The world's 'economic canary in the coal mine' offers no reason for optimism

• Sam Ro
 
•   

• 3h
• 2,175
 
• 2

Thomson ReutersHanjin Shipping's container terminal at the Busan New Port in Busan.

There continues to be little doubt that the global economy is slowing.

South Korean exports — also referred to as the world's economic canary in the coal mine— fell 4.7% in November from a year earlier.

While this overall number wasn't as bad as the 9.0% plunge expected by economists, the economists argue that a truer picture can be seen in the details.

"On closer inspection, however, we see no reason for optimism," Barclays’ Wai Ho Leong and Angela Hsieh said.

Why they call it the 'canary in the coal mine'

Economists look to Korean exports because they are the world's imports. Major traded goods are as varied as automobiles, petrochemicals, and electronics such as PCs and mobile devices.

Furthermore, this report is the first monthly set of hard economic numbers — as opposed to soft-sentiment-based reports like purchasing managers surveys — from a major economy.

So Korean exports have the potential to be a warning sign. Similarly, miners were believed to bring cage canaries down into the mines with them to monitor for noxious gases. Should the levels of noxious gases like carbon monoxide rise, the canary would die, signaling to the miners that it was time to get out.

BarclaysShipping vessels are a massive component of exports. Even with the unusually large order in November, demand from abroad remains weak.

The underlying decline was closer to 8.9%

Among Korea's major industries is the manufacturing of shipping vessels, which accounted for a whopping $2.19 billion of the country's $44.4 billion worth of exported goods.

"The main lift [in exports] was a 133% year-on-year surge in vessel deliveries, which came in the last 10 days of November (vessel shipments in the first 20 days were at 29.5%)," Leong and Hsieh observed. "Excluding vessels, exports actually fell 8.9% m/m sa (October: -3.0%; Sep: +5.7%), a sign of deepening export compression."

BarclaysIt was all vessels.

Barclays attributed the gain in vessels to the delivery of deepwater floating oil and gas platforms, which they estimate to run about $1 billion to $4 billion per unit. They speculate the order could have been made by a company in Europe, where exports bound for the country jumped 9.3% during the month.

Going back to the core goods, the message was not good. Exports to China fell 2.6%, even as exports were bolstered by China's record Singles' Day shopping event; popular items for Chinese shoppers include Korean-made cosmetics, household appliances, and clothes.

Exports to the US fell 9.2%.

"There were no discernible signs of further orders for the Christmas festive period," the analysts noted.

So, there's not much optimism here.

NOW WATCH: This is why US aircraft carriers are a force to be reckoned with

More: Korean Exports

REPORT: Morgan Stanley could fire a quarter of its fixed-income traders

• Portia Crowe
 
•  

• 21h
• 4,357
 
• 3

REUTERS/Murad SezerJob cuts could be on the way for Morgan Stanley traders.

See Also

THE SCOREBOARD: Here's how terrible last quarter was for Wall Street

GOLDMAN SACHS CFO: We're cutting back in trading too ― we're just doing it quietly

A sign that Wall Street is going to have a lousy Christmas

Morgan Stanley is about to make deep cuts to its fixed-income business.

That's according to Bloomberg's Ambereen Choudhury, Michael J. Moore and Hugh Son, who report that the cuts will take place over the next two weeks, citing two people with knowledge of the plans.

The cuts could amount to 25% of the fixed-income workforce, according to the report.

A spokesperson for Morgan Stanley said the bank would not comment.

Bond trading revenue was down 42% year-on-year at Morgan Stanley in the third quarter.

In a conference call following the October earnings report, Morgan Stanley chief executive James Gorman called the third quarter the worst for fixed income, currencies, and commodities since he became CEO in 2010.

And things may not get better for Morgan Stanley's FICC division anytime soon.

The trading division recently got a new boss, Ted Pick, who had been running the equity-trading business. Deutsche Bank analyst Matt O'Connor thinks it could take some time for Pick's team to figure out its strategy.

Last week, O'Connor lowered his fourth-quarter EPS estimate for Morgan Stanley by 14% — partly to reflect weaker fixed income trading.

FICC down across the board

Across Wall Street, bond trading was hit hard during the third quarter as debt traders started worrying about a potential economic slowdown.

FICC revenues were down on average 18% year-on-year at all the major Wall Street banks.Front office headcount in FICC was down too. 

While no other bank saw quite as stark a drop in revenues as Morgan Stanley in the third quarter (the next-largest drop was Goldman Sachs, with FICC down 34% year-on-year), the big question now is whether any other banks will follow suit.

Goldman Sachs CFO Harvey Schwartz recently said that his firm has quietly cut fixed income headcount by more than 10% since 2013.

Here's how poorly all the top banks fared in FICC last quarter, via Deutsche Bank:

Deutsche Bank

SEE ALSO: 3 slides show just how brutal 2015 has been for Wall Street's biggest business

NOW WATCH: NYSE Trader Explains How Dow Theory Works

More: Morgan Stanley Fixed Income Wall Street

Automakers are about to do something in the US that's never happened before

• Matthew DeBord
 
•   

• 18h
• 32,978
 
• 19

Scott Olson / Getty ImagesBuy up!

See Also

The surge in US car sales is far from over

Everyone Wants To Know If 2014 Will Be An Epic Year For New Car Sales

Automakers can thank pickup trucks for a booming US auto market

Automakers selling cars and trucks in the US will report November sales on Tuesday, and the thinking from the analyst community is that the annual sales pace will clock in very close to, at, or above 18 million new vehicles sold.

Barring a horrible December, that means we're about to see a record year for auto sales in the US.

The previous annual peak was 17.4 million, set 15 years ago in 2000. The sales pace has moved above 18 million since then, on a monthly basis, but we've never wrapped up a year at that level.

It's a pretty astonishing figure when you consider that the pace plunged to less than 10 million in the immediate aftermath of the financial crisis. The crawl back since then has been steady, if gradual. In fact, it's been a strong positive in the US economic recovery.

It's also important to note that the US has sustained this recovery in autos even as the European market has been weak, the Latin American market uneven, the Chinese market recently iffy, and the Russian market a catastrophe.

What's driving the US market to a new high, more than 1 million vehicles sold above the 2014 total of over 16 million?

Four things:

• Vehicle age. The US auto fleet, more than 200 million cars and trucks, is over 11 years old on average. That's unprecedented in US history. Americans have been driving old, outdated cars for too long. This is not something that Americans do.
• Cheap gas. In New Jersey, where I live, I can gas up my Toyota Prius for under $20, with prices below $2 a gallon. In Southern California, where I used to live and where gas is always more expensive, I could now be filling up my Honda Odyssey minivan and its larger tank for half the $70 it cost me in early 2014. With gas affordable, consumers who were nervous about this aspect of car ownership have seen their buyer's anxiety vanish.
• Flowing credit. You hear a lot about stretched-out loan terms — seven years is the new five — and subprime lending, but easy access to credit has made buying cars a moreappealing proposition to folks with basically normal credit. If you have a 700-ish FICO score and you walk into a dealership, you can drive out with pretty much anything you want. And of course the credit flexibility that's entered the industry has enabled less creditworthy borrowers to avoid big monthly loan or lease payments.
• Jobs. In much of America, you don't need a new car if you don't have a job. But if you do have a job, commuting in an 11-year-old Civic isn't much fun. A few years ago, with unemployment still relatively high, you might not have had the confidence in the job market to take the plunge on a new car — or even a lightly used one. Now, with the economy back to "full employment," at least on paper, at 5%, you can. And even if you're dealing with bad credit, a better jobs outlook has prevented borrowers from defaulting on loans.

SEE ALSO: The Huracán is a game-changing supercar for Lamborghini

NOW WATCH: Scientists say they’re 90% sure they’ve found a hidden chamber in King Tut's tomb — and they have a theory on who it might belong to

More: Auto Sales

• FACEBOOK
• LINKEDIN

Everything just changed for China's currency

• Linette Lopez
 
•   

• 21h
• 14,120
 
• 17

ReutersPeople perform a fire-dragon dance in the shower of molten iron spewing firework-like sparks to celebrate the Lantern Festival, in Meizhou, Guangdong Province, March 5.0

The International Monetary Fund has officially designated the Chinese yuan a global reserve currency.

That means that it joins an elite group of currencies — the dollar, the yen, the euro, and the pound — in the Special Drawing Rights (SDR) basket.

This doesn't mean that money managers around the world will suddenly shift their holdings to the yuan. But this new designation does send an important message about its importance to the rest of the world.

To be included in this club a currency must be "freely usable," "widely used," and "widely traded," according to the IMF. The organization reported that the yuan met these criteria earlier this month.

According to the Society for Worldwide Interbank Financial Telecommunication, the yuan overtook the yen as the fourth most used currency for trade and settlement in August. It makes up about 3% of global trade.

In China, this is a boost of confidence during a difficult year that has seen a yuan devaluation, two stock market crashes, and a slumping economy. After the devaluation in September, the Chinese vowed to maintain the yuan's stability despite these economic factors.

Economic liberalization

It is also a win for those within the Chinese Communist Party who want to see the country's economy liberalized, as Bloomberg economist Tom Orlik pointed out in a note Monday morning.

"[T]he yuan's inclusion in the SDR basket is a win for China's reformers -- notably, for advocates of financial market opening at the People's Bank of China," he wrote. "It should strengthen their hand to accelerate the modernization and opening agenda. In particular, that could mean further moves to open the capital account to cross-border flows."

In the long term, this means everything for China's economy. Here is Paul Mackel, HSBC's head of global EM markets FX research, on the long-term impact of the yuan becoming a reserve currency:

The significance of the RMB's SDR inclusion goes beyond the potential impact of inflows into China. It would encourage China to stick to a much needed financial and capital account liberalization. These would over time increase financial sophistication and improve the efficiency of capital allocation, facilitating the shift to a more consumption and service driven economy. It should give China confidence in making its exchange change rate even more market driven, which would free up its monetary policy. The SDR marks an important milestone of RMB internationalization.

It doesn't change the situation on the ground right now, however.

Chinese corporations are still laden with debt, the economy is still slowing down, and the country still faces a negative demographic trend — the aging of a massive workforce.

NOW WATCH: JAMES ALTUCHER: This is why owning a home is financial suicide

Please upgrade your Flash Plugin

Activity across China's manufacturing sector tanked last month

• David Scutt, Business Insider Australia
 

• 12h
• 461

China’s manufacturing PMI report for November has come in below expectations.

According the government, the index slipped to 49.6 in November, missing expectations for an unchanged reading of 49.8.

PMI reports measure changes in activity across a sector over a one-month period, with a reading below 50 indicating activity levels are contracting.

Not only have activity levels now contracted for four consecutive months, the longest stretch since the global financial crisis, at 49.6, the index now sits at the lowest level seen since August 2012.

Business Insider Australia

Fitting with the government PMI report, the separate Caixin-Markit manufacturing PMI report – a private sector survey concentrated on the performance of small and medium sized manufacturing firms – also held in contractionary territory in November, coming in at 48.6.

Although above the 48.3 level registered in October, activity levels for smaller manufacturing firms have now contracted for the past nine months.

Business Insider Australia

According to Markit, the slight improvement was partly driven by a stabilization of output volumes, along with strength in export orders which expanded at the fastest pace seen in 13 months.

However, fitting with weak domestic demand, order levels from within China continued to contract.

Partially offsetting the weak manufacturing reports, activity levels across China’s services sector accelerated over the same time period with the separate non-manufacturing PMI gauge rising to 53.6 from 53.1 in October.

The index now sits at the highest level seen since July 2015, adding to evidence that China’s economic transitions away from industrial and export led growth to that powered by consumption and services is continuing.

Given the divergent performance between the government’s manufacturing and non-manufacturing PMI reports in November, something that suggests China’s economic transition is gaining traction, markets will be paying close attention to the separate Caixin-Markit services PMI report on Thursday for clarification that the economic rebalancing is truly taking place.

Read the original article on Business Insider Australia. Copyright 2015.

NOW WATCH: 14 things you didn't know your iPhone headphones could do

More: China China PMI Manufacturing Business Insider Australia

South Korea Nov exports fare better than expected, surplus at all-time high

South Korean exports fell for an 11th straight month in November over a year earlier, but were still better than expected - building on hopes that exports may increase in the new year. 

PHOTO: REUTERS

DEC 1, 20158:47 AM

[SEOUL] South Korean exports fell for an 11th straight month in November over a year earlier, but were still better than expected - building on hopes that exports may increase in the new year.

Exports fell 4.7 per cent on-year to US$44.43 billion in November while imports dropped 17.6 per cent to US$34.07 billion, trade ministry data showed on Tuesday. November exports fell at the slowest pace since July this year.

The trade surplus surged to US$10.36 billion in November from a revised US$6.7 billion surplus in October, the biggest surplus on record.

Economists polled by Reuters had expected a 8.3 per cent drop in exports and a 12.8 per cent fall in imports. "Once oil and raw material prices stabilise next year we'll see better performance in exports but only to a limited extent. Next year's growth will also depend heavily on consumption," said Oh Suk-tae, economist at Societe Generale in Seoul.

The average value of exports per working day was US$1.93 billion in November, more than a revised US$1.89 billion in October, Reuters calculations showed.

The government will release more details later on November trade performance, including shipments by destination.

Meanwhile, separate data earlier in the day showed inflation in November rose to its highest in a year as consumption sticks to its recovery course, undermining a view in financial markets favouring central bank interest rate cuts.

Societe Generale's Oh said the central bank was unlikely to move towards cutting interest rates as consumer spending has been improving.

The data showed services prices rose 2.2 per cent in November on-year, the highest since a 2.3 per cent rise in February 2012.

It was an echo of output data out on Monday, which showed services and retail sales improving in October, although manufacturing lagged.

South Korea is the first major exporting economy to report monthly trade data, and may provide an early indication of global demand.

REUTERS

    
 

Japan Q3 capex points to upward revision to Q3 GDP, may dodge recession

Japanese capital expenditure rose at the fastest pace in more than eight years in July-September from a year earlier, in an encouraging sign that economic performance over the summer was not as weak as initially thought. 

PHOTO: EPA

DEC 1, 20159:15 AM

[TOKYO] Japanese capital expenditure rose at the fastest pace in more than eight years in July-September from a year earlier, in an encouraging sign that economic performance over the summer was not as weak as initially thought.

The data suggest that revised gross domestic product (GDP) on Dec 8 may show that Japan narrowly avoided a technical recession, easing some of the pessimism surrounding the government's efforts to energise domestic demand.

A preliminary estimate had showed the economy contracted an annualised 0.8 per cent in July-September as capital expenditure and inventories slumped.

The 11.2 per cent increase in capital expenditure followed a 5.6 per cent annual gain in April-June, data by the Ministry of Finance showed on Tuesday. That marked the biggest increase since the first quarter of 2007.

Accelerating capital expenditure is a welcome sign for the government as it launches a renewed effort to get companies to increase domestic investment to create more jobs, raise wages and increase worker productivity. "We still need to revise our estimates, but my initial impression is GDP could be revised to show slight growth," said Norio Miyagawa, senior economist at Mizuho Securities. "With capital expenditure numbers as strong as this, there's no need for policymakers to change their scenario for the economy." Excluding spending on software, capital expenditure rose a seasonally-adjusted 5.4 per cent from the previous quarter, after falling 2.7 per cent in April-June, finance ministry data showed.

Compared to the same period a year earlier, corporate profits rose 9.0 per cent, slower than a 23.8 per cent annual increase in the previous quarter.

Japan's economy contracted in the second and third quarters, which meets the definition of a technical recession.

Some economists remain cautious on the outlook, arguing that companies could easily curb capital expenditure as China's slowdown hits export demand.

Japanese policymakers are offering companies corporate tax cuts in exchange for assurances that profitable firms will increase capital expenditure, but it remains uncertain whether this trade-off will produce the results the government is hoping for.

REUTERS