Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
There's no way to link to research reports but a data point provided by Bespoke Investment Group is so alarming that it needs to be passed on as a warning to investors:
"Globally, sales of machinery for Caterpillar were down 11 per cent in August on a year-over-year three-month rolling average basis. While this is a slight improvement from recent lows, it represents the 33rd straight month where sales have been down year over year. The last time the year-over-year change was positive was in November 2012." ( I tweeted this excerpt here for future reference).
Caterpillar's heavy equipment sales have been a reliable indicator of global economic activity, particularly in China and the emerging markets, and the prolonged slump is a reminder that worldwide economic growth is slowing rapidly.
In related news, a preliminary report on China's official purchasing manager index disappointed economists yet again overnight. The survey of manufacturers produced a 47 reading – any measure below 50 indicates contraction.
"China's preliminary Purchasing Managers' Index from Caixin Media and Markit Economics slid to 47 in September, the lowest level since the depths of the global financial crisis. Readings of output, new orders and employment all declined at a faster rate, according to the survey, known as the flash PMI."
"European Recovery Saves Markets From China Gloom as Stocks Rally" – Bloomberg
"Economists React: China Caixin Manufacturing PMI Fell To 78-Month Low" – Wall Street Journal
"China flash manufacturing PMI™ hits lowest since March 2009" – Markit
======
Report on Business readers are still reluctant to click on China-related stories and the only explanation I can see for this is that domestic investors believe "China's economy is slowing" is old news and already priced into their portfolios. Barclays research begs to differ, arguing that the impact of a slowdown in the world's second-largest economy is not yet priced in (apologies, another research report so no link):
"Although we are not at the most bearish tail of growth expectations, we do not believe that the implications of China's dimmer growth outlook have been fully priced into risky assets globally, particularly in EM (Figure 1). Our economists have cut their 2015 and 2016 China growth forecasts to 6.6 per cent and 6.0 per cent, from 6.8 per cent and 6.6 per cent, while keeping a negative bias toward risks and the 'true' pace of economic activity relative to official statistics."
These "risk assets" include commodities and the loonie.
Related: "Divide Copper Price by 1,000 to Find Strength of Chinese Economy" – Bloomberg
======
I promise not to do this too often, but I want to point out a column I wrote earlier this week. Not only was I happy with how "Technology, Politics, and the Remaking of the Canadian Economy" turned out, but it wasn't posted in the usual place and it got a very good reception from economists online.
The piece outlines why the progress of technology should be in domestic voters' minds ahead of the election. Simply put, the only way for Canadian manufacturers to compete on the global stage is through job killing efficiency and automation. This puts policy makers in an increasingly severe bind over time:
"Sustaining job growth in the domestic auto sector will be difficult, however, and not just because of low-wage competition from Mexico-based plants. Companies in high-wage Germany, for example, are rapidly moving toward completely automated assembly lines. Technology – in the form of robotics – is gaining a steadily larger share of the manufacturing process. In Audi's facility in Ingolstadt, Germany, the number of robots already equals the number of employees."
"Technology, Politics, and the Remaking of the Canadian Economy" – Barlow, Report on Business
======
Tweet of the Day (incl chart) : "@WilliamsonChris #China's exports are slumping at one of the steepest rates since global financial crisis. More http://www.markit.com/Commentary/Get/23092015-Economics-China-flash-manufacturing-PMI-hits-lowest-since-March-2009 http://t.co/GiQBkSsFlm" – Twitter
Diversion: "We'e all Surrounded by a Personal Cloud of Bacteria" – Gizmodo
Scott Barlow