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Global Trade Case(s) Behind Global ‘Growth Scare’

The US Census Bureau today reported that US imports of goods and services reached a record monthly high of $290.7 billion in October 2021. Just goods alone, the figure was $241.1 billion, which was 11% greater than the previous peak set way back in Octobe

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The US Census Bureau today reported that US imports of goods and services reached a record monthly high of $290.7 billion in October 2021. Just goods alone, the figure was $241.1 billion, which was 11% greater than the previous peak set way back in October 2018. With (questionable) media accounts continuing to highlight West Coast port traffic, there may not otherwise seem any end in sight to the “inflationary” goods boom as consumer spend themselves to the moon.

The money illusion, however, is creating the impression of just this sort of trend. Fortunately, the Census Bureau also gives us a crude measure to specifically import (and export) volumes adjusting for prices. When doing so, October 2021 imports of goods were a price-adjusted 6% more than they had been in October 2018.

While that in itself is a big difference, more so is the one since March this year. Even in nominal terms, US demand for foreign goods has clearly slowed way down from the frenetic pace begun during last year’s reopening. It’s still rising (as is imports of services), yet all of it and more is attributable to “inflation”, or mere price changes.

And even in the best months, nominal inbound trade remains well off the prior trend.

In real terms, more or less, the Census Bureau believes the volume of goods has actually declined by 1.5% over these particular seven months when bond yields have fallen, curves have flattened, and deflationary signals proliferated long before either delta or omicron variants to the coronavirus.


Imports coming from the US’s largest trading partners are actually substantially less than they had been several years ago – indicating that much of what’s been shipped to America hasn’t been the usual traded stuff (not just missing autos). The manufacture of consumer goods, in particular, coming from China and Europe hasn’t matched the rhetoric surrounding either the goods boom or the “inflation” created by it.

Quite a lot of nominal trade, then, is the US import of high- and higher-priced raw materials rather than mainly due to booming consumer spending.

Supply constraints?

This volume difference, or money illusion, has been spotted all over the world. It has been more difficult to pick up in places like China, for all the usual reasons of questionable data, questionable data collection practices (discontinuities), and perhaps even a sprinkle of politics like those made by the particulars of this pandemic.

For instance, without factoring prices, there’s been a huge difference in data for what should be two sides of the same thing: US imports from China, as estimated by the Census Bureau; Chinese exports to the US, as estimated by its General Administration of Customs.

Yet, for most of this year – focused more so since March 2021 – the Chinese claim a whole lot more goods have been sent to the United States than the United States estimates has been received from China. Once upon a time, the data had largely matched, and when it may not have the discrepancy was nowhere near this huge.



There are any number of potential reasons for this, though only one, to my view, seems plausibly able to satisfactorily explain what is a mostly post-COVID divergence: the ongoing “trade wars” leading Chinese shippers to reroute goods through intermediary countries to avoid certain tariffs; lags in shipping times that have gotten lag-gier with purported US port difficulties; or, perhaps pricing differences on the most basic level.

It’s the last one that potentially includes at least a little bit of history; the Chinese practice of over-invoicing goods (having used Hong Kong as the staging point for this accounting fiction) so as to import more US$s for “exported” goods on the back end outside the scrutiny of financial authorities.

This would certainly fit given the dollar shortage which has been plaguing China all year, as the data makes plain, but especially February 2021 forward fitting the same timeframe.



In addition to what would be a very different kind of money illusion in terms of Chinese exports, there’s the same one applied to China’s imports from around the rest of the world (not the US; the Chinese buy very little of American products or services).

China’s GAC says imports into that country continue to rise at a seemingly decent rate, up a sizzling 31.7% year-over-year in October, yet much of that change is attributable to base effects first before even getting to possible price effects. The 2-year change (annual rate) was only 17.4%, which only sounds still-terrific outside of historical context.

Recent 2-year rates of change in China’s imports aren’t any different from 2018’s, which should already ring substantial alarm bells given how 2018’s import activity left the rest of the world facing a substantial shortfall (in trade) and downturn/recession long before COVID would plague China.

And, again, the money illusion in Chinese trade masks what in volume must be even less than 2018; not just rates of change, also absolute terms. Using the iron ore example I had presented last month, with iron prices collapsing since July the illusion is now far less misleading.


But if we’re really looking to confirm or deny the world’s developing “growth scare” from this global trade perspective, we don’t even need to adjust for prices to see how Chinese demand for more finished goods – like in the US – has tailed off dramatically only from there going back all the way to the end of last year.

China’s imports from Europe, Germany expressly, have declined by a sizable amount compared to last December, a downturn which amplified around, like a whole lot of things globally, July.

Even with nominal prices up as far as they have gone on traded items and goods, this data from China aligns only-too-well with “growth scare” as it would if the Chinese internal economy was at the forefront of growing weakness – prices included.


These import figures certainly corroborate the same trends coming from places like Germany which are global bellwethers largely for how closely tied German industry is with China’s internal demand situation (that never seems to match inflationary narratives in whichever time period).

Altogether, on the surface there appears to be, from an American perspective, an inflationary boom still booming. All the while, at the very least something changed after March and April in the US besides prices. More concerning, something more changed in that same wrong direction for China (therefore Europe and elsewhere) also entering summer.

Just how much has become more serious weakness is a matter for statistics and the nominal illusion. Even if we can’t accurately figure it, in one sense it doesn’t necessarily matter.

For an inflationary boom, a real one for the whole system, there shouldn’t be any ambiguity let alone so many clear cases of the wrong factors and outcomes. And that’s before observing outright, outstanding weakness in very clear-cut fashion from the one place on Earth the rest of Earth is counting on – and has been told to count on – to pull the global economy up the whole rest of the way from a mess now almost two years old.

There are goods flowing, as there always are, it’s these too many questions and outright contradictions which leave the world’s bond curve(s) too much to its deepening skepticism. There be landmines, alright. 

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Economics

AT&T down 10% despite topping estimates

AT&T (NYSE: T) has revealed that Q4 results indicated continued users for the HBO MAX, wireless and fiber segments. In addition, the company gained more postpaid phone users for the whole year than the last ten years adding one million fiber subscribe

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AT&T (NYSE: T) has revealed that Q4 results indicated continued users for the HBO MAX, wireless and fiber segments. In addition, the company gained more postpaid phone users for the whole year than the last ten years adding one million fiber subscribers. Similarly, the company beat its high-end outlook for international HBO Max and HBO users with almost 74 million subscribers as of December 31, 2021.

CEO John Stankey said:

We ended 2021 the way we started it – by growing our customer relationships, running our operations more effectively and efficiently, and sharpening our focus. Our momentum is strong and we’re confident there is more opportunity to continue to grow our customer base and drive costs from the business.

Q4 2021 revenue dropped 10% YoY

Consolidated revenue in Q4 2021 was $40.96 billion beating consensus estimates $40.68 but dropping 10% YoY, which reflects the impact of divested segments and low Business Wireline revenues. In the third quarter, the company divested US Videos, and in Q4, it divested Vrio. The drop was partially offset by high Warner Media revenues, recovery from pandemic impacts, and high Consumer Wireline and Mobility revenues. Stankey commented:

We’re at the dawn of a new age of connectivity. Our focus now is to be America’s best connectivity provider and also ensure our media assets are positioned to grow and truly become a global media distribution leader. Once we do this, we’ll unlock the true value of these businesses and provide a great opportunity for shareholders.

AT&T reported Q4 net income (loss) attributable to $5 billion or $0.69 per diluted shared share. On an adjusted basis, including merger-amortization fees, a share of DirecTV intangible amortization, gain on benefit plans, and related items, the company had an EPS of $0.78 topping consensus estimate of $0.76 per share.

AT&T had total revenue of $168.9 billion in 2021

AT&T’s consolidated revenues were $168.9 billion in 2021, compared to $171.8 billion a year ago, reflecting the split of the U.S Video division in Q3 2021, as well as the effects of other divested operations. However, higher revenues in WarnerMedia and Communications somewhat offset these declines.

For the full-year, net income (loss) attributable to commons shares was $19.9 billion or $2.76 p were per diluted share. On an adjusted basis, FY 2021 earnings per share were $3.4.

La notizia AT&T down 10% despite topping estimates era stato segnalata su Invezz.

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Economics

New home sales surge, while house price measures decelerate; expect deceleration or even downturns in each

  – by New Deal democratSince I didn’t post yesterday, let me catch up today with a note on both new home sales and prices.New home sales (blue in the graph below) for December rose sharply to 811,000 on an annualized basis. This is the higher monthly…

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 - by New Deal democrat

Since I didn’t post yesterday, let me catch up today with a note on both new home sales and prices.


New home sales (blue in the graph below) for December rose sharply to 811,000 on an annualized basis. This is the higher monthly number since March, and while it is well above the trend since the Great Recession, it is still well below its levels from late 2020:


The red line is inventory. When it comes to new homes, inventory lags not only sales but also prices, so it is not surprising that inventory has increased sharply to a 10 year+ high.

While new home sales are the most leading of all housing metrics, they are very noisy and heavily revised. So in the below graph I compare them with single family permits (red), which have also increased in the last few months, but also are not at 2020 levels:


Because mortgage rates have increased significantly in the past several months, I do not expect this surge in new home buying to last much longer.

Sales lead prices, and for most of 2021 sales were down. So it should not be a surprise that on a YoY basis, price increases are at last abating, shown both monthly (blue) and quarterly (black) in the graph below:


In December, prices were only up 3.4% from one year prior. Since the data is noisy on a monthly basis, the quarterly number, still high at just under 15%, but well below the sharp gains earlier in the year, is more telling.

The deceleration in YoY price gains, which nevertheless are still very high, was also the story yesterday in both the Case Shiller and FHFA house price indexes (light and dark blue in the graph below, /2 for scale). Also shown are the YoY% gains in rent of primary residence and owner’s equivalent rent (how the CPI measures housing inflation)(light and dark red):


My purpose in the above graph is to show that both house price indexes track one another closely, as do both “official” measures of housing inflation. Additionally, as I’ve previously pointed out, house price increases tend to bleed over into the official inflation measures with about a 12 to 18 month lag. Thus on a YoY basis price increases bottomed in 2019, but did not bottom in the official measures of rent until the beginning of 2021. Since the YoY% increase in house prices peaked in mid year 2021, we can expect the “official” CPI housing measure to continue to increase on a YoY basis through roughly late 2022.

This doesn’t necessarily mean that the *total* inflation measure will continue to increase throughout this year. Below I again show the YoY% change in owners’ equivalent rent as above, but also the total inflation index (gold). Most importantly, note that sometimes they track in tandem, but also that generally during the entire house price boom, bubble, and bust from 1995 to 2015 they tended to move in opposite directions:


Why did this happen? Sometimes, as during 1995-2015, home ownership and apartment renting are alternative goods. When more people decide to leave apartments and move into houses, house prices increase while rents flatten. This is generally what happened during the boom and bubble. Then during the bust people were forced to abandon houses and move back into apartments. This is shown in the below graph of homeownership:


Note the huge upward surge until the housing bubble popped, followed by the equally sharp deflation.

Finally, let’s factor in interest rates set by the Fed, shown in black below:


As CPI increases, the Fed typically increases interest rates. By the time the fully effect in owners’ equivalent rent is felt, Fed rate hikes have typically cooled the economy, meaning that the remaining majority of the overall consumer inflation index declines.

Bringing our discussion back to the present, we see that total inflation has been rising sharply since just after the pandemic hit. Owners’ equivalent rent started to rise about 9 months ago. Part of the delay was the big increase in the homeownership rate during that time, driving rents and house prices in opposite directions. The consensus is that the Fed will raise rates several times this year, perhaps starting as early as this spring. If they indeed do so, they will probably continue to embark on hiking rates until the economy slows or even reverses, enough so that price increases - other than rents - decelerate considerably. But while rent measures will continue to accelerate this year, house price increases themselves are likely to continue to decelerate, or even stall in the months ahead.

 

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Loonie Slides After Bank Of Canada Keeps Rate Unchanged, Says “Economic Slack Now Absorbed”

Loonie Slides After Bank Of Canada Keeps Rate Unchanged, Says "Economic Slack Now Absorbed"

For once, the majority of forecasters was correct, and moments ago the Bank of Canada kept rates unchanged at 0.25, in line with that 24 of 31 analyst

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Loonie Slides After Bank Of Canada Keeps Rate Unchanged, Says "Economic Slack Now Absorbed"

For once, the majority of forecasters was correct, and moments ago the Bank of Canada kept rates unchanged at 0.25, in line with that 24 of 31 analysts expected. The bank also said that while it is keeping holdings on its balance sheet constant, once it begins rising interest rates, it "will consider exiting the reinvestment phase and reducing the size of its balance sheet by allowing roll-off of maturing Government of Canada bonds."

In its statement, the Bank of Canada said that with overall economic slack now absorbed, "the Bank has removed its exceptional forward guidance on its policy interest rate" but the Bank is continuing its reinvestment phase, keeping its overall holdings of Government of Canada bonds roughly constant

Looking ahead, the Governing Council expects interest rates will need to increase, with the timing and pace of those increases guided by the Bank’s commitment to achieving the 2% inflation target.

Some more from the BoC:

The global recovery from the COVID-19 pandemic is strong but uneven. The US economy is growing robustly while growth in some other regions appears more moderate, especially in China due to current weakness in its property sector. Strong global demand for goods combined with supply bottlenecks that hinder production and transportation are pushing up inflation in most regions. As well, oil prices have rebounded to well above pre-pandemic levels following a decline at the onset of the Omicron variant of COVID-19. Financial conditions remain broadly accommodative but have tightened with growing expectations that monetary policy will normalize sooner than was anticipated, and with rising geopolitical tensions. Overall, the Bank projects global GDP growth to moderate from 6¾ % in 2021 to about 3½ % in 2022 and 2023.

On inflation, the BoC said that "CPI inflation remains well above the target range and core measures of inflation have edged up since October. Persistent supply constraints are feeding through to a broader range of goods prices and, combined with higher food and energy prices, are expected to keep CPI inflation close to 5% in the first half of 2022. As supply shortages diminish, inflation is expected to decline reasonably quickly to about 3% by the end of this year and then gradually ease towards the target over the projection period. Near-term inflation expectations have moved up, but longer-run expectations remain anchored on the 2% target. The Bank will use its monetary policy tools to ensure that higher near-term inflation expectations do not become embedded in ongoing inflation."

The central bank also said that it will keep its holdings of Government of Canada bonds on its balance sheet roughly constant at least until it begins to raise the policy interest rate. At that time, the Governing Council will consider exiting the reinvestment phase and reducing the size of its balance sheet by allowing roll-off of maturing Government of Canada bonds.

A redline comparison of the BoC statement:

Commenting on the move, Bloomberg's Ven Ram writes that this is a lot more dovish outcome from the Bank of Canada than one might have imagined. Not only did the central bank hold its rate, but it didn’t paint itself into a corner on when it may push the button: “Looking ahead, the Governing Council expects interest rates will need to increase, with the timing and pace of those increases guided by the Bank’s commitment to achieving the 2% inflation target.”

Add to that this guidance on balance-sheet runoff: “The Bank will keep its holdings of Government of Canada bonds on its balance sheet roughly constant at least until it begins to raise the policy interest rate. At that time, the Governing Council will consider exiting the reinvestment phase and reducing the size of its balance sheet by allowing roll-off of maturing Government of Canada bonds.”

Net-net this isn’t screaming, “Buy the loonie” and sure enough, in immediate reaction, the canada 2Y yields declined and the loonie weakened, dropping from 1.2560 before the BOC to 1.2640 before paring some of the losses, amid some trader disappointment that the bank did not hike.

* * * Earlier:

In what may be a teaser of what to expect from the Fed later today, the Bank of Canada rate decision is due at 10:00am EST followed by Governor Macklem press conference at 11:00am EST. While the bank is expected to leave rates unchanged, there is the risk of a surprise rate hike. Indeed, about a quarter, or 7/31 analysts, surveyed by Reuters expect a hike. If left unchanged, attention turns to guidance.

Below is a recap of what to expect from the BOC courtesy of Newsquawk

SUMMARY:

  • The Bank of Canada is expected to leave rates unchanged at 0.25% although there is the risk for a hike with 7/31 surveyed analysts expecting a 25bp hike to 0.50% at the January meeting, ahead of the current BoC guidance for the middle quarters of 2022.
  • If the rate is left unchanged, attention turns to guidance to see whether this is bought forward to the end of Q1 (ie March).
  • Market pricing looks for rates to be left unchanged, although this has unwound heavily from last week which saw up to a 90% chance of a 25bp hike in January after the BoC survey and CPI data.
  • The MPR will also be released, analysts at TD securities see 2022 growth being revised lower, while inflation is expected to be revised 0.1% higher for 2022 but revised down by 0.1% in 2023.

LIFT-OFF: The latest Reuters survey saw analysts generally believe the BoC will leave rates unchanged in January, although 7 of 31 surveyed expect a hike will occur. Therefore, the expectation for January is for rates to be left unchanged, although the risk of a hike is there. If the rate is left unchanged, attention will turn to its forward guidance, which currently looks for lift-off “sometime in the middle quarters of 2022”. If it is bought forward to the end of Q1, it will signal a March lift-off is coming. Analysts are currently split on whether the BoC will hike in March with 16/31 calling for rates to be left unchanged again, while the other 15 expect it will rise to 0.50% or more, however, all analysts noted the risk to the pace of rate hikes this year is that they come faster than expected. The median forecast is for the BoC to raise rates to 0.75% by the end of Q2 2022.

SURVEYS: The Business Outlook Survey sounded the alarm on inflation with 67% of firms expecting inflation to be above 3% over the next two years, although most predict it will return to target within one to three years. It also noted that demand and supply bottlenecks are expected to keep upward pressure on prices over the year ahead. However, the overall survey saw a continued improvement in business sentiment to see the indicator hit a record high, although it was held back by labour shortages and supply chain issues. Note, the Canadian labour market is back at pre-pandemic levels and has been for a while. A separate BoC survey showed consumer inflation expectations hitting a record high of 4.89% over the next year, noting most people are more concerned about inflation post-COVID than before, where consumers believe it is more difficult to control. Analysts at ING highlight that the latest survey saw respondents note they expect supply disruptions through H2 this year and that labour shortages are constraining output. ING write “where the economic outlook is robust, the jobs market is red hot and inflation is at generational highs, we see little reason for the BoC to delay tightening monetary policy.” Meanwhile, ING adds that Ontario has announced a three-step plan to allow a full reopening from COVID restrictions from the end of January “which should be the final green light for the central bank to hike rates 25bps”.

INFLATION: The latest CPI report saw the headline M/M and Y/Y metrics in line with expectations, although the core Y /Y measure saw a sharp rise to 4.0%, while the BoC eyed measures rose to 2.93% from 2.73%. Analysts at RBC, who expect the Bank to leave rates unchanged at this meeting, say “Inflation trends have evolved largely in line with the BoC’ s forecasts from the October Monetary Policy Report (4.8% vs actual 4.7% for Q4)”. However, this still shows price growth above the 2% target rate and RBC’s own tracking suggests not all that pressure can be explained by pandemicrelated distortions. As such, RBC expects rates to rise soon and believe the BoC will use this meeting to signal the start of lift-off.

MPR: The MPR will also be released, analysts at TD securities see 2022 growth being revised lower, while inflation is expected to be revised higher for 2022, before being revised marginally lower in 2023. In October, the MPR saw 2021 growth at 5.1%, 2022 at 4.3%, and 2023 at 3.7%. CPI was seen at 3.4% for 2021, while 2022 is expected to be revised higher to 3.5% (prev. 3.4%), and 2023 CPI is expected to be revised down to 2.2% from 2.3%. In the October MPR, the output gap was estimated at about -2.25% to -1.25% and is expected to close sometime in the middle quarters of 2022

Tyler Durden Wed, 01/26/2022 - 10:10

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