Global Chip Shortage Takes Toll on Auto Industry A global semiconductor shortage is expected to cut Ford’s vehicle output by up to 20% in the first quarter of this year, illustrating how the fallout from the computer-chip crunch has hit the car business.
Ford said Thursday it plans to cut production of its F-150 pickup truck—the nation’s top-selling vehicle and the company’s biggest moneymaker—because of the shortage, a day after confirming a hit to output of several sport-utility vehicles. Losses of vehicle production globally in the first and second quarters could trim $1 billion to $2.5 billion from its pretax bottom line this year, executives warned while discussing fourth-quarter earnings. (…)
Most major auto makers have been forced to curtail at least some factory output; meanwhile, makers of consumer electronics have had to deal with limited supplies for their devices. The shortages come as manufacturers work to rebound from shutdowns last spring while demand rises with increased use of technology during the pandemic. (…)
As demand for laptops, gaming systems and other personal-electronics has surged during the pandemic, global chip makers have been slammed with semiconductor orders. Remote work has also fueled a boom in computing services and the data centers behind them—all of which is straining chip availability and leading to higher prices.
At the same time, car companies have in recent years become bigger purchasers of semiconductors, using them in everything from engine-control units and transmissions to the large tabletlike displays that are embedded in the dashboard. The industry’s shift to electric vehicles is additionally increasing the need for more software-based systems, analysts say. (…)
Research firm IHS Markit this week said it expects the chip shortage to dent car industry production by about 672,000 vehicles globally in the first quarter, with problems lingering into the fall. It said lead times for chips used in the auto sector typically are 26 weeks. (…)
The German auto maker [VW] has also begun pressing Berlin and Brussels to do more to promote building up a native chip industry to ensure that Europe is independent of Asian producers, where European auto manufacturers buy most of their chips.
Other car companies have also grappled with inadequate chip supplies, including Toyota Motor Corp. and Honda Motor Co. —both of which have trimmed U.S. factory output since the start of the year to manage through shortages. (…)
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Sony boosted by home-entertainment boom, but PS5 manufacturing hampered by chip shortage
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Carmakers consider supply chain overhaul to avert more chip crises Mercedes-Benz and Porsche look at building semiconductor stockpiles to prevent bottlenecks
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Kia Approaches Partners to Build Apple Car in Georgia The South Korean auto maker’s proposal would involve a multibillion-dollar investment, according to people familiar with the matter. If successful, it would thrust the iPhone maker into the car business after several years of secretive work. Apple has never confirmed those talks, and its dalliances with other auto makers in the past have fizzled.
Lockdown brings beer-can shortage (Axios)
U.S. Factory Orders & Shipments Increase During December
Manufacturing activity continues to strengthen. Factory orders rose in December for an eighth consecutive month. The 1.1% gain (-0.8% y/y) followed a 1.3% November rise, revised from 1.0%. A 0.7% December increase had been expected in the Action Economics Forecast Survey.
Durable goods orders rose 0.5% (1.9% y/y), which was revised from the 0.2% gain reported last week. Transportation sector orders eased 0.8% (-7.6% y/y) as nondefense aircraft orders fell sharply. Machinery orders strengthened 2.7% (6.5% y/y) while electrical equipment & appliance orders gained 0.7% (1.9% y/y). The full report on durable goods activity is available here. (…)
Euro Area Retail Sales Make Minor Rebound
Retail sales rose in December but did not gain back all the ground lost in November’s drop. December brought a month-to-month gain in sales volume of 2% in the wake of November’s 5.7% monthly drop. In fact, retail sales growth rates have become progressively weaker from 12-months to six-months and from six-months to three-months. (…)
Contrast real retail sales with the U.S.: Q4 YoY: Euro: -5.8%, USA: +2.8%
Q4 a.r.: Euro: -9.6%, USA: -0.8%
JPM’s Chase credit card data suggest U.S. consumer spending has stalled in late January.
But Morning Consult is more upbeat:
In January, the high-income Current Buying Conditions Index remained essentially unchanged from December, increasing by 0.18 percent during the month. While the size of the increase is not impressive, it signals that consumer spending and retail sales are turning the corner after two consecutive months of contracting.
- Daily data also shows that the CBC Index among high-income adults rose over the course of January. Thus, even if it just maintains on average its current level for the duration of February, the high-income CBC Index in February will increase by 0.28 percent. This moderate increase in the high-income CBC Index provides a floor or lower bound for consumer spending in February.
- Developments in the fight against the pandemic as well as additional financial support for households suggest that the high-income CBC Index will actually increase by the end of March to 110, driving consumer spending and retail sales higher by 1 to 2 percent over the next two months.
- Over the past 12 months, the CBC Index among high-income consumers ($100,000 or more) has become the strongest indicator of consumer spending, showing a strong positive correlation with real personal consumption expenditure (.96) and real retail sales (.90).
INFLATION WATCH
Prices Rise Here, There and Everywhere (Moody’s)
Industrial commodity prices have climbed higher in response to both an actual and anticipated firming of global industrial activity. In addition, an abundance of financial liquidity as reflected by the U.S. money supply’s 25% yearly surge that quadruples 2021’s expected annual climb by nominal GDP, has added fuel to industrial commodity price inflation.
Forthcoming fiscal stimulus is likely to put upward pressure on Treasury bond yields. If the Fed attempts to limit or reverse any climb by benchmark bond yields via stepped-up purchases of Treasury bonds and federal agency mortgage-backed securities, the rapid growth of the money supply will be extended. Conceivably, more fiscal stimulus might beget more monetary stimulus in order to rein in fixed-rate borrowing costs. Such a link between fiscal and monetary stimulus lacks precedent. (…)
A late January survey conducted by Blue Chip Financial Forecasts found that the percent of surveyed economists who viewed inflation risks as being to the upside for this year and next rose from 78% for 2021 to 92% for 2022.
In response to upwardly revised inflation risks, the 10-year Treasury yield has climbed to a recent 1.14%. The consensus believes the 10-year Treasury yield will average 1.3% during 2021’s final quarter. However, if COVID-19 risks fade and real GDP growth breaks above 4.5% for calendar-year 2021, a 1.5% average seems more appropriate for the 10-year Treasury yield of 2021’s final quarter.
(…) the current holdings of highly liquid financial assets, or M2, by American businesses and households now exceed what they might hold under normal circumstances by $3 trillion to $3.5 trillion. Over time, the excess holdings of highly liquid assets will fund household expenditures, business capital spending, and debt repayment as well as purchases of financial and real assets.
Top-heavy amounts of liquidity show up in the personal income data. The U.S.’ extraordinarily high personal savings rate of 16.2% for 2020 more than doubled the 6.1% average of the 20-years-ended 2019 and reflects a surfeit of highly liquid assets. Calendar-year 2020’s 134% annual surge by personal savings (to a record-high $2.88 trillion) differed radically from the 3% drop by consumer spending (to $14.15 trillion). A likely normalization of the US personal savings rate will help to accelerate consumer spending in 2021.
Elsewhere in 2021:
[In the U.S.] A standard subscription jumps from $12.99 to $13.99 per month [+7.7%], while those on the premium tier which allows you to stream to more than one device at a time will see prices rise from $15.99 to $17.99 [+12.5%]. The base level standard-definition plan remains unchanged at $8.99 per month.
Customers in the U.K. will also see emails arriving soon announcing the new prices. The standard package goes up £1 to £9.99 [+11.1%], with premium jumping by £2 to £13.99 per month [+16.7%]. Once again, the base package remains untouched at £5.99 per month. (Forbes)
(…) Brent is on track to rise more than 6% this week. The last time it traded at $60, the pandemic had yet to take hold, economies were open and people were free to travel, meaning demand for gasoline, diesel and jet fuel was much higher. (…)
Further boosting the market, a weekly supply report showed a drop in U.S. crude inventories to their lowest since March, suggesting that output cuts by OPEC+ producers are having the desired effect.
South Korea unveils $43 billion plan for world’s largest offshore wind farm
South Korea unveiled a 48.5 trillion won ($43.2 billion) plan to build the world’s largest wind power plant by 2030 as part of efforts to foster an environmentally-friendly recovery from the COVID-19 pandemic. (…)
Moon attended a signing ceremony in the southwestern coastal town of Sinan for the plant, which will have a maximum capacity of 8.2 gigawatts. (…)
It said the project would provide up to 5,600 jobs and help achieve a goal to boost the country’s wind power capacity to 16.5 GW by 2030 from 1.67 GW now.
The envisaged 8.2 GW amounts to the energy produced by six nuclear reactors, or the effects of planting 71 million pine trees, officials said.
To date, the world’s largest offshore wind farm is Hornsea 1 in Britain, which has 1.12 GW capacity.
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According to the US Energy Department, new wind projects account for annual investments of over $10 billion. There are 180 onshore and 17 offshore wind projects slated for the next 5 years with a total value of $84bn.
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Quebec bets on wind, citing shift in cost of power At a cost of 6 cents per kilowatt-hour, its economics rival and even surpass that of new hydroelectric power
EARNINGS WATCH
We now have 263 reports in with an 83% beat rate and a +17.3% surprise factor (+3.3% on revenues!).
Q4 estimates are now +1.6%, +5.3% ex-Energy!
Trailing EPS are now $141.30 and full year 2021 $172.77 rising to $199.61 in 2022.
Corporate guidance remains pretty good:
We sure need solid profit trends given trends in interest rates, the Fed notwithstanding:
US yield curve steepest since 2015 on stimulus hopes Investors are expecting stronger economic growth and higher inflation
The difference between the yields on the 30-year Treasury and the shorter-term five-year note reached 147.3 basis points on Thursday, the widest since October 2015.
Bank of America thinks the end of TINA may be in sight. Currently, over 60% of the stocks in the S&P 500 carry a dividend yield higher than the 10-year Treasury yield, which is around 1.13%. Should benchmark rates climb to 1.75% by year end — Bank of America’s current house view — that total would drop to 44%, making the bullish TINA mantra for stocks “less compelling,” the analysts wrote. (…)
“Both ends of the equity duration spectrum are at risk: long duration growth stocks that benefited from a falling discount rate could suffer a reversal of fortune. And short duration high-coupon stocks with no room to raise dividends would pale relative to bond income.” (…) (Bloomberg)
Many tech stocks trade like zero coupon bonds as the Market Ear explains:
NASDAQ is the equity duration play, i.e tech is the winner of crashing yields, but it works both ways. NASDAQ is the biggest and most beautiful place, but the latest moves in yields could be starting to make a relative impact on tech. Watch that 1.15% level in the 10 year closely.
First chart shows NASDAQ vs US 10 year inverted.
Second chart shows the multiplication factor on FCF as a function on FCF yield. That is the price of money…
TECHNICALS WATCH
- 13/34–Week EMA Trend (all charts via CMG Wealth)
- Volume Demand vs. Volume Supply
- S&P 500 Index vs. 50-Day & 200-Day Moving Average Cross
TikTok rival Kuaishou hits $160bn valuation as shares surge after IPO Chinese video app’s market debut is biggest in tech sector since Uber offering in 2019
The FT reports that the stock closed up 160% on its first day. There are many unbelievable facts here:
- The $160B valuation is for a company that derives most of its revenues from its cut of the tips viewers shower on content creators.
- Revenues for F2020 totalled $6.3B. Price to sales: 25.4x
- Kuaishou lost $1.4B last year.
- Lastly, more than 262M Chinese users check the Kuaishou app an average of 10 times a day, spending an average of 86 minutes watching videos and chatting with the creators who make them. That is 1.5 hour per day, 10.5 hours per week, watching short vids! I bet they also check a few other similar apps…
Bloomberg reports that Robinhood’s app has been downloaded more than 600,000 times last Friday alone:
They seem to enjoy the penny lane. Won’t last:
COVID-19
- Approximately 15% of the UK, 8% of the US, and 2.5% of the EU and Canada populations have now received their first dose. Overall, we have left the points at which 50% of the population have received their first dose unchanged at April for the UK, May for the US, and June for the EU. However, we expect Germany to hit this 50% point in June (vs. May previously), at the same time as Italy and Spain, followed by France in July. The interaction of a slow start to vaccinations and new strains suggests that substantial easing of lockdowns across the EU risks slipping beyond March. (Goldman Sachs)
- Goldman had a conf call with former FDA Commissioner Dr. Scott Gottlieb. Here are the key take-aways. First, The near-term outlook is positive and the pace of vaccinations could further accelerate. Dr. Gottlieb sees vaccinations accelerating from the current pace of 1.3mn/day to 1.6-1.7mn vaccinations/day in a “few weeks” solely based on current supply. If JNJ’s vaccine is approved in March, Dr. Gottlieb believes we could achieve up to 2.5mn vaccinations/day. Second, demand rather than supply could be the concern by late spring. Third, a “return to normalcy” in 2021 is achievable, however normalcy will look different from the past. It is possible, per Dr. Gottlieb, that by next fall, COVID cases resemble a really bad flu season, with ~60k annual deaths, not 600k. (The Market Ear)
- J&J Seeks FDA Authorization for One-Shot Vaccine The move sets the stage for a potential third vaccine to become available in the U.S. within weeks.
- Canada Says No Cruises Until 2022, Shutting Down Alaska Trips