US light vehicles sales are back in the range of 16 to 18 million vehicles a year experienced during the (halcyon?) days of 1998 to 2007. An important indicator of consumer confidence.
Upsurge in global trade?
While commodity prices are tanking, with iron ore now trading below $50 per tonne, there are signs that international shipping of manufactured goods is on the increase. Shipbrokers Harper Petersen publish the Harpex, a weekly index of charter rates for container vessels. The recent up-turn reflects increased demand for container shipping — an important barometer of international trade.
Jobs growth slows (slightly)
The Wall Street Journal reports:
U.S. employers sharply slowed their hiring in March…….. Nonfarm payrolls rose by a seasonally adjusted 126,000 jobs in March, the Labor Department said Friday. That was the smallest gain since December 2013.
If we take a step back and look at US non-farm payrolls over the last 12 months, growth remains surprisingly strong. The economy added 2.9 million jobs in the year ending 31st March; down from 3.2 at the end of February, but still a robust recovery.
We haven’t seen this level of job growth since the Dotcom era.
Footsie breaks 15-year high
The FTSE 100 overcame resistance at its December 1999 high of 6950, closing the week above 7000 for the first time. Expect retracement to test the new support level, but breakout signals a primary advance with a long-term target of 8000*. A 21-day Twiggs Money Flow trough above zero confirms long-term buying pressure.
* Target calculation: 7000 + ( 7000 – 6000 ) = 8000
Germany’s DAX recovered above 12000, suggesting continuation of the advance. Expect resistance at the Deutsche Bank target of 12500 (from late 2014). Rising 21-day Twiggs Money Flow indicates strong buying pressure. Reversal below 11800 is unlikely at this stage, but would warn of a correction.
* Target calculation: 12200 + ( 12200 – 11900 ) = 12500
Strong advances on these two indices suggest a broader European recovery.
China hot money heads for the exit
Huw McKay at Westpac writes:
“The Jan-Feb FX positions of China’s banks imply that FX reserves fell in the early part of the year, despite back to back monster trade surpluses of $US60 billion. The logical conclusion is that money flowed out in a big way on the financial account.”
There are two reasons why capital would flow out on the financial account. The usual explanation is the PBOC buying US Treasuries, exporting capital to prevent the yuan appreciating against the Dollar. But Huw points out that the PBOC balance sheet shows a slight decline in foreign assets held. This could be a smokescreen, with investments channeled through an intermediary. Otherwise, it could be a sign that private capital is leaving for safer shores. This from the Business Times:
More than 76,000 Chinese millionaires emigrated or acquired citizenship of another country in the decade through 2013 amid global expansion by the nation’s companies.
Australia was among the most favored destinations, broker Knight Frank LLP said on Thursday, citing data compiled by law firm Fragomen LLP. The Chinese accounted for more than 90 percent of applications for the country’s significant investor visa in the two years to the end of January, representing 1,384 people. They also make the most applications for high-net-worth visas in the UK and the US.
Consumer confidence is below 2008/2009 levels and declining.
RT @TomOrlik: One victim of China's falling property prices – consumer confidence pic.twitter.com/d6chuyjh1A
— Patrick Chovanec (@prchovanec) March 18, 2015
Crude breaks support
Nymex light crude (April 2015 contract) broke support at $45/barrel, warning of a decline to $35/barrel*.
* Target calculation: 45 – ( 55 – 45 ) = 35
Why our prep-school diplomats fail against Putin and ISIS | New York Post
“Why do our “best and brightest” fail when faced with a man like Putin?” Ralph Peters asks. “Or with charismatic fanatics? Or Iranian negotiators? Why do they misread our enemies so consistently, from Hitler and Stalin to Abu Bakr al-Baghdadi, the Islamic State’s self-proclaimed caliph?”
The answer is straightforward:
Social insularity: Our leaders know fellow insiders around the world; our enemies know everyone else.
The mandarin’s distaste for physicality: We are led through blood-smeared times by those who’ve never suffered a bloody nose.
And last but not least, bad educations in our very best schools: Our leadership has been educated in chaste political theory, while our enemies know, firsthand, the stuff of life.
Above all, there is arrogance based upon privilege. For revolving-door leaders in the U.S. and Europe, if you didn’t go to the right prep school and elite university, you couldn’t possibly be capable of comprehending, let alone changing, the world…….
That educational insularity is corrosive and potentially catastrophic: Our “best” universities prepare students to sustain the current system, instilling vague hopes of managing petty reforms.
But dramatic, revolutionary change in geopolitics never comes from insiders. It’s the outsiders who change the world.
An Athenian general once wrote:
The state that separates its scholars from its warriors will have its laws made by cowards, and its fighting done by fools.
~ Thucydides (c. 460 BC – c. 400 BC)
Read more at Why our prep-school diplomats fail against Putin and ISIS | New York Post.
Deflation in Australia?
The Eurozone experienced negative CPI growth over December/January.
Australia shows consumer price growth declining at the end of 2014. The next CPI update (Q1 2015), at end of April, is likely to reflect further slowing.
Declining inflation expectations reported by Westpac (in the 0 to 5% range) tend to support this.
CPI unwinds as the Fed runs out of “patience”
From Seeking Alpha:
The euro fell to a fresh 12-year low on Wednesday, extending a broad decline just days after the ECB launched its €1T bond-buying program, while the dollar index soared to its highest in more than 11 years at 98.95, buoyed by expectations that the Fed could soon lift U.S. interest rates. Nearly all now believe the FOMC will remove the word “patient” from its policy statement after its March 17-18 meeting, opening the door for a rate increase in June.
Not so fast. US consumer price growth (annual % change) to end of January 2015 fell below zero.
Core CPI is slowing at a far gentler rate because it excludes energy prices (as well as food).
Wage pressures in the manufacturing sector are declining, despite solid job numbers, indicating there is still plenty of slack.
With inflationary pressures easing, why the haste to raise interest rates? I believe that Janet Yellen will move when the time is right. And not before.
Dad’s Army fumbles housing affordability | Macrobusiness
By Leith van Onselen — Published with kind permission from Macrobusiness.
After his shoddy effort yesterday defending Australia’s giant superannuation rort, Dad’s Army’s Robert Gottliebsen (“Gotti”), has backed Treasurer Hockey’s proposal to allow young home buyers to raid their superannuation accounts to purchase their first home:
Joe Hockey’s idea to allow first home buyers to use their superannuation to break into the housing market is not stupid…
Most young people in Australia are finding it impossible to gain a first home… we are watching a fundamental shift in the Australian landscape with huge implications for the intergenerational problem…
[Last weekend]…I found myself in the company of a typical first home buyer in today’s market… They can just manage a house or larger apartment but they are saddled with a huge mortgage…
So why would we not say to that couple: “you can invest up to $50,000 of your superannuation in your first home…
A whole generation of Australians could retire without a house because they are unable to get into the market…
A question, Gotti: What do you think the extra demand from first home buyers (FHBs) accessing their super would do to house prices? That’s right, it would raise them, making the scheme self-defeating, much like FHB grants did.
Meanwhile, young people’s retirement nest eggs would be put at risk, potentially increasing their reliance on the Aged Pension (increasing the burden on future taxpayers).
Thankfully, Business Spectator’s young gun, Callam Pickering, understands these issues, penning the following rebuke today:
Australia’s approach to housing is full of misguided policies and dumb ideas…
Australian housing policy can best be viewed as a remarkably successful anti-Robin Hood scheme. We take from the poor (usually those under 40) and give it to the wealthy (often but not always ‘baby boomers’).
Over the years we have introduced all sorts of dodgy schemes to continue this rort…
Allowing younger Australians to use their superannuation for a housing deposit would have a similar effect to the FHOG… It certainly did nothing to boost home ownership…
Exactly. How about policy address the root causes of unaffordable housing – tax lurks, supply constraints, loose capital rules, and over-investment by super funds – rather than applying a band aid solution that will impoverish young people further and fill the coffers of Gotti’s rent-class?
Colin’s Comment: In 1850 Frédéric Bastiat wrote an essay Ce qu’on voit et ce qu’on ne voit pas (That Which Is Seen and That Which Is Unseen) which describes the common mistake of politicians, economists and the general public when devising or assessing economic policy. They focus on the immediate, visible benefit and fail to consider the unseen, hidden costs.
Here is a simple video by Sam Selikoff that explains Bastiat’s Broken Window fallacy: