Nomura.
None of the high profile bears has actually come out and said that they believe in a bull case, that markets are cheap and need to be bought at these levels. By and large they all expect a correction and for deep market underperformance. But they’ve mostly pared back their bearish positions. But after the U.S. equity market tacked on another 30% this year, having already doubled from 2009 lows by last year, there’s not a lot more pain these investors can take.
As John Maynard Keynes is reputed to have said: “The market can remain irrational longer than you can stay solvent.”
Even if bears haven’t entirely disappeared, they seem to be in deep hibernation. (…)
The visuals, courtesy of Short Side of Long:
Based on volume trends, equities are rising not really because people are buying but rather because they are not selling, frozen in their tracks.
U.S. 15-year-olds made no progress on recent international achievement exams and fell further in the rankings, reviving a debate about America’s ability to compete in a global economy.
The results from the 2012 Program for International Student Assessment (PISA), which are being released on Tuesday, show that teenagers in the U.S. slipped from 25th to 31st in math since 2009; from 20th to 24th in science; and from 11th to 21st in reading, according to the National Center for Education Statistics, which gathers and analyzes the data in the U.S. (…)
U.S. scores have been basically flat since the exams were first given in the early 2000s. They hover at the average for countries in the OECD except in math, where American students are behind the curve. Meanwhile, some areas—Poland and Ireland, for example—improved and moved ahead of the U.S., while the Chinese city of Shanghai, Singapore and Japan posted significantly higher scores. (…)
And this chart, courtesy of Grant Williams (Things that Make you Go Hmmm…)
I have accidentally totally removed my Dec. 2nd New$ & View$ post and it seems that the only way to recover it would be if anybody has it opened in a browser and copied it in Word or as pdf and email it to me. Or if anybody printed it, it could be scanned and emailed at email@example.com.