Current Affairs

April 18, 2023

Chinese Economy Overview

“The Recovery Is On Track”: China Economy Rebounds Strongly With 4.5% GDP Jump In Q1

by Tyler Durden

Tuesday, Apr 18, 2023 – 05:58 AM

Last week, when discussing the latest record – for the month of March – Chinese credit injection which saw a massive 5.4 trillion yuan in Total Social Financing, beating estimates by almost CNY 1 trillion…

… and sparking a surge in China’s all-important Credit Impulse…

we said that China’s delayed “liftoff was imminent”, and that “the 2008 deja vu meter just went off the charts, because while the US is about to sink into a recession with commercial real estate set to fall all off a cliff, it is once again China that is – willingly or otherwise – set to serve as the world’s growth dynamo at a time when the entire developed world is about to max out at the same time. This is precisely what happened in 2008 when China unleashed the biggest credit expansion in modern history, sparking not only historic growth spree but also an exponential debt increase that sent China’s debt to over 300% of GDP.”

Since then, we have seen China report stellar trade data with both exports and imports sharply higher than expected, more solid real estate prints as housing prices have clearly rebounded from two years of decline, and most importantly, overnight China’s Q1 GDP  also surprised to the upside, rising at a 4.5% annual clip in the first quarter – the strongest quarter for the Chinese economy since Q1 2022 – as strong growth in exports and infrastructure investment as well as a rebound in retail consumption and property prices drove a recovery in the world’s second-largest economy.

The official figure, which exceeded analyst expectations of a 4% rise and was the third consecutive beat of the median forecast…

… followed efforts by Chinese leader Xi Jinping’s government to restore business confidence damaged by pandemic controls last year and abrupt policy changes.

That said, the Q1 growth rate was just short of the government’s recently upgraded full-year target of 5%, held back by a nationwide Covid-19 outbreak at the start of this year, but economists expect it to pick up pace as the year progresses.

Xi, who formally embarked on an unprecedented third term as China’s president last month, is keen to revive economic growth following China’s shocking reversal of its covid-zero policy. Last year, GDP expanded just 3%, missing the official target of 5.5% which was already the lowest in decades.

“Definitely, the recovery’s on track,” said Tao Wang, UBS chief China economist. “The momentum at the beginning of the year was stronger than expected.”

Echoing what we said last week, the FT writes that “China’s rebound is crucial to global economic growth this year as developed nations grapple with persistently high inflation, rising interest rates and sluggish expansion in the wake of the pandemic and Russia’s full-scale invasion of Ukraine.”

“The national economy showed a steady recovery and made a good start,” China’s National Bureau of Statistics said. But the agency cautioned the situation was “complex and volatile, inadequate domestic demand remains prominent and the foundation for economic recovery is not solid yet”.

Curiously, while Chinese commodities markets rallied following Tuesday’s data release, equities failed to hold on to early gains. That’s because the data may have snuffed out recent hopes that bad news is good news and would lead to more stimulus. As Bloomberg reports Sofia Horta e Costa writes, “It’s clear markets are setting a high bar for China’s economy. So China data beats estimates yet again, but hardly anything moves in local assets. What’s going on?”

In March I wrote about how some traders were betting on a consumption-driven recovery, and others believed more stimulus would be forthcoming. You were either in one camp or the other. The issue for markets right now is that the macro picture is falling somewhere in the middle. Yes, the data is good — in some ways much better than expected — but not good enough for bulls to make a compelling case for a reopening boom in the economy.

The rebound is fragile, with pockets of weakness including the property market and factories. It’s also uneven: consumers may be spending more but they’re mainly focused on restaurants and jewelry. And the central bank is erring on the cautious side of stimulus. The bar is increasingly getting higher for any meaningful market reaction. We either need a blowout set of data across the board or more action from Beijing.

Indeed, while the Chinese data has been strong so far, it is certainly not blowout, at least not yet.

China abandoned zero-Covid restrictions in December amid popular opposition to the rolling lockdowns that paralyzed cities across the country for most of the year. The easing unleashed pent-up demand in the retail sector, where sales rose 5.8% year on year in the first quarter and 10.6% in March, both coming in well above expectations. But the base of comparison with last year was low, given that Shanghai started a months-long lockdown in late February 2022.

Premier Li Qiang, Xi’s new number two, signalled at China’s rubber-stamp parliament last month that the government would relax a crackdown on business that has wiped billions of dollars from property developers and internet platforms.

Elsewhere, manufacturing investment rose 7% year on year in the first quarter and industrial output gained 3%. Exports showed strong growth, up 8.4% in the first quarter, and state-led infrastructure investment climbed 8.8%, while overall fixed asset investment rose 5.1%, a modest miss to expectations. Private investment was weak, up just 0.6 %, suggesting a decline in March. The jobless rate fell to 5.3% in March from 5.6% in February, but youth unemployment hit the second-highest mark on record, at 19.6%.

At the same time, while home prices may be rising, housing sector woes persisted: the property sector’s woes continued, with new housing starts tumbling 19.2% year on year in the first quarter. Home sales by area declined 1.8% but sales by value rose 4.1%, pointing to a nascent recovery in prices. Indeed, in March, new home prices rose at their fastest pace in 21 months.

Following the news, Citigroup economists upgraded their forecast for 2023 GDP growth to 6.1% from 5.7% previously after strong data Tuesday. “Consumption recovery continued to be divergent across sectors, with services outperforming,” economists led by Xiangrong Yu wrote in a Tuesday research note. “Normalization in savings and improvement in employment” has provided “potential upside”

The property sector also improved steadily in March compared to the first two months of the year, especially for sales. The growth pickup “perhaps further lowers the necessity of stimulus,” the economists wrote, adding that they “don’t expect anything major” in the upcoming April Politburo meeting. This year could be a “window of opportunities for policymakers to address structural issues, such as weak private confidence, youth unemployment and local government debt.”

Other economists also said momentum would pick up in the second quarter, helped by the low base effect, but warned that consumption and property might struggle to maintain strong growth, while exports could be threatened by weaker developed markets.

Xi’s administration also remained hamstrung by a lack of credibility after hobbling the private sector, experts said.

Keyu Jin, a professor at the London School of Economics and author of The New China Playbook, said the biggest obstacle was the gap in private sector demand, both in consumption and investment.

“It will take time for confidence to come back to the Chinese economy,” she said, although what she really meant is that it would take a lot of new debt and credit. And as we showed last week, Beijing is already injecting record amounts of it as it prepares to become the world’s growth pillar now that the US is set to slide into recession.

https://www.zerohedge.com/markets/recovery-track-china-economy-rebounds-strongly-45-gdp-jump-q1

April 16, 2023

Deindustrialization Concerns

Business deindustrialization

Covestro boss calls for master plan for Germany

As of: 12:59 a.m | Reading time: 2 minutes

“The federal government loses itself in regulation mania,” says Covestro boss Steilemann
Quelle: Getty Images

High energy prices are a burden for chemical companies. Covestro boss Markus Steilemann, who is also president of the chemical industry, sees the industry as being unduly burdened. He is worried about job cuts in the manufacturing industry.

Dhe boss of the chemical company Covestro, Markus Steilemann, warns of Germany’s economic decline. “De-industrialization has already started,” Steilemann told WELT AM SONNTAG in an interview.

Steilemann, who is also President of the industry association VCI, cited the high energy prices as the main reason. “We need a master plan for Germany, and we need it urgently,” he demands. As a possible measure, Steilemann named a cheaper electricity price for industry.

Germany is still a leader in many research fields such as biotechnology. “But we are in the process of losing this lead to the USA, Great Britain and China.” The main culprits are the high energy prices, but also a real “law tsunami” with which the government is really slowing down companies.

There is no way around the government’s planned conversion to a climate-neutral future. “But instead of setting the right incentives for a country that is poor in raw materials but hungry for energy, the federal government loses itself in regulation mania,” says Steilemann.

At the same time, the industry is being unduly burdened by electricity prices, which are very high by international standards. “This puts Germany’s business model, as one of the leading export nations, at risk. There are already first signs: I’m watching with concern how massive jobs are currently being cut in Germany – and not just in the manufacturing industry,” he said.

Despite the difficult outlook this year, the CEO ruled out redundancies for Covestro: “Since we have made long-term provisions, we don’t need any quick-fix measures. I have made it clear that we will rule out redundancies for operational reasons, and that’s how it’s going to stay.”

April 12, 2023

BASF Releases Q1 Estimates

BASF Group releases preliminary figures for first quarter of 2023

  • EBIT before special items, EBIT and net income in Q1 2023 considerably above respective average analyst estimates
  • Sales in Q1 2023 considerably below analyst consensus

Ludwigshafen – April 12, 2023 – BASF has released preliminary figures for the first quarter of 2023. Sales declined by 13.4% in the first quarter of 2023 to €19,991 million (Q1 2022: €23,083 million). This was mainly driven by considerably lower volumes. Sales were considerably lower than average analyst estimates for the first quarter of 2023 (Vara: €21,819 million).

EBIT before special items of BASF Groupamounted to an expected €1,931 million in the first quarter of 2023, a decline of 31.5% compared with the prior-year quarter (Q1 2022: €2,818 million) but considerably above the analyst consensus for the first quarter of 2023 (Vara: €1,599 million). In particular, EBIT before special items in the Agricultural Solutions segment considerably exceeded average analyst estimates. Chemicals, Materials and Surface Technologies were also considerably above the respective average analyst estimates for EBIT before special items in the first quarter of 2023. In the Industrial Solutions and Nutrition & Care segments, EBIT before special items missed average analyst estimates slightly and considerably, respectively. In Other, EBIT before special items was weaker than expected by analysts on average.

The BASF Group’s EBIT amounted to an expected €1,867 million in the first quarter of 2023, considerably below the figure for the prior-year quarter (Q1 2022: €2,785 million) but considerably above the analyst consensus (Vara: €1,533 million).

Net income reached €1,562 million, considerably above the figure in the prior-year quarter (Q1 2022: €1,221 million) and considerably above average analyst estimates for the first quarter of 2023 (Vara: €1,081 million). In the prior-year quarter, impairments on the participation in Wintershall Dea had burdened net income of BASF Group.

Further information

The overview of analyst estimates, which is compiled monthly by Vara Research on behalf of BASF, can be found at: www.basf.com/analysts-estimates.

BASF will publish the Quarterly Statement Q1 2023 on Thursday, April 27, 2023, at 7:00 a.m. CEST and will comment on the figures at the conference call for analysts and investors (from 8:00 a.m. CEST).

https://www.basf.com/global/en/media/news-releases/2023/04/p-23-182.html

April 12, 2023

Analysts Getting Bullish on Chemical Stocks

Dow, chemical makers upgraded at Piper Sandler

Apr. 12, 2023 8:12 AM ETDow Inc. (DOW), EMN, LYB, WLK, CE, MEOH, ASIX, OLN, MX:CABy: Rob Williams NY, SA News Editor1 Comment

Factory and Flag
Amanda Wayne/iStock via Getty Images

Dow (NYSE:DOW) and several other chemical makers late Tuesday were upgraded by analysts at Piper Sandler.

The U.S. chemical companies have a significant advantage over global rivals in setting the prices of their products because of lower costs of raw materials.

“These upgrades are not based on global economic recovery (which would only serve to amplify the outcome), but on shifting energy values and the ensuing supply adjustments that we see occurring,” Charles Nelvert, senior research analyst at Piper Sandler, said in the April 11 report. “We see a number of tailwinds developing that should create substantive benefits for chemical industry margins, primarily for North American production.”

Piper Sandler ratings for chemical makers, April 11
CurrentPrevious
Dow Inc. (DOW)OverweightNeutral
Eastman Chemical Co. (NYSE:EMN)OverweightNeutral
LyondellBasell Industries N.V. (NYSE:LYB)OverweightNeutral
Westlake Corp. (NYSE:WLK)OverweightNeutral
Celanese Corp. (NYSE:CE)NeutralUnderweight
Methanex Corp. (NASDAQ:MEOH)NeutralUnderweight
AdvanSix Inc. (NYSE:ASIX)Overweight
Olin Corp. (NYSE:OLN)Overweight
Piper Sandler price targets for chemical makers, April 11
CurrentPrevious
Dow Inc. (DOW)$68$63
Eastman Chemical Co. (EMN)$99$96
LyondellBasell Industries N.V. (LYB)$118$104
Westlake Corp. (WLK)$140$130
Celanese Corp. (CE)$120$105
Methanex Corp. (MEOH)$49$46
AdvanSix Inc. (ASIX)$54$52
Olin Corp. (OLN)$83$82

https://seekingalpha.com/news/3955907-dow-chemical-makers-upgraded-at-piper-sandler?mailingid=31138477&messageid=2900&serial=31138477.1235#scroll_comments

April 11, 2023

Green Shoots

Morgan Stanley sees freight upcycle nearing

Shippers becoming less negative on economy, transportation needs

Todd Maiden

· Monday, April 10, 2023

Outlook improves among shippers but capacity is likely to stay loose, survey says. (Photo: Jim Allen/FreightWaves)

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A dash of optimism around improving freight demand in the back half of the year was noted in a quarterly survey of shippers released Monday.

Morgan Stanley’s (NYSE: MS) Freight Pulse showed sentiment among the group improved slightly even as data points have yet to point to an upward trajectory for freight markets. Of shippers polled, 38% said they will likely maintain current inventory levels, which was a 10-percentage-point increase from the fourth-quarter report. The number of respondents saying they need to reduce inventories also declined for the first time since the third quarter of 2021.

Nearly 75% of shippers surveyed expect inventories to normalize in 2023, with almost 50% saying it will happen in the second half of the year.

“Despite all the bad headlines and mixed datapoints on macro, our latest quarterly Shipper Survey keeps showing signs of improvement under the surface,” stated Ravi Shanker, Morgan Stanley transportation equity analyst.

Heading into the first-quarter earnings season, which starts in earnest next week when J.B. Hunt (NASDAQ: JBHT) reports, many analysts are taking a wait-and-see approach to the back half after being more bullish to start the year.

Outlook improves among shippers, capacity to stay loose

Shippers’ overall view of the economy also moved higher for the second consecutive quarter. However, a 4.9 reading remained “comfortably below” the 15-year-old survey’s long-term average of 5.8. Shippers from the manufacturing and food and beverage verticals were most constructive while responses from retail shippers saw the biggest declines.

The outlook for transportation capacity across all modes loosened again.

Capacity predictions for the next six months were the loosest for airfreight and ocean, while rail capacity is expected to be the tightest. However, the outlook for rail capacity saw the biggest sequential deterioration out of all modes.

The outlook for both volume and pricing growth in trucking was described as “pretty grim,” with volumes “consistently in negative territory (similar to 2020 levels but slightly better than 2009 levels).” Pricing sentiment saw the biggest declines ever recorded, down in the low-single-digit range. However, the report pointed out that the comparisons were to record price levels.  

FreightWaves’ trucking data has yet to inflect positively. Rejected tenders continue to bobble along the bottom alongside spot rates.

Chart: (SONAR: OTRI.USA). A proxy for truck capacity, the Outbound Tender Reject Index, shows the number of loads being rejected by carriers. The index has fallen to below 3% compared to a little more than a year ago when fleets were rejecting more than 20% of loads under contract. To learn more about FreightWaves SONAR, click here.
Chart: (SONAR: NTIL.USA). The National Truckload Index (linehaul only – NTIL) is based on an average of booked spot dry van loads from 250,000 lanes and 10,000 daily spot market transactions. The NTIL is a seven-day moving average of linehaul spot rates excluding fuel. Spot rates are currently 31% lower y/y.

There was no change in truckload capacity expectations, with most respondents indicating intermodal will soon be the loosest mode after being the tightest over the last three quarters. Even with lower TL rates and rail service issues, 43% of shippers said they are shifting some freight from TL to the rails. This was the first increase in a year for the metric with only 25% saying they would make the change a quarter ago.

The report also showed rail volumes will be flat year over year (y/y), down from a 0.7% growth expectation last quarter. Pricing expectations stepped slightly higher but remained below the long-term average. Shippers said rail service has deteriorated, almost reaching the survey low established in the third quarter of last year.

Expectations for parcel call for slight y/y volume growth (except for airfreight) with the rate outlook snapping back into positive territory.

“We are not sure what the macro outlook holds in store for us but what is very clear is that at the current pace of destocking, inventory levels should be normalized soon and if the consumer holds up in 2H23, conditions are ripe for a restocking upcycle (esp. if we also overcorrect on inventory destocking),” Shanker said.

More FreightWaves articles by Todd Maiden

https://www.freightwaves.com/news/morgan-stanley-sees-freight-upcycle-nearing?j=387278&sfmc_sub=103156145&l=256_HTML&u=5625266&mid=514011755&jb=16005&utm_id=387278&sfmc_id=103156145&sfdc_id=0035d00006rd2EfAAI