Manufacturing Weekly Economic Highlights | 13 May 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 rebounded moderately higher this week”
“US consumer sentiment falls amid consumer worries about inflation, unemployment, and interest rates”
“Are US Fed rates high enough to quell inflation?”
“It’s not a soft landing until we’ve landed”
“Biden reportedly to boost Chinese EV tariffs from 25% to 100%”
The USD Index (DXY) finished moderately higher this past week, from 105.03 on 3 May 2024 to 105.31 on 10 May 2024. The DXY is up 0.27% for the week, down 0.68% for the month, up 3.93% YTD, and up 2.56% over the past 12 months.
US consumer sentiment index fell to 67.4 in May, the weakest level since November 2023, far below economist forecasts of 76. Though the consumer index is 14% higher YoY and higher than the period from January 2022 to July 2023, it is 18% lower than when President Biden took office and 32% lower than when President Trump took office, as reported 10 May by Forbes. Consumers expressed “worries that inflation, unemployment and interest rates may all be moving in an unfavorable direction in the year ahead.”
Meanwhile, Dallas Federal Reserve President Lorie Logan indicated that it is not clear if US Fed monetary policy is tight enough to bring inflation down to the 2% target, as reported on 10 May by Reuters. She said, "There are also important upside risks to inflation that are on my mind, and I think there's also uncertainties about how restrictive policy is and whether it's sufficiently restrictive to keep us on this path." Concerning the US economic trend, Logan said, “"But it's not a 'soft landing' until we've landed, and we haven't yet landed."
On 10 May the Wall Street Journal reported exclusively that the Biden administration is preparing to announce increased tariffs on clean-energy goods from China, including an increase in the tariff on electric vehicles from 25% to 100%. The current 25% tariff on Chinese EV’s, plus an additional 2.5% duty applicable to all automobiles imported into the USA, has effectively excluded Chinese EV’s from the US market to date. However, Biden officials are concerned that the current tariff structure won’t be adequate to prevent future imports given the scale of Chinese manufacturing. China’s foreign ministry responded, “China will take all necessary measures to defend its rights and interests.”
The new tariff structure comes following a full year review of the tariffs imposed by President Trump on $300 billion USD of goods from China, and would also impact critical minerals, solar goods, and batteries from China. Bloomberg previously reported that the new tariffs could be announced this coming week, but the announcement timing is subject to change.
Richard Bernstein, CEO of Richard Bernstein Advisors, advised that US inflation will continue to increase if the US doesn’t “reindustrialize” its economy, as reported on 7 May by Business Insider. The massive US trade deficit of $773.4 billion USD in 2023 could cause trouble for the US economy as world trade becomes more fragmented amid rising geopolitical tensions. "It [reindustrialization] has to happen. If it doesn't … we're going to have tremendous inflation here in the United States," Bernstein said to CNBC on Monday. "We're dependent on the world for everything at a time when globalization is starting to contract. Not a good combination. It changes the story from secular disinflation to secular inflation."
The article noted that US reindustrialization efforts are underway, with the US government offering billions of USD in aid to build new infrastructure and to produce key goods.
Europe
“EUR ended modestly higher this week relative to the USD”
“US top 7 tech companies market cap equal to combined EU 27 members’ market cap”
“US replaces China as Germany’s top trading partner”
“German manufacturing orders down 0.4% MoM in March following 0.8% MoM drop in February”
The EUR finished modestly higher this week, from $1.077 on 3 May 2024 to close at $1.079 on 10 May 2024. The EUR is up 0.25% for the week, up 1.40% for the month, down 2.24% YTD, and down 0.57% over the past 12 months.
The Economist on 8 May published an article outlining the threats to Europe’s economy. It indicated that European finance remains inefficient and is bound by national borders.
The article noted that the market value of America’s “magnificent seven” tech giants is approximately equal to the stock market capitalization of the EU’s 27 members combined.
Europe proposed a banking union in 2012, but a common deposit-insurance scheme has yet to be established, limiting cross-border activity and consolidation. European capital markets are also underdeveloped, with only 30% of European company tradable securities sourced from the Eurozone, with two-thirds of tradable securities sourced from the USA. A European capital markets union was proposed in 2015 but has seen little to no progress.
Meanwhile, German manufacturing orders fell in March by 0.4% MoM, compared with an expected 0.5% MoM increase forecast by economist polled by The Wall Street Journal as reported on 7 May. February manufacturing orders were revised downwards to a drop of 0.8% MoM compared to an initial estimate of a 0.2% MoM rise. For 1Q24, manufacturing new orders were down 4.3%.
Manufacturing orders for aircraft, ships, trains, and metal products have driven the decline, offset by new car orders rising 1.1% MoM. Foreign orders were up 2.0% MoM, but domestic orders fell by 3.6% MoM reflecting ongoing weak demand by German companies and consumers.
Germany booked a trade surplus of €22.3 billion ($24.0 billion USD) in March as export growth exceeded imports. China also expanded its exports to China, partially offsetting a decline of exports to China in February.
German imports of Chinese goods in 1Q24 fell 12% YoY with exports of goods to China falling 1% YoY.
Reuters reported on 9 May that the US has overtaken China as Germany’s top trading partner. Combined 1Q24 German trade with the US – combined imports and exports – totaled €63 billion ($68 billion USD) compared with €60 billion ($65 billion USD) with China. Both imports and exports to China have fallen. Commerzbank economist Stamer explained, "China has moved up the value chain ladder and is increasingly producing more complex goods itself, which it used to import from Germany. In addition, German companies are increasingly [selling] locally instead of exporting goods from Germany to China."
Germany has signaled its desire to reduce its exposure to China amid political differences including China’s “First China Strategy.”
In related news. Chinese President Xi concluded his visit to Europe last week, as reported on 10 May by The Wall Street Journal. Western leaders “vented their frustrations” but Xi offered no major concessions. Xi reiterated that “there is no so-called problem of Chinese over-capacity.”
As reported by The Economist on European Commission president Ursula von der Leyen complained to Xi about disappointing domestic demand in China’s economy. The Economist noted that one sign of domestic demand weakness is low Chinese inflation, with April consumer prices only increasing 0.3% YoY and factory gate prices down YoY for the 19th consecutive month.
Europe is concerned about China’s weak economy because its low prices have increased the competitiveness of its exports. China’s exchange rate, adjusted for inflation and trade weighted, is 14% cheaper in March 2023 compared with March 2021.
China
“The CNY ended moderately higher this week”
“China’s CPI up 0.3% YoY; PPI down 2.5% YoY for 19th consecutive monthly drop”
“Chinese Labor Day spending down 11.5% compared with pre-pandemic”
“China seeks to curb battery overproduction, while denying overproduction exists in China”
The CNY ended moderately higher this week, from 7.237 per USD on 3 May 2024 to close at 7.227 on 10 May 2024. The CNY is up 0.15% for the week, up 0.14% for the month, down 1.60% YTD, and down 3.86% over the past 12 months.
The Wall Street Journal reported on 10 May that China’s consumer price index for April was up 0.3% YoY, up from 0.1% YoY in March. The Chinese producer price index fell 2.5% YoY in April for the 19th consecutive monthly decline.
China appears to be “doubling down” on its manufacturing industry to offset the drag from its ravaged property sector which previously represented 25% of Chinese economic output.
Chinese tourists spent 11.5% less money during the five-day Labor Day holiday compared with pre-pandemic 2019. Meanwhile, Chinese car sales fell 5.7% YoY in April as consumers remain cautions amid economy uncertainty.
China’s new home sales from the top 100 developers plunged 45% YoY in April, with sales down 13% MoM.
Business Insider reported on 9 May that China has published draft regulations for its battery industry to curb overproduction. This is contrary to China’s official stance that there is no overproduction in China.
The proposal by China’s Ministry of Industry and Information Technology laid out regulations including minimum technical standards and ecological guidelines for battery production. The proposal also noted that “lithium-ion manufactures should avoid building factories that ‘simply expand production capacity.’”
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A BloombergNEF analysis found that in 2023 China’s battery production was already sufficient to meet global battery demand.
Another Bloomberg analysis found Chinese overcapacity in products such as lo-tech goods and building materials following its property sector collapse. It also produces a vast oversupply of solar panels and batteries.
China currently accounts for 80% of global battery manufacturing capacity, followed by the US and the EU having 5% each. However, the US Inflation Reduction Act could see China’s share of battery manufacturing fall to 60% by 2030 with US and EU share rising to 15% each.
China’s credit unexpectedly declined in April as weak borrowing demand from Chinese corporations and households weighed on government bond sales, as reported on 11 May by The Wall Street Journal.
The Chinese government acknowledged the weak domestic demand and pledged to speed up government borrowing and hinted at interest rate cuts and a reduction in bank reserves requirements.
China’s M2 monetary supply rose 7.2% YoY in April, down from 8.2% YoY in March and significantly less than the 8.3% YoY expected by economists polled by the WSJ.
Thailand
“THB ended moderately higher again this week”
“Pheu Thai continues 20-year war with BOT following appointment of new Finance Minister”
“Economic Society of Thailand affirms support for independence of BOT”
“Thai 1Q24 BOI applications surge 31% in value, 94% in volume, and 130% in FDI volume”
The THB ended moderately higher again this week, from 36.73 on 3 May 2024 to close at 35.54 on 10 May 2024. The THB is up 0.52% for the week, up 0.22% over the past month, down 6.28% YTD, and down 7.60% over the past 12 months.
Thailand’s new Finance Minister called on the Bank of Thailand to work tother to synchronize monetary and fiscal policies, signaling continued government pressure on the BoT to cut policy rates from the current 2.5%. As reported by Bloomberg on 6 May, the finance minister said, “It’s our duty and responsibility for me and BoT to work together to push both engines - monetary and fiscal policies in the same direction. But before that we need to understand each other and realize what are the problems.” Last week ruling party Pheu Thai head Paetongtarn Shinawatra, daughter of former PM Thaksin Shinawatra, called the BoT an ”obstacle” to reviving the Thai economy.
On 8 May Bloomberg reported that the Joint Standing Committee on Commerce Industry and Banking (JSCCIB), an umbrella group representing the Thai Chamber of Commerce, The Federation of Thai Industries, and the Thai Bankers Association, has also called for a BoT interest rate cut. The JSCCIB didn’t specify the amount of the rate cut it seeks, merely that “we just want it to be as much as possible.”
Meanwhile, on 9 May Bloomberg reported that The Economic Society of Thailand, a group of 300 economists, have backed the independence of the BoT and are in the process of collecting signatures of support from its members. BoT Governor Sethaput continues to say that political pressure won’t sway the central bank’s interest rate decisions.
The Thailand Board of Investment (BOI) reported that its 1Q24 value of applications for investment promotion soared 31% YoY to $6.2 billion USD. The number of applications submitted during 1Q24 surged by 94% YoY with a total of 724 project applications including a 130% YoY increase to 460 foreign investment project applications.
Electronics and Electrical appliances represented the highest value of investment applications, mostly consisting of printed circuit boards (PCB), wafer fabrication for power electronics, and production of smart electronic products and smart electrical appliances. Other sectors with high investment value included automotive and parts, petrochemicals and chemicals, digital, and agricultural and food processing.
The five top FDI application sources were Singapore, China, Hong Kong, Taiwan, and Australia, respectively. Singapore topped the ranking primarily due to large investments by Singaporean affiliates of Chinese PCB manufacturers.
Energy
“Crude closed moderately lower again this week”
“Henry Hub closed moderately higher again and EU Natural Gas closed modestly lower this week”
“Geopolitical risks are being offset by concerns over contracting demand”
“OPEC+ may boost supply in late 2024 and 2025 to avoid loss of market share to non-OPEC+ rivals”
“Australia to boost Natural Gas development”
Brent Crude finished moderately lower again this week, from $83.14 on 3 May 2024 to close at $82.78 on 10 May 2024.
Henry Hub finished moderately higher again this week, from $2.14 USD per MMBTU on 3 May 2024 to close at $2.25 USD per MMBTU on 10 May 2024.
EU Natural Gas finished modestly lower this week, from €30.07 per MWh on 3 May 2024 to close at €29.86 per MWh on 10 May 2024, equivalent to $8.12 USD per MMBTU. EU Natural Gas is down 7.70% YTD.
Crude prices fell moderately during the week as traders closely monitored Israel’s assault into Rafah for supply side risk as a drop in US consumer sentiment signals a demand reduction, as reported on 10 May by MarketWatch. Geopolitical risks continue to “simmer” though markets have discounted a significant threat arising from the conflict in Israel. Meanwhile, US motor-gasoline supplied, a proxy for gasoline demand, was down 4% YoY in early May.
Capital Economics noted that OPEC+ will likely extend its 2.2 million bpd voluntary production cuts. However, it is likely to slowly raise supply in 2H24 and 2025 to avoid ceding market share to non-OPEC members as they boost production.
Meanwhile, Russian crude exports for 2024 YTD are running ahead of the 2023 average, as reported on 7 May by Bloomberg. Ukrainian attacks on Russian refineries have disrupted refinery production, resulting in crude being shifted to Russian export markets.
Reuters reported on 9 May that Australia seeks to boost natural gas development despite its 2050 net zero carbon emissions goal. Australian Resources Minister Madeline King said natural gas will be required “through to 2050 and beyond.” She also said, "It is clear we will need continued exploration, investment and development in the sector to support the path to net zero for Australia and for our export partners, and to avoid a shortfall in gas supplies."
Australia supplied around 20% of global LNG in 2023, with its biggest export customers being China, Japan, and S. Korea.
"The strategy also makes it clear that we can't rely on past investments to get us through the next decades, as existing fields deplete. That will mean a continued commitment to exploration, and an openness to the kinds of foreign investment that have helped build the industry into the powerhouse it is today."
Logistics
“BDI closed moderately higher again this week”
“The CFI closed moderately higher this week”
“DHL Express views Asia Pacific as its most promising region”
Baltic Dry Index finished moderately higher again this week, from 1,876 on 3 May 2024 to close at 2,129 on 10 May 2024. The BDI is down 1.67% YTD. Trading Economics has maintained its BDI forecast this week at 1,771 by the end of 1Q24 and 2,055 in 12 months.
The Containerized Freight Index finished moderately higher this week, from 1,941 on 3 May 2024 to close at 2,306 on 10 May 2024. This index tracks the current freight prices for containerized transport from the most important Chinese ports. The CFI is up 31.04% YTD. Trading Economics has maintained its CFI forecast this week at 2,016 by the end of 1Q24 and 2,261 in 12 months.
DHL Express expects its Asia Pacific market to outperform other regions in 2024, driven by volume recovery in SE Asia, as reported on 12 May by the South China Morning Post. SE Asia “is benefiting from an inflow of supply chain businesses moving out of China amid geopolitical tensions.”
DHL Express Asia Pacific CEO Ken Lee said, “Asia-Pacific is probably the most promising region because we see quite a recovery in the volumes moving forward.” Countries that are close to China and also have friendly foreign investment policies include Malaysia, India, Thailand, Vietnam, and Indonesia.
Lee also noted that, “Australia has got a lot of volumes going in. But there isn’t enough capacity out there. Putting this extra plane would increase our load by at least five times from what we have been able to do.”