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Finans

Finanshus: Erhvervstillid i Europa ser ud til at være bundet

Morten W. Langer

fredag 25. oktober 2019 kl. 17:52

Fra ABN Amro:

Some signs of stabilisation of business confidence
• US durable goods orders showing the effects of the trade conflict and
GM strike
• Korean export data poor, Taiwanese a little better
• Brexit, Draghi, Impeachment, Fed cut

Eurozone business confidence stabilised in October according to preliminary data. The
Markit PMI for manufacturing was unchanged at 45.7. Still nothing to write home about, of
course, but it could have been worse. PMI data have not been released for all individual
countries yet, but what is striking is that the manufacturing index was unchanged for the
eurozone as a whole but was up for both Germany and France (Germany from 41.7 to
41.9 and France from 50.1 to 50.5).

This either means that other countries registered declines or the data is set to be revised. The services PMI for the eurozone inched up: 51.8 in October versus 51.6 in September. The authoritative German Ifo index confirmed the stabilisation. Their overall index was stable at 94.6. The expectations component, which tends to be seen as the more important part of the survey, improved: 91.5 versus 90.9.

The current-conditions component on the other hand fell from 98.6 to 97.8 having
risen in the previous month. The US PMIs are actually showing a bottoming. The rival ISM
indices have not yet been published for October, but so far they have been more negative
than the PMIs.

US durable goods orders fell 1.1% mom in September after a rise of 0.3% in the previous month. Capital good orders, excluding defence and aircraft dropped 0.5% mom after a 0.6% drop in the previous month. The durable goods report demonstrates that companies’ appetite for capital spending continues to weaken. Shipments of non-defence capital goods, ex-air in absolute terms reached a peak in May this year and have since fallen.

The fall has not been huge, merely some 1.5%, but it is in line with our expectations. On a year on year basis, the pace of growth has eased from around 10% two years ago to just over 1%. Capital spending is weakening as the effects of the December 2017 tax reform is
wearing off; because of the China-US conflict; and probably also because of the GM strike
which includes some 50,000 workers who have been on strike since mid-September.
US non-defence capital goods shipments ex-air

US housing sensitive to mortgage rates
On a positive note, the US housing sector is responding to the drop in mortgage rates as
the two graphs related to this indicate. The sensitivity of the housing market to changes in
borrowing costs makes monetary policy relatively effective in the US. The improvement in
housing demand plus the improvement in the cashflow of families who use lower mortgage
rates to refinance provides support for the economy and is an important consideration for
us to maintain our view that a US recession is not very likely between now and the end of
2020.

Digging into Taiwanese export orders
Korean export performance remains dire. The value of exports was down 19.5% yoy in the
first 20 days of October, marginally better than September’s -21.8%. The decline in import
growth got significantly worse: -20.1% down from -11.1% in September, the worst reading
since early 2016. This highlights the poor performance of global trade but some Koreaspecific problems may also play a role.

Digging into some of the detail I found that export orders from China
and Hong Kong are showing an encouraging improvement. In absolute terms these orders have risen since June. In yoy-terms they have improved from -14.6% in June to -3.0% in September. It is early days yet but the last couple of these data points may be an
indication that the Chinese economy is starting to get over the worst of its slowdown and
may be starting to have a more positive effect on global trade. Let me repeat, though, it is
early days yet.

ECB President Draghi gave his last press conference last Thursday. The governing
council did not change any policies. They had already done that in September. That
meeting had been followed by stinging criticism, among others from Dutch central bank
president Klaas Knot. Draghi was asked about that. His response was that differences of
opinion are normal and healthy. He also pointed out that some economic data released
after the September meeting has been weak, supporting the ECB’s September’s decision.
Overall, it was a tame event and Draghi said his goodbyes graciously

Fed third rate cut coming
The US Fed is expected to cut rates for a third time at their policy meeting on 30 October.
We are forecasting a fourth cut in December, but our conviction level has fallen a little. The
Fed has explained the cuts as ‘insurance’ against an undesirable weakening of the
economy. Economic data have generally shown some weakening, but not excessively so.
In addition, one can wonder how much insurance one requires. Whether or not there will
be a fourth cut this year in December will depend on the dataflow between now and then.
Impeachment

The impeachment procedure against president Trump is gaining momentum. So far, hearings have been behind closed doors, but there is talk now to make them public. I still think it is unlikely that Trump will be removed from office as this would require a two-third majority in the Senate, where the Republicans hold a majority (53 out of 100). Having said that, it is very conceivable that the House impeaches the president as that only requires a simple majority in the House where the Democrats have a fairly comfortable majority (234 seats out of 435). But this whole process is more about doing as much as possible damage to Trump in order to prevent the president from serving a second term. This will therefore be a drawn-out process with the Democrats creating as much drama as they can.

 

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