Seven Developments that Caught My Eye as I Looked for Something Else


1.  The Swiss National Bank increased its ownership of US equities by about $350 mln in Q3 to $38.95 bln.  The SNB has a stake in some 2500 listed US companies.  The Russell 2000 was marginally lower in the quarter.  The SNB indicated that it increased its Apple stake to 10.3 mln shares from 9.4 mln in June.  It increased is exposure to Exxon by roughly the same percentage (~10%) and increased its Microsoft stake by a little less (~9%).  Overall the SNB, often regarded as a conservative central bank, has about 18% of its assets (~$546 bln) in equities.  

2.   China is poised to surpass Canada this year as the US largest trading partner.  It would be the first time since 1985 when such data is available.  In the first nine months of the year, goods trade between the US and China was $441 bln compared with $438.1 bln with Canada.  The key factor is the drop in energy prices.  US goods trade with Canada is off 11.6% this year while it is up 3.7% with China.   It is about prices.  In September, for example, the US imported 101.3 mln barrels of oil from Canada, the most this year, the second highest since 2010.  That oil cost $3.9 bln, the second lowest bill since 2010. 

3.  Mexico auto exports in October were 4.7% below year ago levels.  The main culprits are not the usual suspected.  Exports to Europe were up 15%.  They were up 38% to Latin America.  Mexico's auto exports to Africa were up 400%.  However, the industry's exports to the US were off 4.4% (despite the banner year of US auto sales) and off 4.2% to Asia.  They were off 25% to Canada.   In terms of production, Volkswagen output fell by a fifth.  This was linked to a model changeover and not the emissions scandal.  Toyota's output jumped 81%.   Total Mexican production in October was 1% below a year ago though domestic sales were up nearly 19%. 

4.  China has excess capacity in many industries, and the domestic slowdown and economic transition is exacerbating the surplus.  This is spurring some industries to try to step up their exports, which in turn pushes prices down and heightens trade tensions.  US Commerce Department heard the first of three cases filed by US corrosive-resistant steel producers against foreign producers from China, Taiwan, India, South Korea and Italy.  In the preliminary findings, Commerce found subsidies for some Chinese producers are around 235%.  Italian subsidies are estimated at a little more than 38%.  Indian subsidies are a little below 8%.  South Korean subsidies are estimated at 1.4%, and Taiwanese subsides are even less.  There has been a  surge of imports of this corrosive-resistant steel (84% over the past year) and has idled nearly a third of US capacity for this specialty steel.    The US is threatening to impose retroactive tariffs, which is understood as a particularly forceful response. 

5.  A sharp rise in foreign exchange deposits in Russia's banking system is giving corporates an alternative to issuing foreign currency bonds.  Foreign currency deposits at Sberbank, Russia's largest lender that accounts for almost half of the country's retail deposits, are up by a third this year to around $90 bln, according to reports.  It is loaning some of those foreign currency deposits out to corporations at a more competitive rate than could be secured through the eurobond market, for those who still have access to it.  Russian corporates  dollar bond issuance has fallen by a little more than 2/3 this year according to Bloomberg data. 

6.  While many observers are skeptical of China's GDP figures, they seem more willing to accept at face value other data such as inflation, trade, and reserves.  The market may be unduly harsh on China.  On one hand, a San Fran Fed Letter from March 2013 looked at a range of indicators and concluded that China's growth was probably not significantly different from the government estimated.  On the other hand, calculating GDP is more difficult than generally appreciated.  Take the US as an example.  The quarterly GDP estimate is revised over several year, and it becomes less relevant the more time that passes.  Look at Q1 14 GDP.  The initial estimate was 0.1%.  The first revision put it at -1.0%.  The second revision put it at -2.9%.   The latest revision appears to have put it at -0.9%.  The Bureau of Economic Analysis reviewed US GDP 2012-2014 and shaved $70 bln off US output, more than Luxembourg's annual GDP.  A recent study of the 1994-2013 period found that while other countries tend to under-estimate their growth, the US typically over-estimated its.  US revisions, though,m were larger than Canada and Spain, for example, but less than Finland, Japan, and Norway.

7.  The magnitude of US GDP revisions has increased lately.  The first to the third revision of the quarterly GDP estimate averaged 0.6 percentage points between 1993 and 2013.  Since the start of 2014, the average revision has been 1.3 percentage points.  The economy itself appears to have become more volatile.  Over the past seven quarters, three quarters have seen growth 3.9% or higher and two quarters below 1%.    Japan's GDP has also been volatile.  Its first Q3 estimate will be reported at the end of the week.  Over the past six quarters, it has contracted three times and in two quarters expanded by more 4.5% at an annualized rate.  In contrast, eurozone growth has been remarkably stable even if not particularly inspiring.  The first estimate of its Q3 GDP also will be reported at the end of the week.  Assuming it expands by 0.4% as the consensus expects, it would be the third out of four quarters with at that pace and is the average over the past five quarters. 



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Seven Developments that Caught My Eye as I Looked for Something Else Seven Developments that Caught My Eye as I Looked for Something Else Reviewed by Marc Chandler on November 10, 2015 Rating: 5
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