Manufacturing Weekly Economic Highlights | 23 September 2024

Welcome to our weekly manufacturing and economic newsletter, providing key insights and analysis on the latest developments in the global market. Stay updated and make informed decisions!

In this edition, we focus on the economic conditions in America, Europe, China, Thailand, as well as updates on the energy and logistics markets.

Americas

“USD ended moderately lower again this week, down 4.59% YoY”

“US Fed makes aggressive 50 bp rate cut”

“Fed appears more worried about unemployment than economy”

“Boeing furloughing employees and braces for a long strike by 32,000 union members”

“With core CPI at 3% and core PCE at 2.6%, will the aggressive Fed rate cut stoke inflation?”

The USD Index (DXY) finished moderately lower again this past week, from 101.11 on 13 September 2024 to close at 100.74 on 20 September 2024. The DXY is down 0.37% for the week, up 0.02% for the month, down 0.59% YTD, and down 4.59% over the past 12 months. With the exception of a few days in mid-July 2023, this is the lowest DXY close since 10 April 2022.

The US Fed aggressively cut its policy rate by 50 basis points on 18 September to the range of 4.75% to 5.00%, as reported on 18 September by MarketWatch. This was the first Fed policy rate cut in more than four years.

However, US Fed Chair Powell said that he wasn’t worried about the US economy and said that the Fed wasn’t “in a rush” to lower rates further.

The Fed’s “dot plot” indicated that nine of nineteen Fed officials backed only one more 25 bp cut this year, with ten officials backing two 25 bp cuts this year.

Powell said that the policy rate cut “reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained.”

The US Fed’s Summary of Economic Projections suggests that Fed officials are more worried about the labor market than they are about the economy.

Meanwhile, the Daily Caller News Foundation reported on 18 September that Fed Chair Powell attributed the US rising unemployment on migrants entering the US.

Powell said, “There’s been quite an influx across the borders, and that is actually one of the things that’s allowed the unemployment rate to rise.”

Meanwhile, on 20 September Boeing began furloughing thousands of employees in Washington state and Oregon following last week’s strike by 32,000 members of the International Association of Machinists and Aerospace Workers, as reported on 20 September by Reuters.

Boeing and the union appear to be preparing for a long strike, with no signs that negotiations will soon return to the bargaining table.

The strike has idled production of Boeing’s 767 and 777 aircraft. A prolonged strike could cost Boeing several billion USD, strain its finances, and threaten its credit rating.

Europe

“EUR ended modestly higher again this week relative to the USD, up 4.98% YoY”

“Eurozone to achieve 2% inflation target by mid-2025 per ECB President”

“Intel postpones €30 billion German chip factory amid turnaround and cost-cutting drive”

“Germany continues to struggle with economic stagnation”

“Flooding hits Central Europe”

The EUR finished modestly higher again this week, from $1.110 per EUR on 13 September 2024 to close at $1.118 per EUR on 20 September 2024. The EUR is up 0.90% for the week, down 0.16% for the month, up 1.25% YTD, and up 4.98% over the past 12 months.

European Central Bank President Christine Lagarde predicted that European inflation will return to the target of 2% by mid-2025, as she hailed the “remarkable” unwinding of inflationary pressures with minimal impact on employment, as reported on 20 September by Euronews.

Lagarde said, “It is rare to avoid a major deterioration in unemployment when central banks rise interest rates in response to high energy prices.”

However, she also noted that “uncertainty ahead is still profound” as the global economy faces “transformational changes.”

She highlighted technological advancements in AI and fintech which are reshaping industries, and also noted that Europe and the US are diversifying their supply sources and embracing near-shoring strategies amid a restructuring of global value chains.

Intel has confirmed that it will postpone by up to two years its plan to build a massive €30 billion chip factory in Germany, as reported on 17 September by Fortune.

Intel also announced that it has postponed plans to build a €4.6 billion factory in Poland. However, it has reaffirmed its expansion project plans in Arizona, New Mexico, Oregon, and Ohio.

Germany pledged €9.9 billion in public funding for the Intel plant in June 2023 and is now looking to divert the pledged funding to other fiscal priorities. Germany’s 2025 budget includes a deficit of €12 billion.

Intel is pursuing a corporate turnaround including “a huge cost-cutting drive” and a headcount reduction of 15% amid falling revenues that have seen its share price drop by more than 50% YTD.

Meanwhile, Germany’s 3Q24 GDP is expected to barely avoid a contraction amid a stagnating economy, following modest growth of 0.2% in 2Q24 as reported on 20 September by Bloomberg.

Mercedes-Benz Group AG cut its outlook, citing a “rapid deterioration” of its business in China, following recent challenges reported by Volkswagen and BMW.

Economists are expecting a modest rebound in late 2024 which will be sustained into 2025, based on the assumption that rising incomes and lower inflation will lead to improved consumer confidence and spending.

The Eurozone is forecast to grow by 0.3% QoQ in 3Q24, 4Q24, and 1Q25, followed by 0.4% QoQ through early 2026.

Central Europe experienced its worst flooding in two decades last week, as reported on 19 September by Bloomberg. Poland and the Czech Republic were hit particularly hard, which will put fiscal pressure on these governments which are already struggling to meet the EU’s deficit targets of 3% of GDP.?

China

“The CNY rebounded moderately higher this week, up 3.37% YTD”

“US Fed rate cut boosts CNY, making room for Chinese monetary support”

“Chinese youth unemployment hits 18.8%, 3.5x overall unemployment”

“China raises retirement age amid aging society and rising life expectancy”

The CNY ended moderately higher this week, from 7.093 per USD on 13 September 2024 to close at 7.052 per USD on 20 September 2024. The CNY is up 0.59% for the week, up 1.00% for the month, up 0.86% YTD, and up 3.37% over the past 12 months.

The US Fed rate cut could allow the CNY to appreciate relative to the USD if the yield gap between US and Chinese government bonds shrinks, as reported on 17 September by Bloomberg.

This could allow China to pursue monetary easing without incurring excessive weakening of the CNY.

However, external tariffs and persistent domestic economic weakness may limit the effectiveness of Chinese monetary easing.

Meanwhile, China’s youth unemployment rose for the second consecutive month to 18.8% in August, up from 17.1% in July. This is 3.5 times China’s overall unemployment. The August youth unemployment rate is also the highest since China revised its methodology in January 2024 for reporting youth unemployment.

This follows China’s announcement on 13 September, as reported by Bloomberg, that it will raise its retirement age for the first time since 1978. The retirement age for men will be raised to 63 from 60. Women working in ordinary jobs will retire at 55 instead of 50, with women in management positions retiring at 58 instead of 55.

The retirement change will be implemented over 15 years starting in January 2025 and may boost productivity as China struggles with an aging population.

Thailand

“The THB finished moderately higher again this week, up 8.66% YoY”

“Thai government calls on BoT to cut policy rate . . .”

“ . . . while BoT Governor insists on Central Bank independence to set monetary policy”

The THB ended moderately higher again this week, from 33.22 per USD on 13 September 2024 to close at 32.89 per USD on 20 September 2024. The THB is up 1.14% for the week, up 3.12% over the past month, up 4.33% YTD, and up 8.66% over the past 12 months.

The Shinawatra-led Government resumed its 20-year battle with the Bank of Thailand, renewing its call for the BoT to reduce its 2.5% policy rate, as reported on 16 September by Bloomberg.

Commerce Minister Pichai Naripthaphan said, “the central bank’s thinking may be outdated and too slow. Our economic growth is so slow. BOT should help us boost growth.”

K. Pichai also called on the BoT to manage the strength of the THB, which has gained more than 10% in 3Q24 to become the best performing currency in SE Asia.

Meanwhile, as reported by Bloomberg on 20 September, BoT Governor Dr. Sethaput Suthiwartnarueput supported the independence of the Central Bank in setting monetary policy. Dr. Sethaput said, “The central bank’s duty to look at the long-term outlook must come with operational independence. In many cases, central banks need to conduct monetary policy against an economic cycle which will have a wide impact. There will be gainers and losers. If the central bank is not independent enough, it may lose track and lose its long-term vision.”

Commodities

“GSC Commodity Index ended moderately higher again this week"

“The GSCI Industrial Metals Index ended moderately higher again this week”

“Lithium prices up 4% this week but remain 90% below 2022 peak amid excess supply”

“Low nickel prices encouraging battery producers to continue using nickel cathodes”

“China seeks to maintain dominance in rare earth elements by driving out competitors with excess supply and low prices”

The GSCI Commodity Index finished moderately higher again this week, from 519.10 on 13 September 2024 to close at 533.41 on 20 September 2024. This index is a weighted index based on world-production of each commodity in the index, with energy and industrial metals comprising the bulk of the index weighting. The GSCI is up 1.07% YTD. Trading Economics has maintained its GSCI forecast this week at 529 by the end of 3Q24 and 508 in 12 months.

The GSCI Industrial Metals index finished moderately higher again this week, from 446.38 on 13 September 2024 to close at 451.35 on 20 September 2024. The Industrial LME Metals Index is up 9.38% over the past 12 months.

Chinese battery manufacturing giant Contemporary Amperex Technology (CATL) this week did not confirm its reported plans to suspend production at one of its lithium mines which provides 5% of global supply. However, it did confirm that it is making production adjustments, as reported on 18 September by The Wall Street Journal.

Lithium prices have subsequently risen 4% but remain down nearly 90% from their peak in 2022.

China has a historically high inventory of lithium at 130 kilotons. Goldman Sachs estimates that 2025 lithium supply could be 57% higher than demand.

Lithium prices are unlikely to fall much lower due to production costs. Current lithium prices are already estimated as being lower than CATL’s cash cost of production. However, excess supply will limit price gains for the foreseeable future.

Meanwhile, the price of nickel is “languishing” at around $16,000 USD per ton amid a supply glut. As reported by Bloomberg on 17 September, battery makers were shifting production to batteries with low or no nickel content due to the cost and supply risks of nickel.

However, producers including CATL are moving to “medium-nickel, high-voltage” batteries to capitalize on the decline in nickel costs and retain a high energy density, thermal stability, and driving range.

Bloomberg reported on 16 September that China, despite controlling 70% of global output and 90% of global refining of rare earth minerals, has raised their mining quotas for rare earths in both 2023 and 2024, driving down prices to breakeven levels.

A report dated 3 September by Benchmark Source stated, “most rare earths mines are struggling to break even under low prices while early-stage projects face delays and funding shortfalls.” These factors are “potentially slowing the West’s push to reduce dependence on Chinese supply chains.”

MP Materials Corp. owns the only rare earths mine in the US and Australia-based Lynas Rare Earths Ltd. is planning to build a production facility in Texas. These and other Chinese rare-earths competitors are struggling to overcome Chinese market dominance.

Energy

“Crude ended moderately higher again this week”

“Henry Hub ended moderately higher this week”

“EU Natural Gas ended moderately lower again this week”

“Oil prices rise supported by Fed rate cut and low US inventories”

“Chinese refinery output down for fifth consecutive month”

Brent Crude finished moderately higher again this week, from $72.18 USD on 13 September 2024 to close at $74.72 USD on 20 September 2024.

Henry Hub finished moderately higher this week, from $2.29 USD per MMBTU on 13 September 2024 to close at $2.46 USD per MMBTU on 20 September 2024.

EU Natural Gas finished moderately lower again this week, from €35.71 per MWh to close at €34.61 per MWh, equivalent to $9.08 USD per MMBTU. EU Natural Gas is up 6.98% YTD. Trading Economics maintained its EU Natural Gas TTF forecast this week at €40.0 per MWH by the end of 3Q24 and 42.0 in 12 months.

Oil prices continued to recover, support by the US Fed policy rate cut and declining global oil stockpiles, partially offset by concerns of ongoing weak Chinese demand. As reported on 19 September by Reuters.

US crude oil inventories fell to a one-year low last week, and the inventory decline could accelerate in the coming week as US oil exports resume following disruptions by Hurricane Francine last week.

UBS analysts forecast in a note to clients that Brent could climb above $80 in the coming months amid declining global crude inventories.

Chinese refinery output slowed for a fifth consecutive month in August, as Chinese industrial output growth also slowed to a five-month low.

Meanwhile, Reuters reported exclusively on 17 September that the US will seek to purchase up to 6 million barrels of oil to replenish the Strategic Petroleum Reserve (SPR). In 2022 President Biden sold 180 million barrels from the SPR at an average price of $95 per barrel, the largest ever sale from the SPR, to moderate gasoline prices prior to the midterm elections.

The SPR currently holds 380 million barrels, and its record inventory was 727 million barrels in 2009.

Logistics

“The BDI rebounded moderately higher this week”

“The CFI finished moderately lower again this week”

“The CFI has fallen steadily since peaking on 11 July 2024 but remains up 34.48% YTD.

“A lengthy strike of US East Coast and Gulf Coasts starting 1 October appears increasingly likely”

“Biden does not intend to invoke federal law to prevent the strike”

Baltic Dry?Index finished moderately higher this week, from 1,890 on 13 September 2024 to close at 1,977 on 20 September 2024. The BDI is down 5.59% YTD. Trading Economics has maintained its BDI forecast this week at 1,901 by the end of 3Q24 and 2,190 in 12 months.

The Containerized Freight?Index finished moderately lower again this week, from 2,510.9 on 13 September 2024 to close at 2,366.2 on 20 September 2024. The CFI has fallen steadily since peaking on 11 July 2024. This index tracks the current freight prices for containerized transport from the most important Chinese ports. The CFI is up 34.48% YTD. Trading Economics has maintained its CFI forecast this week at 3,093 by the end of 3Q24 and 3,516 in 12 months.

As reported previously, the International Longshoremen’s Union is expected to strike on 1 October in a quest for “significantly higher wages and a total ban on the automation of cranes, gates and container movements that are used in the loading or loading of freight at 36 U.S. ports, as reported on 19 September by Bizpac Review.

The National Retail Federation (NRF) and a group of 177 trade associations have reportedly sent multiple letters to the Biden – Harris administration seeking to block the strike because a “strike at this point in time would have a devastating impact on the economy, especially as inflation is on the downward trend.”

However, an administration official cited by Reuters said, “President Joe Biden does not intend to invoke a federal law to prevent a port strike on the East Coast and Gulf of Mexico if dockworkers fail to secure a new labor contract by an Oct. 1 deadline.”

The International Longshoremen’s Union has stated that it doesn’t want any involvement by the Biden administration. Union President Harold Daggett said in July, “We [are not] interested in any help from outside agencies to interfere in our negotiations with USMX [US Maritime Alliance, the terminal employers]. This includes the Biden administration and the Department of Labor.”

During last year’s negotiations between the West Coast port operators and the International Longshore and Warehouse Union, the Biden administration actively participated in the negotiations to force a settlement.

CBS news noted that, “A prolonged strike would almost certainly hurt the U.S. economy,” CBS News admits. “Even a brief strike would cause disruptions. Heavier vehicular traffic would be likely at key points around the country as cargo was diverted to West Coast ports, where workers belong to a different union not involved in the strike. And once the longshoremen’s union eventually returned to work, a ship backlog would likely result. Experts say it takes four to six days to clear up every day of a port strike.”

The article notes that a lengthier strike is “typical.”

#Tractus #EconomicHighlights #Manufacturing #Europe #America #China #Thailand #BDI #BrentCrude #HenryHub #Logistics #Commodities