Manufacturing Weekly Economic Highlights | 16 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 modestly lower again this week for lowest close since July 2023”

“US August CPI eases to 2.5% with core CPI steady at 3.2%”

“US manufacturing PMI falls to 47.9 for second month of contraction”

“Small business optimism index drops most since June 2022 to 91.2” 

“US Fed to decide on policy rate cut on 18 September”

The USD Index (DXY) finished modestly lower again this past week, from 101.19 on 6 September 2024 to close at 101.11 on 13 September 2024. The DXY is down 0.06% for the week, down 1.32% for the month, down 0.22% YTD, and down 4.00% over the past 12 months. With the exception of a few days in mid-July 2023, this is the lowest DXY close since 17 April 2022.

The US CPI rose 2.5% YoY in August, down from 2.9% YoY in July for the fifth consecutive drop in YoY CPI, as reported on 11 September by The Wall Street Journal. Core CPI remained steady in August at 3.2% YoY.

Core inflation was supported by stronger-than-anticipated shelter costs, while cost increases for food decreased, and the prices for used vehicles and energy fell.

The CPI report is believed to presage a decision by the US Fed to cut policy rates by 25 bp when they meet next week, though the FedWatch tool is still pricing in a total of 100 bp policy rate cuts by year end 2024.

Though the rate of inflation has eased, the cost of living hasn’t fallen. Furthermore, the labor market is cooling, with hiring and wage growth slowing and the average duration of unemployment has rising as it takes longer for works to find jobs.

Retailers including Target have slashed prices to boost sales, and Amazon has reported that customers are “increasingly looking for discounts and lower-priced essentials.”

US manufacturing production in August reflected significantly weakened demand, with the S&P Global US Manufacturing PMI posting its lowest value YTD 2024 at 47.9. This is the second consecutive month of contraction, as reported on 9 September by Forbes.

The JPMorgan Global Manufacturing PMI fell to an eight-month low of 49.5. The survey covered 31 countries, with 18 showing deterioration in manufacturing conditions including the Eurozone and Japan.

Meanwhile, Bloomberg reported on 10 September that US small-business optimism as measured by the National Federation of Independent Business (NFIB) Optimism Index dropped by 2.5 points to 91.2 for August. This was the biggest monthly drop since June 2022 and erased nearly half the advance in the index over the prior four months.

Of the ten components that comprise the small business optimism index, eight weakened, led by a nine-point decline in sales expectations. 37% of firms reported earnings deterioration, the largest share since 2010.

Of firms reporting lower profits, 31% attributed weaker sales, with 17% blaming materials prices and 13% citing labor costs.

Nearly 25% of business owners cited inflation as their single most important problem, which is significantly above the 3% long-term average from 1986 through mid-2000.

The NFIB’s Uncertainty Index rose 2 points to its highest value since October 2020.

US Producer Price Index

“August PPI up 1.76% YoY and up 0.24% MoM”

“Core PPI was steady at 3.3% YoY and 0.3% MoM”

“Final demand goods unchanged, final demand services up 0.4% MoM” 

“The September PPI is scheduled to be published on 11 October 2024”

The August 2024 PPI was released on 12 September at 144.85, an increase of 1.76 YoY and 0.24 MoM over the revised July PPI of 144.51.

The July 2024 PPI was revised to 144.51 from 144.67. The June 2024 PPI was maintained at 144.53. The May 2024 PPI was revised to144.25 from 144.27. The April 2024 PPI was revised to 144.26 from 144.25

Core PPI in August remained steady at 3.3% YoY and 0.3% MoM.

Core PPI, which had been steadily rising since November 2023 when it was 2.5% YoY, may have peaked. It reached 3.4% YoY in May, dropped to 3.2% in June, and been steady at 3.3% through July and August.

The August increase in PPI final demand is attributed to a 0.4% MoM increase in final demand services, with final demand goods remaining unchanged.

Final demand goods PPI was unchanged in August following an increase of 0.6% MoM in July. Core final demand goods rose 0.2% MoM, with final demand energy falling 0.9% MoM.

Final demand services rose 0.4% MoM in August following a decrease of 0.3% MoM in July.

Final demand prices for transportation and warehousing services declined 0.1% MoM.

The next PPI is scheduled to be published on 11 October 2024.

Europe

“EUR rebounded modestly higher again this week relative to the USD”

“Europe faces a recession as demand wanes amid global slowdown”

“Natural gas supplies through Ukraine to Europe could cease in December, disrupting 5% of gas supplies”

“A cold winter in Europe could see gas shortages and high prices”

The EUR finished modestly higher again this week, from $1.110 on 6 September 2024 to close at $1.110 on 13 September 2024. The EUR is up 0.04% for the week, up 0.55% for the month, up 0.47% YTD, and up 4.03% over the past 12 months.

BCA Research chief European strategist Mathieu Savary is predicting a European recession as demand for European products wanes, as reported on 9 September by MarketWatch.

He notes that current market measures show the European economy still expanding, but forward-looking indicators signal challenges ahead.

The US ISM manufacturing index orders-to-inventories ratio fell, which historically signals problems for Europe. The decline in the US labor market and weakening US labor market also presages a negative economic impact on Europe. The combined capital goods orders for the US, Eurozone, and Japan have contracted at the fastest pace since the Covid pandemic. The disinversion of the US Treasury yield curve is a “true recessionary signal.”

European services improved recently from the Olympics Games in France. However, “employment trends are worsening, retail sales are decelerating, and the outlook for consumer confidence is sagging.”

Meanwhile, Bloomberg reported on 10 September that Europe is bracing for the last of Ukraine’s Russian gas deliveries.

Ukraine has more than 22,000 kilometers of natural gas pipelines and has been a key player in European energy markets for decades. Ukraine has continued to all Russian natural gas to transit Ukraine despite the ongoing war. However, the natural gas pipeline agreement between Ukraine and Russia expires in December 2024, and despite ongoing negotiations, the agreement is unlikely to be renewed.

Natural Gas flow through Ukraine represents 5% of Europe’s gas supplies, but losing this supply would have an impact on Europe’s energy security.

Ukraine earns $800 million annually from Russia in gas transit fees, down by two thirds from pre-war earnings. Russia earns around $6.5 billion USD from gas transiting Ukraine.

Austria and Slovakia are the main recipients of natural gas flowing through Ukraine, and they indicate that they are prepared for the discontinuation of gas flow through Ukraine.

European energy supply and demand are currently “tightly balanced.” Disruption of gas supply through Ukraine is likely to trigger gas price volatility in Europe. Europe could also face gas shortages in the event of cold winter weather, as the past two winter seasons were mild.

China

“The CNY ended modestly lower this week”

“China’s factory gate prices down 1.8% YoY for 23rd consecutive month of decline”

“Industrial production growth falls to 4.5% YoY, retail sales growth down to 2.1% YoY”

“Investor confidence crashes with CSI 300 down to lowest level since Jan 2019 and 10-year bonds at record lows”

“Chinese exports up 8.7% in August”

“Will global economies allow China to export its way out of a looming economic crisis?”

The CNY ended modestly lower this week, from 7.089 on 6 September 2024 to close at 7.093 on 13 September 2024. The CNY is down 0.06% for the week, up 1.00% for the month, up 0.28% YTD, and up 2.50% over the past 12 months.

China’s economy continues to struggle with August activity weakening “across the board” as reported on 13 September by The Wall Street Journal.

August retail sales rose just 2.1% YoY, down sharply from 2.7% YoY in July. Industrial production rose 4.5% YoY, down from 5.1% in July. Investment in buildings, equipment, and other fixed assets slowed to 3.4% YoY down from 3.6% during January through July.

China’s factory-gate prices fell 1.8% YoY in August, following a 0.8% YoY decline in July, for the 23rd consecutive month of contraction.

Home prices in August fell 5.7% YoY for the steepest decline in nine years.

China’s stock market benchmark the CSI 300 index fell to its lowest level since January 2019 on 12 September as investors lose faith in a Chinese economic recovery. The benchmark is on track for an unprecedented fourth consecutive year of losses.

Consumer confidence fell in July, business surveys reported sinking profits in August. Manufacturers reported rising inventories. Car sales fell in August for the fifth consecutive month.

China’s most urgent challenge may be deflation. As reported last week, China’s CPI in August rose just 0.6% YoY with non-food consumer prices falling 0.3% MoM. Core CPI in August fell to 0.3% YoY from 0.4% YoY in July.

Falling prices can trigger a deflationary spiral as households with reduced incomes spend less or postpone spending in anticipation of lower prices.

Bond yields on Chinese 10-year government bonds sank to new lows, indicating that global investors are increasingly pessimistic on the prospects for the Chinese economy.

The only bright spot in the Chinese economic news for August was exports, which rose 8.7% YoY with imports rising just 0.5% YoY.

Trader and analysts are increasingly skeptical of China’s ability to reach 2024 GDP growth of 5%, with Mizuho Securities downgrading its forecast from 4.8% to 4.7%.

The Chinese government has rejected “big-ticket stimulus,” having rejected a property sector rescue proposal from the International Monetary Fund (IMF) last year as being “too expensive, unnecessary, and likely to stir up financial trouble further down the road.”

Barclay’s economists noted that home prices in top cities dropped 30% since 2021 and calculated that if Chinese home prices nationwide have dropped by the same 30% the lost wealth totals $18 trillion USD representing a loss of $60,000 per average three-person household. This is driving a consumer confidence crisis that is limiting domestic demand.

To compensate for weak domestic demand, China is trying to boost manufacturing output and exports and redirect investment from real estate to advanced manufacturing and high-tech sectors.

However, global trading partners are increasingly seeking to protect their domestic markets from a flood of cheap Chinese goods by imposing tariff and non-tariff trade barriers.

Thailand

“The THB finished moderately higher again this week”

“Thai household debt increased 8.4% to the highest level in 16 years, reaching 91% of GDP”

“Thai consumer confidence drops to 13-month low”

“Digital Wallet stimulus to give 14.2 million Thais $296 each on 25 September”

The THB ended moderately higher again this week, from 33.72 on 6 September 2024 to close at 33.22 on 13 September 2024. The THB is up 1.37% for the week, up 4.10% over the past month, up 3.37% YTD, and up 6.97% over the past 12 months.

The average Thai debt per household increased 8.4% in 2024 to the highest level in at least 16 years per a survey by the University of the Thai Chamber of Commerce (UTCC), as reported on 10 September by Bloomberg.

The total household debt is estimated to be approximately 91% of Thailand’s GDP.

The UTCC President K. Thanavath forecast household debt to decline to 89% of GDP in 2025 as stimulus measures including the Digital Wallet cash stimulus program boost economic growth.

70% of Thai household debt is from formal sources. Informal debt, which includes loan sharks, could equal 10% to 20% of GDP.

Meanwhile, on 12 September Reuters reported that the newly elected Thai PM Paetongtarn Shinawatra outlined to parliament her government’s policy agenda. Headlining the policy objectives are the Digital Wallet cash stimulus program valued at THB 450 billion (approx. $13.4 billion USD), debt restructuring, and legalizing casinos to attract additional investment and promote tourism.

Her policies are generally in alignment with those of former PM Srettha, who was removed last month by the Constitutional Court for illegally appointing an ineligible person to his Cabinet.

Reuters also noted on 12 September that Thai consumer confidence dropped to a 13-month low of 56.5 in August from 57.7 in September. The consumer confidence index is compiled by the University of the  Thai Chamber of Commerce.

On 25 September the Thai government will transfer THB 10,000 (approx. $296 USD) each to 14.2 million low income and disabled Thai adults, as reported on 12 September by Bloomberg.

Approximately 30 million Thais applied for the one-time cash assistance, representing nearly half of the Thai population. Thailand has a population of 70 million, with children representing 16.2% of the population or 11.3 million.

The government did not commit to a schedule for future Digital Wallet payments.

Commodities

“GSCI Commodity Index rebounded moderately higher this week”

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

“Iron ore falls to lowest price in 2 years”

“China’s steel production down 10.4% YoY to lowest output since 2017”

“Platinum and palladium rebounds but remains down 40% YoY”

“Can lithium rebound from two year lows following massive crash?”

The GSCI Commodity Index finished moderately higher this week, from 511.06 on 6 September 2024 to close at 519.10 on 13 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 down 1.25% 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 this week, from 432.71 on 6 September 2024 to close at 446.38 on 13 September 2024. The Industrial LME Metals Index is up 7.7% over the past 12 months.

Iron ore has fallen to its lowest price in nearly two years as miners shift focus to energy transition commodities such as copper, as reported on 11 September by The Wall Street Journal.

The benchmark price was $90.25 USD per metric ton on 10 September, down 36% YTD and the lowest since November 2022.

Iron ore is one of the worst performing mined commodities in 2024. Demand for iron ore continues to be suppressed by the Chinese property market crisis.

China buys 70% of all iron ore shipped globally. China imports of iron ore in August fell 5% YoY for the first contraction since November 2022. Iron ore stockpiles at Chinese ports have surged 30% YTD.

Analysts believe that mining costs could put a price floor in the range of $80 to $100 USD per MT, as lower prices would cause miners to reduce production and rebalance supply and demand. However, supplies are expected to continue to exceed demand well into 2025.

In related news, Bloomberg reported on 13 September that China’s steel production in August fell 10.4% YoY for the lowest August output since 2017, with YTD production down 3.3% YoY.

However, there are modest signs that steel demand may be picking up in September, with prices seeing a modest gain.

Bloomberg reported on 13 September that palladium and platinum, which are used in automotive catalytic converters to reduce emissions, jumped 16% and 8% respectively the past week amid reports that Sibanye Stillwater Ltd. will cut its US production by up to 45%.

Despite the gains, platinum and palladium remain down 40% YTD amid weak auto industry demand, destocking by manufacturers, and delayed / discontinued expansion projects.

The article also noted that on 11 September Russian president Putin asked his government to consider limiting exports of commodities such as nickel in retaliation for Western sanctions. Russia is the global leading producer of palladium, which is extracted as a biproduct of nickel mining.

Last week we reported that the price of lithium, used in battery production, has crashed 88% over the past two years as demand has failed to keep pace with surging supply.

On 11 September The Wall Street Journal reported that Contemporary Amperex Technology (CATL), a Chinese company and the world’s largest manufacturer of EV batteries, is considering closing its mine in eastern China along with one of its three lithium carbonate production lines.

Lithium prices have yet to rebound on the news, but the shares of major lithium miners have surged as much as 22% in response to the announcement.

It remains to be seen if CATL will follow through with its lithium mining and production cuts, and whether this will be enough to move lithium prices higher.

Energy

“Crude rebounded moderately higher this week”

“Henry Hub ended sideways this week”

“EU Natural Gas ended moderately lower again this week”

“Libyan oil exports remain limited amid ongoing Central Bank crisis”

“US GOM oil and gas production resuming following hurricane”

“US natural gas struggling with a ‘deluge of supply’”

“Chinese solar power companies struggle with massive overcapacity”

Brent Crude finished moderately higher this week, from $71.48 USD on 6 September 2024 to close at $72.18 USD on 13 September 2024.

Henry Hub finished sideways this week, from $2.29 USD per MMBTU on 6 September 2024 to close at $2.29 USD per MMBTU on 13 September 2024.

EU Natural Gas finished moderately lower again this week, from €36.37 per MWh to close at €35.71 per MWh, equivalent to $9.43 USD per MMBTU. EU Natural Gas is up 10.38% 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 gained moderately this past week despite the ongoing Libyan Central Bank crisis that has significantly limited oil exports and growing signs that the Chinese economic slump is worsening, as reported on 15 September by Bloomberg.

China remains the top importer of crude, but its industrial output is mired in its longest contraction since 2021, and investment has fallen more than expected.

Brent crude is down 17% in 3Q24 to approach its lowest levels since late 2021.

Meanwhile, nearly 30% of US Gulf of Mexico crude oil production and 41% of natural gas production was offline on 14 September following Hurricane Francine, as reported on 14 September by Reuters.

Workers are returning to offshore platforms and production is being brought back online amid report of minimal damage. However, a disruption at an onshore gas plant has caused some offshore platforms to operate at reduced rates.

US natural gas continues to struggle from “a deluge of supply for the entirety of 2024,” per EBW Analytics energy analyst Eli Rubin, as reported on 13 September by The Wall Street Journal.

US natural gas production surged to record levels this past winter despite unusually warm temperatures and high natural gas inventories. By spring natural gas in storage was 40% higher than the trailing-five-year average. The US Energy Information Agency reported on 12 September that natural gas inventories remain 9.6% above the five-year average.

Despite natural gas production from April through October being 1% lower YoY, supply still exceeds demand. Producers in the Permian Basin keep producing oil as prices remain attractive and are thereby producing natural gas as a byproduct of oil production.

Natural gas pricing at the Waha hub near the Permian Basin have been negative for a record number of days, as Permian Basin gas producers pay users to take their excess gas.

In July Hurricane Beryl shut down LNG export capacity at Freeport LNG for about two weeks, further impacting the supply – demand imbalance. SMP Global Commodity Insights reports that natural gas by US LNG facilities will only rise marginally in 2024.

US natural gas prices could remain low until 2026 when additional LNG export capacity will be added.

China is struggling with massive overcapacity in its solar power industry, as reported on 12 September by Bloomberg.

Despite China being the world leader in solar power, manufactures of solar panels and producers of solar power are being forced into consolidation as manufacturing and production capacity far exceeds demand.

Logistics

“The BDI finished moderately lower this week”

“The CFI finished moderately lower again this week”

“The CFI has fallen steadily since peaking on 11 July 2024 but remains up 42.7% YTD.

“DSV agrees to buy Schenker, would become world’s largest logistics company”

“US container cargo surges ahead of 1 October strike deadline”

Baltic Dry Index finished moderately lower this week, from 1,941 on 6 September 2024 to close at 1,890 on 13 September 2024. The BDI is down 9.74% 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 2,726.6 on 6 September 2024 to close at 2,510.9 on 13 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 42.7% YTD. Trading Economics has maintained its CFI forecast this week at 3,093 by the end of 3Q24 and 3,516 in 12 months.

Denmark’s DSV has agreed to buy Schenker from German state rail operator Deutsche Bahn for €14.3 billion to become the world’s largest logistics company, as reported on 13 September by Reuters.

The acquisition will lift DSV above DHL Logistics and Kuehne und Nagel in both volume and revenue, though it will still only control between 6% to 7% of the highly fragmented global logistics market.

The combined company will have revenue of $43.5 billion USD based on 2023 results and a combined workforce of 147,000 across more than 90 countries.

The deal is subject to German regulatory and ministerial approval as well as by Deutsche Bahn’s supervisory board. It is expected to close in 2Q25.

Meanwhile, US container cargo imports in August jumped 12.9% YoY as importers seek to boost inventories in advance of a threatened longshore worker strike at US East Coast and Gulf of Mexico ports scheduled for 1 October.

The two sides remain at an impasse over issues including wages, benefits, and automation.

Maersk noted in a statement, “should a general work stoppage occur on the U.S. Gulf and East Coasts, even a one-week shutdown could take 4-6 weeks to recover from, with significant backlogs and delays compounding with each passing day.”

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