Slow Global Growth Here to Stay?

Slow global growth has been on the minds of many. Here's a chart. Despite all the monetary easing growth seems to be hard to find. Given that expect to hear more cries for fiscal stimulus since it's fairly obvious zero to negative zero rates hasn't done the job.

If we weren't before we're soon to be all Keynesian soon if certain folks get their way. Anybody smell stagflation?


advisorperspectives.com/commentaries/20160602-blackrock-the-narrowing-corridor-of-global-growth

Production Cut

Here's a chart you might find interesting, especially if you follow oil and are an investor.

 
US crude oil production looks set to slow sharply over the coming months, and that should keep prices well supported in the second half of the year.

That’s the view of Daniel Hynes, senior commodity strategist at ANZ Bank, who points to a reduced number of active drilling rigs, along with the prospect of heightened financial stress in the energy sector, as two factors suggesting output will fall “significantly”.

“Active or new drill rigs in the US have fallen from 1,600 to 316 (in May), the lowest level since September 2009,” says Hynes.

He believes that “this is only just being translated into a fall in US oil production”, adding “we believe the rate of falls in weekly US oil production is about to accelerate as the impact of the falling rig count will be compounded by forced closures and low prices biting.”
The chart above, supplied by Hynes, does nothing to undermine this view, demonstrating the lag effect US output has on changes in new and active drilling rigs in production.
 businessinsider.com/image/575114c952bcd023008c6ad9-680/us-crude-production-v-rig

Overnight

It's 20-60, that's what futures market is betting a rate hike will come either this month or in July as investors pushed Asian shares higher overnight awaiting news about U.S. job and wage warning numbers.

The Nikkei gained 0.2% cutting losses for the week to 1.5%,given the controversy over Abernomics and whether it's really working coupled with a postponed sales tax hike. The Shanghai Composite edged lower 0.2%  with it's expected to finish the week up 3.5%, the Hang Seng index rose a modest 0.3%, also expected to close out the week positive 1.7% and MSCI's broadest Asian-Pacific index outside Japan gained 0.4%. 

In other news, the WSJ reports that trade differences between the U.S. and China continue to flare as the yuan hits a five year low against the dollar.

The U.S. and China, facing mounting political pressures at home, are seeing economic tensions flare to their worst point in years over currency and trade practices.

China has pushed the yuan to a five-year low against the dollar, reviving charges from American firms of currency manipulation to gain a competitive advantage for Chinese goods. The Obama administration has fired off a series of trade complaints and levied duties on several Chinese industries, from chicken feet to cold-rolled steel used in appliances and auto parts.

Please Turn Off The Lights

It's over. That's the view of bond guru Bill Gross in his latest report. The last 40 years won't be repeated any time soon, according to the Sage of Newport Beach in this blurb from Business Insider from Gross' June newsletter.businessinsider.com/bill-gross-investment-outlook-june-2016-2016-6?

Bill Gross doesn't think the future will look like the past. 

In his latest investment outlook, published on Thursday morning, Gross wrote that he thinks the stellar returns experienced by both bond and stock investors over the last 40 years are an anomaly that will not be repeated. 

Gross looks at two simple charts — the Barclays US Aggregate bond index and the S&P 500 — and says the steady upward march in bond prices and the rockier but still rewarding upward climb in stock prices can't happen again.

Will someone on their way out please turn off the lights. This party's over. Where is the late Cowboys' QB when you need him.

Credibility At Stake

Whether the Fed will choose to ignore what has been a spate of if not all bad certainly mediocre at best news on the global economic front in making its next interest rate decision remains to be seen. Our guess is they've misplayed their hand and now feel compelled to hike rates sooner than later.

They have reached a damned if you do and damned it you don't point largely of their own making. Either way they will get a reaction, possibly a market selloff whatever they do since if they sit tight after all their recent jawboning it will fire further questions about indecisiveness and incompetence.

Their credibility despite the naysayers is increasingly at stake.

businessinsider.com/global-manufacturing-has-stalled-pmi-jp-morgan-markit-2016-6?

Activity levels across factories the world over stalled last month, according to the latest JP Morgan-Markit global manufacturing purchasing managers’ index (PMI) released on Wednesday.

The PMI came in at 50.0, down from 50.1 in April, continuing the underwhelming start to the year for the global manufacturing sector.

Like PMI readings for individual nations, the survey measures changes in activity levels from one month to the next, with a reading of 50 signaling that activity levels neither expanded nor contracted during any given month.

It takes in responses from over 10,000 firms from 30 individual nations, providing the closest thing to a comprehensive report card for the global manufacturing sector as one can get.

And based on the tepid reading for May, the news on that front is not good.

JP Morgan

Markit notes that levels of expansion slowed in the Eurozone and US, the latter at the slowest pace since October 2009, while activity levels in Asia and South America continued to contract.

“The two largest Asian manufacturing economies – China and Japan – both contracted in May. PMI readings indicated that rates of decline were the sharpest since February 2016 and January 2013 respectively,” said Markit.

“The Brazil PMI sank to its weakest level in over seven years, placing it at the bottom of the global rankings.”

Overnight

Hard times can produce hard comments and that's what at least one member of the Bank of Japan offered today, according the WSJ.

TOKYO—A Bank of Japan board member on Thursday issued stern warnings about Japan’s negative rate policy, underscoring tension within the central bank over Gov. Haruhiko Kuroda’s escalating monetary experiment to end deflation.

In comments that briefly kicked the yen higher, Takehiro Sato, one of the BOJ’s nine policy-setting board members, said negative rates aren’t producing their intended effects and could do the economy more harm than good, in a direct challenge to Mr. Kuroda’s positive messages.

The measure is also “contradictory” with the bank’s massive asset purchase program—its main policy instrument—so “their combination lacks sustainability,” Mr. Sato said in a northern Japanese town of Kushiro.

A former Morgan Stanley economist, Mr. Sato is a well-known critic of Mr. Kuroda’s “what-ever-it-takes” approach and is generally seen as having limited influence over policy. Mr. Sato opposed both an asset purchase increase in late 2014 and the launch of negative rates in January this year. He believes that the BOJ should go more slowly in trying to achieve its 2% inflation target partly because price growth which wasn't backed by wage increases wouldn’t be sustainable.

But Mr. Sato’s latest remarks were so critical that traders took note of them and drove up the yen on speculation that there would be no additional easing measures soon.

In the meantime, more investors and others seem to be questioning the effectiveness of Abernonics as his decision to delay a sales tax hike for two and a half years brings open criticism. The rally in the yen hurt the Nikkei as is faded more than 2% overnight after more weak economic data from surveys on global manufacturing.  The dollar fell to two-week low against the yen.

In other markets, the Shanghai Composite  was off 0.2%, the Hang Seng flat, the ASX 200 up 0.02% and  the Korean Kospi flat. Gold was up $2.40 trading at 1,217.22.

The Vote

With the Brexit voting date drawing closer, here's an interesting article voters in the UK might want to read.

Polls at best have been confusing, especially the accuracy between those taken online versus those taken on the telephone.

British citizens seeking yet another reason to vote Brexit, have one in spades. The roots of this reason go back to last year when European Commission president Jean Claude Juncker hatched a 3-year plan to leverage €20 billion in seed capital to produce a €300 billion gain in Eurozone investment.

As one might expected, the results are nonexistent even though Juncker has already used up the €20 billion in seed capital. Juncker now wants to up the seed capital, make the plan permanent, and extend the plan outside the EU to immigration zones such as Syria and Africa!

Has there been any deception by government officials on this important issue leading up ton? That is the question voters need to answer for themselves before they mark those ballots later this month.

Overnight

Blame it on oil, as some did. Asian shares softened in overnight trading as oil prices receded putting a touch of hesitancy in buying more risky assets. That mixed with some conflicting economic data in the U.S. along with a weaker dollar against the yen dampened some investor spirits.

The Nikkei was off  slightly as the yen strengthened ahead of what is expected to be a concession by Prime Minister Shinto Abe today on delaying what was to be a sales tax hike in an anemic economy. The move is not without consequences as some are calling his commitment to shore up the nation's deep debt problems and stimulating the economy into question.

Australian stocks also backed off while Shanghai shares remained flat despite yesterday's rally on news stocks could be added to a major emerging market index. An aside, and that seems how investors took the news, as an aside, was China's Purchasing Managers' Index, while up slightly for the third month in a row, suffered from weak orders. Reuters reported: "The official PMI was unchanged from April at 50.1 last month, barely above the 50-Mark that separates expansion in activity from contraction on a monthly basis."

The Hang Seng Index and South Korea’s Kospi were flat. The Nikkei Stock Average was down 0.6%, while Australia’s S&P/ASX 200 fell 1.3%. Brent crude oil was last down 0.6% at $49.61 a barrel after U.S. prices slipped below the $50-a-barrel threshold overnight.

Beware of MSM Hype

Here's just one of many MSM's hype the report attempts.

Despite glowing mainstream media reports on personal consumption expenditures and income, the Atlanta Fed GDPNow Model forecast for second quarter GDP did not budge.
Rate hike odds for June shrank substantially.

Latest forecast: 2.9 percent — May 31, 2016

 
 mishtalk.com/2016/05/31/gdpnow-flat-after-pce-report-rate-hike-odds-sink/

How We Doing?

So how's the economy doing? Well, it depends on whom you choose to believe. Here's a report from the state that produces more than 11% of U.S. manufacturing.

Texas manufacturers in May posted their weakest month of production in a year at the tail end of a spring season that previously showed some signs of optimism.

The production index, a key measure of state manufacturing conditions, fell from 5.8 all the way down to minus-13.1. An index below zero indicates a decline in activity, according to a monthly survey data from the Dallas Federal Reserve.

The state’s manufacturing sector has in part felt the ripple effects of the ongoing oil bust, although crude prices have begun to rebound since possibly bottoming out in February.

The index is calculated by the Dallas Fed after receiving survey responses from 111 Texas manufacturing firms. May represented the fifth straight month that both employee counts and work hours declined.

The price of oil could stabilize in the second half of the year, giving some reason for optimism, said one fabricated metal product manufacturing executive whose survey responses were highlighted. “However, rapidly escalating raw material (hot rolled coil steel) prices are very difficult to pass through to the end user, thus further compressing our gross margins,” the executive added.

Several respondents complained about business uncertainty during a crazy election season, as well as the Labor Department’s new rule to expand overtime protections to workers making less than $47,476 per year.he

A machinery manufacturing executive said, “Things are pretty bleak in the oil patch …  I’ve cut payroll, suspended 401(k) matches, etc. trying to hold on, but I’m not optimistic about the options moving forward.”

The survey’s “company outlook” and “general business activity” outlooks also are continuing to see further worsening conditions, according to the Dallas Fed. Those indices measure the perceptions of broader business conditions that are becoming increasingly pessimistic.

Texas produces more than 11 percent of the total manufactured goods in the U.S., behind only California. Many of those goods support the energy industry. The Dallas Fed conducts the Texas Manufacturing Outlook Survey each month.

 fuelfix.com/blog/2016/05/31/texas-manufacturers-post-weakest-month-in-a-year/