Market Roundup 11-6-12
Happy Election Day! Now get out and vote!
General News:
-Last Labor Department jobs report before Election Day confirms US economy remains stuck in neutral, with 171,000 jobs added last month, nearly the same number filing for unemployment, a jobless rate moving higher — to 7.9 percent — and at least 12.3 million still out of work.
+The ISM Manufacturing Report came in at 51.7 for October
This indicates that the activity in the manufacturing sector grew for the second straight month, and was an increase over September’s 51.5. This is good in that the sector is growing, but caution needs to be observed as only recently we were in a trend of contraction, and we are still near the break-even point of 50. New Orders and Production components showed continued and increasing growth, while the Employment and Prices Indices showed decreased growth (but growing).
Oct 2012 51.7
Sep 2012 51.5
Aug 2012 49.6
Jul 2012 49.8
Jun 2012 49.7
May 2012 53.5
+The ISM Non-Manufacturing Report came in at 54.2 for October
This indicates that the activity in the non-manufacturing sector grew for the 34th straight month. However, this was a decrease compared to September’s 51.5. This is good in that the sector is still growing, but we are still near the break-even point of 50. New Orders and Employment components showed continued and increasing growth, along with the Prices Index (65.6). Agriculture, Forestry, Fishing & Hunting, and Construction led the way while Mining, Arts, Entertainment and Recreation, Wholesale Trade, Utilities, and Public Administration showed contraction. “The majority of the respondents’ comments reflect a positive but guarded outlook on business conditions and the economy.”
Oct 2012 54.2
Sep 2012 55.1
Aug 2012 53.7
Jul 2012 52.6
Jun 2012 52.1
May 2012 53.7
+ The Petroleum Status report shows crude oil inventory rose by 2 million barrels, gasoline rose by .9 million barrels and distillates (think diesel) fell slightly by .1 million barrels as refineries operated at 87.8% of capacity. Rising supply helps to put downward pressure on prices.
+ The AAA Fuel Gauge shows retail pricing coming down nicely, but with wholesale prices leveling out, don’t expect gas prices to get cheap.
+ Consumer Confidence rose to a reading of 72.2 in October, the highest since February 2008. A reading of 90 would be considered good. This index is watched because consumer spending drives nearly 70% of economic activity in the USA. The last time this index hit 90 or higher was December 2007.
Steel news:
– Raw steel production dropped to only 67.9% of capacity. Not good. This is the lowest level since Q4 2010.
– Mill lead times have receded slightly from the 7 week average. Most mills are in mid December for galvanized and some are out to mid January. It looks to me like the buying flurry of the last couple weeks has put enough business on the books to keep the mills running into the new year.
+ Steel mills around the USA have also closed their books on 2012. That doesn’t mean the mills are full. It just means they have enough to stay running for a little while and they are eager to close the door on a weak Q4. Everyone hopes 2013 will start off fast but we’ll get a better feel for business conditions after the presidential election.
Asia News:
+ China’s manufacturing activity saw an increase in October from a reading of 49.8 to 50.2 in the Purchasing Manager’s Index (PMI). Proceeding from a reading of slightly contracting to slightly expanding may be an indicator that China’s economy is finally reversing itself.
– The non-manufacturing PMI for China, however, dropped from 56.3 to 53.7 in September, indicating that this section of their economy is still growing, but at a decreased rate.
+/- The People’s Bank of China, the country’s central bank, stepped up its efforts in injecting a record amount of cash flow into banks through open market operations this week. After completing seven-day reverse repurchase agreement (repo) operations worth 58 billion yuan and two-week reverse repo operations worth 115 billion yuan on Thursday, the PBOC injected 379 billion yuan ($60.2 billion) of liquidity into the money market this week, marking an all-time weekly high.
Certain groups see this as a good thing, indicating the Chinese government is being proactive to fix their economy. In reality this can only bring about currency depreciation and continue to feed asset bubbles, which must pop sometime. The rapidity of the injections could be an indicator that things are beginning to get out of control.
–Japan Manufacturing PMI falls to 18-month low during October. After adjusting for seasonal factors, the headline Markit/JMMA Purchasing Managers’ IndexTM (PMITM) slipped further below the 50.0 no-change mark in October. The index registered 46.9, down from 48.0 in September and an 18-month low. The PMI has now posted below the 50.0 no-change mark for five successive months. Key points are that employment fell at the fastest pace since July 2009 and that output and orders are both down at sharper rates.
Not good. Below break-even and declining.
-Warnings from Panasonic and Sharp that they will post a combined annual loss of more than $15 billion has reignited fears about the increasingly dire outlook for Japan’s once-mighty electronics giants. Sony offered a glimmer of hope, saying thursday that it shrank its first-half net loss while keeping its pledge to turn an annual profit, after four years in the red.
Europe News:
— Final Eurozone Manufacturing PMI at 45.4 in October. Job losses recorded in almost all nations, with Ireland the sole exception. All the major Eurozone players except Ireland recorded PMI below 50, indicating decreasing activity levels. The downturn in the Eurozone manufacturing sector extended into a fifteenth successive month in October, as domestic market conditions remained subdued and intra and extra-Eurozone trade flows deteriorated further.
Automotive News:
+Ford was first to post positive results on Tuesday by announcing record profits in the third quarter, led by the company’s North American operations. However, Europe continues to be a problem, and the company said it would close some plants there.
+ GM announced net income of $1.8 billion in the third quarter, with North American operations accounting for $1.5 billion of that profit. Still, the numbers weren’t as good as the same period in 2011, when net income was $2.2 billion. As with Ford, European operations posted a loss.
+ Chrysler weighed in with an 80 percent improvement of third quarter net income over the same period in 2011. The company said sales of all models were up.
– The SAAR for October sales slipped to 14.3 million from September’s 14.9, which was the highest sales rate since 2008.
+ October was good to imports too as Volkswagen sales were up 22.4% and Toyota sales gained 15.8% in October. Honda sales were up 9% and Hyundai/Kia was up 13%. Nissan was down 3%.
+ GM spent $3.6 billion on lump sum payouts to around 13,200 eligible employees. These people opted for a lump sum (averaging $273,000) instead of a normal pension from GM. This will be detrimental in the short-term accounting, but should help the long-term health of the company.
Shade Tree Economist 