Manufacturing Weekly Economic Highlights | 4 December 2023

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 closed moderately lower again this week”

“US Fed signals possible rate hike in December, most analysts expect rates to hold steady”

“PCE inflation index continues to ease”?

“Manufacturing struggles continue with November PMI unchanged at 46.7”

The USD Index (DXY) finished moderately lower again this past week, from 103.42 on 24 November 2023 to close at 103.19 on 1 December 2023.

The CME FedWatch tool priced a 33% chance of a US Fed rate cut in March 2024, rising to 65% in May 2024. The USD fell as traders price in expectations of a Fed rate cut, as reported by Reuters on 28 November. US consumer confidence in November increased to 102.0 from a revised 99.1 in October.

US Fed Chair Powell signaled the possibility of another rate hike in December despite cooling inflation. "It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease," Powell said in remarks prepared for delivery at Spelman College in Atlanta. "We are prepared to tighten policy further if it becomes appropriate to do so,” as reported on 1 December by FoxBusiness. The next Fed meeting is scheduled for 12-13 December, and despite Powell’s comments, most investors expect rates to hold steady.

However, Business Insider on 28 November speculated that the Fed would raise rates 25 basis points in December, as forecast by S&P Global Ratings. Treasury yields have recently plunged, following peaking above 5% in November. "Since then, financial conditions have eased somewhat (paradoxically increasing the chances of another rate hike), seemingly because of the following factors," per S&P as quoted by Business Insider. S&P does anticipate Fed rate cuts starting in June 2024 as inflation continues to moderate and monthly payroll reports turn negative.

AFP reported on 1 December that the annual Personal Consumption Expenditures (PCE) price index rose 3.0% YoY in October 2023, down from 3.4% YoY in September. Core PCE eased to 3.5% YoY in October.

US Manufacturing continues to struggle, with the Manufacturing PMI remaining unchanged at 46.7 in November, as reported on 1 December by Reuters. The PMI has remained below 50 for thirteen consecutive months, its longest contraction since the period August 2000 to January 2002. Manufacturing employment declined as hiring slowed and layoffs increased. Three industries reported growth – food, beverage and tobacco, and transportation equipment and non-metallic mineral products. Fourteen industry segments contracted including paper products, electrical equipment, appliances and components, computer and electronic components, machinery, and miscellaneous manufacturing. Factory input prices moderated at 49.9, up from 45.1 in September to its highest level in seven months, indicating that input prices continue to decline but at a much lower rate. Factory employment declined for a second consecutive month, attributed to “attrition, freezes, and layoffs to reduce head counts.”

Europe

“EUR ended modestly lower against the USD”

“France’s inflation rate 3.4% in October”?

“France’s 3Q23 GDP declines 0.1% from 2Q23”

The EUR finished modestly lower this week, from $1.094 USD per EUR on 24 November 2023 to end at 1.088 on 1 December 2023.

France posted its lowest inflation rate since January 2023 at 3.4% YoY, down from 4.0% YoY in October as reported on 30 November by Euronews. The decline was mainly attributed to services prices which increased 2.7% YoY, down from 3.2% YoY in October. France’s energy price inflation also moderated, up 3.1% YoY compared with 5.2% YoY in October. France has benefited from cheaper energy prices compared with its European peers due to its strong nuclear energy industry. French manufactured good prices were up 1.9% YoY in November, down from 2.2% YoY in October.

However, France’s GDP in 3Q23 fell 0.1% from 2Q23, whereas 2Q23 was up 0.6% over 1Q23. This was the first fall in quarterly GDP since 1Q22, likely pulled down by exports falling 1.0% during 3Q23 from an increase on 2.5% in 2Q23.

China

“The CNY finished higher again this week”

“China pursuing multiple initiatives to support private business”

“Chinese industrial firm profits continue to shrink, driven by rising energy prices”?

“Chinese October PMI signals eighth consecutive month of industrial contraction”

The CNY climbed to a moderately higher finish again this week, from 7.122 per USD on 24 November 2023 to end at 7.093 on 1 December 2023.

Chinese state agencies have recently introduced a number of initiatives to support private business, with authorities vowing to make the private business sector “bigger, better, and stronger,” as reported on 27 November 2023 by Reuters. Private firms account for 60% of Chinese GDP and 80% of Chinese urban jobs. On 27 November the People’s Bank of China (PBOC) issued a joint statement with seven other government entities calling on efforts to “unblock financial channels such as loans, bonds, and shares.” The tolerance for private company non-performing loans should also be “reasonably” increased, and more support offered for first-time borrowers. "The principle is to meet the continued financing needs in advance and not to blindly stop, suppress, withdraw or cut off loans," according to the PBOC statement. The article reported that fixed asset investment by private firms fell 0.6% YoY during the period January through September 2023, indicating weak private sector confidence.

Profits at Chinese industrial firms rose 2.7% YoY in October, down from 11.9% YoY in September and 17.2% YoY in August, as reported on 27 November by Reuters. Cumulative profits during the first 10 months of 2023 are down 7.8% YoY, improved from a decline of 9% YoY during the first 9 months of 2023. The Economist Intelligence Unit (EIU) was quoted as suggesting that the decline in year-on-year profit growth was partially driven by rebounding energy prices. Profit volatility signals that Chinese enterprises remain highly sensitive to input costs.

The Chinese Purchasing Managers Index (PMI) show that both new export and import orders declined in October for the eight consecutive month. However, industrial output increased 4.6% YoY in October supported by strong automotive and restaurant sales.

Thailand

“THB ended moderately stronger this week”?

“Thailand proposes Land Bridge in lieu of Kra Canal to bypass Malacca Straits”

The THB finished moderately stronger this week, from 35.46 per USD on 24 November 2023 to end at 34.85 per USD on 1 December 2023.

The new Thai PM Srettha Thavisin proposed a “Land Bridge” project at a Belt and Road Forum in mid-October as reported on 27 October by the South China Morning Post. The Land Bridge would be a rail system that would connect the Andaman Sea with the Gulf of Thailand, bypassing the Malacca Straits. This is an alternate to the long proposed Kra Canal which has been suggested by many Thai governments for decades. However, China has signaled low interest in the Land Bridge. A Senior Researcher with the Chinese Academy of Social Sciences suggested that the project profile is not high enough to attract Chinese government interest. “It doesn’t look like an alternative route,” he said, adding offloading and reloading would be complex and may not cut costs to a significant degree. The Dean of the Institute of International Relations at Nanjing University was quoted as saying, “China is unlikely to fund the project, but Chinese companies are likely to be major contractors if the project gets going.”

The Land Bridge project is estimated to cost THB 1 trillion (approx. $27.7 billion USD) to construct a 90 km railroad and road bridge. It is projected to have an annual capacity of 10 million containers. Project bidding is expected to begin in 2Q24 with the first construction phase to begin in 2030.

Energy

“Crude closed modestly lower for the 6th consecutive week”

“Henry Hub and EU Natural Gas closed moderately lower this week”

“OPEC+ announces total cuts of 2.2 million bpd for 1Q24”?

“Is OPEC reaching the limits of its power?”

Brent Crude finished modestly lower again this week, from $80.23 on 24 November 2023 to close at $79.56 on 1 December 2023.

Henry Hub finished moderately lower again this week, from $2.87 USD per MMBTU on 24 November 2023 to close at $2.78 per MMBTU on 1 December 2023.

EU Natural Gas finished moderately lower this week, from €46.66 EUR per MWh on 24 November 2023 to €43.50 EUR per MWh on 1 December, equivalent to $11.73 USD per MMBTU. This was the lowest rate in seven weeks, as ample gas supplies more than offset forecast cold weather across Europe.

As reported on 1 December by Reuters, OPEC+ producers agreed on 31 November to reduce oil supply by 2.2 million barrels per day (bpd) in 1Q24, including the extension of the current 1.3 million bpd of Saudi and Russian cuts. OPEC+ currently supplies 40% of world oil demand. The supply cuts remain voluntary, and traders “either aren’t buying that members will be compliant or don’t view it as being sufficient,” per OANDA analyst Erlam.

Barron’s pondered in an article dated 27 November whether “OPEC is reaching the limits of its power." Saudi Arabia and Russia are already supplying less than the OPEC quotas in a bid to keep global prices high.

Business Insider published an article on 1 December exploring the possibility that Saudi Arabia might “flush” the oil market to sink prices and regain control over the market. Paul Sankey of Sankey Research estimates that Saudi has additional capacity of 2.5 million bpd. He noted that in 2014 Saudi flushed the oil market by depressing crude prices from $110 per barrel to $50 forcing high-cost producers from the market. As rival suppliers exited the market, Saudi regained control over market pricing.

Sankey observed that the “booming US oil supply” is a headache for Saudi, just as it was in 2014. US crude output hit a record of 13.2 million bpd in September.

Logistics

“BDI surged significantly higher this week”

“Panama Canal drought restrictions continue”?

“US announces “Supply Chain Resilience Council”

Baltic Dry?Index?surged significantly higher this week, from 2,102 on 24 November 2023 to close at 3,192 on 1 December 2023. The BDI is up more than 110% in 2023 and closed at its highest level since May 2022. Trading Economics has raised its BDI forecast again this week to 2,214 by the end of 4Q23, and 2,587 in 12 months.

The Panama Canal continues to struggle with drought conditions restricting capacity. The Panama Canal Authority is increasing the number of spots available for ships to jump the queue, with the initial bid valued at $55,000 USD and some vessels paying up to $4 million USD, as reported on 27 November by Business Insider. The latest auction will be open only to ships that have been waiting for 10 days or more. Shipping companies have paid $235 million to date to expedite passage through the canal. The authority said on 24 November, “"Vessels without reservation may experience indefinite delays." In August there were 200 ships stuck in queue on either end of the canal, though the queue dropped to 95 ships on either end by early October. Petroleum products, chemicals, and coal are the leading commodities passing through the canal.

On 27 November US President Biden convened the first meeting of the new “Supply Chain Resilience Council.” The council’s goal is to “strengthen America’s supply chains” and “lower costs for families,” as reported on 1 December by FreightWaves. The government seeks to establish partnerships with private-sector stakeholders to “avoid bottlenecks, shorten lead times for customers, and enable a more resilient and globally competitive freight network.” The council also seeks partnerships with the EU, Japan, and S. Korea to establish an early warning system for semiconductor supply chain disruptions. The Department of Commerce has established a first-of-its-kind Supply Chain Center to develop innovative supply chain risk assessment tools. The Department of Transportation has developed a “Freight Logistics Optimization Works (FLOW) program public-private partnership to create a “shared, common picture of supply chain networks and facilitate a more reliable flow of goods.”

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