‘The Sky is Falling’ on California Manufacturing, Worst since February 2009, Might Kick Regional Economy into Recession

‘The wheels have come off this quarter.’ ‘The sky is falling’ is the perfectly-on-the-mark technical expression by the good folks at the Institute of Applied Research, which publishes the Purchasing Managers’ Index for the Inland Empire – the only manufacturing PMI in California. The Inland Empire is the third-most populous region in California and a big manufacturing and warehousing hub that includes the city of San Bernardino which filed for Chapter 9 bankruptcy in 2012.
So the Inland Empire is a good gauge of manufacturing in the rest of California.
Back in 2009, during the depth of the Financial Crisis, the PMI report for February had produced a terrible score of 34.7 (below 50 = contraction). But in March, the index jumped to 45.2, still in a sharp contraction, but less catastrophic than in February. So the Institute of Applied Research endowed its March PMI report with the title, ‘Perhaps the Sky is not falling.’
Now we’re back – right between these two Financial-Crisis months. Only this time, it’s going in the wrong direction.
The IAR already issued a warning in its September report, with a hesitation. ‘We are not yet ready to say that ‘the sky is falling.”
At the time, the Inland Empire PMI had dropped to 44.1, below 50 for the second month in a row. But the report pointed out that ‘the sky is falling’ doesn’t apply until the index is below 50 for three months in a row; given the index’s volatility, it takes that long to establish a trend of contraction.

This post was published at Wolf Street on January 8, 2016.

Canada PMI Crashes Into Contraction

Canada’s Ivey Purchasing Managers Index collapsed from an exuberant and simply unbelievable 63.6 in November to acontractionary 49.9 in December – one of the biggest MoM drops on record and biggest misses on record. On a seasonally-unadjusted basis, this is the weakest print in at least 2 years. From the best data since February 2012 to the worst since February 2015 seems to expose these soft-surveys as practically useless. The huge drop in Inventories suggests a major drag on GDP and an extension of Canada’s recession.

This post was published at Zero Hedge on 01/07/2016.

Last Year’s Headwinds Still Blowing

Yesterday’s trading was largely in response to negative developments in China, which fueled a global selloff. A few catalysts are responsible for the sour mood, but the primary focus is the latest reading on Chinese manufacturing.
The Caixin China manufacturing purchasing managers’ index came in at 48.2, the tenth consecutive contractionary reading. They noted that sub-indexes tracking production, new orders, and new export orders all declined.

This post was published at FinancialSense on 01/05/2016.

2016 Off To A Miserable Start: Asian Stocks Drop; Futures Slide After Chinese PMI Tumbles On Dire Commentary

Earlier in the session, after the surge in oil prices on fears of a spike in belligerence between Saudi Arabia and Iran, bulls were hopeful that after a poor close to 2015, at least the first trading day of 2016 would set a positive mood: after all, if there is one thing war is good for, it is to lift stock markets. And it did… for about 3 hours.
Then moments ago, Caixin Media and Markit Economics released China’s December manufacturing purchasing managers’ index. It was a doozy, falling to 48.2 from 48.6 in November, well below the 48.9 consensus estimate and even lower than the 49.6 printed a year ago, its tenth consecutive month in contraction territory and the lowest reading since September 2015.
The trend is clearly not one’s friend, especially if one is part of Beijing’s political oligarchy.

This post was published at Zero Hedge on 01/03/2016 –.

Yuan Movements Highlight China’s Attempt to Halt 10th Month of Export Contraction; Major Currency War Coming Up?

Chinese manufacturers see further deterioration in business conditions, down 10 consecutive months as noted in the latest Caixin China General Manufacturing PMI release.
Operating conditions faced by Chinese goods producers continued to deteriorate in December.
Adjusted for seasonal factors, the Purchasing Managers’ Index, operating conditions in the manufacturing economy registered below the neutral 50.0 value at 48.2 in December, down from 48.6 in the previous month. Business conditions have now worsened in each of the past 10 months. That said, the latest deterioration was modest overall.
Production declined for the seventh time in the past eight months, driven in part by a further fall in total new work. Data suggested that client demand was weak both at home and abroad, with new export business falling for the first time in three months in December. As a result, manufacturers continued to trim their staff numbers and reduce their purchasing activity in line with lower production requirements. Meanwhile, deflationary pressures persisted, as highlighted by further marked declines in both input costs and selling prices.

This post was published at Global Economic Analysis on Sunday, January 03, 2016.

China “Suspends” Another Unofficial PMI Data Release To Make “Major Adjustment”

For the second time in two months, an economic data series that indicate drastically weak performance in China has been “suspended.” Having seen Markit/Caixin’s flash gauge of China’s manufacturing discontinued in October (having plunged notably divergently from the government’s official data), Bloomberg reports that the publishers of the alternative China Minxin PMI will stop updating the series to make a “major adjustment.”
Guess which time series was just “suspended”…
***
As Bloomberg details,
Release of the unofficial purchasing managers index jointly compiled by China Minsheng Banking Corp. and the China Academy of New Supply-side Economics will be suspended starting this month, the Beijing-based academy said in an e-mailed statement Monday, about six hours before the latest monthly data were scheduled for release.
Minxin’s suspension is the second in recent months as policy makers in the world’s second-largest economy struggle to arrest a deceleration in growth. Another early estimate of China’s manufacturing sector, a flash gauge of a purchasing managers index compiled by Markit Economics and sponsored by Caixin Media, was discontinued Oct. 1.

This post was published at Zero Hedge on 12/21/2015.

So ‘the Sky is Falling’ on California Manufacturing(?!)

‘October is, for unknown reasons, the worst month in memory.’ A month ago, the Institute of Applied Research, which publishes the Purchasing Managers’ Index for the Inland Empire – with about 4 million people, the third-most populous region in California – reported: ‘We are not yet ready to say that ‘the sky is falling.”
Back then, they were lamenting that the Inland Empire PMI had dropped below 50 for the second month in a row (below 50 = contraction), hitting 44.1 in September, after having already hit 46.6 in August. But the sky wasn’t falling ‘yet,’ the report pointed out, because, given how volatile the index is, ‘it takes three months of figures below 50 before a new trend (in this case a trend of contraction rather than growth) is established.’
Alas, on Monday, the IAR released the Inland Empire PMI for October, and it was sharply below 50 for the third month in a row, this time at 45.9.
So is the IAR now ‘ready to say that ‘the sky is falling?” We don’t know. The authors didn’t specifically address the issue. We only know that the index is falling – and a lot: back in April, it was still flying high at 60.

This post was published at Wolf Street on November 3, 2015.

Who Turned the Stock Market Around at 4:47 A.M. This Morning?

We may have just gotten our answer to the puzzling question of why we can put a man on the moon but the Securities and Exchange Commission can’t create a consolidated tape of our markets for forensic auditing purposes: a consolidated tape would tell us just who it is that is messing around with stock futures in the middle of the night as well as creating flash crashes during the trading day.
We thought it was very peculiar that prior to the opening of the U. S. stock market this morning, futures on the Standard and Poor’s 500 index had staged a miraculous rally on the heels of distressing manufacturing news out of China last night.
According to the preliminary Caixin/Markit China Manufacturing Purchasing Managers’ Index (PMI) which was released last evening, manufacturing activity in China dropped to 47.0 in September, the worst reading since the financial crisis in 2009. Readings below 50 signal that manufacturing is contracting.
As that news was released, futures on the Dow Jones Industrial Average slumped by a sharp 140 points and the S&P 500 futures went into a steep decline. (See S&P E-Mini futures chart below.)

This post was published at Wall Street On Parade By Pam Martens and Russ Marte.

Here Are Two Ways Investors Can Take Advantage of the Fed’s Uncertainty

Federal Reserve Chair Janet Yellen last week blinked in the face of – as she described it – global uncertainty, low inflation, and a still-low U. S. labor force participation rate. I’ve written on the emerging markets slowdown numerous times in recent months, so her reasoning is not at all surprising.
Although interest rates could still be hiked in one of the two remaining times the Federal Open Market Committee (FOMC) meets this year, I’m inclined to think they’ll stay near zero until at least 2016.
The decision is a welcome one for both gold demand and new home purchases. When rates rise, gold becomes less attractive for some investors, who are encouraged to exchange their no-yielding gold for income-producing assets.
As for loans on new or existing homes, they don’t necessarily rise and fall in perfect correlation with interest rates – they’re more directly related to the 10-year Treasury bond yield – but there’s a strong psychological connection in many potential homebuyers’ minds.
An interest rate reprieve, then, might encourage borrowers to act before it’s ‘too late,’ helping home sales. This could speed up the multiplier effect, or what occurs when there’s an increase in spending that increases income and consumption greater than the initial amount spent. When people buy a home, they also put carpenters to work, purchase new furniture, hire landscaping companies and more.
The same is true when taxes are lower. It creates less friction in the flow of money.
A Record-Setting Year for Chinese and Indian Gold Demand? Following Yellen’s announcement, I told JT Long of the Gold Report that the Fed’s decision is a wash for precious metals, oil and gas prices. A rate hike would have likely caused the U. S. dollar to strengthen even further, which in turn would have put additional pressure on commodities.
I’ll be watching China’s purchasing managers’ index (PMI) numbers very closely in October and November to see if manufacturing activity will start to turn up. Since China is such an important consumer of metals and other raw materials, it’s crucial that its manufacturing sector break out of the recent slowdown.

This post was published at GoldSeek on 22 September 2015.

Global Growth Tensions Reflected in Diverging Data Points

Confirmation of slower growth in China in August triggered further tumbling of global stocks on September 1st. The first of the month is when we get the Purchasing Managers’ Indexes (PMI) from Markit for the previous month for the manufacturing sector for most important economies. In the case of China we also get an official PMI reading. These are some of the timeliest indications of the current pace of economic activity. In China, the government’s PMI fell below 50, the level that separates expansion from contraction, to 49.7, the lowest reading since August 2012. The private Caixin-Markit PMI, at 47.3, was stated to be ‘the quickest deterioration in operating conditions for over six years.’ Weak demand in the markets for goods and factors of production was reported. There was also an unexpected slowdown in service-sector business activity. The services index, at 51.5, while still above 50, fell sharply from July’s 53.8% reading. One reason was slower expansion in the financial sector, probably reflecting the turbulence in China’s stock markets.
The slower growth readings strengthen expectations that China will be ramping up efforts to put a floor under the economic slowdown. Look for both further steps to loosen the still-tight conditions in China’s financial markets and further fiscal stimulus. China’s concerns about the volume of the continuing capital outflows was reflected in reports that the People’s Bank of China (PBOC) will impose a 20% reserve requirement on financial institutions trading FX forwards and that regulators are going after illegal financial transfer activities.

This post was published at FinancialSense on 09/03/2015.

China’s Economy Is Undergoing a Huge Transformation That No One’s Talking About

The photo you see below was snapped recently in Beijing. It might not be that special to some readers, but in my 25 years of visiting the Chinese capital, I’ve never seen a blue sky because it’s always been blotted out by yellow smog. Beijing is clearly undergoing a massive transformation right now. This might please proponents of the green movement, but it’s ultimately harmful to the health of China’s manufacturing sector.
On the other hand, blue skies could be ahead for China’s service industries.
Misconception and exaggeration are circling China’s economy right now like a flock of hungry buzzards. If you listen only to the popular media, you might believe that the Asian giant is teetering on the brink of economic disaster, with the Shanghai Composite Index’s recent correction and devaluation of the renminbi held up as ‘proof.’
Don’t get me wrong. These events are indeed significant and have real consequences. They also make for some great, sensational headlines, as I discussed earlier this month.
But what gets hardly any coverage is that China’s economy is not weakening so much as it’s changing, much like Beijing’s skies. Take a look at the following two charts, courtesy of BCA Research:
You can see that the world’s second-largest economy has begun to shift away from manufacturing and more toward consumption and the service industries. While the country’s purchasing managers’ index (PMI) reading has been in contraction mode since March of this year, the service industries – which include financial services, insurance, entertainment, tourism and more – are ever-expanding. The problem is that the transformation has not been fast enough to offset the massive size of the manufacturing sector.
Just as a refresher, the PMI is forward-looking and resets every 30 days. It helps investors manage expectations. Consider this: The best-performing country in our Emerging Europe Fund (EUROX) is the Czech Republic – which also happens to have one of the highest PMI readings. Coincidence?
In China, overseas travel, cinema box office revenue and ecommerce are all seeing ‘explosive growth,’ according to BCA. The country’s once-struggling real estate market is also robust. The government just relaxed rules to permit more foreigners to purchase mainland property.

This post was published at GoldSeek on 1 September 2015.

Gold Glimmers as Global Market Fear Grips Investors

Gold last week broke above its 50-day moving average as a fresh round of negative news from around the globe rekindled investors’ interest in the yellow metal as a safe haven. The Fear Trade, it seems, is in full force.
Below are just a few of the recent news items that have made some investors skittish, which has supported gold prices:
China, the world’s second-largest economy, continues to slow. Its preliminary purchasing managers’ index (PMI) reading, released on Friday, came in at 47.8, a 77-month low. This follows China’s decision to devalue its currency, the renminbi, close to 2 percent. For the first time in a year, the Shanghai Composite Index fell below its 200-day moving average. Crude oil is on an eight-week losing streak, the longest in 29 years. West Texas Intermediate (WTI) slipped below $40 per barrel in intraday trading Friday, the first time it’s done so since 2009. U. S. stocks are undergoing an ugly selloff. They just had their worst week since September 2011 and are on track to post their worst month since May 2012. The Dow Jones Industrial Average, down 10 percent since its all-time high, is nearing correction territory. All 10 S&P 500 Index sectors were off last week. We can also add to this list the high levels of margin lending on the New York Stock Exchange (NYSE) right now. At the end of every month, the exchange discloses margin amounts, and it appears that everyone is leveraged. Real margin debt growth since 1995 is twice as much as real S&P 500 growth.

This post was published at GoldSeek on 24 August 2015.

What the Heck is Going on in the Global Markets?

This wasn’t supposed to happen. The week was already on a crummy downhill path globally, and emerging-market currencies were blowing up, when on Friday in China the Caixin’s Purchasing Manager’s Index hit the worst level since March 2009; manufacturing is sinking deeper into the mire.
So the Shanghai stock index plunged 4.3% for the day, and 11.5% for the week, to 3,508, closing at the same level as the bottom of its July rout.
The entire machinery that the Chinese government and the People’s Bank of China had set in motion to bail out the markets during the July rout, which had worked for a couple of weeks, has now proven to be useless. And the markets, thought to be controllable by fiat or manipulation, suddenly regained a will of their own.
Other AsianSTOCK MARKETS plunged too: Hong Kong’s Hang Seng dropped 1.5% on Friday and 6.6% for the week; it’s 5.1% in the hole for the year. The Nikkei fell 3% on Friday and 5.3% for the week.
Europe was next. The German Dax, the British FTSE 100, French CAC 40, the Spanish IBEX 35, the Italian FTSE MIB, they all plunged about 3% for the day and lost between 5% and 6.5% for the week, except for the German Dax which lost nearly 8% for the week. It has now plummeted 18% since its dizzying peak in early April. Easy come, easy go.
Have central banks lost their omnipotence?

This post was published at Wolf Street on August 23, 2015.

Gold on Sale: Investors Buying on Today’s Low Gold Prices

The leveraged gold futures derivatives market is knocking down thePRECIOUS METAL, yet in massive contrast, this drop has ignited a shopping frenzy, according to gold coin dealers. I spoke with several friends and industry experts last week who confirmed the record sales numbers for the month. In fact, American Gold Eagle sales reached 161,500 ounces in July, the highest monthly figure since April 2013. What gives?
Gold often attracts conspiracy theories when it falls so abruptly, especially on Mondays. Interestingly, in a recent article on Zero Hedge, ABC Bullion out of Sydney, Australia, detailed some of the speculation behind the precious metal’s beat-down.
Price manipulation, or a ‘bear raid,’ could be a factor. Two weeks ago, gold pricesexperienced a mini ‘flash crash’ – the first one in 18 months – after five tonnes of the metal appeared on the Shanghai market. Whether front-running or fat fingers are to blame, the sell order for what many are calling a bear raid was initially thought to have originated in China, but we now believe it came from New York City.
Did investors anticipate China’s negative flash purchasing managers’ index (PMI) last week? China is the largest consumer of gold, and the PMI is a useful leading indicator of commodities demand as well as job growth.
What about the Greek crisis? This type of debt fear crisis often has the effect of boosting theprice of gold, but we didn’t see that happen. Did European central banksSELL GOLD down to dampen the psychological impact of the event? Understating the seriousness of the debt crisis may have prevented investors from seeking gold as protection.
Conspiracy theories or not, I believe none of this tarnishes gold’s sustainable allure. It’s important to look at the two key demand drivers for gold:

This post was published at Wall Street Examiner on August 5, 2015.

Capital Controls Destroy Greek Small Businesses; Bank Shares Plunge Again; Record Contraction

Record Manufacturing Contraction
Greece may as well have gone to hell in a handbasket. Carnage is everywhere one looks, but let’s start with the Markit Greece PMI report that shows record manufacturing contraction.
July saw factory production in Greece contract sharply amid an unprecedented drop in new orders and difficulties in purchasing raw materials. The headline seasonally adjusted Markit Greece Manufacturing Purchasing Managers’ Index registered 30.2, well below the neutral 50.0 mark and its lowest ever reading.
Record contractions were registered for almost all variables monitored by the survey, including output, new orders, employment and stocks. There was also a record lengthening in suppliers’ delivery times.
July’s sharp decrease in the level of new business at manufacturers surpassed the previous record set in February 2012. Panel members commented on the impact of capital controls on demand, and also cited a generally uncertain operating environment which further weighed on sales. A sharp and accelerated decrease in new export orders (also a series record) added to the overall reduction in new work.
July’s survey signalled the steepest drop in factory employment ever recorded during the 16-plus years of data collection. The decrease was the fourth in successive months, following marginal job losses throughout the second quarter of the year.
A lack of availability of supplies meanwhile contributed to a rise in average purchase prices, with the rate of cost inflation accelerating from the previous month to the second-fastest since September 2012.
In contrast, prices charged by manufacturers for goods decreased to the greatest extent for over two years, the rate of decline notably more marked than the moderate pace of deflation recorded during the month before.

This post was published at Global Economic Analysis on August 04, 2015.

Rational Investors Say Gold Is On Sale

From Frank Holmes at USFunds.com:
The leveraged gold futures derivatives market is knocking down thePRECIOUS METAL, yet in massive contrast, this drop has ignited a shopping frenzy according to gold coin dealers. I spoke with several friends and industry experts this week who confirmed the record sales numbers for the month. In fact, American Gold Eagle sales reached 161,500 ounces in July, the highest monthly figure since April 2013. What gives?
Gold often attracts conspiracy theories when it falls so abruptly, especially on Mondays. Interestingly, in a recent article on Zero Hedge, ABC Bullion out of Sydney, Australia, details some of the speculation behind the precious metal’s beat down, which I’ve also discussed in my blog.
Price manipulation, or a ‘bear raid,’ could be a factor. Last week, GOLD PRICES experienced a mini ‘flash crash’ – the first one in 18 months – after five tonnes of the metal appeared on the Shanghai market. Whether front-running or fat fingers are to blame, the sell order for what many are calling a bear raid was initially thought to have originated in China, but we now believe it came from New York City.
Did investors anticipate China’s negative flash purchasing managers’ index (PMI) last week? China is the largest consumer of gold, and the PMI is a useful leading indicator of commodities demand as well as job growth.
What about the Greek crisis? This type of debt fear crisis often has the effect of boostingTHE PRICE OF GOLD, but we didn’t see that happen. Did European Central Banks sell gold down to dampen the psychological impact of the event?

This post was published at GoldSilverWorlds on August 2, 2015.

Why Bad News Is Good News in Europe – 7 Charts Showing What You Really Need to Know

There’s little denying that the U. S. economy is on the upswing since the recession. Manufacturing is strong, jobless claims are falling and wages are rising. Delta Airlines, which we own in our Holmes Macro Trends Fund (MEGAX), recently announced that it will be giving its 80,000 employees $1.1 billion in profit sharing, while Wal-Mart, held in our All American Equity Fund (GBTFX), unveiled plans to hike its minimum wage to $9 an hour in April.
Indeed, things are shaping up here in the U. S., but unfortunately this has not been the case in Europe. From Greek drama to Russian aggression, bad news seems to be the order of the day.
Until now.
Because of central banks’ monetary easing, weakening currencies and low fuel costs – courtesy of the American fracking boom – Europe is finally showing signs that it’s ready to turn the corner and set a path toward lasting economic recovery.
Emerging Europe PMIs Swinging Up The Purchasing Managers’ Index (PMI), as I’ve often said, is a highly effective tool that we use to forecast manufacturing activity six months out. Any reading above 50 indicates growth in manufacturing; anything below, contraction. This allows us to manage our expectations and get a good sense of where to position our funds.
As you can see, the European Union (EU) as a whole has recently improved, but emerging countries such as the Czech Republic, Poland and Hungary are posting very solid numbers in the mid-50s range. Much of this is due to low fuel costs and weaker currencies, which make exports more attractive.

This post was published at GoldSeek on 24 February 2015.

Four Trade War Questions; PMI Reports; Currency Manipulation Charges

With the declining yen, Japan’s manufacturing PMI has risen eight months. In contrast, China has been wavering near the stagnation line since early 2011.
Trade war questions relate the to just-released PMI reports and also 4th quarter US GDP. Let’s start with today’s PMI releases on China and Japan.
HSBC China Manufacturing PMI
The HSBC China Manufacturing PMI shows Chinese Operating Conditions Deteriorate Fractionally in January.
Chinese manufacturers saw a fractional deterioration in operating conditions at the start of 2015. Although output rose slightly and new orders broadly stabilised, staffing levels were cut for the fifteenth successive month. Meanwhile, relatively subdued client demand led companies to reduce their stock holdings of both post and pre-production goods in January. On the costs front, lower raw material prices led to the steepest reduction in average input costs since March 2009, which contributed to a sharp decline in prices charged.
After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index (PMI) posted at 49.7 in January, down slightly from the earlier flash reading (49.8), but up fractionally from 49.6 in December. This signalled a second successive monthly deterioration in the health of the sector, albeit only slight.
Latest data indicated a renewed expansion of Chinese manufacturing output in January, though the rate of increase was only fractional. This was the first time that production has risen in three months.
Manufacturing companies reduced their headcounts again in January. That said, the rate of job shedding was the weakest recorded in 15 months and only slight.

This post was published at Global Economic Analysis on Monday, February 02, 2015.

Big Three Contraction: Germany, France, Italy; Core Rots as Spain Improves; Eurozone Recession Coming Up

The manufacturing PMI for each of Europe’s top three countries is in decline. Recession will follow.
Germany
The Markit/BME Germany Manufacturing PMI – Final Data shows PMI at 17-month low, in contraction.
Summary: The seasonally adjusted final Markit/BME Germany Manufacturing Purchasing Managers’ Index PMI fell from 51.4 in October to a 17-month low of 49.5 in November, signalling contraction in Germany’s goods- producing sector. The headline PMI is now seven points lower than at the beginning of the year and remained below its long-run average of 51.9. The headline index reading followed an earlier ‘flash’ estimate of 50.0.
Comment: Oliver Kolodseike, economist at Markit and author of the report said “German manufacturers continued to record growth of production in November, but this expansion seems to be based on increasingly shaky foundations. In particular, output expanded despite lower backlogs, falling stocks of finished goods and the sharpest drop in new orders for almost two years.”

This post was published at Global Economic Analysis on Monday, December 01, 2014.