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US Factory Orders Stumble In November On Aircraft By Reuters

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© Reuters. FILE PHOTO: A worker pours hot metal at the Kirsch Foundry in Beaver Dam, Wisconsin, US, April 12, 2018. (REUTERS/Timothy Aibel/File Photo)

WASHINGTON (Reuters) – New orders for U.S.-made goods fell more-than-expected in November amid a sharp decline in aircraft bookings, while higher borrowing costs dented demand for other goods.

The Commerce Department said on Friday that factory orders fell 1.8% after rising 0.4% in October. Economists polled by Reuters had expected applications to fall by 0.8%. Orders rose 12.2% year-on-year in November.

The Fed’s fastest rate-raising cycle since the 1980s as it fights inflation is slowing demand for commodities, which are usually bought on credit. Americans are also shifting spending away from goods and into services as the nation moves into the post-pandemic era.

A survey released this week by the Institute for Supply Management showed that its measure of factory activity in the country contracted for the second month in a row in December. Manufacturing accounts for 11.3% of the US economy.

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The drop in factory orders was driven by a 6.3% drop in bookings for transportation equipment, which followed a 1.9% increase in October. Transportation equipment orders decreased 36.4% in civilian aircraft orders.

Defense aircraft orders fell 8.6%. Auto orders rose 0.6%. There were moderate gains in orders for machinery, computers and electronic products as well as electrical equipment, appliances and components.

The Commerce Department also reported that orders for non-defense capital goods, excluding aircraft, which is seen as a measure of business spending plans on equipment, rose 0.1% in November, instead of gaining 0.2% as reported last month.

Shipments of so-called core capital goods, which are used to calculate business equipment spending in the GDP report, fell 0.1%, as previously reported.

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European stocks rose on hopes of a slowdown in interest rate hikes

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European stocks and US futures rose on Monday, as investors bet that cooling inflation on both sides of the Atlantic would allow central banks to slow the pace of interest rate hikes early this year.

The Stoxx Europe 600 regional index rose 0.4 percent, adding to last week’s gains of 4.2 percent, while the FTSE 100 index in London rose 0.2 percent.

Germany’s DAX rose 0.3 percent after output in the country’s manufacturing, energy and construction sectors increased 0.2 percent between October and November, according to figures from German statistics office Destatis.

Contracts tracking the blue-chip S&P 500 index on Wall Street rose 0.18 percent, and contracts tracking the tech-heavy Nasdaq 100 rose 0.3 percent before the New York open.

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US stocks It rose sharply on Friday After US government data showed that average hourly wages of employees rose 4.6 percent year-on-year on a seasonally adjusted basis in December, compared to 4.8 percent in the previous month, easing upward pressure on inflation. The world’s largest economy added 223,000 jobs in the last month of 2022 – more than economists expected but less than the 256,000 job increase in November.

Mark Hefell, chief investment officer at UBS Global Wealth Management, said Fed officials may be “encouraged” by signs that wage growth is beginning to slow, though the job market remains too “tight” for the central bank. to stop interest rate hikes. Cycle.

The Fed last year raised interest rates from nearly zero to between 4.25 percent and 4.5 percent.

Markets are pricing in interest rates around 75 percent for the Fed to raise interest rates by a quarter of a percentage point when it meets at the end of January, with US inflation data released on Thursday expected to show rates rising 6.6 percent year-on-year. year in December, down from an increase of 7.1 percent in November. That would be the slowest pace since October 2021.

A measure of the dollar’s strength against a basket of six peers fell 0.35 percent on Monday. The currency has weakened more than 8 percent over the past three months as traders continue to bet that the Federal Reserve will raise interest rates at a slower rate in the first few months of 2023.

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“The US economy remains resilient but on a downward trend,” said Florian Elbeaux, head of macro at Lombard Odier Asset Management. However, slowing inflation in Europe and China’s easing of strict zero-Covid policies meant that “for most risky asset classes, the trend has been the same – globally upward,” he added.

Eurozone inflation fell back to single digits in December, with data published late last week showing the core rate hitting 9.2 per cent after annualized price growth topped 10 per cent in the previous two months.

In Asia, Hong Kong’s Hang Seng rose 1.9 percent, and China’s CSI 300 index of Shanghai and Shenzhen-listed stocks rose 0.8 percent.

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Suez Canal Traffic Normal After Dealing With Ship Breakdowns – Securities and Commodities Authority via Reuters

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© Reuters. An aerial view of the Gulf of Suez and the Suez Canal through the window of an airplane on a flight between Cairo and Doha, Egypt, November 27, 2021. REUTERS/Amr Abdullah Dalash

CAIRO (Reuters) – Freight traffic in the Suez Canal was operating normally on Monday after tugboats towed a cargo ship that had broken down while passing through the waterway, the Canal Authority said.

Shipping agent Leith said the collapse was expected to cause only minor delays, with convoys of ships resuming regular transit by 11:00 local time (09:00 GMT).

The Suez Canal Authority (SCA) said in a statement that the M/V Glory, which was sailing to China, suffered a technical malfunction when it was 38 kilometers from its passage south through the canal, before it was towed by four tugboats to a repair area. .

The Suez Canal is one of the busiest waterways in the world and the shortest shipping route between Europe and Asia.

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In 2021, a massive container ship, the Ever Given, got caught in high winds across the southern part of the canal, blocking traffic for six days before it could be dislodged.

M/V Glory is a Marshall Islands-branded bulk carrier, according to data from trackers VesselFinder and MarineTraffic.

It left the Ukrainian port of Chornomorsk on Dec. 25 bound for China with 65,970 metric tons of corn, according to the Istanbul-based Joint Coordination Center (JCC) that oversees Ukraine’s grain exports.

The Joint Coordinating Committee, which includes representatives from the United Nations, Turkey, Ukraine and Russia, said the ship was cleared to continue its journey from Istanbul after an inspection on January 3.

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Wage inflation is not dead yet

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This article is an in-site version of the unprotected newsletter. Participation here To have our newsletter sent straight to your inbox every day of the week

good morning. The scenes in Brasilia over the weekend brought back painful memories from two years ago in Washington. Trump may be retreating into the rearview mirror, but anti-democratic populism is not. Send me some good news, please: robert.armstrong@ft.com.

The news of wage growth has not been so good, everyone please calm down

Markets experienced last Friday morning Jobs report – and in particular his data on slowing wage growth – as further evidence that inflation will continue to decline rapidly, and the Fed will be able to start cutting interest rates before the end of this year. The S&P rose 2.3 percent on the day, and the two-year Treasury yield fell 19 basis points, almost a full rate hike that fell short of investors’ expectations. Futures market prices now a 95 percent chance The Fed’s interest rate will be lower than what the central bank says targeting 5.1 percent at the end of 2023.

Regular readers wouldn’t be surprised that Unhedged didn’t think the news was quite as good as all of that, both because of our inherent bad temper and because we’ve argued in the past that the final rounds of anti-inflation will be the toughest.

Economic data remains vague, opaque, and confusing. Yes, the downturn in wage growth to 4.6 percent in December, and a revision to growth rates in previous months, leaves us on a trend of steady slowdown in wage growth going back to May – even if the current rate of growth is uncomfortably high:

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Line chart of US average hourly wages, % annual growth showing Yay?

New jobs added have fallen off each month since August, too. But adding more than 200,000 jobs a month, with ample job openings and a high turnover rate, isn’t a downturn, even with the sudden weakness in activity surveys reporting recent weakness. Barclays’ Christian Keeler thinks markets should ditch the champagne so the data will be easier to read:

A combination of rising hiring and slowing wage growth would certainly be good news on a macro level, which could make the Fed less hawkish. But we warn about that [the average hourly earnings data] It is notoriously noisy and subject to distortions from ongoing shifts in the composition of payroll employment and back to lower-wage service-sector jobs, as strong labor demand pulls in lower-skilled workers. . . The Atlanta Fed’s wages tracker next week and the Employment Cost Index for the fourth quarter (Jan. 31) both control for compositional effects, which should shed more light.

Don Resmiller of Strategas also emphasized the compositional issues:

Average wages can be affected by mixed shifts: the economy adds more part-time jobs versus full-time jobs. But it seems that workers choose to work part-time (that is, they are not part-time mainly for economic reasons). There is still a mismatch in labor supply versus labor demand. The tight employment situation will continue to threaten future wage pressures. . . Price inflation has peaked, but wage inflation appears to be holding.

Chances are good that the recession is killing wage inflation, Rissmiller thinks.

Matt Kline, in The Overhoot, makes something else important pointThe marked slowdown in wage growth can only be deflationary if it is accompanied by a lesser contraction in the labor market. If inflation is under control, demand must be lower than supply. When someone loses their job, their contribution to demand falls as their spending tightens, but their contribution to supply falls to zero – they’re out of work! So job losses alone are not deflationary. Employees should be afraid to accept the jobs and wages they now receive, and control their budgets:

Forcing people out of work does not in itself reduce pressure on prices. Scaring people away leads to spending less compared to the value they generate. Thus, from the Fed’s point of view, the ideal scenario is for workers to lose leverage to demand larger bonuses without anyone actually being fired. But this (relatively) benign outcome will only happen if the labor market returns to normal. Unfortunately, the latest data suggests that this is still a long way off.

The number of job vacancies relative to the number of people actively looking for work is still about double what it was on the eve of the pandemic. . . More important, given the close relationship with wage growth, is the number of people leaving their jobs for better prospects elsewhere. While the number is down slightly compared to the peak at the end of 2021, there has been no real change since June.

Olivier Blanchard also focuses on openings. Back in November, that is chirp that the US will soon experience a “false dawn” of inflation as commodity prices begin to fall, but that wage growth remains consistent with inflation consistently above the Fed’s target. In an email yesterday, Blanchard wrote that despite the recent data, he hasn’t changed his mind. we wrote:

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The problem is that once energy/food prices stabilize, can we keep inflation stable with an unemployment rate of 3.5 percent? I guess, based on my work with Summers on the Beveridge curve in particular [the relationship between unemployment and job vacancies] That we need a higher unemployment rate, maybe around 4.5 percent.

Recent wage numbers suggest I may be too pessimistic. I don’t think so, but we’ll see. If I’m right, the Fed has to slow the economy, or think the economy will slow, before it starts cutting rates, given the delays.

Everyone, including the unprotected, wants inflation to hit the target without stagnation. But this is not the most likely outcome.

Gold and central banks

In a bad investment landscape, gold has performed well over the past 12 months:

Gold price line chart, showing $Old Yeller

The strong performance since August is particularly impressive because it occurred while real interest rates were strongly positive — in the one-and-a-half percent range, as measured by the yield on the 10-year Treasury Inflation-Protected Securities. Gold usually moves inversely to real rates, which reflect the opportunity cost of owning an expensive, inert metal.

One of the main reasons for this rise, such as the Financial Times mentioned At the end of last month, the increase in demand from central banks:

Central banks are snapping up gold at the fastest pace since 1967, with analysts pinning China and Russia as big buyers in a sign that some countries are keen to diversify their reserves away from the dollar. ..

in the third quarter [of 2022] Central banks alone bought nearly 400 tons of gold, the largest three-month haul since quarterly records began in 2000.

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Does the increase in central banks’ appetite indicate a permanent shift in the supply/demand balance? John Hartsell, CIO of Donald Smith & Co. This request is noted

. . . It’s been consistently positive around 500 tons per year since the Great Financial Crisis (against mine output of about 3,500 recently), but hit a record high of 400 tons in the third quarter alone, and it’s very likely to average between 750 and 1,000 tons each from now on given For the geopolitical background as the utility of gold as a neutral (non-US dollar) reserve asset for Russia, China and Middle Eastern countries becomes more evident in 2022.

James Steele, precious metals analyst at HSBC, takes a more cautious tone. He believes that the recent strength in the gold price has something to do with expectations of a Fed rate cut as well. While acknowledging that central bank demand is higher and likely to remain that way, he believes three points should be kept in mind:

  • Central banks are not preparing to avoid the dollar. It is best to think of gold purchases as a marginal diversification, in a way that does not require a commitment to other global currencies, all of which have their own problems.

  • About 50 or 60 percent of doctors’ gold production goes to jewelry in developing economies like China and India, where consumers are very price sensitive. With the gold price hovering above $1,800 or so, demand is ebbing fast.

  • Central banks are also price sensitive, and will adjust their purchases of gold as prices rise.

Non-hedging is a bit skeptical about gold as an investment, for standard reasons (no return, not a yielding hedge, over-inflation) but we’ll be watching closely for now.

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