Connect with us

Business

U.S. business spending on equipment strong; goods trade deficit widens

Published

on

October 27, 2021

By Lucia Mutikani

WASHINGTON (Reuters) – New orders for U.S.-made capital goods increased more than expected in September and shipments surged, pointing to strong business spending on equipment, though stretched supply chains likely hampered overall economic growth in the third quarter.

Slower growth expectations were reinforced by other data from the Commerce Department on Wednesday showing the goods trade deficit widening sharply last month, with exports slumping. While wholesale inventories increased, stocks at retailers fell as supply at auto dealerships continued to decrease rapidly amid a global semiconductor shortage.

Advertisement

The reports were published ahead of the government’s snapshot of third-quarter gross domestic product on Thursday, expected to show the slowest growth pace since the second quarter of 2020, when the economy contracted sharply in the wake of stringent mandatory measures to contain the first wave of COVID-19 infections.

“The third quarter may be the weakest quarter for economic growth in over a year, but you would never know it looking at business capital spending setting records this month,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “Business is looking past the slowdown in consumer spending in the third quarter and betting consumers will return to the shops and malls later this year and clear the shelves.”

Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.8% last month. Data for August was revised lower to show these so-called core capital goods orders rising 0.5% instead of 0.6% as previously reported.

Economists polled by Reuters had forecast core capital goods orders gaining 0.5%. There were increases in orders for machinery, primary metals and fabricated metals products. But orders for electrical equipment, appliances and components fell as did those for computers and electronic products, likely because of a global chip shortage.

Shipments of core capital goods shot up 1.4% last month after rising 0.6% in August. Core capital goods shipments are used to calculate equipment spending in the GDP measurement.

Advertisement

Economists expect another quarter of strong business spending on equipment in the advance third-quarter GDP report on Thursday. But some are expecting even a decline because of an acute motor vehicle shortage, which has undercut automobile purchases.

U.S. stocks opened slightly higher, helped by a fresh batch of upbeat earnings reports. The dollar slipped against a basket of currencies. U.S. Treasury prices were higher.

SUPPLY BOTTLENECKS

The COVID-19 pandemic shifted demand towards goods as well as causing severe labor disruptions, resulting in unprecedented bottlenecks in the supply chain, which economists and businesses expect to persist through the first half of 2022.

Orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, fell 0.4% after advancing 1.3% in August. They were weighed down by a 2.3% decline in orders for transportation equipment, which followed a 3.8% jump in August. That largely reflected motor vehicle shortages, which resulted in orders declining 2.9% after tumbling 3.9% in August.

Advertisement

Orders for civilian aircraft plunged 27.9% after soaring 63.9% in August. Boeing reported on its website that it had received 27 aircraft orders last month compared to 53 in August. Unfilled orders of durable goods rose 0.7% after advancing 0.9% in the prior month.

The flow of goods has also been disrupted. In another report on Wednesday, the Commerce Department said the goods trade deficit increased 9.2% to $96.3 billion in September. Goods exports dropped 4.7%, while imports gained 0.5%.

The report also showed wholesale inventories increased 1.1% last month. Retail inventories fell 0.2%, pulled down by a 2.4% plunge in stocks at auto dealerships. Retail inventories, excluding autos, which go into the calculation of GDP, rose 0.6%

According to a Reuters survey of economists, the economy likely grew at a 2.7% annualized rate in the third quarter. That would be a step-down from the 6.7% rate notched in the second quarter. Inventories were depleted in the first half of the year. Economists believe the pace of decline lessened in the third quarter, accounting for the bulk of expected GDP growth.

Trade has been a drag on GDP growth for a year, while inventories have subtracted from output for two straight quarters.

Advertisement

(Reporting By Lucia Mutikani; Editing by Alison Williams and Andrea Ricci)

Continue Reading
Advertisement

Business

Asia braces for China data, oil nears 2021 highs

Published

on

January 17, 2022

By Wayne Cole

SYDNEY (Reuters) – Asian share markets got off to a cautious start on Monday as the U.S. earnings season loomed large and a slew of Chinese economic data were expected to show the deadening effect of coronavirus restrictions on activity.

A holiday in the United States made for thin trading, but that did not stop Brent crude from extending its bull run toward last year’s peak of $86.70 a barrel.

Advertisement

MSCI’s broadest index of Asia-Pacific shares outside Japan was little changed, while Japan’s Nikkei bounced 0.8% after losing 1.2% last week

S&P 500 futures were flat, while Nasdaq futures slipped 0.1%.

The main feature of the market recently has been a rotation into value stocks and away from growth, particularly technology. The S&P 500 information technology sector, which accounts for nearly 29% of the index, has shed 5.5% this year.

With valuations still high, earnings will have to be strong to stop further losses. Overall S&P 500 earnings are expected to climb 23.1% this season, according to Refinitiv IBES, while the tech sector is seen up by 15.6%.

Companies reporting this week include Goldman Sachs, BofA, Morgan Stanley and Netflix.

Advertisement

The market will be spared speeches from Federal Reserve officials this week ahead of their Jan. 25-26 policy meeting, but there has been more than enough hawkish comments to see the market almost fully price in a first rate hike for March.

There was also talk the Fed will start trimming its balance sheet earlier than previously thought, draining some of the excess liquidity from world markets.

Yields on cash 10-year Treasuries climbed to their highest in a year at 1.8%, while futures implied yield of 1.83% early on Monday.

“The implications of quantitative tightening continue to occupy markets as an earlier Fed balance sheet runoff looms,” noted analysts at Barclays.

“Meanwhile, new COVID lockdowns in China could re-aggravate global supply bottlenecks, while in both Europe and the U.S. the near-term growth outlook is now weaker and the 2022 inflation profiles higher.”

Advertisement

Data out of China due on Monday are expected to show retail sales and industrial output slowed further in December. The economy is forecast to have grown 1.1% in the fourth quarter, though the annual pace is seen slowing to 3.6% from 4.9%.

BEWARE THE BOJ

A Bank of Japan (BOJ) policy meeting this week will bear watching given talk it will revise up its outlook for growth and inflation, while sources told Reuters policy makers were debating how soon they could start telegraphing an eventual interest rate hike.

While a move is unlikely this year, financial markets may be under-estimating its readiness to gradually phase out its once-radical stimulus programme.

This was one reason the yen has rallied, with the dollar slipping 1.2% last week to last stand at 114.29 but still well above major chart support at 112.52. [FRX/]

Advertisement

The euro also gained 0.5% last week as the dollar eased broadly and was last changing hands at $1.1408. The dollar index was a shade firmer at 95.231, after touching a 10-week trough at 94.626 on Friday.

“We continue to think that the greenback will strengthen again before long, as we expect strong cyclical price pressures in the U.S. to mean the Fed tightens by more and for longer than investors currently discount,” argued Joseph Marlow, an economist at Capital Economics.

They see Fed rates topping 2.5% while the market has priced in a peak around 1.75-2.0%..

The risk of higher rates kept non-yielding gold restrained at $1,817 an ounce, while industrial and energy resources have benefited from resilient demand and limited supplies.[GOL/]

Oil prices have climbed for four weeks straight and such is demand that physical barrels of oil are changing hands at near record high premiums. [O/R]

Advertisement

Early Monday, Brent had added another 51 cents to $86.57 a barrel and was approaching the 2021 top of $86.70 and the 2018 peak at $86.74. A break there, would take it to heights last visited in 2014.

U.S. crude also firmed 75 cents to $84.57 per barrel.

(Editing by Himani Sarkar)

Advertisement
Continue Reading

Business

Japan machinery orders rise more than expected, govt welcomes pick-up signs

Published

on

January 17, 2022

By Daniel Leussink

TOKYO (Reuters) -Japan’s core machinery orders rose for a second straight month in November, government data showed on Monday, a sign that corporate appetite for capital spending remained resilient despite pressure from soaring raw material prices.

The gain in core orders, a key indicator of capital expenditure, could be a relief to policymakers hoping for corporate investment to trigger a private demand-led recovery in the world’s third-largest economy.

Advertisement

Core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, grew 3.4% in November from October, rising for the second straight month, the Cabinet Office data showed.

It beat economists’ median estimate of a 1.4% rise and followed a 3.8% jump in the previous month.

However, Japanese firms could be cautious about boosting spending due to higher raw material, fuel and transportation costs that are sending wholesale inflation soaring and squeezing corporate margins.

“Firms may postpone capital spending from this quarter into the next fiscal year from April as uncertainty in the global economy has risen,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“Due to a decline in coronavirus cases and an easing of the (global) chip shortage, orders from manufacturers recovered up to November, but the outlook is unclear.”

Advertisement

A government official confirmed firms’ appetite for capital spending faced risks from rising raw material prices, though he added companies were still likely to spend on investments to strengthen their businesses for the future.

Compared with a year earlier, core orders, which exclude volatile numbers from shipping and electric power utilities, jumped 11.6% in November, the Cabinet office data found.

By sector, orders from manufacturers rose 12.9% month-on-month, offsetting a 0.8% drop in those from non-manufacturers, the data showed.

The government raised its assessment on machinery orders for the first time in six months, saying they showed signs of picking up. Previously, it said a pick-up in orders was showing signs of stalling.

After contracting in the third quarter of last year, Japan’s economy is expected to return to growth in the October-December quarter.

Advertisement

The economy is forecast to show growth of an annualised 6.5% in that quarter, thanks largely to a projected pick-up in private consumption, which makes up more than half the economy, after an easing of coronavirus curbs.

(Reporting by Daniel Leussink; Editing by Kenneth Maxwell)

Continue Reading

Business

Credit Suisse Chairman Horta-Osorio resigns after board probe into breach of COVID-19 rules

Published

on

January 17, 2022

SINGAPORE (Reuters) -Credit Suisse Chairman Antonio Horta-Osorio, who was being investigated by the bank’s board for breaching COVID-19 quarantine rules, has quit with immediate effect and board member Axel Lehmann has taken over the role.

Horta-Osorio’s resignation comes less than a year after he was brought in to clean up a corporate culture marred by Switzerland’s second-largest bank’s involvement with collapsed investment firm Archegos and insolvent supply chain finance firm Greensill Capital.

“I regret that a number of my personal actions have led to difficulties for the bank and compromised my ability to represent the bank internally and externally,” Horta-Osorio said in a statement issued by the bank in the early hours of Monday.

Advertisement

“I therefore believe that my resignation is in the interest of the bank and its stakeholders at this crucial time.”

In late December, Reuters reported in an exclusive story that a preliminary investigation by Credit Suisse found that Horta-Osorio breached COVID-19 rules a second time.

He attended the Wimbledon tennis finals in July during a visit to Britain when the country’s COVID-19 rules required him to be in quarantine, Reuters cited sources as saying. [L1N2TF08K]

Credit Suisse said Lehmann, the board and the executive board would continue to implement Credit Suisse’s strategy.

(Reporting by Anshuman Daga in Singapore, Shivani Tanna and Maria Ponnezhath in Bengaluru; Editing by Himani Sarkar)

Advertisement

Continue Reading
Advertisement

Trending