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Stocks Spooked To Session Lows By Unexpectedly Strong PMIs

Stocks Spooked To Session Lows By Unexpectedly Strong PMIs

After last month’s shocking PMI print which saw the Service component crater to…

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Stocks Spooked To Session Lows By Unexpectedly Strong PMIs

After last month's shocking PMI print which saw the Service component crater to post Covid crash low of 43.7, and paradoxically spark the last burst higher of the bear market rally as it suggested a recession is now inevitable, moments ago we got more bad news from S&P Global (which took over the compilation of US PMI data from Markit), when it reported that both the manufacturing and service PMIs rebounded from last month's post-covid lows, and in fact both beat expectations, to wit:

  • Manufacturing PMI 51.8, Exp. 51.0, Last 51.5
  • Service PMI 49.2, Exp. 45.5, Last 43.7

The Composite PMI rose to 49.3 in September, up from 44.6 in August, solidly beating expectations of 465.1, and signaled a softer and only marginal decline in private sector business activity. The decrease was also the slowest in the current three-month sequence of contraction.

As S&P Global notes, "contractions in activity across the manufacturing and service sectors eased", and the "overall decrease was only marginal and signalled a notably slower rate of decline compared to that seen in August." Although manufacturers continued to register a slight fall in production, service providers signalled a much slower pace of decline in output.

But the worst news, in this world where good news is bad news, is that private sector employment rose further in September, with the moderate upturn in workforce numbers reflecting expansions in manufacturing and service sector staffing levels: "The rate of job creation at goods producers was the sharpest for six months amid greater success in hiring suitable candidates for vacancies."

Some more details:

  • New orders received by private sector firms returned to expansionary territory in September, with growth broad-based across the manufacturing and service sectors. The upturn was only mild, despite being the quickest since May. Where an increase was noted, some firms linked this to the acquisition of new clients.
  • The rate of expansion was historically subdued, however, as a number of companies suggested that inflationary pressures continued to weigh on customer spending.
  • New export orders remained in contraction, with the rate of decrease the second-fastest since May 2020.
  • For the fourth month running, the rate of input cost inflation eased during September. The pace of increase was the slowest since the start of 2021, as manufacturers and service providers recorded slower upticks in operating expenses.
  • That said, cost burdens continued to rise at an historically elevated pace, with interest rate hikes and S&P Global Flash US PMI Composite Output Index material and wage increases driving inflation.
  • Reflecting softer rises in cost burdens, firms increased their selling prices at a slower pace at the end of the third quarter. That said, the moderation was led by service providers as manufacturers registered a sharper uptick in output charges in an effort to pass on higher costs to clients.
  • In line with a renewed rise in new orders, private sector firms signalled growth in backlogs of work during September. The increase was only marginal overall, but contrasted with a solid decline in August.
  • Manufacturers continued to note difficulties in working through orders due to transportation and supply chain disruption, with capacity constraints hampering service providers for the first time since May.
  • Employment across the private sector rose further in September, albeit at a softer pace than in August. The moderate upturn in workforce numbers reflected expansions in manufacturing and service sector staffing levels. The rate of job creation at goods producers was the sharpest for six months amid greater success in hiring suitable candidates for vacancies

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

“US businesses are reporting a third consecutive monthly fall in output during September, rounding off the weakest quarter for the economy since the global financial crisis if the pandemic lockdowns of early-2020 are excluded. However, while output declined in both manufacturing and services during September, in both cases the rate of contraction moderated compared to August, notably in services, with orders books returning to modest growth, allaying some concerns about the depth of the current
downturn.

“There was also better news on inflation, with supplier shortages easing to the lowest since October 2020, helping take some of the pressure off raw material prices. These improved supply chains, accompanied by the marked softening of demand since earlier in the year, helped cool overall the rate of inflation of both firms’ costs and average selling prices for goods and services to the lowest since early-2021.

What Williamson may not know when he says "better" is that the market interprets any marginal improvement as the worst possible outcome, since it means the recession is not as strong as expected and the all important massive job losses - which are a critical condition for the Fed to stop hiking - are still not here. It's also why futures tumbled to fresh session lows after the report.

Tyler Durden Fri, 09/23/2022 - 10:12

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International

Beyond Bankruptcy: Essential retailers face huge store closures

One key type of store has been hit much harder than other retailers and that’s bad news for a lot of communities.

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October 15, 2023

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While bankruptcy has caused a number of popular chains to close their doors, it's hard to call any of those companies "essential" retailers. 

People liked shopping at Christmas Tree Shops, Tuesday Morning and Bed Bath & Beyond, but none of those chains sold items that people either needed or couldn't easily get elsewhere.

The same can be said of two chains that managed to use a Chapter 11 bankruptcy to reorganize and survive: Party City and David's Bridal. Many brides would have been devastated by not getting the wedding dresses they ordered, but that's not a life-and-death situation (even if it seems like one in the moment).

Related: Popular food brand files Chapter 7 bankruptcy, heads to liquidation

Many retailers have struggled because they sell things people want but don't need at a time where many people are tightening their budgets. 

Furniture retailer Wayfair, for example, has appeared on some default/bankruptcy watch lists. That's partly because people want to see most furniture up close and touch it before buying it, but also because American consumers have become cautious about making larger purchases.    

In addition, struggles, store closures and bankruptcy risk are not limited to these types of retailers. Essential chains that are often part of their fabric of their neighborhoods have struggled as well.

Rite Aid operates many of its stores in cities.

Image source: Shutterstock

Pharmacy chains are closing a lot of stores

Rite Aid  (RAD) - Get Free Report, a struggling retailer that has considered filing for Chapter 11 and closing about 500 of its 2,100 stores, can be considered an essential retailer. And while the chain plans to reorganize and keep the bulk of its stores open, it has $3.3 billion in debt, so there's no guarantee that it'll survive long term.   

But while Rite Aid may be the only pharmacy chain facing bankruptcy, the retail industry more broadly is seeing a number of chains planning to close some stores. CVS Health (CVS) - Get Free Report, the pharmacy-market leader by most standards, has been closing 300 stores a year since 2021.

"The company has been evaluating changes in population, consumer buying patterns and future health needs to ensure it has the right kinds of stores in the right locations for consumers and for the business," the company said when the plan kicked off.

Walgreens,  (WBA) - Get Free Report CVS's largest rival, also has plans to close stores, as many as 450 of them in the U.S. and the U.K., it said during its third-quarter-earnings call in June. 

In addition, Walmart (WMT) - Get Free Report has cut the hours at 4,600 of its pharmacy location by two hours a day. The company has denied reports that those cuts came with asking pharmacists to take pay cuts. 

Demand for pharmacies remains high

While roughly 1,500 pharmacies have closed in the U.S. and the entire Rite Aid chain faces at least some risk, demand for pharmacy services has not decreased. Some of that demand, however, has moved online, which has contributed to why chains are closing marginal stores.

"The challenges facing drugstore operators are serious and the closures reported by the large chain drugstores are significant," Mark Ryski, a prominent retail author and chief executive of the Alberta consultancy HeadCount, recently told RetailWire. "However, the demand for pharmaceuticals is and will remain high, in part driven by an aging population who will require more, not less, health services." 

 A number of commenters proposed an answer to markets that are losing access to the big chains.

"There remains one group — the 20,000+ independent pharmacy operators — who have repeatedly proven their resilience," wrote Dave Wendland, a member of senior management at the HRG consultancy. They are "[dedicated] to patient care and accessibility with an unwavering focus on health." 

Ryski echoed that sentiment.

"Online pharmacies, independent pharmacies, grocery retailers and other players will find a business model that works. I believe that independent pharmacies are especially well suited to fill pockets left in the market," he added. 

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International

Tesla Japanese rivals debut concept vehicles in latest challenge

Japanese automakers will unveil their latest all-electric concept vehicles at Japan Mobility Show 2023 in Tokyo.

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October 15, 2023

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Most Japanese automakers have been slow to enter the all-electric vehicle market, which doesn't bother Tesla's CEO Elon Musk one bit. The lack of a serious challenge by the Japanese auto industry, including in the luxury market, has allowed Tesla  (TSLA) - Get Free Report to dominate deliveries in the global market by hundreds of thousands of vehicles.

Toyota currently only offers one all-electric vehicle, the bZ4X, which retails for about $42,000 and has a 252-mile range. The company's luxury affiliate Lexus does not have an EV on the market yet.

Related: Mounting financial woes force rival of Tesla and BYD into bankruptcy

Subaru's only contribution to the EV industry is the Solterra SUV, which retails for about $45,000 and has a 220-mile range.

Nissan, on the other hand, was an innovator in the EV industry with its launch of the Leaf in 2010. The vehicle was the first mass-produced electric vehicle in the world and the top selling EV on the market in its first four years. However, the company's luxury brand Infiniti may not have an EV on the market until 2026.  

Some of the leading Japanese luxury automakers, led by Nissan's Infiniti, Toyota's Lexus and Subaru, will reveal their latest battery electric vehicle concepts at the Japan Mobility Show 2023 in Tokyo beginning Oct. 24. The show will be open to the general public from Oct. 28 through Nov. 5 after a couple of press and special invitation days.

Subaru Sport Mobility Concept sportscar model.

Subaru

Subaru reveals electric sportscar concept

Subaru  (FUJHY) - Get Free Report said it will showcase the company's vision of future mobility and communicate its efforts to strengthen its bond with society, as company president Atsushi Osaki on Oct. 25 unveils the Subaru Sport Mobility Concept sportscar model at the show.

"This concept model expresses the enjoyment that Subaru offers in the age of electrification, embodying the pleasure of going anywhere, anytime, and driving at will in everyday to extraordinary environments. Driving with peace of mind allows us to embark on exciting new adventures. This is a battery electric vehicle (BEV) concept that evokes the evolution of the Subaru Sport values," the company said in an Oct. 10 statement.

Subaru's other all-electric showcase at the show will be its first all-electric vehicle, the Solterra ET-HS SUV.

Toyota  (TM) - Get Free Report also arrives at the show for an Oct. 25 unveiling of its Lexus lineup of battery electric vehicle concept models, as part of its goal to transform into an all-electric brand by 2035. Lexus is expected to debut a sports car that it has teased for a year, as well as a sports hatchback, Electrek reported.

After viewing the Lexus concept models, guests are invited to try out the company's "Lexus Electrified VR Experience" virtual reality driving simulators, the company said in an Oct. 11 statement. The exhibit will allow visitors to experience a future world of driving where electrification and artificial intelligence technologies help cater to individual customer needs and connect with society. Guests have the opportunity to fully engage in a VR-exclusive setting, enabling them to encounter the personalized driving experience and enhanced lifestyle that Lexus delivers.

Infiniti unveils its Vision Qe Concept vehicle. 

Nissan

Infiniti unveils its first electric vehicle 

Nissan's  (NSANY) - Get Free Report luxury brand Infiniti on Oct. 24 will debut its first all-electric model, a new concept Vision Qe electric vehicle at the Japan Mobility Show that it expects to be ready to sell to the public in 2026.  Infiniti will also showcase other new models at the show as well. 

The newly designed Infiniti EV sedan is expected to have a longer wheel base with shorter overhang, new headlight and taillight design, single light strip across the width and a rear resembling a Porsche. The company has said it plans to produce its first electric vehicle at its Canton, Miss., factory, along with a new crossover EV.

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Government

The Myth Of The Invincible Dollar

The Myth Of The Invincible Dollar

Authored by Michael Maharrey via SchiffGold.com,

I write a lot about the national debt.

And most people…

Published

2 hours ago

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October 15, 2023

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The Myth Of The Invincible Dollar

Authored by Michael Maharrey via SchiffGold.com,

I write a lot about the national debt.

And most people don’t care.

That’s because there’s a widespread belief that the dollar is invincible.

It isn’t...

The prevailing attitude is that the US government can borrow and spend indefinitely. After all, it hasn’t caused a problem so far. But a long fuse can burn for a long time before it finally reaches the powder keg.

I don’t know how long we have before the debt bomb explodes, but I do know we get closer and closer every day. And sadly, very few people care enough to address the problem.

The recent government shutdown drama is a case in point.

A stopgap spending deal swept the shutdown threat out of the headlines, but it’s still there lurking in the shadows of the halls of Congress. If lawmakers don’t figure something out by Nov. 17, the government will be forced to shut down.

There isn’t much talk about a shutdown right now, but when people do discuss the possibility, they almost always focus on the mythical crisis that shuttering the federal government might cause. That sidesteps the real problem — out of control government spending.

Conventional wisdom is that Congress needs to do whatever it takes to avoid a shutdown. If that means maintaining spending at current levels or even increasing spending, so be it. The handful of intransigent members of Congress who want to hold out for spending cuts are always cast as the bad guys in this kabuki theater.  As economist Daniel Lacalle put it in a recent article published by Mises Wire, “The narrative seems to be that governments and the public sector should never have to implement responsible budget decisions, and spending must continue indefinitely.”

But the whole government shutdown charade is merely the symptom of a much deeper problem. The US government is over $33 trillion in debt. In fact, the Biden administration managed to add half a trillion dollars to the debt in just 20 days.

It’s hard to overstate just how bad the US government’s fiscal situation has become. We have a trifecta of surging debt, massive deficits, and declining federal revenue, and the federal government’s spending addiction is at the root of the problem. Lacalle summed it up this way.

The problem in the United States is not the government shutdown but the irresponsible and reckless deficit spending that administrations continue to impose regardless of economic conditions.”

In August alone, the Biden administration spent over $527 billion. In fact, the federal government has been spending an average of half a trillion dollars every single month.

And there is no end in sight. There is no political will to substantially cut spending. Meanwhile, the federal government is always looking for new reasons to spend even more money. With war raging in the Middle East, there is already a proposal to send aid to Israel and possibly add more aid to Ukraine to that deal.

As Peter Schiff said in a recent podcast, the US can’t afford peace, much less war.

Lacalle summarizes the current fiscal condition of the United States government. It’s not a pretty picture.

In the Biden administration’s own projections, the accumulated deficit between 2023 and 2032 would be over 14 trillion US dollars, assuming that there would be no recession or employment decline. Public debt has risen above 33 trillion US dollars, and the budget deficit in a period of growth and strong job creation is over 1.7 trillion US dollars. As of August 2023, it costs $808 billion to maintain the debt, which is 15% of the total federal spending, according to the U.S. Treasury. Interest rates are rising at the same time as the government rejects all budget constraints. This is a monetary timebomb.”

And as Lacalle pointed out, the government keeps spending no matter what’s happening in the economy. According to government people and their academic support staff, there is never a good time to cut spending.

When the economy grows and there is almost full employment, governments announce more spending because it is ‘time to borrow,’ as Krugman wrote. When the economy is in recession, governments say that they need to spend even more to save the economy. In the process, government size in the economy increases, and record tax receipts are fully consumed in no time because expenditures always exceed revenues.”

The constant borrowing and spending is fueled by the myth that borrowing doesn’t really matter, and the rise in popularity of Modern Monetary Theory (MMT) put that myth on steroids.

MMTrs claim that spending doesn’t matter. As Lacalle notes, they even go as far as to claim that the world could “run out of dollars” if the federal government took significant steps to rein in deficit spending causing a “monetary meltdown.”

It is so ludicrous that it should not even have to be discussed. The world does not run out of dollars if the United States government cuts its imbalances. Global dollar liquidity is a result of central bank swaps between monetary institutions. There is no such thing as a global dollar liquidity crisis because of a United States surplus, as we saw when it happened in 2001. Furthermore, the idea that the dollar supply is created only by government deficit spending is insane. This distorted view of the economy places government debt at the center of growth instead of private investment. It tries to convince you that a deficit is always positive and that the only creation of currency must come from unproductive spending, not from productive investment credit growth. Obviously, it is wrong.”

But no matter how loudly contrarians sound the warning, people in the mainstream continue to shrug their shoulders at the mounting debt and ever-growing deficits. They seem to believe that since it hasn’t mattered yet, it won’t matter ever.

The dollar’s status as the global reserve currency enables the US government to get away with a lot. As Lacalle explains, global demand for dollars is still high. The dollar index (DXY) is rising because the monetary imbalances of other nations are larger than the United States’ challenges.

This has lulled Americans into a false sense of security. A lot of Americans, including most in positions of power, seem to think the US can do whatever it wants when it comes to borrowing and spending.

Lacalle makes a sobering point — “All empires believe that their currency will be eternally demanded, until it stops. ”

When confidence in the currency collapses, the impact is sudden and unsurmountable. Global citizens may start to accept other independent currencies or gold-backed securities, and the myth of eternal U.S. debt demand vanishes. Unfortunately, governments are always willing to push the limits of fiscal responsibility because another administration will face the problem. The United States’ rising debt and deficit irresponsibility means more taxes, less growth, and more inflation in the future. Government debt is not a gift of reserves for the private sector; it is a burden of economic problems for future generations. Sound money can only come from fiscal responsibility. Currently, we have none.”

The bottom line is the dollar is not invincible.

The fuse is burning.

Tyler Durden Sun, 10/15/2023 - 07:00

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