Manufacturing Weekly Economic Highlights | 28 October 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

“DXY ended moderately stronger again this week”

“USD on trend for most monthly appreciation in 2 years, supported by safe haven buying and a Trump victory”

“US total unemployment rises to 3-year high despite fall in monthly new claims”

“US labor market softening but not imploding”

“India fails to capture US share of manufacturing demand fleeing China”

The USD Index (DXY) finished moderately higher again this past week, from 103.46 on 18 October 2024 to close at 104.32 on 25 October 2024. The DXY is up 0.80% for the week, up 3.92% for the month, up 2.94% YTD, and down 2.10% over the past 12 months.

The USD is trending towards its best month since September 2022 as traders revalue their US Fed policy rate expectations and prepare for the US presidential election on 5 November, as reported on 23 October by Bloomberg.

Traders are buying USD in search of a safe haven amid fear of market turmoil post-election, and also in expectation that a Trump presidency could support USD appreciation.

The USD market turned bearish in August, but one-month USD risk reversals have rebounded to their most bullish level since July.

Swaps traders are now pricing 40 bp of Fed policy rate cuts over the next two meetings, down from 65 bp in early October.

Bloomberg also reported on 25 October that currency traders held $9.2 billion USD in net long positions for the week through 22 October, the first weekly net long position since August and a flip of $10.6 billion USD from the net short position during the previous week.

Meanwhile, the weekly US jobless claims dropped by 15,000 to 227,000 with continuing claims rising 28,000 to 1.897 million, as reported on 24 October by Reuters.

Despite the unexpected weekly fall in new unemployment claims, the total number of workers collecting unemployment benefits reached the highest level in nearly 3 years, indicating workers who lose jobs are having more difficulty finding new work.

New unemployment filings have been distorted by the claims arising from Hurricane Helene in early October which are now abating, and new claims arising from the most recent Hurricane Milton which were not as high as for Helene and lower than initially feared. The ongoing Boeing strike which has idled 33,000 workers has also impacted weekly claims.

High Frequency Economics Chief Economist Carl Weinberg said, "The labor market is softening but not imploding. Fed policy is aimed at supporting the economy and the job market before a recession shapes up. Gradual easing to achieve that goal may achieve it."

Bloomberg reported on 22 October that India is losing manufacturing sector growth rivals Vietnam, Taiwan, and S. Korea as US realigns supply chains away from China.

China’s share of total US imports dropped 8 percentage points (800 bp) to under 14% between 2017 and 2023. However, India’s total share only rose 0.6 percentage points (60 bp) to 2.7%.

Vietnam saw the greatest growth of 170 bp to 3.7% of total US imports during the same period. Taiwan grew its share of total US imports by 100 bp and S. Korea’s share grew by 70 bp.

India’s manufacturing sector has remained stagnant at 17% of India’s GDP for more than a decade.

The article noted that India has also failed to grow its share of global FDI despite plummeting FDI flows into China.

Europe

“EUR ended moderately lower again this week relative to the USD”

“Eurozone PMI rises slightly to 49.7 but remains in contraction”

“Germany’s PMI up to 48.4 from 47.5, 2024 GDP expected to fall 0.2%”

“German manufacturing PMI remains deep in contraction at 42.6”

“Can Mario’s plan revive the EU’s economy?”

The EUR finished moderately lower again this week, from $1.088 USD per EUR on 18 October 2024 to close at $1.080 USD per EUR on 25 October 2024. The EUR is down 0.60% for the week, down 3.24% for the month, down 2.12% YTD, and up 2.27% over the past 12 months.

Eurozone business activity remained in contraction amid a drop in domestic and overseas demand despite modest price increases, as reported on 24 October by Reuters.

HCOB’s preliminary Eurozone Purchasing Managers Index (PMI) as compiled by S&P Global rose modestly to 49.7 in October from 49.6 in September but remained below 50 in contractionary territory for the second consecutive month.

ING’s Bert Colijn said, “The survey is in line with a weak economic environment with slowing inflation thanks to softening demand. The PMI was slightly up thanks to an easing contraction in manufacturing, hardly something to cheer about since the manufacturing sector has been in contraction since late 2022."

The composite new business index increased modestly to 47.8 from 47.7 in September.

Germany’s PMI rose to 48.4 from 47.5. Germany’s GDP fell 0.1% MoM in 2Q24 and the German government expects 2024 GDP to contract by 0.2% YoY.

The German manufacturing PMI climbed to 42.6 from 40.6 but remains mired deep in contractionary territory.

Bloomberg reported on 25 October that German GDP for 3Q24 is forecast to fall 0.1% QoQ, matching 2Q24. However, the Eurozone is expected to achieve 3Q24 GDP growth of 0.2% QoQ. Official results will be released next week.

Mario Draghi, the former chief of the ECB and Italy’s PM in 2021 through 2022 delivered a report on Europe’s stagnant economy and recommended steps to revive its economy, as reported on 20 September by MoneyWeek.

“Draghi wants a far more integrated, bloc-wide industrial policy focused on digital and clean technology and defense, plus more rapid decision-making, if it wants to keep pace economically with the US and China. In addition, it will need a gigantic level of public and private capital to raise the proportion of GDP spent on investment by 4.7 percentage points (about 27%). This time, ‘whatever it takes’ works out at roughly €800bn a year.”

The article notes that a 4.7% increase in investment would be double the size of the Marshall Plan to rebuild Europe following WWII.

Draghi’s report noted that unless the Eurozone can improve its productivity growth, the economy will be no larger in 2050 as it is today.

In 1990 the EU’s 12 member states represented 26.5% of the global economy. Today, its 27 states collectively represent only 16.1%.

Real disposable income per capita since 2000 has risen twice as fast in the US as in the EU. In 1995 European productivity was 95% that of the USA; now it is only 80% as productive.

China

“The CNY finished moderately lower again this week”

“IMF recommends China spend 5% of GDP to stabilize property market”

“Chinese large industrial firms profit down 27.1%”

“Chinese factory gate prices fall for 24th consecutive month”

"$254 billion USD illicitly transferred overseas as Chinese seek safe havens to park wealth”

“Chinese car makers double overseas capacity in hopes of avoiding tariffs”

The CNY ended moderately lower again this week, from 7.102 per USD on 18 October 2024 to close at 7.121 per USD on 25 October 2024. The CNY is down 0.27% for the week, down 1.56% for the month, down 0.11% YTD, and up 2.68% over the past 12 months.

The International Monetary Fund (IMF)’s Asia-Pacific department chief Krishna Srinivasan said that China “has to spend” more in response to the property market crash and to ease price pressures to address deflationary risks, as reported on 24 October by Bloomberg.

Srinivasan said, “We believe the measures announced will not be sufficient because domestic demand is very weak. You have to make sure the pre-sold housing gets finished. And number two, the issue of viable versus non-viable developers has to be resolved.”?

He recommended that China allocate 5% of GDP to stabilize the housing crash which would be worth around $885 billion USD.

China’s property crisis has destroyed an estimated $18 trillion USD of household wealth and pushed the country into its longest deflationary period since 1999.

Meanwhile, Bloomberg also reported on 24 October that the People’s Bank of China (PBOC) maintained its medium-term lending facility interest rate at 2%.

China is in the process of overhauling its monetary policy tools and is replacing the medium-term facility with a shorter-term facility as its main tool to guide markets.

Analysts are divided on when the PBOC will implement further rate cuts. Some expect the PBOC to wait until 2025 to make its next rate cut to avoid increasing deflationary pressure on the CNY. Other analysts anticipate another rate cut in 2024 if Trump wins the US election to counter deterioration in Chinese market sentiment.

The Wall Street Journal reported on 23 October that up to $254 billion USD might have been illicitly transferred overseas from China in the four quarters through June 2024.

Chinese residents seek to move money overseas in search for safer places to park their wealth amid the plummeting property market and ongoing economic uncertainties.

Some export earnings are being stashed overseas to take advantage of higher deposit rates and overseas investment opportunities.

China has strict punishments including criminal charges for violating capital controls. However, Chinese continue to seek safe havens overseas amid poor domestic investment options.

Bloomberg reported on 26 October that China’s profits at large industrial firms fell 27.1% YoY. The Chinese National Bureau of Statistics noted that the fall was “affected by factors such as high base in the same period last year.”

Factory gate prices fell for the 24th consecutive month in September, with weak domestic demand accelerating the factory gate price drop in September.

However, China’s high-technology sector’s profit climbed 6.3% during the first nine months of 2024.

China is racing to double overseas automobile production capacity to beat import tariffs, as reported on 23 October by Bloomberg.

In 2023 Chinese carmakers built full-process automobile factories in nine countries with a combined annual production capacity of 1.2 million cars. If all announced overseas factories are built on time, China’s overseas annual production capacity will more than double to 2.7 million units by 2026.

Full-process manufacturing includes stamping, welding, painting, and final assembly.

China’s overseas “knock-down assembly” by both Chinese manufacturers and their foreign partners is set to increase from 2.2 million units in 2023 to 2.8 million units on 2026.

China’s Ministry of Commerce warned Chinese carmakers in July that they should “protect EV know-how and prioritize knockdown assembly, as well as be careful when investing in countries with geopolitical risks such as Turkey and India.”

Thailand

“The THB finished moderately lower again this week

“THB falls amid appreciating USD”

“BOI promotion applications surge 42% to highest level since 2015”

“Thailand total auto production down 18.61% YoY for first 9 months of 2024”

The THB ended moderately lower again this week, from 33.13 per USD on 18 October 2024 to close at 33.64 per USD on 25 October 2024. The THB is down 1.51% for the week, down 3.92% over the past month, up 2.15% YTD, and up 6.89% over the past 12 months.

The THB has faced strong depreciation headwinds amid the strengthening USD, as reported on 25 October by the Pattaya Mail.

Krungthai Bank suggests that the THB could fall to the range of 34.0 to 34.25 if the USD continues to appreciate.

Meanwhile, The Thailand Board of Investment has reported that the number of investment promotion applications during the first nine months of 2024 have increased 42% YoY to THB 722.5 billion ($21.4 billion USD), the highest level since 2015.

The investment applications for projects during the first nine months of 2024 increased 46% to 2,195 projects from 1,501 products during the same period in 2023.

Singapore was the top source of FDI, followed by China, Hong Kong, Taiwan, and Japan.

The five largest projects in target sectors were electrical appliances and electronics, digital, automotive and parts, agriculture and food processing, and petrochemical sand chemicals.

The Federation of Thai Industries (FTI) reported a sharp fall in both traditional combustion engine and EV automobile production and sales in September 2024.

Total production fell 25.48% MoM to 122,277 units, with domestic sales falling 37.11% MoM to 39,048 units to the lowest level in 53 months.

Battery Electric Vehicles (BEV) production fell 33.53% to 4,574 units.

Total automobile production during the first nine months of 2024 declined 18.61% YoY to 1,128,026 units. Production for export during the same period fell 4.42% YoY to 774,175 units.

Domestic vehicle sales in September were the lowest in four years, attributed to stricter loan approval standards amid rising non-performing loans (NPL’s).

Commodities

“GSCI Commodity Index rebounded moderately higher this week”

“The GSCI Industrial Metals Index rebounded modestly higher this week”

“China seeks to reduce coal imports in 2025 amid declining demand”

“China’s copper demand to peak in 2030”

“US seeks G-7 sanctions on Russian palladium and titanium”

“Huge US lithium mine to open in 2028 to support EV battery demand”

The GSCI Commodity Index finished moderately higher this week, from 531.99 on 18 October 2021 to close at 546.32 on 25 October 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 3.52% YTD. Trading Economics has raised its GSCI forecast this week to 536 by the end of 4Q24 and 515 in 12 months.

The GSCI Industrial Metals index finished modestly higher this week, from 466.75 on 18 October 2024 to close at 468.24 on 25 October 2024. The Industrial LME Metals Index is up 15.64% over the past 12 months.

Chinese coal importers are seeking to book fewer shipments in 2025 on long-term contracts amid record domestic production and declining demand due to the weak Chinese economy, as reported on 23 October by Bloomberg.

Importers lost money in 2025 on thermal coal used by power plants sourced from Indonesia, Russia, Australia, and Colombia.

Hydropower producers were able to extend their output to 11 consecutive months supported by ample summer rains, depressing demand for electricity produced from coal.

However, cold winter weather could increase coal demand and boost prices.

Bloomberg also reported on 25 October that China’s copper demand is forecast to peak around the end of this decade. Demand growth in the five years through 2030 is forecast to average 1.1% YoY, down from 3.9% YoY over the five years through 2025.

The copper intensity of renewables investment is falling as industries reduce copper usage or replace it with alternative metals.

Copper prices closed near $9,500 USD per ton this week for the fourth consecutive decline following a record high above $11,000 earlier this year.

The US is seeking G-7 sanctions on Russian sourced palladium and titanium, as reported on 23 October by Bloomberg.

The US wants to further choke Russia’s economy in response to its invasion of Ukraine nearly three years ago.

Palladium is used in computer chips and automotive catalytic converters. Titanium is used in applications including aircraft and medical implants.

G-7 members including Germany, France, and Italy are reluctant to approve further sanctions to avoid disrupting their own supply chains.

Futurism reported on 26 October that the Biden administration has approved a large lithium and boron mine in southern Nevada that could produce enough lithium for around 370,000 EV’s per year for more than two decades.

Currently the US imports most of its lithium and has only one operating lithium mine.

Construction is scheduled to start in 2025 with full operation expected in 2028.

Energy

“Crude rebounded moderately higher this week”

“Henry Hub rebounded moderately higher this week”

“EU Natural Gas rebounded moderately higher this week”

“Oil prices rise on Middle East conflict concerns”

“Oil prices to trend sideways or slightly higher amid a modest supply deficit in 4Q24”

“Ukraine to cut off Russian pipeline gas transit by year end”

Brent Crude finished moderately higher this week, from $73.17 USD on 18 October 2024 to close at $75.90 USD on 25 October 2024.

Henry Hub finished moderately higher this week, from $2.25 USD per MMBTU on 18 October 2024 to close at $2.53 USD per MMBTU on 25 October 2024.

EU Natural Gas finished moderately higher this week, €39.34 per MWh on 18 October 2024 to close at €43.61 per MWh on 25 October 2024, equivalent to $11.84 USD per MMBTU. EU Natural Gas is up 34.8% YTD. Trading Economics increased its EU Natural Gas TTF forecast this week to €42.84 per MWH by the end of 4Q24 and 47.09 in 12 months.

Brent crude gained 4.1% for the week amid lingering worries that the Middle East conflict could expand, as reported on 25 October by MarketWatch.

Concerns over global demand for oil particularly from China limited upside gains.

Absent a major escalation between Israel and Iran, oil prices are expected to trend sideways. A modest supply deficit in 4Q24 could support a small price increase.

Meanwhile, Russia has indicated that it is willing to continue supplying gas to Europe via the pipeline through Ukraine following the expiration of the gas transit deal at the end of this year.

However, Ukraine has said that it does not want to renew the deal.

Putin has also expressed interest to continue supplying gas to Europe using alternative routes.

Bloomberg reported on 23 October that Europe’s appetite for LNG may peak in 2024 on ambitious emission targets, but Asian appetite for LNG continues to grow.

Cornell University published an article this month that found that LNG has a greenhouse gas footprint that is 33% worse than coal when process and shipping impacts are included.

Vietnam, Thailand, and the Philippines are proceeding with new gas fired power plants. Indonesia and Malaysia are shifting from net exporters to net importers of LNG. India is pursuing long-term LNG agreements.

S&P Global Commodity Insights forecasts that Asian demand for LNG will grow from 15% of global demand today to 40% by 2040.

Logistics

“The BDI ended moderately lower again this week”

“The CFI rebounded moderately higher this week”

“Boeing workers reject contract offer; strike continues”

“US fired more than $1 billion of munitions to combat Houthi rebels”

“Gemini shipping alliance seeks to achieve 90% on-time reliability”

Baltic Dry?Index finished moderately lower again this week, from 1,576 on 18 October 2024 to close at 1,410 on 25 October 2024. The BDI is down 32.66% YTD. Trading Economics has lowered its BDI forecast this week to 1,377 by the end of 4Q24 and 1,190 in 12 months.

The Containerized Freight?Index finished moderately higher this week, from 2,062.2 on 18 October 2024 to close at 2,185.3 on 25 October 2024. This index tracks the current freight prices for containerized transport from the most important Chinese ports. The CFI is up 24.20% YTD. Trading Economics has reduced its CFI forecast this week to 2,156 by the end of 4Q24 and 2,465 in 12 months.

Boeing machinists voted by 64% to reject a proposed new contract, as reported on 23 October by ABC News.

33,000 Boeing workers will remain on strike, which is already six weeks long, having rejected an offered 35% pay raise over four years.

International Association of Machinists and Aerospace Workers (IAM) Union president Jon Holden said, “This contract struggle began over ten years ago when the company overreached and created a wound that may never heal for many members. I don’t have to tell you all how challenging it has been for our membership through the pandemic, the crashes, massive inflation, and the need to address the losses stemming from the 2014 contract."

Boeing lost $6.1 billion USD in 3Q24 primarily due to costs associated with the strike. The strike is estimated to cost Boeing $108 million per day in lost revenue.

Meanwhile, the US Navy carrier strike group reported that during its seven-month deployment to the Red Sea it has destroyed “more than a hundred drones, a couple dozen ballistic missiles, some cruise missiles, and a couple dozen small boats,” as reported on 25 October by Business Insider.

The strike group fired nearly 800 munitions during its deployment, which ended in July. Between early October 2023 and mid-July 2024, the US Navy said it fired more than $1 billion USD worth of munitions.

Despite the successes and the cost of munitions, the Iranian-backed Houthi rebels continue to disrupt shipping in the Red Sea, with no end in sight.

The Wall Street Journal reported on 20 October that a new alliance between industry giants Maersk and Hapag-Lloyd aims to cut docking costs and improve shipping on-time performance.

They aim to use bigger ships and cut the number of port calls each ship makes to reduce cargo delivery delays.

The new alliance is called Gemini and is set to become operational in February 2025.

Gemini’s target is to reach 90% on-time reliability, up from their current “top of ranking rates” of 55%.

Gemini has prepared two-route scenarios: an eventual return to the Red Sea, and the continued alternate route around the Cape of Good Hope.

Gemini hopes to keep existing customers and attract new customers willing to pay a premium for better on-time performance.

They plan to gradually cut the number of port calls for a vessel sailing from Asia to Europe from the current ten to around five.

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