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While Fed Mulls Tapering, China Prepares To Cut Rates As Economy Stalls

While Fed Mulls Tapering, China Prepares To Cut Rates As Economy Stalls

With the Fed debating whether to keep talking about tapering or finally do something about it – even if that something means injecting another trillion of liquidity into.

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3 years ago

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While Fed Mulls Tapering, China Prepares To Cut Rates As Economy Stalls

With the Fed debating whether to keep talking about tapering or finally do something about it - even if that something means injecting another trillion of liquidity into the economy by the end of 2022 while nipping and tucking $10 billion per month here and there - China is starting to move in the other direction. 

With China's economy rapidly cooling, as the latest sharp drop the Caixin Services PMI demonstrated, after badly missing consensus expectations and poised on the edge of contraction...

... a move which was predicted here months ago when we discussed the collapse in China's all important credit impulse...

... it is not just traders that are speculating that China's next move may be a rate cut - Beijing itself is starting to make loud noises.

Pouring gasoline into the debate whether Chinese and U.S. monetary policy will diverge further, overnight a former central bank official said that China should guide market interest rates lower to support economic growth and ease funding pressure on local governments.

Reasonable rate cuts also would help create space for the PBOC to tighten policy if needed in the future, in order to cope with an expected weakening in the yuan, Sheng Songcheng, former head of statistics at the PBOC, said in a column published late on Tuesday on Sina Finance, a financial news outlet according to Reuters

"It’s necessary to keep liquidity reasonable and sufficient, and guide the rational and moderate decrease of market interest rates," Sheng said, adding that economic growth is likely to slow to 5-6% in the second half of the year, from an expected pace of around 8% in April-June.

Cutting rate is not just to counteract the coming economic slowdown, it's also to give China more space to hike when the need arises. According to Sheng, policy tightening in the future will help ease depreciation pressure on the yuan caused by rising capital outflows from China once the U.S. Federal Reserve starts to tighten policy from emergency pandemic levels, Sheng said.

Unlike the Fed, which surprised investors last month by signalling it could start raising interest rates in 2023 or even next year, earlier than expected, Chinese officials have pledged to make no sharp policy u-turns and markets expect key rates will be kept unchanged through at least this year. And while a Chinese central bank official said in April that policy changes by the Fed will have a limited impact on China’s financial markets, Beijing appears to be getting increasingly concerned about a world in which the US is hiking while China's economy is too weak to follow.

Sure enough, shortly after Sheng's comments, in the weekly State Council meeting on Wednesday, China's Premier Li announced a few measures to "increase support to the real economy", including "using RRR cuts to support the real economy” and a few other policy measures aiming at increasing income and improving social security support to vulnerable groups of the labor market. Here are key quotes from the meeting:

  • In response to the impact on business operations from the fast increase of commodity prices, and under the broad guideline of "avoiding flooding the economy with liquidity", policymakers would use monetary policy tools such as RRR cuts to increase support to the real economy and in particular small to medium-sized companies;
  • The statement highlighted the need to push enterprises to pay wages "timely and in full amount", and to increase social security support to "flexible employment" such as employment in the delivery industry.
  • For migrant workers, the statement also highlighted the need to enhance support for their health care needs, such as "further improving basic medical insurance settlement of medical expenses incurred by the insured away from home".

As Goldman's Maggie Wei writes, in past experiences, PBOC would usually, but not always, follow up with actual RRR cuts after the mention by the State Council on "using RRR cuts" to support the economy. For example, PBOC cut RRR within one to two weeks after the State Council meeting's hints in 2019 to early 2020, though the exception was in Jun 2020 when PBOC stayed put after the State Council meeting mentioned RRR cuts. That said, the absence of mentioning "using RRR cuts to support the economy" for the past year makes today’s mention notable and probably increases the chance of an actual implementation of the cut in our view. Incidentally, Goldman's baseline expectation is an RRR cut over the next few weeks.

Understandably, Chinese treasury futures rose sharply on Wednesday afternoon on Sheng’s comments (and ahead of the RRR commentary). 10-year bond futures surged by the most in over six months after a former central bank official made the case for a rate cut in the second half of the year to safeguard the nation’s recovery and deal with the Federal Reserve’s future tightening.

10-year bond futures rise as much as 0.42 to 98.72; biggest increase since Dec. 22, 2020, although still well below where China's bond futures traded for much of the post-covid period. At the same time, overnight repo rates rose as much as 16bps to 2.07%, the highest since June 30, 7-day repo rate rises 9bps to 2.12%

To be sure, not everyone is convinced that a rate cut is coming. Ting Lu, chief China economist at Nomura, told reporters on Wednesday that he expected the central bank to maintain a modest tightening stance, with no rate cuts or rises expected in the second half.

“China’s policy response towards the COVID-19 pandemic has been different from the past rounds of easing, and one key factor is the strength in exports so that policymakers did not need to resort to mass stimulus in property and infrastructure sectors,” he said.

Michelle Lam, chief China economist at Societe Generale said that "from the real economy’s perspective, I don’t think we are there yet to discuss rate cuts" adding that we “need to see much weaker data especially on the private-sector recovery.” In Lam's view, “the domestic economic situation should still be a primary focus for monetary policy.”

Lam also said that if China sees rising capital outflows they could reintroduce capital control measures as they did in the past; in fact the aggressive crackdown on crypto may be a hint of the coming rate cuts in China even as the rest of the world aggressively hikes to contain soaring prices.

As for how China - if indeed it does go ahead with a rate cut - it remains a mystery how or why Beijing is convinced that inflation will remain transitory and that a rate cut won't push prices even higher, sparking public unrest and anger.

Tyler Durden Wed, 07/07/2021 - 19:05

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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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39 mins ago

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March 8, 2024

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

The Daylight Savings Time promotion slashes prices on breakfast.

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March 8, 2024

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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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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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2 hours ago

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March 8, 2024

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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.

Shutterstock

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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