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China Credit Creation Craters, Sparking Speculation Of A Growth, Stock Bounce

China Credit Creation Craters, Sparking Speculation Of A Growth, Stock Bounce

While we wait for China’s economic data dump due Monday, when…

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China Credit Creation Craters, Sparking Speculation Of A Growth, Stock Bounce

While we wait for China's economic data dump due Monday, when industrial production and retail sales are expected to crater to deep negative territory as a result of the ongoing covid lockdowns, this morning we got a harsh reminder just how hard the world's 2nd biggest economy has been hit when Beijing reported that April total social financing and RMB loans came in much below market expectations, even as M2 growth accelerated and was above market expectations on the back of the RRR cut and more expansionary fiscal policy stance.

Here are the details:

  • New CNY loans: RMB 645.4 bn in April, badly missing consensus of RMB 1520bn. Outstanding CNY loan growth: 10.9% yoy in April vs March 11.4% yoy; Overall CNY loans growth decelerated materially and grew 6.6% mom annualized sa from 18.1% in March.
  • Total social financing RMB 910bn in April, badly missing consensus growth of RMB 2200bn; Total social financing (TSF) was well below expectations after a strong acceleration in March. The sequential growth of TSF stock decelerated to 3.9% mom annualized in April, the slowest sequential growth in the past decade.
  • TSF stock growth was 10.2% yoy in April, slower than the 10.6% in March. The implied month-on-month growth of TSF stock decelerated to 3.9% from 14.4% in March.
  • M2: 10.5% yoy in April vs. above consensus of 9.9% yoy. March: 9.7% yoy; M2 year-on-year growth accelerated on the other hand to 10.5% yoy in April, vs 9.7% in March, and expanded by 13.8% in month-over-month annualized terms, vs 24.4% in March.

Among major TSF components, shadow banking credit continued to contract in April at a much faster pace compared with March. Trust, entrusted loans and undiscounted bankers’ acceptance bills fell RMB275bn in April, vs the RMB113bn contraction in March. Based on loans to different sectors, weakness in loan growth was broad-based, with the only exception being bill financing. Corporate mid-to-long term loan growth was 6% vs 22.5% mom annualized in March. Corporate bill financing rose strongly by 102.4% mom annualized from 97.3% in March. On loans to households, total household loans declined by 1.7% month-over-month annualized, vs an expansion of 6.6% in March. PBOC changed their categorization of household loans and now focuses on usage of loans (housing related vs consumption related, for example), rather than by maturity. April data are thus not strictly comparable with March data. However, on a net basis, new mortgages were -61bn RMB in April, in comparison with household new medium to long term loans (which are mostly mortgages) of 492bn RMB in April 2021, or +374bn RMB in March 2022 (NSA basis). Government and corporate bond issuance also slowed in April.

According to Goldman, "the composition of RMB loans suggests corporate loan growth decelerated and household loans stock declined in April", which is painfully obvious of course. The question is why, and according to the PBOC, credit demand tumbled due to the Covid resurgence which was cited as one main reason behind the weak RMB loans and TSF data. Medium to long term loan growth was still much slower than short term loans (such as bill financing) growth, and loans to the real economy was also much lower than overall RMB new loans (which include lending between financial institutions). "These all implied very weak credit demand despite monetary policy easing", according to Goldman.

What does China's collapsing credit data means? Well, as Bloomberg's Simon White writes, liquidity and lending data in China looks to be forming a trough, which points to a bottom in growth and stocks. However, there are two important caveats:

  1. growth is likely to be lower than its previous trend as internal imbalances rise again; and
  2. any growth is vulnerable to a wage-price spiral if CPI takes off.

Echoing what we wrote above, White writes that on the surface, April lending data for China released today looked dismal, showing a Covid-driven slump for aggregate financing and new CNY loans, "but monthly numbers are noisy and impacted by seasonal effects. Looking at the 1-year aggregate sum’s change over the last year gives a more stable picture, and on this basis new CNY loans look to be bottoming."

Meanwhile, today’s announcement that China will build more Covid hospitals and increased testing suggests they are making the first steps towards “endemicity”, or living with Covid according to White. Moreover, the PBoC has recently introduced new relending programs and further loosened restrictions to aid beleaguered property developers. Lending going forward should thus begin to pick up steam, which points to growth soon turning up.

Still, the total figures mask the sharp decline in lending to the household sector, in a sign imbalances are worsening again. As the Bloomberg strategist explains, a key feature of China’s economy has been to repress the household sector to the benefit of the export-orientated corporate sector. The household sector is a net importer so inhibiting its demand widens the trade surplus. Further household repression has resulted in even larger trade surpluses through the pandemic, which China must foist upon the rest of the world.

Of course, the flipside of trade surpluses is capital outflow, and capital outflow from China has been depressing domestic credit (it will also soon prove a major tailwind to bitcoin once Chinese households with $35 trillion in deposits realize more devaluation is coming and scramble to park their capital offshore using the only possible mechanism available). Rising trade surpluses and falling FX reserves (some of which is due to the rising dollar and rising US yields) betray increasing capital leakage. In an economy with a managed exchange rate and capital controls, capital outflow leads to a destruction of domestic credit.

This is why the yuan has been allowed to weaken, as it lessens the fall in domestic credit from capital outflow. However, as White warns, it also adds to imbalances, and globally it requires a greater trade deficit in the US. These are bad for China’s and the US’s growth in the medium term.

Bottom line: growth in China should soon bottom, but rise at a slower pace than before. Nevertheless, all bets are off if food prices drive an acceleration in China’s CPI - the way they did in 2011 - risking a wage-price spiral, a significantly weaker yuan, and a rise in global trade protectionism.

Tyler Durden Fri, 05/13/2022 - 15:05

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Wendy’s has a new deal for daylight savings time haters

The Daylight Savings Time promotion slashes prices on breakfast.

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Daylight Savings Time, or the practice of advancing clocks an hour in the spring to maximize natural daylight, is a controversial practice because of the way it leaves many feeling off-sync and tired on the second Sunday in March when the change is made and one has one less hour to sleep in.

Despite annual "Abolish Daylight Savings Time" think pieces and online arguments that crop up with unwavering regularity, Daylight Savings in North America begins on March 10 this year.

Related: Coca-Cola has a new soda for Diet Coke fans

Tapping into some people's very vocal dislike of Daylight Savings Time, fast-food chain Wendy's  (WEN)  is launching a daylight savings promotion that is jokingly designed to make losing an hour of sleep less painful and encourage fans to order breakfast anyway.

Wendy's has recently made a big push to expand its breakfast menu.

Image source: Wendy's.

Promotion wants you to compensate for lost sleep with cheaper breakfast

As it is also meant to drive traffic to the Wendy's app, the promotion allows anyone who makes a purchase of $3 or more through the platform to get a free hot coffee, cold coffee or Frosty Cream Cold Brew.

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Available during the Wendy's breakfast hours of 6 a.m. and 10:30 a.m. (which, naturally, will feel even earlier due to Daylight Savings), the deal also allows customers to buy any of its breakfast sandwiches for $3. Items like the Sausage, Egg and Cheese Biscuit, Breakfast Baconator and Maple Bacon Chicken Croissant normally range in price between $4.50 and $7.

The choice of the latter is quite wide since, in the years following the pandemic, Wendy's has made a concerted effort to expand its breakfast menu with a range of new sandwiches with egg in them and sweet items such as the French Toast Sticks. The goal was both to stand out from competitors with a wider breakfast menu and increase traffic to its stores during early-morning hours.

Wendy's deal comes after controversy over 'dynamic pricing'

But last month, the chain known for the square shape of its burger patties ignited controversy after saying that it wanted to introduce "dynamic pricing" in which the cost of many of the items on its menu will vary depending on the time of day. In an earnings call, chief executive Kirk Tanner said that electronic billboards would allow restaurants to display various deals and promotions during slower times in the early morning and late at night.

Outcry was swift and Wendy's ended up walking back its plans with words that they were "misconstrued" as an intent to surge prices during its most popular periods.

While the company issued a statement saying that any changes were meant as "discounts and value offers" during quiet periods rather than raised prices during busy ones, the reputational damage was already done since many saw the clarification as another way to obfuscate its pricing model.

"We said these menuboards would give us more flexibility to change the display of featured items," Wendy's said in its statement. "This was misconstrued in some media reports as an intent to raise prices when demand is highest at our restaurants."

The Daylight Savings Time promotion, in turn, is also a way to demonstrate the kinds of deals Wendy's wants to promote in its stores without putting up full-sized advertising or posters for what is only relevant for a few days.

Related: Veteran fund manager picks favorite stocks for 2024

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Shipping company files surprise Chapter 7 bankruptcy, liquidation

While demand for trucking has increased, so have costs and competition, which have forced a number of players to close.

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The U.S. economy is built on trucks.

As a nation we have relatively limited train assets, and while in recent years planes have played an expanded role in moving goods, trucks still represent the backbone of how everything — food, gasoline, commodities, and pretty much anything else — moves around the country.

Related: Fast-food chain closes more stores after Chapter 11 bankruptcy

"Trucks moved 61.1% of the tonnage and 64.9% of the value of these shipments. The average shipment by truck was 63 miles compared to an average of 640 miles by rail," according to the U.S. Bureau of Transportation Statistics 2023 numbers.

But running a trucking company has been tricky because the largest players have economies of scale that smaller operators don't. That puts any trucking company that's not a massive player very sensitive to increases in gas prices or drops in freight rates.

And that in turn has led a number of trucking companies, including Yellow Freight, the third-largest less-than-truckload operator; J.J. & Sons Logistics, Meadow Lark, and Boateng Logistics, to close while freight brokerage Convoy shut down in October.

Aside from Convoy, none of these brands are household names. but with the demand for trucking increasing, every company that goes out of business puts more pressure on those that remain, which contributes to increased prices.

Demand for trucking has continued to increase.

Image source: Shutterstock

Another freight company closes and plans to liquidate

Not every bankruptcy filing explains why a company has gone out of business. In the trucking industry, multiple recent Chapter 7 bankruptcies have been tied to lawsuits that pushed otherwise successful companies into insolvency.

In the case of TBL Logistics, a Virginia-based national freight company, its Feb. 29 bankruptcy filing in U.S. Bankruptcy Court for the Western District of Virginia appears to be death by too much debt.

"In its filing, TBL Logistics listed its assets and liabilities as between $1 million and $10 million. The company stated that it has up to 49 creditors and maintains that no funds will be available for unsecured creditors once it pays administrative fees," Freightwaves reported.

The company's owners, Christopher and Melinda Bradner, did not respond to the website's request for comment.

Before it closed, TBL Logistics specialized in refrigerated and oversized loads. The company described its business on its website.

"TBL Logistics is a non-asset-based third-party logistics freight broker company providing reliable and efficient transportation solutions, management, and storage for businesses of all sizes. With our extensive network of carriers and industry expertise, we streamline the shipping process, ensuring your goods reach their destination safely and on time."

The world has a truck-driver shortage

The covid pandemic forced companies to consider their supply chain in ways they never had to before. Increased demand showed the weakness in the trucking industry and drew attention to how difficult life for truck drivers can be.

That was an issue HBO's John Oliver highlighted on his "Last Week Tonight" show in October 2022. In the episode, the host suggested that the U.S. would basically start to starve if the trucking industry shut down for three days.

"Sorry, three days, every produce department in America would go from a fully stocked market to an all-you-can-eat raccoon buffet," he said. "So it’s no wonder trucking’s a huge industry, with more than 3.5 million people in America working as drivers, from port truckers who bring goods off ships to railyards and warehouses, to long-haul truckers who move them across the country, to 'last-mile' drivers, who take care of local delivery." 

The show highlighted how many truck drivers face low pay, difficult working conditions and, in many cases, crushing debt.

"Hundreds of thousands of people become truck drivers every year. But hundreds of thousands also quit. Job turnover for truckers averages over 100%, and at some companies it’s as high as 300%, meaning they’re hiring three people for a single job over the course of a year. And when a field this important has a level of job satisfaction that low, it sure seems like there’s a huge problem," Oliver shared.

The truck-driver shortage is not just a U.S. problem; it's a global issue, according to IRU.org.

"IRU’s 2023 driver shortage report has found that over three million truck driver jobs are unfilled, or 7% of total positions, in 36 countries studied," the global transportation trade association reported. 

"With the huge gap between young and old drivers growing, it will get much worse over the next five years without significant action."

Related: Veteran fund manager picks favorite stocks for 2024

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International

United Airlines adds new flights to faraway destinations

The airline said that it has been working hard to "find hidden gem destinations."

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Since countries started opening up after the pandemic in 2021 and 2022, airlines have been seeing demand soar not just for major global cities and popular routes but also for farther-away destinations.

Numerous reports, including a recent TripAdvisor survey of trending destinations, showed that there has been a rise in U.S. traveler interest in Asian countries such as Japan, South Korea and Vietnam as well as growing tourism traction in off-the-beaten-path European countries such as Slovenia, Estonia and Montenegro.

Related: 'No more flying for you': Travel agency sounds alarm over risk of 'carbon passports'

As a result, airlines have been looking at their networks to include more faraway destinations as well as smaller cities that are growing increasingly popular with tourists and may not be served by their competitors.

The Philippines has been popular among tourists in recent years.

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United brings back more routes, says it is committed to 'finding hidden gems'

This week, United Airlines  (UAL)  announced that it will be launching a new route from Newark Liberty International Airport (EWR) to Morocco's Marrakesh. While it is only the country's fourth-largest city, Marrakesh is a particularly popular place for tourists to seek out the sights and experiences that many associate with the country — colorful souks, gardens with ornate architecture and mosques from the Moorish period.

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"We have consistently been ahead of the curve in finding hidden gem destinations for our customers to explore and remain committed to providing the most unique slate of travel options for their adventures abroad," United's SVP of Global Network Planning Patrick Quayle, said in a press statement.

The new route will launch on Oct. 24 and take place three times a week on a Boeing 767-300ER  (BA)  plane that is equipped with 46 Polaris business class and 22 Premium Plus seats. The plane choice was a way to reach a luxury customer customer looking to start their holiday in Marrakesh in the plane.

Along with the new Morocco route, United is also launching a flight between Houston (IAH) and Colombia's Medellín on Oct. 27 as well as a route between Tokyo and Cebu in the Philippines on July 31 — the latter is known as a "fifth freedom" flight in which the airline flies to the larger hub from the mainland U.S. and then goes on to smaller Asian city popular with tourists after some travelers get off (and others get on) in Tokyo.

United's network expansion includes new 'fifth freedom' flight

In the fall of 2023, United became the first U.S. airline to fly to the Philippines with a new Manila-San Francisco flight. It has expanded its service to Asia from different U.S. cities earlier last year. Cebu has been on its radar amid growing tourist interest in the region known for marine parks, rainforests and Spanish-style architecture.

With the summer coming up, United also announced that it plans to run its current flights to Hong Kong, Seoul, and Portugal's Porto more frequently at different points of the week and reach four weekly flights between Los Angeles and Shanghai by August 29.

"This is your normal, exciting network planning team back in action," Quayle told travel website The Points Guy of the airline's plans for the new routes.

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