NEW$ & VIEW$ (7 MAY 2013)

Posted on May 7, 2013 by Denis Ouellet

Employment Trends Index at Highest Level Since 2008

The Conference Board said its April employment trends index increased to 111.68 from an upwardly revised 111.61 in March. The March figure initially was reported as 111.20.
The latest index is up 3.8% from a year ago, posting another high mark since June 2008, when the index stood at 113.15.
“Despite weak economic activity, the Employment Trends index is still signaling moderate job growth in the coming months,” said Gad Levanon, director of macroeconomic research at the board. “On average, employment has grown almost as fast as [gross domestic product] over the past three years, and that is likely to continue into the third quarter of 2013.”

Mortgage Lenders Ease Standards

Nearly 10% of banks said they eased their lending standards for “prime,” or low-risk, mortgages in the first quarter, according to the Federal Reserve’s latest survey of senior loan officers, released Monday. The report, which provides a snapshot of the supply of, and demand for, bank loans, showed a greater share of banks easing these standards than the 5% in the previous quarter’s survey.

Most banks said they weren’t any more willing to approve loans to borrowers with middle-of-the-range credit scores, and standards for “subprime” mortgages remained very tight.

While lending to consumers was a mixed bag, banks continued to report easier standards on commercial and industrial loans to both big and smaller businesses. Nearly 20% of banks eased lending standards on loans to bigger firms, compared with just 7% in the Fed’s previous survey. Meanwhile, 23% of banks eased standards on these loans for small firms, compared with 9% earlier.

German Factory Orders Rose in March in Sign of Recovery

Orders, adjusted for seasonal swings and inflation, increased 2.2 percent from February, when they also advanced 2.2 percent, the Economy Ministry in Berlin said today. Economists forecast a 0.5 percent drop, according to the median of 39 estimates in a Bloomberg News survey. In the year, workday- adjusted orders fell 0.4 percent.

Orders for German exports rose 2.7 percent in March, with those from the euro area surging 4.2 percent, today’s report showed. Domestic sales gained 1.8 percent. While consumer goods orders fell 0.7 percent, those for intermediate goods increased 3.6 percent and orders of investment goods climbed 2 percent. (…)

German new car registrations, an indicator for private consumption, rose for a third month in April, and market research company GfK predicts that consumer confidence will climb to the highest in more than 5 1/2 years this month.

Australia Cuts Interest Rates

In a surprise move, the Reserve Bank of Australia, or RBA, lowered the benchmark cash-rate target to 2.75%, expressing concern that the Australian dollar remains close to 30-year highs. The high currency is crippling the nation’s manufacturers and exporters, while rate-sensitive sectors such as consumer spending and home-building have been slow to respond to a more than yearlong string of cuts by the bank.
The Australian dollar fell more than half a cent after the rate decision, to US$1.0178 from about US$1.0240. The currency has traded above parity for much of the past 18 months, despite a string of seven rate cuts now totaling 2 percentage points.

Chile’s Copper Dependence Casts Shadow Over Its Economy Chile, Latin America’s most market-friendly economy, is hitting headwinds, driven mainly by its heavy reliance on copper exports.

LAGGING CYCLICALS

BMO Capital:

Akin to the past few years, US stocks have once again posted strong gains through the first few months of 2013. However, the recipe has been considerably different so far this year, with defensive areas driving the rally. For instance, cyclicals are underperforming defensives by 6.6% year to date and by 8.2% over the past year.

However, our work shows that the strongest market rallies have typically occurred with strong participation from cyclical areas. By contrast, some of the weakest periods have occurred during strong defensive outperformance. Therefore, cyclicals will have to retake the leadership mantle sooner or later if this bull cycle is to persist, in our view.

WHY CYCLICALS ARE LAGGING

A disconnect has developed between market performance and economic data, in our view. Not only have some important indicators deteriorated lately, economic surprises are now in negative territory. Based on our work, this typically portends periods of market weakness and is another reason we expect some sort of near-term market pullback. However, if economic surprise follows similar trends of the prior few years, any potential market weakness is likely to be short-lived.

An update on Slovenia

The FT’s Peter Spiegel has the latest take on Slovenia this afternoon, highlighting the fractiousness of the country’s internal politics:

According to two senior eurozone officials, concerns have focused on “non-cooperation” between Slovenia’s finance ministry and central bank, which is responsible for supervising the financial sector. One of the officials said the central bank was being “obstructionist” towards the new government’s clean-up efforts. …
The central bank’s role could prove particularly problematic because the three largest Slovenian banks – most in need of a rescue – are state owned, raising questions about the supervisor’s ability to evaluate their needs impartially.

Our earlier backgrounder on Slovenia is here, and also check out the deeply reported stories by Michael Steen here and by Ralph Atkins and Robin Wrigglesworth here. The New York Times had a story this morning here.

Two debt sales in the past month mean that Slovenia’s financing needs are covered for the year, but this excludes the cost of potentially having to recapitalise its banks, which is widely expected.

NEW$ & VIEW$ (1 MAY 2013)

Posted on May 1, 2013 by Denis Ouellet

It seems that U.S. housing is the only area offering fresh positive stuff these days. That is if you are not in the market for a new house.

Housing Market Heating Up

Home prices are rising at the fastest rate in seven years, as buyers return to a market where property is in short supply.

Prices increased 9.3% in February from a year earlier while mortgage-interest rates hovered near record lows, according to the Standard & Poor’s/Case-Shiller index that tracks home prices in 20 major metropolitan areas. All 20 cities posted year-over-year gains for the second consecutive month, which hasn’t happened since 2005, before the crash.

In some of the hardest-hit markets, the gains have been particularly heady. Home prices rose 23% from one year ago in Phoenix and 18.9% in San Francisco. Nationally, the median home price in March stood at $184,300, well below the peak of $230,400 in 2006 but up from $154,600 in January 2012. (…)
For now, recent data suggest home-price gains are likely to continue. Sales of previously owned homes rose by 10.3% from one year ago in March, even as supplies of homes for sale fell by 16.8%. The Wall Street Journal’s quarterly survey of market conditions in 28 metropolitan areas showed very low supplies of homes available in a rising number of markets, including a less-than-three-month supply in a dozen markets, including the two hottest—Phoenix and San Francisco. (…)
At current mortgage rates near 3.5%, home values would need to rise by 32% nationally—and by as much as 48% in markets across the Midwest and north Florida—for affordability to return to its long-run average, according to an analysis by John Burns Real Estate Consulting in Irvine, Calif.

Krueger: Sequester Hits Harder, Earlier Than Expected

The economic fallout from deep federal government spending cuts has come sooner than expected, White House chief economist Alan Krueger said Tuesday.

ADP Says U.S. Companies Employed Fewer Workers Than Forecast

Companies added 119,000 workers to payrolls in April, figures from Roseland, New Jersey-based ADP Research Institute showed today.

China Manufacturing Weakens

A gauge of China’s manufacturing activity showed fresh signs of weakness in April, undercutting hopes of a stronger upturn in demand from the world’s second-largest economy.

The official Purchasing Managers’ Index came in at 50.6 in April, below expectations of a reading in line with the 50.9 recorded in March.

Note that the seasonally adjusted (by ISI) number is 49.1 vs 49.6 in March.

All but one of the official PMI subindexes—with the exception of a steady measure of raw material stockpiles—were down in April from the previous month.

The official PMI sub-index for new orders fell to 51.7 in April from 52.3 in March while the measure of new export orders slid into contraction territory with a reading of 48.6 in April, compared with 50.9 in March.
The sub-index for purchasing prices of raw materials tumbled 10.5 percentage points to 40.1 percent, the first reading below 50 after the sub-index stayed above the demarcation level for seven consecutive months.
The sub-index for finished goods inventories moved down 2.5 percentage points from the previous month to 47.7 percent, while the sub-index for production shrank slightly by 0.1percentage points to 52.6 percent.
The CFLP data also showed that the employment sub-index for April declined 0.8 percentage points to 49.0 percent, indicating job cuts, while the sub-index for supplier delivery times fell slightly to 50.8 percent.

Eurozone retail sales continue to fall sharply in April

Markit’s retail PMI® data signalled little respite for the Eurozone’s retailers at the start of the second quarter. Sales fell on a monthly basis for a survey record eighteenth consecutive month, and the rate of
decline remained sharp despite easing slightly since March. Retailers subsequently cut more staff and lowered their purchasing activity.

Retail PMI data by country signalled steep falls in sales in both France and Italy, and an ongoing flat trend in Germany. The month-on-month rate of decline in France eased from March’s record pace, but remained severe.

(…) Retailers across the Eurozone continued to cut workforces in April, extending the current sequence of job shedding to over a year. Moreover,
the rate of decline was little-changed from March’s 43-month record. Retail employment rose in Germany for the thirty-fifth successive month, but at only a marginal rate, while job shedding at French and Italian retailers remained sharp in the context of historic survey data.

(…) retailers’ gross margins continued to fall sharply, and they cut the value of purchases for the twenty-first successive month. Subsequently, stocks of goods for resale declined for the eight consecutive month, the
second-longest sequence in the survey history.

Denmark Exhausts Stimulus Avenues as Housing Losses Persist

Denmark’s government says it has exhausted all avenues for adding stimulus as the economy shows signs of sinking into its third recession since the global financial crisis started.
“We’ve used whatever leeway there is,” Economy Minister Margrethe Vestager said in a telephone interview from Copenhagen late yesterday. “There’s no more space to stimulate the Danish economy.”

Seoul offers exporters $10bn of help

Companies dealing with sluggish global demand and weaker yen

South Korea exported goods and services worth $46.3bn in April, the government said on Wednesday. This was a 0.4 per cent year-on-year rise, but down by 2.4 per cent from March’s figure.

Seoul said it would seek to revive export growth by increasing from Won71tn ($64.5bn) to Won82.1tn the value of public loan programmes aimed at small and midsized exporters. (…)

However, he cautioned that Seoul would closely monitor the weakening Japanese yen, a source of growing concern for South Korean policy makers. This follows a warning last month from finance minister Hyun Oh-seok that the yen’s slide was already having an impact on the South Korean economy.
Despite a recent fall in the US dollar value of the South Korean won, it has strengthened by 21 per cent against the yen over the past seven months, as markets anticipate expansionary fiscal and monetary policy under Japan’s new government. (…)
On Monday, data showed that South Korea’s industrial production suffered a month-on-month fall of 2.6 per cent in March: the third successive decline.

Solid rises in output and new orders support continued expansion of Japanese manufacturing economy

The headline seasonally adjusted Markit/JMMA Purchasing Managers’ Index™ (PMI™) rose to 51.1 in April, up from March’s 50.4 and a 13-month high. The PMI has shown steady improvement since the start of 2013 and has posted readings above the 50.0 no-change mark in each of the past two survey periods.

April’s survey data indicated a further rise in manufacturing output. Growth was modest, but still the sharpest in over a year as a particularly strong performance from the investment goods category offset ongoing weakness in the consumer and intermediate sectors.

Similar market group trends were observed for new orders data, with investment goods producers supporting a solid increase in sales for the sector as a whole. There was evidence of improved domestic and overseas demand, with clients reportedly investing in plant equipment and raising inventory holdings. A depreciation of the yen helped to support a solid rise in new export sales.

SENTIMENT WATCH: BAD SURPRISES? SO WHAT!

The chart below shows the 26-week rolling correlation of the Economic Surprise Index and changes in the S&P 500. A declining line represents periods where economic data and the S&P are becoming less correlated, or even moving inversely to each other. The most recent correlation below -0.7 indicates that stocks and negative economic data are moving in almost perfectly opposite directions. (Bill Hester via John Hussman)

Slovenia Junks Its Bond Sale After Downgrade

Slovenia stunned investors when it halted a bond sale just before Moody’s downgraded the country’s debt to “junk.”

The government said it would proceed with the bond issue. However, Slovenia will likely see higher borrowing costs, some investors said. Now that its bonds are rated junk, they will be off limits to investors that buy only investment-grade debt. Slovenia’s 10-year bond yielded 5.847% on Tuesday, compared with 5.69% a day earlier. (…)
Moody’s said it was concerned about Slovenia’s undercapitalized banking sector and deteriorating government balance sheet.

Rift Emerges Over Saudi Oil Policy

A rare public dispute over oil policy in Saudi Arabia emerged as the kingdom’s oil minister and a senior member of its royal family disagreed over long-term production targets for the world’s largest crude exporter.

The Middle Eastern kingdom, which produces around 10% of the world’s oil, needs to increase its crude production capacity by a fifth to 15 million barrels a day by 2020 in order to meet rising domestic consumption and maintain its current export capacity, said Prince Turki al-Faisal, a former intelligence chief and ambassador for the kingdom. (…)
The comments from the prince, who has no formal government position, but is a prominent member of the kingdom’s royal family, were contradicted by Saudi Oil Minister, Ali al-Naimi. There is currently no need to increase crude production capacity beyond 12.5 million barrels a day, Mr. Naimi said.
Saudi Arabia currently produces around 9 million barrels a day of oil, leaving 3.5 million barrels a day as spare capacity. (…)
Prince Faisal’s comments also run counter to the official position of the state-controlled Saudi Arabian Oil Co., also known as Aramco. Aramco declined to comment Tuesday, but its top executive has previously ruled out increasing capacity to 15 million barrels a day despite acknowledging that domestic use of crude would rise and thus limit exports.
Aramco’s Chief Executive Khalid al-Falih ruled out increasing Saudi production capacity to 15 million barrels a day in 2011, despite acknowledging that domestic use of crude would rise and thus limit exports, because he said expansion plans in other producing countries such as Iraq and Brazil should be enough to satisfy world markets. (…)
Saudi Arabia last year consumed around 3 million barrels per day of oil, according to the U.S. Energy Information Administration, almost double its 2000 level and putting it on track to use more than 5 million barrels a day if a 7% annual growth rate were to continue.
Aramco’s Mr. al-Falih acknowledged in 2011 that, if left unchecked, domestic energy consumption would rise to 8.2 million barrels of oil a day by 2030. (…)

Remember: the Saudis need $100 oil to balance their budget.

NEW$ & VIEW$ (22 FEBRUARY 2013)

Posted on February 22, 2013 by Denis Ouellet

Philly Fed. Conference Board LEI. Payroll Tax Whacks Spending. U.S. inflation good, bad, neutral. U.S. oil demand at 18 yr low. U.S. housing remains strong. Mortgage Delinquencies Fall. Eurozone outlook grim ex-Germany. China housing speculation is back.

Philly Fed and Empire Manufacturing Continue Their Separate Ways

As shown in the chart below, for the last several months, each move higher in the Philly Fed seems to have been accompanied by a move lower in the Empire Manufacturing and vice versa.

This morning’s reading for February was the lowest since June.

Yet, Markit’s flash U.S. manufacturing survey for February was quite strong.

But the LEI still points to positive growth as Doug Short’s great charts reveal:

Conference Board Leading Economic Index: ‘Slow But Continued Expansion’

The Conference Board Leading Economic Index (LEI) for January was released this morning. The index increased 0.2 to 94.1 (2004 = 100), following 0.5 in December, and a no change in November. The Briefing.com consensus had forecast a 0.3 increase. Today’s press release highlights the sound, if sluggish, growth in the economy.

Here is a look at the rate of change, which gives a closer look at behavior of the index in relation to recessions.

And finally, here is the same snapshot, zoomed in to the data since 2000.

Payroll Tax Whacks Spending

U.S. retailers are lowering forecasts and adjusting marketing plans as higher taxes and fuel costs are leaving consumers with smaller paychecks.

The expiration of the payroll tax cuts that knocked 2% off consumers’ take-home pay is having an impact, these companies say. It will ding a household with $65,000 in annual income $1,300 this year, and shift $110 billion overall out of consumers’ hands, estimates Citigroup.

Now, Wal-Mart is stocking more of its shelves with cheaper products, and smaller-size packages of diapers, toilet paper and snacks. Burger King is cutting its Whopper Jr. sandwich to $1.29 from about $2, and focusing advertising on its value menu items rather than higher-price salads or smoothies. (…)

Less take-home pay is causing 45.7% of consumers to curtail spending, according to a survey released on Thursday by the National Retail Federation, a trade group. A quarter of consumers are delaying big-ticket purchases, a third are reducing restaurant visits, and about a fifth of shoppers are spending less on groceries, it said. (…)

Wal-Mart expects its first-quarter sales in the U.S. to be flat with a year ago, compared with a 2.6% increase a year earlier.(…)
The retailer has cashed $1.7 billion in tax refunds and cash anticipation checks so far this year compared with $3 billion at this time last year. That left some shoppers without a windfall before the Super Bowl, when some consumers splurge on new televisions and stock up on food and drinks.(…)

U.S. INFLATION GOOD, BAD, NEUTRAL

The good: total CPI was unchanged for the second consecutive month after declining 0.2% in November. In effect, U.S. inflation was zero since September 2012.

The bad: core CPI jumped 0.3% in January after rising 0.1% in each of the previous two months.

The neutral:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.6% annualized rate) in January. The 16% trimmed-mean Consumer Price Index rose 0.2% (2.2% annualized rate) during the month.

No clear trends one way or the other.

From the Rule of 20 valuation side, the Y/Y change in the CPI (total) edged down from 1.7% in December to 1.6% in January. Unless February’s CPI jumps more than 0.4%, there should be no acceleration in Y/Y inflation in the next month. Smile

Drivers Feel Pinch at Pump

The national average price for regular gasoline hit $3.78 a gallon on Thursday, up 15 cents in the past week and 47 cents in the past month, according to auto club AAA.

U.S. Oil Demand Fell to 18-Year Low for January, API Says

Total petroleum deliveries, a measure of demand, dropped 1.7 percent from a year earlier to 18 million barrels a day, the industry-funded group said in a monthly report today. Total consumption fell 2 percent in 2012, the API said last month. (…)

U.S. crude-oil production jumped 14 percent from a year earlier to 7.01 million barrels a day. Output in the lower 48 states rose 16 percent to 6.42 million barrels a day. Alaskan production decreased 1 percent to 587,000 barrels a day.

U.S. HOUSING

U.S. Existing Home Sales Edge Higher, Supply of Homes for Sale Hovers Near Lows

The National Association of Realtors reported that sales of existing homes edged up 0.4% (+9.1% y/y) in January to a 4.920M annual rate. December’s sales were revised downward slightly from 4.94M to 4.90M, representing a decrease of 1.2% from November. Sales of existing single-family homes alone increased 0.2% in January to 4.340M, up 8.5% y/y. Sales of condos and co-ops rose 1.8% m/m to 0.580M, up 13.7% y/y.
The total number of homes for sale continues to decline, producing anecdotal evidence of genuine shortages in some communities. The sum of single-family and condos & coops on the market was 1.740M at the end of January, down 25.3% from a year ago and equal to a 4.2-month supply at current sales rates. Since the advent of this series in 1999, only one month has seen few houses and apartments on the market, 1.714M in December 1999. The months’ supply was last as low as 4.2 months in April 2005; its all-time low was 3.6 months in January 2005.
Inventories of single-family homes are down 25.5% y/y to 1.550M, while inventories of multi-family homes fell 23.3% y/y in January to 194,000. The months’ supply of single-family homes on the market was 4.3 months, and for condos & coops, 4.0 months, both lows since the spring of 2005.

Good related charts from CalculatedRisk:

And this from the WSJ:

“Sellers are calling the shots right now,” said Carolyn Williams, a real-estate agent in Dana Point, Calif. “What’s out there is gobbled up with anywhere from five to 25 offers.”

Homes are selling faster. The median number of days on the market for homes in January was 71, meaning half of all homes sold within that time, down from 73 days in December and 99 days one year ago.

Distressed sales—including foreclosures and short sales, in which banks allow borrowers to sell at a loss—accounted for 23% of sales in January, down from 35% a year earlier but still high by historical standards.

Mortgage Delinquencies Fall

(…) the number of American households behind on mortgage payments fell to the lowest level in four years at the end of 2012.

Delinquencies have been falling for three years, as the economy and job growth have improved. At the end of 2012 about 10.8% of mortgage loans on one-to-four-unit homes were either in foreclosure or at least 30 days past due. That was down from a peak of 14.7% in early 2010. (…)
Some housing analysts have warned of a second wave of foreclosures to hit markets, dragging down prices. But so far that hasn’t happened, and the prospect looks increasingly remote for much of the U.S. The share of loans in foreclosure, though still above precrisis levels, was 3.7% in the fourth quarter, down from 4.4% a year earlier.

The drop in foreclosure rates has been more pronounced in states like Arizona and California where banks don’t have to get foreclosure approval from a judge.

In so-called judicial states such as Florida and New Jersey, foreclosure rates have stayed much higher, leaving greater potential for “shadow” inventory that could hit the market down the road.

Delinquencies will decline even more as house prices gradually recover.

Small Firms Plan for Stronger Economy

Confidence is high amongst small-business owners, according to a new survey.

More than a third, or 35%, of owners said they expect the economy to improve in the coming year, according to a survey fielded from Feb. 4 to Feb. 13.
That’s a significant boost from the 20% of owners who held that opinion in November and the 26% who said so in January.

EU forecasts paint grim economic picture

Currency bloc core of France and Germany to barely grow this year

The worsening economic picture – where France’s gross domestic product is expected to grow just 0.1 per cent and Germany’s by 0.5 per cent in 2013, both 30 basis point downgrades from three months ago – will see the eurozone as a whole shrink 0.3 per cent this year. The commission had predicted growth of 0.1 per cent in November. (…)
France, which has become the subject of particular concern, is expected to post a deficit this year of 3.7 per cent of GDP, a significant miss of its 3 per cent target and a forecast that could lead Brussels to force the anti-austerity government of President François Hollande to impose new cuts in order to hit the target.

German February Business Confidence Jumps to 10-Month High

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, climbed to 107.4 from 104.3 in January. That’s the biggest increase since July 2010 and the fourth straight monthly gain.

Ifo’s measure of executives’ expectations surged to 104.6, the highest since July 2011, from 100.6. A gauge of current conditions rose to 110.2 from 108.1.

Markit’s German flash PMI confirms the optimism:

German private sector business activity increased for the third month running in February, largely supported by a robust expansion of service sector output. Adjusted for seasonal factors, the Markit Flash Germany Composite Output Index posted 52.7, down from 54.4 in January but comfortably above the 50.0 value that separates expansion from contraction.

Latest data indicated a marked increase in service sector output, despite the pace of expansion easing from January’s 19-month high. Meanwhile, German manufacturing production rose fractionally during February, which maintained the return to output growth that was registered at the start of 2013.

New business volumes across the private sector as a whole increased for the second month running in February, albeit at a slower pace than January’s 19-month high. In contrast to the trend for output volumes, the overall expansion in new work was driven by the manufacturing sector, which posted its fastest rate of new order growth since May 2011.

Manufacturing companies also signalled a sharp rebound in new export business, with the increase in new work from abroad the strongest for 22 months and largely attributed to improved demand from clients in Asia.

Service providers meanwhile indicated only a marginal rise in new orders, which in turn contributed to the most marked drop in backlogs of work for three months. In the manufacturing sector, an accelerated pace of new order growth led to an increase in unfinished work for the first time in a year-and-a-half

EU Cuts Most Eastern Members’ 2013 Forecasts

The Commission, which is the EU’s executive arm, cut most of its growth forecasts for the bloc’s less affluent members in the eastern flank, in line with a cut for their main trading partner, the euro zone, which is now expected to contract 0.3% this year.
Poland, the EU’s largest emerging economy, will likely grow a mere 1.2% in 2013, the Commission said. The figure would be the worst in 12 years and weaker than in 2009, the first full year of the global financial crisis sparked by subprime loans in the U.S.
The Commission’s forecast contrasts with the Polish government’s more upbeat expectations. Finance Minister Jan Vincent-Rostowski said Friday he still believes the economy may grow 2.2% this year as projected in the 2013 budget bill. It grew 2% last year. (…)

Euro Sinks on Disappointing ECB Loans Repayment

The ECB said 356 banks will repay €61.1 billion ($80.59 billion) of the funds they borrowed as part of the central bank’s second long-term refinancing operation last February—broadly half what the market was expecting.

Italian Voters Face Chances of Chaotic Results

The media-fueled return of former conservative premier Silvio Berlusconi; the pre-election surge of former comedian Beppe Grillo; and the disappointing showing of Mario Monti’s new centrist party have muddied the waters in an election that two months ago many had hoped would usher in a strong, stable government. (…)

Italy’s leading party, the center-left Democratic Party, is still likely to win more votes than any other and lead a new government, pollsters and political analysts say. But what kind of parliamentary majority the new government can count on—and therefore how effective it will be in fixing Italy’s jammed economy and inspiring its dejected citizens—is another matter.
That could well depend on the decisions of the 10% of voters who are still making up their minds and up to 20% more who may abstain, pollsters say.

More on this: Monti Austerity Pushes Italians Toward Parliament Upheaval (BBG)

Maersk Gives Shipping Warning

A.P. Moller-Maersk A/S Friday warned of a grim outlook for the container-shipping industry this year as spare tonnage in Europe and Asia risks putting downward pressure on freight rates after the Danish company’s own price increases and cost cuts contributed to improved profit in the fourth quarter. (…)

The outlook for traffic from Asia to Europe was particularly “bleak,” he said. (…) Maersk expects negative first-half growth in the European shipping business (…)

China Home-Price Gains May Presage Policy Tightening China’s new home prices rose in most cities the government tracks for a third month, adding pressure on leaders to intensify policy-tightening efforts to prevent asset bubbles and inflation as the economy rebounds.

Prices climbed in January from December in 53 of the 70 cities, compared with the previous month’s 54, which was the most since April 2011, according to data today from the National Bureau of Statistics. Ten cities showed declining prices and seven were unchanged.

NEW$ & VIEW$ (7 FEBRUARY 2013)

Posted on February 7, 2013 by Denis Ouellet

Economic storm coming? Low mortgage rates helping consumers. Slower growth in S. Korea, India. China car sales. Oil price management. Social security fund depletion. Beware earnings estimates.

STORM WARNING

Brace for Uglier Data as Cliff Meets Sequester

(…) The payroll-tax increase on Jan. 1 has been taking a bite out of paychecks for more than a month, though key gauges of consumer spending for January haven’t been released yet. The last-minute passage of the fiscal cliff deal also will delay tax refunds, deferring some consumer spending and complicating the seasonal adjustments in data for retail sales and consumer spending. Both of those forces are set to hit just as the government prepares for widespread spending cuts on March 1, followed by a potential government shutdown in late March. (…)

Consumers Skid From Fiscal Cliff to Oil Slick

Consumers are taking a wild ride this quarter, from peering over the fiscal cliff to skidding on an oil slick.

(…) The 18-cent jump in gasoline prices in the past week–the biggest weekly gain in almost two years–adds another negative risk to the consumer outlook this quarter. Not only are workers taking home less pay, more of that smaller stash is being spent at the gas pump. (…)

The general rule is that a 10-cent increase in the price of gas costs drivers about $1 billion a month. If prices remain at their current high level with no change in buying habits, households will have to spend less on other goods and services, creating a drag on the overall economy. (…)

Boehner: Spending Must Be Tackled The chances of avoiding roughly $85 billion in government spending cuts scheduled to begin next month are dwindling, as House Republicans resist overtures from Democrats to replace the spending cuts with some tax increases.

LOW MORTGAGE RATES HELPING

Mortgage refinance applications remain at a relatively high level early in 2013. That is good news for homeowners as it comes against a backdrop of record low mortgage rates (courtesy of the Fed’s QE campaign). As today’s Hot Chart shows, the recent wave of refis has resulted in a tangible decline in the effective interest rate on mortgage debt outstanding. To the extent that job creation remains on track and that home prices remain on an uptrend, we think that there is room for refis to further reduce the spread between the market and effective mortgage rates.

According to Feddie Mac’s just-released quarterly analysis, the average interest rate reduction on refinancings was 1.8 percentage point in Q4, a
savings of about 33 per cent in interest rate. That is the largest percent reduction in 27 years. Our research has found that households get a windfall of around $70 billion annually at the economywide level from every one percentage decline in the effective mortgage rate. (NBF Financial)

Weak sales hit S Korea growth hopes

Data follow warnings from exporters of darkening outlook

Sales at South Korea’s top department stores and discount shops fell sharply last month, renewing concerns about the country’s fragile economic recovery.
The weak data were a blow to hopes that Asia’s fourth-largest economy had bottomed out, and came soon after leading exporters warned of a darkening outlook for the coming months. (…)
In addition to weak domestic spending, South Korea also faces challenges on the export front as the won’s strength threatens the country’s export competitiveness. (…)

India Expects GDP to Grow 5% This Year

The Indian economy is estimated to grow 5% in the fiscal year through March, the lowest in a decade, significantly slower than the 6.2% expansion last year.

In December, the finance ministry had cut its growth projection to about 5.8% from an initial forecast of 7.6% made when the federal budget was unveiled in March.

China Passenger-Vehicle Sales Surge as SUV Sales Double China’s passenger-vehicle sales surged 49 percent to a monthly record, beating analysts’ estimates, as demand for SUVs almost doubled and Ford Motor Co. extended gains in market share.

(…) Wholesale deliveries, including multipurpose and sport utility vehicles, climbed to 1.73 million units in January, the state-backed China Association of Automobile Manufacturers said in an e-mail today. (…)

Total sales of vehicles rose 46 percent to 2.03 million units last month, according to the association. (…)

The holiday distortion means that sales may decline in February. Economists and analysts typically calculate January and February figures together to explain the Chinese market. (…)

PBOC Signals Inflation Concern as Economy Rebounds

China must be alert to changes in price-gain expectations and to imported inflation, the People’s Bank of China said yesterday in its fourth-quarter monetary policy report. The costs of labor-intensive products, services and agricultural goods may rise persistently on slowing labor-supply growth, the PBOC said.

OIL

Brent Crude Rises to Four-Month High, Extends WTI Premium Brent crude climbed to its highest level in more than four months in London, extending its premium over West Texas Intermediate for a seventh day.

Saudi Arabia Stabilizes Oil Output as OPEC Maintain Cap

The world’s largest crude exporter produced 9.05 million barrels a day in January, little changed from last month when output reached the lowest in 20 months, the Persian Gulf official said on condition of anonymity.

The kingdom, while keeping its production stable, supplied 9.26 million barrels a day to the market compared to 9.15 million a month ago, he said. The difference of 210,000 barrels between supply to market in January and production figures is made up for by deliveries from inventories, he said.
The Organization of Petroleum Exporting Countries trimmed output by 465,000 barrels a day in December to 30.4 million as budget wrangles in the U.S., speculation about stimulus measures in Japan and Europe’s struggle to boost growth clouded the outlook for fuel demand. Cuts were led by a reduction in Saudi Arabia, the group said last month in its monthly report, citing secondary sources. That’s 800,000 a day more than the 29.6 million the group estimates it will need to provide this year.
Saudi Arabia started producing at about 9 million barrels a day in December after pumping at 9.9 million for most of the second half of 2012, according to data compiled by Bloomberg.

Remember, Saudi Arabia’s budget is based on $100 Brent.

U.S. Treasury Considers Ways to Extend Debt Maturity

The U.S. Treasury and its Wall Street advisers are weighing steps to more rapidly extend the maturity of government debt, a development that could partially blunt the Fed’s effort to lower long-term interest rates.

(…) The U.S. Treasury Wednesday said the average maturity of its outstanding debt had risen to almost 65 months at the end of 2012, up 34% since an October 2008 trough. That is the longest average maturity in a decade.
The trend looks set to continue. Under current policies, the average maturity of debt is set to rise to 80 months by 2022.
And the Treasury Borrowing Advisory Committee, composed of executives from some of Wall Street’s largest banks and bond investors, at its most recent meeting explored more aggressive measures to extend the maturity even faster.
Scenarios under consideration included the issuance of the 50-year and 20-year bonds. (…)

Social Security Trust Fund Likely To Run Out In 2031

Social Security’s financial outlook took another hit this week, as the Congressional Budget Office hiked its estimate for cash deficits from 2013 to 2022 by $212 billion.
The wider deficits — mainly due to weaker revenue estimates — mean a quicker depletion of Social Security’s trust fund, after which the program could only afford to pay about 75% of benefits. (…)
To offset a 25% lifelong benefit cut with 18 years of saving would require that average earners set aside about 6% of annual wages, assuming Treasury returns and a lifelong annuity. (…)

EARNINGS

How accurate are analyst annual EPS projections one year in advance?

Over the past 15 years, the average difference between the bottom-up EPS estimate one year prior to the end of that year and the final EPS number for that year has been +10.3%. In other words, analysts on average have overestimated the final EPS number by about 10% one year in advance. Analysts overestimated the final value (i.e. the final value finished below the estimate) in ten of the fifteen years and underestimated the final value (i.e. the final value finished above the estimate) in the other five years. For the purposes of this analysis, the final EPS number for a year is the EPS number recorded three months after the end of each calendar year (March 31) to capture the actual annual EPS results reported by most companies during the fourth quarter earnings season (January through March).
However, this 10.3% average includes three years in which there were substantial differences between the bottom-up EPS estimate at the start of the year and the final EPS number: 2001 (+35.9%), 2008 (+53.4%), and 2009 (+27.4%). Using the median instead of the average, the median difference between the bottom-up EPS estimate one year prior to the end of that year and the final EPS number for that year has only been +5.5% over the past 15 years. (Factset)

NEW$ & VIEW$ (5 FEBRUARY 2013)

Posted on February 5, 2013 by Denis Ouellet

Earnings. Eurozone services PMI. Eurozone retail sales slump. U.S. car sales weaken. France enters currency war. U.S. factory orders rise. U.S. housing market tightens. Mortgages. Loan demand rises. Gasoline prices jump. Chinese debt. Inflation watch.

EARNINGS WATCH

Of the 234 companies that have reported earnings to date for the fourth quarter, 70% have reported earnings above estimates. This percentage is about equal to the average of 69% recorded over the past four quarters. In terms of revenues, 67% of companies have reported sales above estimates. This percentage is well above the average of 50% recorded over the past four quarters.

Corporations and analysts are lowering earnings expectations for Q1 2013. In terms of preannouncements, 50 companies have issued negative EPS guidance for Q1 2013, while 11 companies have issued positive EPS guidance. Analysts have taken down EPS estimates also, as the estimated earnings growth for Q1 2013 has dropped to 0.5% today from an expectation of 2.4% on December 31.

Factset doesn’t seem to take into account the increased pension expense that many companies have elected to record starting in Q4. It is also not clear how analysts will actually treat these higher operating costs.

THE EUROZONEs

Euro zone economy shows signs of recovery

The euro zone’s battered economy is probably recovering but the gulf between its two biggest members is widening, according to a survey on Tuesday that showed business optimism in the bloc at an eight-month high.

Markit’s Eurozone Composite PMI, based on business activity across thousands of companies, and a good gauge of economic growth, rose in January to a 10-month high of 48.6 from 47.2 in December – an improvement on the preliminary reading of 48.2. (…)

The German PMI chalked up its biggest one-month rise since August 2009, soaring to its highest since June 2011, while the reading for the bloc’s second-biggest economy France plummeted to its lowest in nearly four years. The French services PMI was even below readings from perennial laggards Spain and Italy.

EUROZONE HEALING? Say that again after reading this:

Euro-Zone Retail Sales Slump

The European Union’s statistics agency said Tuesday that retail sales fell 0.8% in December from November and 3.4% compared with December 2011. The month-to-month drop was the largest since April 20012, while the annual decline was the largest since February 2009, when the euro-zone economy was mired in the global recession.

For 2012 as a whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

Some drop! That’s -2.5% in 5 months, -6% annualized. December, the most important month of the year, is down 0.8%, nearly 10% annualized. Core sales were down 1.0% in December, -3.2% in the last 4 months, that’s -13.4% annualized!!! With Christmas sales so weak, retail inventories are certainly excessive entering 2013.

December’s change M/M (Y/Y) by country: Germany: -1.7% (-4.7%), Spain: -2.2% (-12.3%), France: -0.2% (+2.2%), Portugal: -1.8% (-8.6%), UK: -0.4% (+1.9%), Austria: -1.4% (-1.5%). If you wonder, Italy’s numbers are not out yet. (Eurostat)

Still hopeful? Markit’s January Retail PMIs point to continued sluggish growth in Germany but deepening problems in France and Italy.

The WSJ article says that

The figures highlight a lack of desire among households in the euro countries to spend their income at a time when economic prospects remain clouded.

I am sure there is “no lack of desire”. Just a lack of jobs and income.

Europe Fears Return On Italy, Spain Political Turmoil

In Italy, opinion polls showed disgraced former Prime Minister Silvio Berlusconi closing to within 5-6 points of the center-left front-runner, less than three weeks before an election.

In Spain, media reports that Prime Minister Mariano Rajoy received money from a slush fund run by his political party are leading to calls for his resignation. He has denied the accusations. (IBD)

U.K. Triple-Dip Worries Ebb as Services Unexpectedly Grow

A gauge of activity surged to 51.5, the highest since September, from 48.9 in December, Markit Economics and the Chartered Institute of Purchasing and Supply said in London today.

USA

U.S. Vehicle Sales Back Away From Recent Highs

Unit sales of light motor vehicles during January slipped 0.6% m/m (9.4% y/y) to 15.29M (SAAR) according to the Autodata Corporation. That was the second consecutive monthly decline.
Auto sales slipped 0.4% m/m (+9.7% y/y) to 7.85M. Domestic car sales gained 2.3% to 5.61M (17.5% y/y) but imports fell 6.5% (-5.8% y/y) to 2.24M, the lowest level since August. Light truck sales slipped 0.7% (+9.0% y/y) to 7.44M. Domestic light truck purchases eased 0.2% (+11.8% y/y) to 6.47M while sales of imported light trucks dropped 4.2% to 0.97M, which was off 6.7% y/y.
Imports’ share of the U.S. light vehicle market tumbled to 21.0% in January, the lowest level since August. That share was down from its peak of 29.9% in Q1’09. The lower foreign exchange value of the dollar played a role as it made imports relatively more expensive.

Pointing up Somebody will soon complain about that.

large image

Right on cue:

Hollande warns on euro strength

French president says euro ‘vulnerable’ to irrational movements

“The euro should not fluctuate according to the mood of the markets,” the French president told the European parliament in Strasbourg. “A monetary zone must have an exchange rate policy. If not it will be subjected to an exchange rate that does not reflect the real state of the economy.”
He said he was not calling for the European Central Bank to set an exchange rate target, but he demanded “an indispensable reform of [the] international monetary system”. (…)
“The eurozone must, through its heads of state and government, decide on a medium-term exchange rate,” he said.

U.S. Factory Orders Surge Led By Durables

Orders to all manufacturers jumped 1.8% (0.7% y/y) to close out the year, following a 0.3% November slip. The (…) A 4.3% (-0.2% y/y) surge in December durable goods orders, little-revised from the advance report, accounted for the strength in overall orders in December. It was powered by higher defense orders. Orders for nondurable goods, which equal shipments, fell 0.3% (+1.6% y/y) after a 1.0% November decline. A nearly one-quarter drop (-11.3% y/y) in tobacco shipments led the weakness. (…)

Note that new orders have jumped 2.3% (+9.5% a.r.) in the last 3 months.

U.S. Homes Sell in Two Weeks With Low Supply for Spring Buyers

The U.S. housing market, entering its busiest season, is tipped so far in favor of sellers that almost a third of listings in areas from Washington, D.C., to Denver and Seattle are under contract in two weeks or less.

One home in Washington attracted 168 offers in December and sold for almost twice the asking price. About 70 people lined up last month for a lottery to select buyers for four available houses in a San Ramon, California, subdivision where, in August, bidders camped for weeks to secure purchases.
A plunge in U.S. home listings to a 12-year low is driving up prices and preventing transactions from returning to historically normal levels. Many potential sellers are holding off until values rise more, while investors are snatching up distressed properties before they reach the market. Builders, reporting their best orders in years, can’t increase production fast enough. As buyers seek to take advantage of record-low mortgage rates, the supply and demand imbalance threatens to further limit deals as the key spring selling season approaches. (…)
New listings in 21 of the largest U.S. cities plunged 21 percent last month from a year earlier, led by declines of more than 35 percent in the San Francisco Bay area, Las Vegas and Atlanta, Redfin said. At the end of 2012, about 28 percent of home listings nationally went under contract within 14 days, with cities in California’s Silicon Valley and Los Angeles areas exceeding 40 percent. In Washington, Seattle and Denver it was more than 30 percent. (…)

Home prices post biggest jump in over six years: CoreLogic

CoreLogic’s home price index rose 0.4 percent from the previous month and added 8.3 percent compared to December a year ago. The year-on-year jump marked the biggest increase in the index since May 2006.
Excluding distressed sales, prices were up 7.5 percent on a yearly basis and 0.9 percent compared to the previous month.

Pointing up The CoreLogic Pending HPI indicates that January 2013 home prices, including distressed sales, are expected to rise by 7.9 percent on a year-over-year basis from January 2012 and fall by 1 percent on a month-over-month basis from December 2012, reflecting a seasonal winter slowdown. Excluding distressed sales, January 2013 house prices are poised to rise 8.6 percent year over year from January 2012 and by 0.7 percent month over month from December 2012.

Just 16% of Refinancers Increase Their Mortgage Debt The majority of homeowners who refinance maintained or reduced their mortgage debt in the latest quarter, according to a report from mortgage-finance company Freddie Mac.

Of these borrowers, 46% maintained about the same loan amount, while 39% reduced their principal balance in the latest period.
Freddie Mac said the average interest rate reduction was about 1.8 percentage points, or 33%, the largest percent reduction recorded in the company’s 27 years of analysis.

Banks Say Demand Grows for Loans

U.S. banks reported stronger demand for business, home and auto loans over the winter, a sign of health for the economy despite its slowdown at the end of last year.
The Federal Reserve, in its quarterly survey of senior bank loan officers, on Monday said demand for consumer loans—particularly to buy homes—was up strongly toward the end of December and early in January. (…)
Nearly 31% of banks surveyed said demand for business loans from midsize and large firms grew, up from 20% during the fall. Meanwhile, 26% of the surveyed banks said loan demand from small firms increased, compared with about 21% last fall. (…)
The Fed said the survey found that “demand for business loans, prime residential mortgages and auto loans had strengthened, on balance, while demand for other types of loans was about unchanged.”
Among the banks surveyed, nearly 34% said demand for loans made to purchase homes strengthened—apart from normal seasonal factors—compared with 39% in the previous quarter. Banks reported little change in their standards for home loans. But they eased standards on auto loans amid increasing demand.

PARTY CRASHER?

Gasoline at U.S. Pumps Jumps Most in Two Years on Crude Rally

Regular gasoline in the U.S. jumped 18 cents, or 5.4 percent, from a week earlier to $3.538 a gallon yesterday, the biggest gain since Feb. 28, 2011, according to data compiled by the Energy Information Administration, an Energy Department agency.

Investors stocks sentiments at a high

My anecdotal experience this week at the World Money Show in Orlando, Florida supports the view that investors are going “all-in” for equities, as the exhibit hall and conference rooms were packed with thousands of enthusiastic investors looking to gain insights. (Frank Holmes, US Global Investors)

CHINA ABOUT TO SEE THE DARKER SIDE OF CAPITALISM

Chinese Firms Shrug at Rising Debt

Chen Qiang runs a Chinese shipbuilding company that expects to post a net loss for 2012 and whose $4.5 billion in debt is six times what it was three years ago. But Mr. Chen is unfazed.

Analysts at Standard Chartered PLC estimate that Chinese corporate debt was equivalent to 128% of gross domestic product by the end of 2012, up from 101% at the end of 2009. In a 2011 research paper, economists at the Bank for International Settlements found that when a country’s corporate debt exceeds 90%, it becomes a drag on growth. (…)

Meanwhile, China’s state help to troubled industries will likely exacerbate global overcapacity and put off recovery in businesses ranging from shipbuilding to solar panels, analysts say.
Rongsheng’s woes have been played out repeatedly elsewhere in the economy. Many of China’s solar-equipment companies are being kept afloat by loans from state banks, local-government subsidies and even direct investment by state-owned investment groups.
China’s steel sector is plagued with overcapacity, but unprofitable firms are still able to tap bank credit. (…)
The relationship between business and government has become an impediment to China’s long-term growth prospects, analysts say, with resources not going to the most efficient firms but those with political connections. There are more than 100,000 state-owned enterprises in China, primarily backed by local-level governments. Most of the state-owned firms compete with the private sector.
According to a 2011 report by the Unirule Institute of Economics, an independent think tank in Beijing, once government support such as cheap loans, rent-free land and direct subsidies—cash injections—are stripped away, China’s industrial state-owned enterprises were unprofitable between 2001 and 2009. Many private firms—like Rongsheng—that regional governments deem to be important to local interests also get similar perks. Often, private firms struggle to obtain loans from the banks. (…)

China aims missile at Japanese destroyer Stand-off in Japan-China islands dispute hits danger zone

INFLATION WATCH

Will this become a new feature here?

Russian January Inflation Tops Forecasts to Reach 7.1%

The inflation rate was 7.1 percent, jumping from 6.6 percent the previous month, the Federal Statistics Service in Moscow said today in an e-mailed statement. Prices rose 1 percent from the previous month.

Romania to Leave Main Rate at Record Low Amid Inflation Spike

Inflation quickened more than forecast in December to 4.95 percent, exceeding the central bank’s 2012 target, on rising food and electricity prices.

MIS-SOLD!

Barclays Ups Provision for Mis-Sold Products

The U.K. lender said it will increase its provision for mis-sold products by more than $1.5 billion, as its new chief executive prepares to present a plan to rebuild the bank’s reputation.

NEW$ & VIEW$ (13 NOVEMBER 2012)

Posted on November 13, 2012 by Denis Ouellet

CONFIDENCE

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.

Housing’s also headed for fiscal cliff

(…) 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.

Republicans shift stance on taxing wealthy

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:

Saudi America

(…) 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)

NEW$ & VIEW$ (16 OCTOBER 2012)

Posted on October 16, 2012 by Denis Ouellet

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:

Core 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.

The Apple Effect (Bespoke Investment)

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.

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

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.

The 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.

Employment 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.

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%. (…)

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%.

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. (…)

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.

Wealthy 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.

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.

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).

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.(…)

NEW$ & VIEW$ (15 OCTOBER 2012)

Posted on October 15, 2012 by Denis Ouellet

EARNINGS WATCH

Warnings on fourth quarter add to U.S. earnings worries

Outlooks for the fourth quarter – just two weeks old – are so far decidedly more negative than positive. Thomson Reuters data shows 11 negative outlooks so far from Standard & Poor’s 500 companies and no positive outlooks.
Third-quarter guidance, meanwhile, at the comparable period showed 6 negative outlooks and no positive. (…)
U.S. companies so far are having a tougher time beating analyst expectations in the third quarter, with 59 percent of companies exceeding forecasts, below the 62 percent long-term average, based on Thomson Reuters data. (…)
Revenue trends have also been weak: Just 50 percent of companies that have reported have beaten estimates on revenue, compared with the 62 percent average, he said.
Warnings continue to come in for third-quarter reports, helping to drag down earnings estimates for the period. Several of those warnings have come from Kohl’s (KSS.N) and other retailers, which do not report results until early November. (…)
Europe was cited more than any other reason for negative forecasts from S&P 500 companies for the third quarter, a Thomson Reuters survey showed, but China is a growing concern.

Factset adds:

The 32 companies that have reported to date have surpassed estimates by just 3.0%. Over the last four quarters on average, actual earnings have surpassed estimates by 4.7%.

If the final surprise factor is 3.0%, it would be the lowest final surprise factor since Q4 2008. However, even if the remaining companies were to only beat estimates by 3.0%, the final earnings growth rate for the quarter would still finish in the positive, at 0.15%.

Banks stocks were hit hard late last week after WFC and JPM reported. Yet, banks were supposed to be among the stronger gainers in Q3…

U.S. HOUSING

J.P. Morgan, Wells Fargo: Housing Is on Mend J.P. Morgan Chase and Wells Fargo both reported solid gains in profit and pointed to a recovery in the housing market. Low interest rates, however, continue to pose problems.

“The housing market has turned the corner,” J.P. Morgan Chase & Co. Chief Executive James Dimon said Friday. Wells Fargo & Co. Chief Financial Officer Tim Sloan was just as definitive: “We do believe that we’ve seen a turn,” he said.
At the same time, the headwinds that have kept a lid on the U.S. recovery and weighed on bank stocks were plainly in evidence. Profit margins are being crimped by the same low interest rates that spurred the mortgage-refinancing wave, and investors continue to scrutinize the companies’ operating costs and legal expenses. Bank stocks tumbled on a relatively flat day in the broader stock market. (…)
J.P. Morgan and Wells Fargo emerged as the two of the sturdiest U.S. banks in the aftermath of the 2008 crisis and together are now responsible for more than 44% of all mortgage volume, according to Inside Mortgage Finance. (…)
J.P. Morgan Chase said 75% of third-quarter mortgage volume came from refinancings; Wells Fargo said 72% of its applications during the quarter were for refinancings.

Margin squeeze:

J.P. Morgan’s net interest margin—measuring what it makes on its loans—dropped to 2.43% from 2.66% a year earlier. Wells Fargo’s net interest margin slid to 3.66% from 3.84% a year ago.(…)

With deposit rates already near zero, banks have limited room to further lower their cost of funding. Wells said that its average deposit cost in the third quarter was just 0.18 percentage point, down only marginally from 0.19 percentage point the prior quarter.
Meanwhile, each quarter banks see higher-yielding loans and securities mature, only to replace them with ones that yield significantly less. That contributed to a 0.25 percentage point fall in the margin at Wells to 3.66%. J.P. Morgan’s margin fell 0.04 percentage point to 2.43%. (…)
“We have to be very careful at this point in time not to just go out there and stretch for yield and take on a lot of interest-rate risk,” Mr. Stumpf said on Friday’s call.

Buyers Are Back After Foreclosure

Millions of families lost their homes to foreclosure after the housing crash hit six years ago. Now, some of those families are back in the housing market. Call them the “boomerang” buyers.

(…) Using the three-year benchmark it takes to get an FHA-guaranteed loan, in this year’s second quarter there were 729,000 households that were foreclosed upon during the bust that are now eligible to apply for an FHA mortgage, up from 285,000 in the second quarter of 2011, according to an analysis of foreclosure data by Moody’s Analytics. The company projects that number will grow to 1.5 million by the first quarter of 2014. (…)

Until recently, many of the people who had lost their home to foreclosure or short sale have rented homes, leaving many economists and industry watchers to wonder if the nation would become more of a renter society. In the second quarter, the national home-ownership rate came in at 65.5%, down from 65.9% a year earlier and 69.2% in the second quarter of 2004. Each percentage-point decline represents about one million households.

But as rental rates continue rising—they climbed 0.8% in the third quarter to a national average of $1,090 per month, according to Reis Inc. homeownership is increasingly becoming cheaper than renting. (…)

A housing boom will lift the US economy

Roger Altman, former US deputy Treasury secretary from 1993-94, writes in the FT that the housing market

(…) will be powerful enough, together with rising oil and gas production and other factors, to lift the entire US economy. Indeed, the resultant US economic growth rate may be higher than the Federal Reserve’s long-term forecast of 2-2.5 per cent.
This surge will be driven by a combination of improving house prices, a lower inventory of homes for sale, rising rates of household formation and population growth, and improving access to mortgage credit. Together, they should push residential investment, which includes both new construction and remodellings, to annual growth of 15-20 per cent during the next five years. This alone may contribute 1-2 percentage points to annual growth in gross domestic product and up to 4m jobs over that period.
(…) housing demand is going to be strong, driven by demographics. The International Monetary Fund forecasts that the US population will increase by 15m during the 2012-17 period, more than the increase of the past five years. The two groups of the population that are growing fastest are the over-55s and the so-called echo boomers, the grandchildren of the baby-boom generation. The first group has the highest rate of home ownership. The second has been renting disproportionately, and is primed to start buying. JPMorgan estimates that 6m new units of housing are needed by 2017 just to serve the bigger population.
Then there is the coming recovery in household formation. According to JPMorgan, this rate was steady at about 1.4m annually from 1958 up to 2007. But, it plunged below 500,000 for the three years following the financial crisis, as young people moved in together or lived with parents. Now it has doubled from that level and estimates of pent-up households are at an all-time high. Most expect formation rates to rise much further still, exceeding the 50-year average for a few years. (…)

In Canada, mirror image: Why TD thinks Canada is ‘overbuilt’

(…) The latest numbers from Canada Mortgage and Housing Corp., released this week, showed housing starts in September dipping to an annual pace of about 220,000, which TD economist Francis Fong notes tops the average of about 209,000 over the past decade. (…)

“The current pace of construction is also well north of the average rate of household formation in Canada. According to the 2011 census, only 177,000 new households were created each year since 2006. This would imply that, over time, we have been building more than the demographic need requires.” (…)

The bottom line for Mr. Fong is that the bank believes there’s a “moderate level of overbuilding” in some cities that will lead to a “gradual price correction” over the course of the next several years as the rate of construction eases.

Also: Canadian housing market peers over the edge

HERE’S A TRUE GAME CHANGER

Charting the future of crude oil

(…) The most dramatic change to the global oil map is the boom in the United States, with the “light, tight oil” that is now being produced in North Dakota’s Bakken field and Texas’ Permian and Eagle Ford plays. The IEA forecasts that the U.S. will increase its production by 3.3 million barrels per day over the next five years to 11.4 million barrels, a level that exceeds the current output of Saudi Arabia.
And it expects Canada’s oil production to grow by 1.1 million barrels a day, primarily from the oil sands. Domestic oil production was about 3 million barrels a day last year. (…)

Some have written about this “potential” game changer in the past year. Doubters claim that optimistic projections take little account from declining production at many mature fields and the apparent high decline rates in shale wells. Political and environmental issues also add to the uncertainties.

Nonetheless, the fact is that U.S. production is growing fast and faster than previously forecast.

The shale/tight oil boom in the United States is not a temporary bubble, but the most important revolution in the oil sector in decades. It will probably trigger worldwide emulation over the next decades that might bear surprising results – given the fact that most shale/tight oil resources in the world are still unknown and untapped. What’s more, the application of shale extraction key-technologies (horizontal drilling and hydraulic fracturing) to conventional oilfield could dramatically increase world’s oil production. (L. Maugeri, Harvard Kennedy School)

I will be shortly posting on that very important trend.

Iran’s Secret Plan to Contaminate the Strait of Hormuz

Iran could be planning to create a vast oil spill in the Strait of Hormuz, according to a top secret report obtained by Western intelligence officials.

The goal of the plan seems to be that of contaminating the strait so as to temporarily close the important shipping route for international oil tankers, thereby “punishing” the Arab countries that are hostile to Iran and forcing the West to join Iran in a large-scale cleanup operation — one that might require the temporary suspension of sanctions against Tehran.

INFLATION WATCH

Wholesale Prices Rise

The producer price index increased a seasonally adjusted 1.1% in September from a month earlier, the Labor Department said Friday. The gain was largely due to energy prices that jumped 4.7% during the month, following a 6.4% rise in August. (…) So-called core prices, which strip out volatile energy and food components, were unchanged from August.

A 1.1% monthly increase in wholesale prices can be rapidly dismissed as inconsequential if it appears to come from rising energy prices. But when it follows a 1.7% jump which itself came after 0.2% and 0.3% gains the two months previous, one should begin to pay attention.

During the first 5 months of 2012, the PPI declined 0.8% or 2.4% annualized. Over the next four months through September, the U.S. PPI rose 3.3%. That’s a 10.2% annualized rate. The core PPI rose 0.9% during the last 4 months or 2.7% annualized, the same annualized rate as for the whole of 2012 so far. Such high inflation is happening while the U.S. economy is barely growing…

Finance Chiefs at Odds

A weekend gathering of the world’s top finance officials deepened—rather than eased—conflicts among some of the largest economies, raising fresh doubts about boosting the flagging recovery.

At the annual meetings here of the International Monetary Fund and World Bank, European officials bickered about the damage caused by austerity; this week they head into a major euro-zone summit with no clear rescue plan for Greece. A territorial row between China and Japan, the world’s second- and third-largest economies, bled into the conference with no sign of resolution, highlighting a new risk to growth. And many top finance officials pointed fingers at the U.S. for casting a new cloud over global markets by failing to make progress on the budget mess in the world’s largest economy. (…)

Some officials at the Tokyo meetings acknowledged that a new round of fear in financial markets could help force action in areas such as the euro zone. “Markets are doing their job,” said IMF chief economist Olivier Blanchard. “They scare policy makers into doing the right things…I’m relatively optimistic that we’ll get there. How we get there, whether it’s completely smooth or not, we’ll have to see.”

CHINA

China’s Trade Surplus Widens

China’s trade surplus widened in September as exports rose on improved overseas demand and imports recovered slightly, but analysts warned the healthier trade picture may not hold up over the coming months.

(…) Exports were at a record monthly level of $186.4 billion in September, rising a solid 9.9% from a year ago, data from the General Administration of Customs showed Saturday. This was much higher than the 2.7% rise in August (…). Imports were up 2.4%, compared with a 2.6% fall in August (…).
Exports to the U.S. have held up fairly well this year, showing a 9.6% year-on-year gain in the January-September period. But exports to the EU have struggled, falling 5.6% over the same period (…).

Exports climbed to a record last month, with sales to the U.S. increasing at the fastest pace in three months. Shipments to Japan rose for the first time since June and those to Southeast Asian nations jumped 25.5 percent. The gains helped counter a 10.7 percent drop in exports to the European Union.

High five Before getting too excited on China:

Beware of Chinese data.
Chinese exporters fear grim outlook

On the ground in China the situation looks grimmer than the data reflects. Economists say the seemingly buoyant trade numbers released on Saturday were skewed by seasonal factors such as the rush to get Christmas shipments out before week-long national holidays in early October.

Alarm bells jingle over Xmas exports

The traditional export powerhouses in eastern China say many European companies are not buying Christmas products, and those that do put in an order are buying less, or asking for much lower prices – sometimes even lower than the production cost.

ISI’s weekly China Sales Survey broke below 40 and is not far from the 2009 low of 36.1.

The generally more reliable electricity stats continue to show weakness:

Statistics from the National Energy Administration showed that in the first eight months, China’s total electricity consumption grew 5.1 percent year-on-year to 3.28 trillion kWh, further easing from the 5.4-percent growth seen in the first seven months.

World economies remain weak:

Just 10 of the 30 countries covered by manufacturing PMIs saw an improvement in business conditions in September, and in three of those 10 the increase was only marginal. The remaining seven which saw growth were either north American or non-Asian emerging markets, with a notable exception of India. The bottom of the PMI league table was again dominated by Eurozone and Asia-Pacific countries. (Markit)

Hmmm…

(Chart from Schwab Market Perspective: Teetering on the edge?)

CHINESE OFFICIALS SITTING ON THEIR HANDS?

China’s central bank governor, Zhou Xiaochuan, cast doubts about any fresh monetary stimulus Sunday by saying in a central-bank publication that global policy makers should be vigilantly focused on fending off inflationary risks. (WSJ)

China Inflation Eases

The consumer price index rose 1.9% in September from the same month a year earlier, slower than a 2.0% on-year gain in August, data from the National Bureau of Statistics showed Monday. In sequential terms, the CPI increased 0.3% in September from August, when it rose 0.6% from July.

Food prices, which account for nearly one-third of the weighting in the calculation of China’s CPI, rose 2.5% YoY last month. This was down from the 3.4% YoY increase in August.

(…) the producer price index fell 3.6% in September from the same month a year earlier, after a 3.5% on-year decline in August. The PPI declined 0.1% in September from August, when it fell 0.5% from July.

India’s Inflation Accelerates to 10-Month High

The wholesale-price index rose 7.81 percent from a year earlier, after climbing 7.55 percent in August, the Commerce Ministry said in a statement in New Delhi today.

Fuel prices advanced 11.9 percent in September from a year earlier, today’s report showed. Non-food manufactured goods prices, a measure of core inflation, rose 5.57 percent compared with 5.58 percent in August, calculations by Bloomberg showed.

Volvo Halts Production at Sweden Plant

Volvo Car Corp. Monday said it would halt production for a week from Oct. 29 at its plant in Torslanda, Sweden, in the latest response to shrinking demand from an auto maker.
“The recession in Europe is deepening and that impacts customers’ willingness to buy new cars,” said Volvo spokesman Per-Ake Froberg. “Therefore we have to continue to adjust production.” (…)
Volvo last month said it would decelerate production at Torslanda, citing the weakness in China. Since Oct. 1, the plant has made 50 cars an hour, having previously produced 57 an hour. The temporary shutdown at the end of this month will further reduce Volvo’s production by about 3,000 cars, representing 0.7% of its total sales in 2011.
The company has also reduced production at its plant in Ghent, Belgium, where it made most of its 449,000 cars last year, and Mr. Froberg said further reductions there are possible.

Tata Motors Global Sales Fall

Tata Motors Ltd. Monday said its global vehicle sales for September fell 4% from a year earlier to 103,656 units, hit by lower volume in the passenger-car segment.
India’s biggest auto maker by sales said its U.K.-based luxury-car unit, Jaguar Land Rover PLC, sold 4% fewer vehicles at 26,461 units. Total passenger-car sales dropped 11% to 48,895 vehicles.

Poland pledges to boost spending Prime minister warns of difficult year ahead

Poland will fight the economic slowdown by boosting investment spending, Donald Tusk, the Polish premier, promised in a speech to parliament on Friday, breaking with the government’s traditional emphasis on fiscal consolidation.

Money, politics and fear: What the BAE-EADS fiasco says about Europe

(…) Blame the political agenda in Paris, Berlin and London. The rights and independence of the executives and the shareholders were quickly buried under an avalanche of fears that the head office would be in the wrong country; there would be too much state control, or too little; jobs would disappear in one country and pop up in another; and industrial decision-making left entirely in the hands of management and owners risked damaging national agendas and the preservation of national corporate champions.
And so on. The whole affair descended into what’s-in-it-for-me political bedlam.
Now you know why it’s taking so long to fix the euro crisis. (…)

THE DRIVE FOR INCOME

My friend Hubert Marleau at Palos Management Inc. explains why dividend paying stocks keep outperforming.

(…) What is going on? Three Institutional reports may have the answer. These are Black Rock, Columbia Management and Eagle Asset Management.

Firstly, they argue that the demographic shifts to a new generation of retirees are not fully understood by the population at large. A world retirement boom is underway; the number of people aged 60 and older will triple to 2 billion in 2050 from 780 million in 2009. Eighty million Americans will reach retirement age in the next 20 years.

Secondly, quality driven companies that offer both dividends and growth are the few securities that can fill the bill. The dividend payout ratio of the S&P 500 is about 28%. This is far away from the normal range of 40 to 60 percent. Moreover, corporate cash levels are high making it possible for cash flow driven companies to pay more dividends. For example, S&P 500 index companies’ cash as a percentage of market value is very near the historical record level of 13%.

Thirdly, institutional investors have more clout than retail ones and a growing number of them are pushing for favorable dividend actions from companies that can afford to do so.

Schumer to Tax Reform: Drop Dead

A Senate Democratic leader lays down a partisan 2013 marker.

Mr. Schumer says the only way to reform is to broaden the tax base and raise tax rates.