Market Roundup 11-13-12
General News:
+ Freddie Mac reported a Q3 income of $2.9 billion and requested no federal aid. A year ago they were losing $6 billion. This is good news and a sign that the housing disaster of 2008 might be finally drawing to a close. Freddie Mac and larger sibling Fannie Mae were the most costly bailout of the 2008 financial crisis, costing tax payers $170 billion to cover massing loses on risky mortgages.
+ A sign of the times? Bicycle sales are up $52 million over last year (first 9 months reported so far). Are we getting more athletic, or too poor to have a car? Total bicycle sales in the US is around $770 million annually.
– Navistar International Corp.( A manufacturer of trucks, buses, and other vehicles) is closing it’s truck plant in Garland, TX and cutting 900 jobs to reduce costs. Navistar has been downsizing since last year when it closed a plant in Canada. They also bought out 500 employees this year and plan to lay off another 200. Things don’t look so good for Navistar’s fortunes. All they have left is a Springfield, Ohio plant and a facility in Mexico.
+ The Petroleum Status Report shows crude oil inventory rose 1.8 million barrels due to refineries slowing down (running at 85.4% of capacity). At 374.8 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year.
Gasoline inventory rose 2.9 million barrels and distillates (think diesel) fell slightly by .1 million barrels.
Propane/ propylene inventories decreased by 0.3 million barrels last week, but remained above the upper limit of the average range.
+ September 2012 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $414.0 billion, up 2.0 percent from the revised August level and were up 4.4 percent from the September 2011 level.
Steel news:
+ Raw steel production rose to 69.1% of capacity from the dismal 67.9% last week. Still not good, but improving.
+/- Final October import numbers are in and imports are up. This should keep prices down, which is good for the consumers but plays havoc within the competition.
+/- China is ramping up its global exports of cheap steel, sometimes at a loss as bulging stocks give way to worsening domestic demand. Major steel products in China are being sold below cost following a market slump that has lasted more than four months.
+ The global recession is playing havoc with supply chains all over. The Australians have long been the go to place for iron ore and coal. But lately, the supply of coal from the USA has become more competitive. Since cheaply acquired natural gas has taken a big bite out of coal consumption in the US, coal companies have looked for new customers. A major steel company in India just concluded a purchase of coking grade coal from a supplier in the USA for $132 per ton versus Australian suppliers at $155 per ton.
Asia News:
– With wages beginning to soar in China, it is expected that the average cost of factory labor will be roughly the same as that in Mexico, and Mexican industrial parks are already swelling in anticipation of Mexican labor being the new “cheap” labor.
+ Preliminary October non-manufacturing PMI data are in, and the index rose from 53.1 in September to 55.5, indicating expansion at an increasing rate. This data may reduce pressure on policy makers to roll out more stimulus.
– China’s economic growth, however, cooled to a three-year low of 7.4 percent in the third quarter.
– China’s outstanding bonds rose to 23.26 trillion Yuan ($3.7trillion) at the end of October. This is nearly equal to half of China’s GDP last year.
– Japan’s economy contracted 0.9 percent in July-September, compared to the three previous months.
Europe News:
– UK manufacturing output gained less than economists forecasted (0.1% vs projected 0.4%) in September, raising concerns that the economy’s rebound is losing momentum.
– Total UK industrial output plunged 1.7% as oil and gas output dropped due to maintenance of sites.
— The German Construction Purchasing Manager’s Index dipped from 48.6 in September to 44.6 in October, the eight consecutive month below 50 (readings below 50 indicate contraction). A steep decline in civil engineering activity leads the downturn and construction firms are pessimistic about the upcoming year.
+ ECB is leaving interest rates alone, waiting to buy bonds of debt-strained governments until they signed up for a bailout program.
– However, ECB president Mario Draghi gave a downbeat assessment of the eurozone economy: “Unemployment is deplorably high,” he said. “Overall economic activity is weak and it is expected to remain weak in the near term. And the growth of money and credit are subdued.”
Automotive General News:
– Suzuki Motor Corp. is pulling out of the US market. They got their butt kicked by the other players and are filing for Chapter 11 bankruptcy. The company will continue to sell motorcycles and outboard motors in the US, but no more cars or trucks. Suzuki has 246 dealers in the US. Suzuki sold about 26,000 vehicles in the U.S. in 2011, a fraction of rival Japanese automakers such as Toyota, Nissan and Honda.
Shade Tree Economist 