Unemployment claims decline

The labor market remains in good shape. Initial jobless claims fell 4,000 to 213,000 (sa) in the week ended November 16, the lowest since April (chart). While continuing claims increased 35,000 to 1.908 million, the Veterans Day holiday likely affected both measures. Not seasonally adjusted data showed a larger decrease in initial claims and a smaller increase in continuing claims. (Ed Yardeni)

The unemployment rate peaked at 4.3% in July and dropped to 4.1% in October…and maybe even lower in November/December.

FLASH PMIs

Renewed fall in Eurozone business activity as services joins manufacturing in contraction

The seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index, based on approximately 85% of usual survey responses and compiled by S&P Global, dropped to 48.1 in November, after having registered at the no-change mark of 50.0 in October. Output has now decreased in two of the past three months. Although modest, the rate of contraction in November was the most marked since January.

For the first time since the opening month of the year, both monitored sectors saw output decrease in November as services joined manufacturing in contraction. The reduction in services activity was only slight, however, and much weaker than that seen in manufacturing, where the pace of decline quickened from October. Manufacturing production has now decreased in each of the past 20 months.

Falling business activity reflected a waning demand environment. New orders decreased for the sixth month running in November, and at the fastest pace in 2024 so far. Sharper reductions in new business were seen across both manufacturing and services.

In line with the picture for total new orders, new business from abroad (which includes intra-Eurozone trade) also declined to the largest extent since the end of last year. New export orders were down sharply, and to a greater degree than seen for total new business.

The renewed reduction in business activity in November was accompanied by waning confidence in the year-ahead outlook. Business sentiment dropped sharply and was the lowest since September 2023. The overall loss of confidence was centred on the service sector, where optimism fell to a two-year low.

Pessimism was seen in France for the first time in four-and-a-half years, while German companies were slightly more confident than in October. Meanwhile, the rest of the euro area remained strongly optimistic in the 12-month outlook for output, albeit slightly less so than in the previous month.

Companies in the Eurozone lowered employment for the fourth consecutive month in November, although the rate of job cuts was only marginal and softer than seen in October. There were divergent trends between the two monitored sectors, however.

Manufacturing workforce numbers decreased markedly, and to the largest degree since August 2020. Meanwhile, services employment continued to increase, with the latest rise the fastest in four months. Staffing levels fell in Germany, but rose in France and in the rest of the Eurozone.

There remained evidence of spare capacity in the private sector as backlogs of work decreased again. Moreover, the latest depletion in outstanding business was the greatest since January.

The rate of input cost inflation quickened to a three-month high in November, but was still slower than the average over 2024 so far. A sharp increase in services input prices was mitigated to some extent by falling input costs in the manufacturing sector.

Output prices also rose at a pace that was faster than in October but softer than on average across the opening 11 months of the year. In line with the picture for input costs, higher charges for services contrasted with falling selling prices in manufacturing. At the composite level, output prices increased in Germany, France and across the rest of the Eurozone. (…)

“The environment in November is stagflationary. On one hand, activity is declining across the board, while on the other, input and output prices are rising more quickly. This surge is driven by services costs, which ties in with the sharp rise in wages in the eurozone in the third quarter. Service sector selling price inflation is a major headache for the ECB. Given this backdrop, some ECB members might even argue for a rate pause in December, but most will probably stick with a 25-basis point rate cut.

“In November, manufacturing purchase prices didn’t drop as much as the previous month. If the euro keeps weakening, purchase prices might even rise in the coming months, especially if the EU Commission imposes counter-tariffs in response to potential US tariff hikes.”

  

• Sharp fall in Eurozone activity raises odds of half-point ECB rate cut

Japan: Business activity falls further in November Manufacturing output and new orders fell.

  

The U.S. flash PMI is out later today.

Japan Approves $141 Billion Stimulus to Boost Economy, Offset Living Costs The government estimates the impact could be as much as 39 trillion yen

Ishiba has said his government will focus on getting the economy to completely exit deflation and create growth driven by higher wages and investments. But he faces a bumpy road ahead in steering policy after the ruling coalition lost its majority in the lower house of parliament following a general election in late October.

Under the new economic package, the government will give cash handouts of ¥30,000 to low-income households as an inflation-relief measure, with an extra ¥20,000 per child to be given for families with children.

The government is also planning to resume subsidies for gas and electricity bills from January to March next year. The cabinet estimates that the energy subsidies will reduce consumer prices by a monthly average of 0.3 percentage point from February to April.

The government has intermittently provided energy subsidies since January 2023, which has been a major factor affecting consumer inflation trends. Underlying inflation, which excludes fresh food and energy prices, rose 2.3% in October from a year earlier, government data released Friday showed.

In an attempt to reinforce chip supply chains and promote innovation in artificial intelligence, the government will also provide 10 trillion yen in subsidies and other financial support to businesses in relevant fields until fiscal 2030.

Officials will discuss the possibility of raising the ceiling for tax-free income, which is currently set at ¥1.03 million. Lifting the threshold is one of the main campaign promises made by the opposition Democratic Party for the People.

The higher ceiling would encourage part-timers to work longer hours, possibly helping to ease the nation’s chronic labor shortages and stimulating consumer spending.

On the other hand, it could worsen the Japanese government’s fiscal situation, which is already among the worst in major economies. Japan’s public debt has grown to more than double the size of its economy. With the central bank expected to keep raising interest rates, repaying that debt will likely cost more.

If the income-tax barrier is raised to ¥1.78 million, as sought by the DPFP, that could reduce tax revenue for the central and local governments by up to 8 trillion yen, according to government estimates.

The latest package will require about ¥13.9 trillion in additional government general-account spending.

• “We see few measures in the supplementary budget that would immediately boost the economy, and we believe that the positive impact on GDP will be limited.” (Goldman Sachs)

Trudeau unveils $6.28-billion in new spending on two-month GST break, stimulus cheques

The federal government unveiled its multibillion-dollar plan to alleviate pocketbook pressures for households, dropping the GST on a wide range of products for a two-month period and sending most working Canadians a $250 cheque in April.

The measures will cost the federal government $6.28-billion, according to the Finance Department – $1.6-billion for the sales tax break and $4.68-billion for the cheques. (…)

“Our government can’t set prices at checkout, but we can put more money in people’s pockets,” he added.

The announcement comes just months after the Prime Minister dismissed the idea of sending Canadians money directly, arguing that it would be inflationary. He said Thursday that circumstances have changed because inflation has cooled. (…)

The Liberals had pledged to keep the deficit below $40-billion, but last month the Parliamentary Budget Officer said it was already on track to be higher than that, estimating the government would record a $46.8-billion deficit for the 2023-24 fiscal year. (…)

Christmas trees, kids’ clothing and toys, beer, wine, and restaurant meals are among the items that Canadians will no longer have to pay GST on between Dec. 14 and Feb. 15.

The $250 cheques will be tax-free and be sent to all Canadians who worked in 2023 and earned a net individual income of up to $150,000. (…) The government estimates that 18.7 million people will qualify for the cheques.

Bay Street’s view on Thursday was that the stimulus, especially when combined with the $3-billion worth of cheques that Ontario will also send out next year, will spur economic growth in the short term and kill the chances for a larger interest rate cut from the Bank of Canada next month. (…)

Canadians will get GST relief on the following items:

• Children’s clothing, footwear and diapers
• Children’s car seats
• Real and fake Christmas trees
• Physical newspapers
• Physical books and audiobooks
• Children’s toys and games
• Jigsaw puzzles
• Video-game consoles and physical copies of video games
• Beer, wine, cider, plus coolers up to 7 per cent alcohol by volume
• Snacks such as candy, chips, granola bars, ice cream, pudding
• Baked goods
• Carbonated soft drinks, non-carbonated fruit juice, bottled water, fruit-flavoured beverages
• Prepared foods and food platters
• Food and drinks at restaurants and cafés

Ridiculous and a logistic nightmare for 2 months!

BTW: Black Friday falls on Nov. 29 this year, so items purchased during that time will not qualify for GST relief measures.

Governor Abbott Directs State Agencies To Divest Portfolios From China

Governor Greg Abbott today sent a letter to Texas state agencies directing them to divest from risky investments originating from China. The Governor ordered Texas state agencies to protect Texans from exposure to the Chinese Communist Party (CCP) by fully divesting from China as soon as possible.

“Security of Texas and Texans is of utmost importance,” reads the letter. “That includes the financial security of Texas state investments. Threats to that security can come from foreign adversaries, including the Chinese Communist Party (CCP), whose belligerent actions across the Southeastern Pacific region and the world have increased instability and financial risk to the State holding investments in China.

Therefore, all investments of state funds in China must be evaluated and immediately addressed. To further this goal, I direct Texas investing entities that you are prohibited from making any new investments of state funds in China. To the extent you have any current investments in China, you are required to divest at the first available opportunity. Texas will defend and safeguard itself and our public treasury from any potential threat, including those posed by the CCP.”

SENTIMENT WATCH

Is there any reason to diversify? (Bloomberg)

But why bother with U.S. equities?

Two U.S. Federal Reserve governors stake out competing views of inflation risk

Two Federal Reserve governors on Wednesday laid out competing visions of where U.S. monetary policy may be heading, with one citing ongoing concerns about inflation and another expressing confidence that price pressures will continue to ease. (…)

Bowman, appointed to the Fed’s Board of Governors by Trump during his first four-year term in the White House, said in comments to an economic forum in West Palm Beach, Florida, that with inflation still elevated and moving sideways in the last few months, the Fed needed to be cautious.

“We have seen considerable progress in lowering inflation since early 2023, but progress seems to have stalled in recent months. … I would prefer to proceed cautiously in bringing the policy rate down to better assess how far we are from the endpoint,” Bowman said, noting that the Fed’s Nov. 7 policy statement “included a flexible, data-dependent approach, providing the (Federal Open Market) Committee with optionality in deciding future policy adjustments.” (…)

But [Lisa] Cook, who was appointed to the Fed’s board by President Joe Biden in 2022, also voiced confidence in a continued easing of price pressures that are now largely confined to the housing sector. She estimates that inflation, while stalled of late, would drop to around 2.2% next year, just above the Fed’s 2% target, and continue lower from there. (…)

Still, “the totality of the data suggests that a disinflationary trajectory is still in place and that the labour market is gradually cooling,” Cook said. “Going forward, I still see the direction of the appropriate policy rate path to be downward.” (…)

But the totality of the data negates the notion that “price pressures are now largely confined to the housing sector”.

Core CPI is up 3.3% YoY but CPI-Services is still rising 4.8%. The 1.5% gap between the two inflation series is the largest since 2003.

And CPI-Services less Rent is up 4.5% YoY and was up 6.1% annualized in the last 2 months. CPI-Housing is up 4.2% but slowed to +3.6% in the last 2 months.

November 19:

CHINA WATCH

Taiwan October export orders beat forecasts on AI, China demand remains soft

Export orders rose 4.9% last month to $55.45 billion from a year earlier, the economy ministry said on Wednesday. That topped both the 3.6% gain forecast in a Reuters poll and September’s expansion of 4.6%, and marked the eighth straight month of growth.

Orders for goods from Taiwan, home to tech giants such as chip manufacturer TSMC are a bellwether of global technology demand.

The ministry expects export order momentum to be sustained as new applications keep rolling out, boosting demand for semiconductors and servers, the ministry said. Consumer electronics products will enter the traditional hot demand season in the second half of the year, it added. (…)

The ministry said it expects export orders in November will rise between 4.7% and 8.6% year-on-year.

Taiwan’s orders in October for telecommunications products were up 0.5% from the prior year, while electronic products rose 11.2% from a year earlier.

Overall orders from China improved, down 0.1% versus a 3.6% fall the prior month. Orders from the United States jumped 12.6%versus an 8.3% gain in September.

Orders from Europe rose 2.7% in October after dipping 4.2% in September. From Japan, orders were up 5.3% versus a rise of 9.8% during the same period.

Apple sales fall y/y on China’s Singles’ Day, Huawei up 7%, data shows

The iPhone manufacturer saw its sales decline year-on-year by “double digit percentages” from Oct. 18 to Nov. 10, the research consultancy said. In comparison, its main rival in China, Huawei, recorded 7% sales growth, fueled by price cuts on its Pura 70 and Mate 60 models.

Xiaomi also saw sales decline, with volumes falling 6%.

“To capitalize on one of the biggest sales festivals of the year, major Chinese OEMs (manufacturers) except Huawei launched their latest flagships ahead of the festival,” Counterpoint said, describing this as a key reason for Apple’s decline. Only Xiaomi did so last year, it noted.

Overall, smartphone sales in China during the event, the country’s biggest online shopping festival, fell 9% year-on-year as a slowing economy weighed on consumer enthusiasm despite the promotions, Counterpoint said. (…)

Google Should Be Forced to Sell Chrome Browser, Justice Department Says Spinoff would be a major blow to Google following its loss in antitrust trial

Government lawyers said competition can only be restored if Google separates its search engine from products it has built to access the internet, such as Chrome and its Android mobile operating system. Chrome controls about two-thirds of the global browser market, according to the website Statcounter. Searches in the Chrome address bar go through Google unless a user changes the settings.

The Justice Department also requested that Google be prevented from giving preferential access to its search engine on devices that use its Android mobile operating system. If Google violated that rule in the future, it would have to divest Android as well under the government’s proposal. (…)

Google would also be forbidden from paying to be the default search engine on any browser, including Chrome under its new owner. Google currently pays Apple tens of billions of dollars a year to be the default on its Safari browser. (…)

The government’s proposal also goes after Google’s role in the young artificial-intelligence market, which is starting to displace traditional search. The Justice Department wants the court to compel Google to allow website publishers to opt out of having their data used to train its AI models. Alternatively, the search giant could pay publishers to use their data.

Kent Walker, Google president of global affairs, described the Justice Department’s suggested remedy as a “wildly overbroad proposal” that would “harm Americans and America’s global technology leadership.” He said Google would file its own proposed remedy to the court in December.

About half of U.S. internet searches go through products where Google has paid to be the default, including Android phones, Apple devices and browsers such as Firefox, according to U.S. District Judge Amit Mehta’s opinion. Another 20% go through Chrome browsers that users have downloaded themselves and default to Google search.

Advertisements next to search results accounted for 57% of Google parent Alphabet’s $307 billion of revenue last year.

Mehta will oversee a trial starting in April to decide how to address Google’s antitrust violations. The judge has said he plans to decide by August. Google is expected to appeal his decision. That could delay the impact of a ruling for months or years. (…)

In an opinion 25 years ago, judges on the U.S. Court of Appeals for the District of Columbia Circuit vacated a lower court’s order to break up Microsoft. They suggest that remedy was only appropriate when a monopoly had been formed through mergers, as opposed to organically grown.

While the Justice Department will gain a new antitrust chief after President-elect Donald Trump takes office, Republicans have generally supported antitrust action against the company. The department filed the lawsuit in 2020 when Trump was president. (…)

The Justice Department’s proposal asks for Google to have to share its search data with competitors.

AI CORNER

That could be a killer app!

Children can now pen wishlists to send to the North Pole, before Santa will contact them via a “real call.” For $9.95, children receive a one-time call from Santa and for $14.95, kids can chat with him for five minutes and receive a recording to “relive the magic and cherished memories of this moment for years to come.” After deciding which package to purchase, parents can then fill in details that personalize the message from Santa.

The service does not utilize pre-recorded audio and instead uses generative AI to mimic real conversations, per Jam Press. (New York Post via ADG)

EDGE AND ODDS

One of this blog’s goal is to provide practical info (edge) to investors to help improve their odds of achieving good risk-adjusted investment returns.

This one probably will not hit most readers’ fancy:

• The Secret to Selling a $100 Million Mansion They’ve dealt with billionaires, signed NDAs and fielded bizarre requests. Four real-estate power brokers dish on how they got the deal done.

But this next one should put your imagination at work:

• Someone Just Paid $6.2 Million for a Banana Duct-Taped to a Wall 

The art market went bananas over a million-dollar banana.

“Comedian,” by Italian artist Maurizio Cattelan, sold for $6.2 million at auction Wednesday night. 

The piece consists of an ordinary, yellow banana affixed to a white wall with a diagonal piece of silver duct tape. Since Cattelan debuted the work at Art Basel Miami Beach five years ago, what’s become known as the Banana has turned into a viral sensation. It’s attracted crowds, copycats, and even its own cryptocurrency.

The Banana also is reigniting a long-running debate about the value society is willing to place on an everyday object simply because an artist calls it art. (Marcel Duchamp famously kick-started the argument in 1913 when he mounted a bicycle wheel to a stool.)

Perrotin Gallery originally sold Cattelan’s duct-taped banana in an edition of three plus two artist’s proofs, or early prototypes—so five bananas in all—for between $120,000 and $150,000 apiece in 2019. On Wednesday, Sotheby’s in New York estimated its example from this bunch would sell for at least $1 million, but at least seven bidders chased it far higher.

Ultimately it sold to Chinese collector Justin Sun, founder of cryptocurrency platform Tron. He intends to pay for the piece in crypto. After the sale, Sun said he considered the piece to be historic, but he also said he has plans of his own for the Banana: “In the coming days, I will personally eat the banana as part of this unique artistic experience, honoring its place in both art history and popular culture.” (…)

To keep a work made of a real banana intact, the artist enlists the work’s owner—who receives a 14-page sheet of instructions that doubles as a certificate of authenticity—to continually refresh the installation by buying their own supply of new bananas and tape. One stipulation is that the banana’s curve should point right, not left. The fruit should also be displayed vertically, not horizontally like a smile, and roughly at eye level.

If someone visiting Sotheby’s preview had tried to rip the Banana off the wall and eat it like artist David Datuna did at one point during its Miami fair debut, Sotheby’s was prepared. Expert David Galperin said, “We have backups.”

A version of the banana already belongs to a museum, sealing its cultural posterity: One of the original buyers of “Comedian” donated their banana to New York’s Solomon R. Guggenheim Museum. (The museum has yet to put the fruit on view.) (…)

Cryptocurrency investors, who last caused an art-world stir when they unsuccessfully competed to buy a copy of the U.S. Constitution at Sotheby’s in 2021, have gravitated in recent weeks to a pair of meme coins inspired by Cattelan’s banana, including a token called $BAN that was minted on Oct. 25 by a Sotheby’s employee. (…)

More than 23,000 wallets now hold $BAN, and its fluctuating market cap has climbed to as much as $330 million in the days leading up to the Sotheby’s auction.

The circumstances and surge have irked other investors with some 7,000 wallets holding another meme coin minted in August called $BTW, which stands for Banana Tape Wall. Its market cap is hovering around $4.5 million. $BTW holders are now jockeying for more attention by promoting their token on X with hashtags like #StayTaped. (…)