Manufacturing Weekly Economic Highlights | 14 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

“USD ended moderately stronger again this week”

“USD supported by US jobs data, moderating inflation, and safe-haven trades”

“US consumer confidence fell from 70.1 to 68.9 amid high cost of living concerns”

“WTO global trade forecast 2.7% YoY in 2024 and 3.0% in 2025”

The USD Index (DXY) finished moderately higher again this past week, from 102.49 on 4 October 2024 to close at 102.92 on 11 October 2024. The DXY is up 0.39% for the week, up 1.78% for the month, up 1.56% YTD, and down 3.50% over the past 12 months.

The USD strengthened for a second consecutive week primarily driven by market expectations that the US Fed will slow its pace of policy rate easing amid continued US labor market resilience and moderating inflation, as reported on 11 October by Bloomberg.

Money markets are pricing in a Fed policy rate cut in November not exceeding 25 bps.

Geopolitical risks including the ongoing conflict between Iran and Israel and the war in Ukraine continue to drive demand for safe-haven currencies including the USD and the Swiss Franc.

Hedge funds and other speculative market players reduced their bets on USD devaluation to $9.4 billion USD from $13.6 billion USD the prior week.

Meanwhile, US consumer confidence fell unexpectedly for the first time in three months driven by frustration with the high cost of living offset by “sanguine views of the job market,” as reported on 11 October by Bloomberg.

The October consumer sentiment index fell to 68.9 in October from 70.1 in September. Bloomberg’s survey of economists predicted a median estimate of 71.

Consumers in October expected prices to rise 2.9% YoY, compared with an expected rise of 2.7% YoY in September.

The measure of consumer’s perception of their current financial situation fell to its lowest level since late 2022, driven by concerns about continued high prices.

Bloomberg reported on 10 October that the WTO predicts global goods trade in 2025 to grow less than it previously forecast, amid rising instability that could adversely impact economic activity and disrupt shipping.

Total merchandise trade in 2025 is forecast to rise by 3.0% YoY, down from the WTO’s estimate of 3.3% YoY in May 2024. The forecast for 2024 has been raised slightly to 2.7%, with global GDP also forecast to rise 2.7% in 2024 and 2025.

The WTO sees ongoing regional conflicts, geopolitical tensions, and policy uncertainty posing primarily downside risks to the forecast.

Other treats include a “fragmentation of supply chains linked to geopolitical considerations,” offset by limited upside potential if policy rate cuts in advanced economies generate higher-than-expected growth without stoking inflationary pressures.

During 1H24 the value of world merchandise trade increased only 0.1% YoY while 1Q24 trade in commercial services increased 8.0% YoY. Commercial services trade data is not yet available for 2Q24 but the “relatively strong growth is likely to be sustained.”

Cross border services trade is being fueled by digital transformation that “has dramatically increased the potential of some services to be traded across borders.”

Services delivered digitally accounted to more than 54% of total export services and nearly 14% of total goods and services exports in 2023.

The WTO forecast Asia’s 2024 exports to grow faster than any other region, rising by up to 7.4% YoY, followed by the Middle East at 4.7% YoY and South America at 4.6% YoY. Exports from North America are forecast to increase 2.1% while European exports are forecast to fall by 1.4% YoY.

The fastest growth in imports in 2024 will be by the Middle East at 9.0% YoY, followed by South America at 5.6% YoY.

US Producer Price Index

“September PPI up 1.76% YoY and up 0.05% MoM”

“Core PPI decreased to 3.2% YoY and 0.1% MoM”

“Final demand goods down 0.2% MoM, final demand services up 0.2% MoM”

“The October PPI is scheduled to be published on 14 November 2024”

The September 2024 PPI was released on 11 October at 145.17, an increase of 1.76% YoY and 0.05% MoM over the revised August PPI of 145.10.

The August 2024 PPI was revised to 145.10 from 144.85.  July 2024 PPI was revised to 144.76 from 144.51. The June 2024 PPI was revised to 144.72 from 144.53. The May 2024 PPI was revised to 144.26 from144.25.

Core PPI in September decreased by 0.1 bps to 3.2% YoY and 0.1% MoM.

The biggest driver of the recent decline in the PPI can be attributed to the decline in energy prices, with the price for diesel fuel down 17.6% MoM. With Core PPI remaining above 3%, the overall PPI remains vulnerable to a rebound in energy prices.

The September increase in PPI final demand is attributed to a 0.2% MoM decrease in final demand goods offset by an increase in final demand services of 0.2% MoM.

Final demand goods PPI decreased 0.2% MoM in September, pulled down by a drop of 2.7% MoM in energy prices, offset by an increase of 1.0% MoM in food prices. Core final demand goods rose 0.2% MoM.

Final demand services rose 0.2% MoM with trade services up 0.2% MoM and transportation / warehousing up 0.3% MoM.

The next PPI is scheduled to be published on 14 November 2024.

Europe

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

“Economists anticipate ECB 25 bp policy rate cut next week”

“UK economy faces geopolitical headwinds amid high debt service costs”

“France propose higher taxes and reduced spending to reduce obese deficit”

The EUR finished moderately lower again this week, from $1.098 per EUR on 4 October 2024 to close at $1.095 per EUR on 11 October 2024. The EUR is down 0.23% for the week, down 1.12% for the month, down 0.78% YTD, and up 4.20% over the past 12 months.

Bloomberg reported on 12 October that the European Central Bank (ECB) will probably announce its third 25 bp policy rate cut next week. Policymakers had virtually ruled out a rate cut just one month ago.

Economists believe that the ECB seeks to offset an extended period of high borrowing costs that are lagging policy rate changes.

The ECB seems to have shifted its priority from addressing lingering inflationary pressure to addressing anemic economic growth amid growing headwinds.

Bloomberg Economics said, “The ECB will lower borrowing costs by 25 basis points in October and again in December. After that we see quarterly moves as policymakers feel their way to neutral.”

The UK faces significant economic challenges if geopolitical tensions including the Iran – Israel conflict push oil prices beyond $100 USD, as reported on 13 October by The Telegraph.

UK Chancellor Rachel Reeves has promoted her “borrowing to invest for growth” program ahead of the release of her first Budget on 30 October. However, rising energy costs would stoke inflationary pressures, resulting in postponement of the UK’s policy rate of 5.0% set in August and raising government borrowing costs.

The UK currently spends GBP 89 billion per year on debt service, nearly three times the amount it spends on defense.

The UK returned to positive growth in August with GDP up 0.2% YoY, following virtually no growth in June and July.

The article concludes that the success of the UK economy is less dependent on the budgetary decisions of the current government and more on the course of Middle East conflict and its impact on energy costs.

Meanwhile, France released a draft budget that included €60 billion in tax hikes and spending cuts to address its large fiscal deficit, as reported on 11 October by CNBC.

Analysts suggested that the proposed budget could limit France’s economic growth and could still lead ratings agencies to further downgrade France’s sovereign debt rating.

China

“The CNY finished moderately lower again this week”

“China announces fiscal stimulus including ‘significantly’ increased gov’t debt to pursue its growth target”

“New recruit salaries fall 0.6% YoY amid high youth and urban unemployment”

“Cash-for-Clunkers and seasonal effects see first monthly increase in car sales in five months”

“New Energy Vehicles hit 53.3% of total new Chinese car sales”

The CNY ended moderately lower again this week, from 7.050 per USD on 4 October 2024 to close at 7.066 per USD on 11 October 2024. The CNY is down 0.24% for the week, up 0.38% for the month, up 0.66% YTD, and up 3.27% over the past 12 months.

On 12 October China’s finance ministry announced a fiscal stimulus packaged to stimulate its economy and achieve its growth target, as reported on 12 October by Reuters.

The finance ministry said that it would “significantly” increase government debt issuance to provide subsidies to low-income households, support the property market, and replenish the capital of state banks, though it did not disclose the size of the new stimulus measures.

This follows the announcement last month that China plans to issue special sovereign bonds valued at around CNY 2 trillion (approx. $283 billion USD) this year to support its stimulus programs.

China had previously set its 2024 budget deficit at 3% of GDP, down from 2023’s revised deficit of 3.8% of GDP. However, the announced new bond debt was not included in the 3% GDP deficit target.

Meanwhile, the average monthly salaries of new recruits in 38 key Chinese cities fell 0.6% YoY in 3Q24 to CNY 10,058 (approx. $1,423 USD) per online recruitment platform Zhaopin Ltd. as reported on 10 October by Bloomberg.

New recruit wages increased 2.2% YoY in 1Q24 and 0.5% in 2Q24.

China’s official jobless rate in urban areas climbed to a six-month high of 5.3% in August from 5.2% in July, while youth unemployment reached a new record of 18.8% in August from 17.1% in July based on the new youth unemployment methodology implemented in January 2024.

Rising unemployment, which is contributing to falling Chinese consumer confidence, and collapsing factory gate pricing continues to post stiff headwinds preventing China from achieving its 2024 5% YoY GDP target and increases the risk of entering a deflationary spiral.

In a rare piece of good news for the Chinese economy, passenger-vehicle sales in September increased 4.5% YoY to 2.1 million units following five months of declines, as reported on 12 October by The Wall Street Journal.

New Energy Vehicles (NEV) which includes EV’s and plug-in hybrids, outsold internal combustion engine cars for the past three consecutive months, reaching 53.3% of total passenger car sales in September.

Beijing previously implemented a “cash-for-clunkers” program along with local government incentives to encourage trade-ins of old vehicles, which contributed to the rebound in car sales. Car sales also benefited from seasonal effects arising from the Mid-Autumn Festival and National Day holidays.

The South China Morning Post published an “In-depth look at China’s economic crisis, and why inexperience is fueling the fire” on 12 October 2024.

The article subtitle notes that “economists have ‘never seen anything like this,’ and ‘challenges are on a greater scale’ than ever before, so how can China bring the wild ride to an end?”

This article is the first of a three-part series, the scope of which cannot be concisely summarized in this weekly newsletter. However, it is recommended reading for manufacturers seeking historical perspective and forward-looking insights into the economic challenges facing China.

Thailand

“The THB rebounded moderately higher this week

“THB down 2.7% in October following gain of 14% in 3Q24”

“Pheu Thai party continues its 20+ year conflict with BoT Governors, seeking to increase the 2025 inflation target to further press for a policy rate cut”

The THB ended moderately higher this week, from 33.29 per USD on 4 October 2024 to close at 33.11 per USD on 11 October 2024. The THB is up 0.54% for the week, up 0.48% over the past month, up 3.69% YTD, and up 8.66% over the past 12 months.

The THB is down 2.7% against the USD in October signaling the possible end of its recent rally amid growing tensions between the Thai government and the Bank of Thailand (BoT), as reported on 13 October by Bloomberg.

The THB surged 14% in 3Q24 for its biggest quarterly jump since March 1998 following the Thai Financial Crisis, driven in large part by investors anticipating that the region would be the biggest beneficiary to easing US monetary policy.

The Thai government has announced a plan to raise its 2025 inflation target from a range of 1% 5o 3% to a range of 1.5% to 3.5% as part of its ongoing campaign to pressure the BoT to cut its policy rate of 2.5%.

Markets have already priced in a 25 bp BoT policy rate cut over the next three months, so a decision by the BoT to cut its policy rate accordingly would have limited economic impact.

The peak tourist season at year-end, combined with local stimulus measures including the Digital Wallet cash handout, should provide tailwinds supporting Thai GDP growth and may see the THB reach 32.5 per USD by the end of 2024.

Meanwhile, Bloomberg reported on 7 October that former BoT Central Bank Governor Tarisa Watanagase forecast “disastrous consequences” for the Thai economy if the Thai government seeks to influence the appointment of a new central bank chairman.

Local Thai media reported that a panel of retired bureaucrats and regulators were scheduled to meet on 8 October to select a BoT chairman and two board members from a roster submitted by the Finance Ministry and the Central Bank.

Tarisa wrote that, “In the past, the selection committees for important positions of the Bank of Thailand have performed their duties independently and have not accepted interference. No one wants to be recorded in history as people responsible for bringing the Thai economy to the first step of disaster.”

Tarisa further noted that government interference with the BoT can damage the Thai economy by focusing on policies stimulating the economy in the short term. She noted that the Digital Wallet program to provide THB 10,000 cash to most Thai adults is already set to create a “huge financial burden” which can lead rating agencies to downgrade Thailand’s credit rating.

Thai PM Paetongtarn Shinawatra’s administration is backing Kittiratt Na-Ranong, a party loyalist, for the role of BoT Chairman.

The BoT chairman doesn’t have the power to dictate monetary policy but does evaluate the BoT governor’s performance and can influence the appointment of experts to the seven-member policy rate committee headed by BoT governor Sethaput Suthiwartnarueput, who is due to retire in September 2025. Dr. Sethaput was appointed in 2020 by the previous government.

Commodities

“GSCI Commodity Index meandered modestly higher this week”

“The GSCI Industrial Metals Index meandered modestly lower this week”

“Commodity prices steady following China’s announced stimulus policy”

“US State Department accuses China of predatory behavior in cobalt and lithium markets"

The GSCI Commodity Index finished modestly higher this week, from 557.37 on 4 October 2024 to close at 559.64 on 11 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 6.04% YTD. Trading Economics has maintained its GSCI forecast this week at 520 by the end of 4Q24 and 499 in 12 months.

The GSCI Industrial Metals index finished modestly lower this week, from 478.14 on 4 October 2024 to close at 474.63 on 11 October 2024. The Industrial LME Metals Index is up 18.84% over the past 12 months.

Commodities prices steadied following China’s announced stimulus policy to resuscitate its anemic economy, as reported on 13 October by Bloomberg.

Iron ore prices, which climbed above $140 USD per ton in January then sank below $90 USD in September, firmed to $106.60 USD per ton.

Copper, which hit a record exceeding $11,000 USD per ton in May, rebounded from recent losses to close at $9,707 USD per ton.

China is the biggest importer of both iron ore and copper.

Meanwhile, US officials have accused China-based CMOC Group, which has gained control of more than a third of the world’s cobalt supply, of flooding the cobalt market to prevent investment by competitors, as reported on 10 October by The Wall Street Journal.

Cobalt is used in jet fighters, munitions, drones, and EV batteries.

US State Department undersecretary in charge of international energy policy Jose Fernandez said, ““The players are new, but the playbook is old. That predatory conduct is hurting not only the competition, but it is also jeopardizing America’s energy transition.”

The article noted that “The sudden rise of an obscure company to a position of dominance in the mining industry is a study in how Chinese companies are spreading around the globe, often to feed the country’s manufacturing machine.”

CMOC’s production in 1H24 was approximately equal to its full year 2023 output. It is expected to produce 92,000 MT of cobalt in Congo in 2024, equivalent to 38% of global mine supply.

Surging cobalt supply has seen prices fall to eight-year lows.

In related news, Reuters reported on 8 October that Jose Fernandez also accused Chinese lithium producers of flooding the global market and causing a “predatory” price drop to eliminate competing products.

Mr. Fernandez said China was producing much ore lithium “than the world needs today, by far.” He further noted that, “"That is an intentional response by the People's Republic of China to what we are trying to do" (with the Inflation Reduction Act - the largest climate and energy investment package in U.S. history valued at over $400 billion.)"They engage in predatory pricing... (they) lower the price until competition disappears. That is what is happening."

China accounts for two-thirds of world lithium output, which is used primarily for batteries including for EV’s. The price of lithium has crashed more than 80% YTD due to Chinese overproduction and falling EV demand.

Energy

“Crude ended moderately higher again this week”

“Henry Hub ended modestly lower again this week”

“EU Natural Gas ended moderately lower this week”

“Oil futures rise amid concerns that Israeli will focus retaliatory strikes against Iranian energy infrastructure”

“US gas futures fall on rising inventories”

“US announces new oil sanctions on Iran, but will it enforce them?”

Brent Crude finished moderately higher again this week, from $78.14 USD on 4 October 2024 to close at $78.79 USD on 11 October 2024.

Henry Hub finished modestly lower again this week, from $2.83 USD per MMBTU on 4 October 2024 to close at $2.63 USD per MMBTU on 11 October 2024.

EU Natural Gas finished moderately lower this week, from €40.74 per MWh on 4 October 2024 to close at €39.71 per MWh on 11 October 2024, equivalent to $10.63 USD per MMBTU. EU Natural Gas is up 22.75% YTD. Trading Economics maintained its EU Natural Gas TTF forecast this week at €39.87 per MWH by the end of 4Q24 and 45.87 in 12 months.

Brent Crude futures posted moderate gains this week, supported by market worries over the potential for escalation in the Iran – Israel conflict, moderated by concerns over waning Chinese oil demand amid an anemic economy.

Marketwatch on 10 October quoted SIA Wealth management portfolio manager and chief market strategist Colin Cieszynski, “The conflict in the Middle East remains a concern, particularly if any military action impacts production or transport of crude. Worries have cooled a bit since nothing major happened on Monday, but that could change at any time without warning.”

The EIA reported on 10 October that US natural-gas inventories rose by 82 billion cubic feet for the week ending 4 October, which was moderately more than surveyed analyst forecasts. This put downward pressure on gas futures, which are down 8.5% MTD.

Meanwhile, Bloomberg reported on 11 October that hedge funds “fled bearish bets against Brent crude prices at the fastest pace in nearly eight years as war risks ratcheted up.”

Israel has vowed to retaliate against Iran for its recent missile attack, but it has not indicated the nature or scope of its retaliation. Markets remain worried that Iran’s oil infrastructure could be targeted for significant action, despite US President Biden counselling against attacking Iran’s energy facilities.

In related news, The Wall Street Journal reported on 11 October that Biden administration National Security Advisor Jake Sullivan announced, “new and significant measures to more effectively target Iran’s energy trade,” which “will help further deny Iran financial resources used to support its missile programs and provide support for terrorist groups that threaten the United States, its allies, and partners.”

The article notes that Biden inherited Trump’s “maximum pressure sanctions targeting Iranian oil sales but has refused to enforce them. Iran is estimated to have earned $40 billion USD in revenue from unenforced sanctions from January 2021 through March 2024.

The US also allowed Un sanctions on Iranian missiles and drones lapse, and removed Iranian proxy the Houthis from the Foreign Terrorist Organization list.

The article suggests that Biden’s announced new sanctions appear to be an attempt at persuading Israel not to strike Iranian oil fields, which could cause oil prices to spike in the final weeks preceding the US presidential election.

Logistics

“The BDI ended moderately lower again this week”

“The CFI ended lower this week”

“Boeing strike negotiations break down with no resolution in sight . . .”

“ . . . leading Boeing to cut 17,000 jobs amid warning of ‘substantial’ new losses”

Baltic Dry Index finished moderately lower again this week, from 1,928 on 4 October 2024 to close at 1,809 on 11 October 2024. The BDI is down 13.61% YTD. Trading Economics has maintained its BDI forecast this week at 2,183 by the end of 4Q24 and 2,507 in 12 months.

The Containerized Freight Index finished lower this week, from 2,135.1 on 4 October 2024 to close at 2,062.6 on 11 October 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 17.22% YTD. Trading Economics has maintained its CFI forecast this week at 2,232 by the end of 4Q24 and 2,550 in 12 months.

Boeing withdrew its contract offer as it accused the International Association of machinists and Aerospace Workers of making “non-negotiable demands” while the union accused the company of being “hell-bent on standing on the non-negotiated offer,” as reported on 8 October by Bloomberg.

Boeing’s contract offer, which was made two weeks ago in a direct approach to 33,000 striking workers, offered a wage increase of 30% and enhanced retirement benefits.

Workers walked off the job on 13 September, the first major strike against Boeing in 16 years. The strike is estimated to cost Boeing $100 million USD per day in lost revenue.

The negotiating impasse leaves no clear path forward to resolve the strike, which has idled Boeing’s key commercial manufacturing facility on the US west coast.

Boeing has said its important goal is preserving its investment-grade credit rating. Boeing has $4 billion of debt coming due in 2025 and $8 billion coming due in 2026. Moody’s Ratings said last month that it is considering downgrading Boeing credit to junk status.

In related news, The Guardian reported on 11 October that Boeing will cut 17,000 jobs “to align with our financial reality” amid the ongoing strike and lingering effects of its various technical and safety crises.

Boeing also announced that the first deliveries of its 777X commercial jet will be delayed by one year and warned investors of “substantial” new losses in its struggling defense business.

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