Manufacturing Weekly Economic Highlights | 24 June 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 closed moderately higher again this week”

“Traders buying USD as safe haven from European political uncertainty”

“CME FedWatch predicts 66% chance of Fed rate cut in September”

“CBO estimate of 2024 deficit surges 27% since February” 

“Industrial metals prices surge in 2024 on rising demand and supply constraints”

The USD Index (DXY) finished moderately higher again this past week, 105.53 on 14 June 2024 to close at 105.83 on 2 June 2024. The DXY is up 0.27% for the week, up 1.06% for the month, up 4.44% YTD, and up 2.85% over the past 12 months.

The USD has been steadily gaining strength as investors seek safe haven from European political uncertainty, as reported on 17 June by Bloomberg. The premium to purchase a hedge against the USD falling against a basket of currencies has risen to its highest level since March 2023, indicating market confidence that the USD has more upside potential ahead.

Expectations that the US Fed will continue to delay a policy rate reduction are also supporting continued USD strength.

Meanwhile, Business Insider on 21 June published an article suggesting that the US Fed may cut rates in July to prevent a looming recession. Despite the CME FedWatch tool pricing only a 10% chance of a July rate cut, GlobalDataTS Lombard Economist Steven Blitz has predicted a 60% chance of a surprise Fed rate cut if June payroll data again falls below market expectations for new job creation.

The current CME FedWatch tool predicts a 10.3% chance of a rate cut on 31 July, and 65.9% chance of a rate cut on 18 September, from the current 5.25% to 5.5% policy rate.

The Congressional Budget Office (CBO) increased its estimate of the 2024 budget deficit by 27% over its February estimate, representing an additional $400 billion, as reported on 19 June by ABC news. This would raise the US national debt to 99% of GDP by the end of 2024. The CBD has also predicted that the US national debt will reach 122% of GDP by the end of 2034, which is the highest level ever recorded for US debt.

The CBO identified key factors driving the deficit increase to include higher costs from the supplemental spending package approved in April to provide military aid to Ukraine and Israel, higher costs for transferring student loan balances to the US government (loan balances do not disappear when loans are “cancelled”), increased Medicare spending, and higher costs to support FDIC insurance as payments arising from the banking crises of 2023 and 2024 have yet to be recovered.

For comparison, the EU has established a national debt limit of 60% of GDP and an annual deficit limit of 3% of GDP for member nations.

Industrial metal prices have been surging in 2024, with copper hitting record highs and nickel, zinc, and tin all experiencing double-digit gains, as reported on 21 June by MoneyWeek.

The LME three-month futures contract for copper hit an all-time high of $11,104 per tonne on 20 May. Nickel hit an eight-month high of $21,615 per tonne, and tin is up 47% YTD at $36,050 per tonne. Zinc is up 24% YTD at $3,062.

Prices for these industrial and base metals are being supported by the green energy transition, and all have recently suffered from “serious supply disruption.” However, lithium, which is crucial for the energy transition and the production of lithium batteries, has seen its price collapse as global supply has increased more rapidly than demand.

Environmental regulations and community resistance have made it more difficult to build new mines. The time to mobilize a new copper mine has increased from seven years to almost twenty years. Additionally, mine closures such as the Cobra Panama mine that was ordered closed in late 2023, have also adversely impacted metals supply.

Europe

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

“Germany cites Chinese support of Russia’s Ukraine war activities for deteriorating economic relations”

“EU continues to struggle with excess solar power generation”

The EUR finished modestly lower again this week, from $1.071 per EUR on 14 June 2024 to close at $1.070 per EUR on 21 June 2024. The EUR is down 0.09% for the week, down 1.38% for the month, down 3.11% YTD, and down 1.84% over the past 12 months.

German Vice Chancellor Robert Habeck attributed China’s support for Russia amid the Ukraine war is the main reason for deteriorating economic relations between China and Germany, as reported on 23 June by Bloomberg.

Habeck was quoted as saying, “It is also important for China, which is supporting Russia in this war, to understand that German and European security interests are already directly affected by this conflict.”

He noted that if China didn’t support Russia’s war, Germany and Europe wouldn’t be seeking to reduce their dependency on Chinese raw materials and critical goods. He further signaled that the recently imposed EU tariffs on Chinese EV’s are not “blanket” punitive actions but are “differentiated compensatory tariffs” that are “compensation for the advantages granted” by the Chinese government.

Following up on last week’s report of excessive solar power production in Europe, this week both Reuters and The Economist published articles highlighting Europe’s challenges dealing with the surge in solar power production.

Reuters reported on 21 June that Europe saw a record number of hours of negative power prices in 2024 due to mis-matched supply and demand. Excess power production during daytime hours has forced power producers to pay customers to take excess power. Producers face technical limits on how much they can reduce their power generation without shutting down production. Shutting down a power plant can be very costly and time consuming and can also result in damage and reduced life of power plant systems and equipment.

Solar power capacity in the EU has more than doubled between 2019 and 2023 to 263 GW. In 2023, the increased solar power capacity in the EU was equivalent to the installation of 306,000 solar panels being installed every day.

The Economist article, published on 19 June, identified three ways that firms and regulators could adapt to achieve a more efficient energy market: “sending energy to areas where this is no surplus, shifting demand to hours when energy is plentiful, and storing energy as electricity, fuel or heat.”

The article discussed the advantages and challenges of adapting the EU energy market to best utilize current and future solar and wind power production. Technical, regulatory, and behavioral challenges all need to be addressed and overcome. Communities often resist projects to expand the power grid, electricity pricing tariffs do not encourage or incentive demand shifting to better correlate with supply, and investments must be made to implement innovative and efficient energy storage solutions.

Additional read: Location Selection and Renewable Energy Strategies: Navigating the Diverse Landscape of Alternative Energy in Asia

China

“The CNY closed modestly lower again this week”

“China acts to manage the devaluation of the CNY”

“China’s housing market continues to struggle despite stimulus”

“Generous Chinese EV subsidies decline per vehicle as production volumes explode”

The CNY ended modestly lower again this week, from 7.255 per USD on 14 June 2024 to close at 7.261 per USD on 21 June 2024. The CNY is down 0.07% for the week, down 0.25% for the month, down 2.08% YTD, and down 1.13% over the past 12 months.

China signaled is “desire to manage” the decline of the CNY this week by increasing the gap between the daily reference rate fixing and the forecast CNY exchange rate. China sets the daily reference rate at 9:15 am local time, following which the CNY is permitted to trade within a 2% range of the daily reference rate, as reported on 20 June by Bloomberg.

Chinese state-owned banks also sold USD in the onshore market this week to support the CNY as it fell to its lowest level since November 2023.

The Peoples Bank of China (PBOC) is struggling to manage the devaluation of the CNY amid broad USD strength. The USD is close to YTD highs as the US Fed continues to delay cutting policy rates.

Also driving the devaluation of the CNY is the flow of cash out of China. Reuters reported on 21 June that cash has been flooding from the Chinese mainland into Hong Kong, with CNY deposits in Hong Kong currently at record levels of 1.09 trillion CNY ($150 billion USD). Hong Kong offers better returns on offshore CNY.

The Wall Street Journal reported on 17 June that China’s housing market continues to decline despite government stimulus and support. New home prices fell 4.3% YoY in May, more than the 3.5% YoY decline in April. Second home prices in May were down 7.5% YoY, worse than the 6.8% drop in April. Home sales by value collapsed 30.5% YoY during the first five months of 2025.

The housing and property markets have yet to see any recovery following Beijing’s issuance of 1 trillion CNY ($138 billion USD) of ultra-long sovereign bonds in May to help pay for infrastructure and property projects back by the government. Investors eagerly purchased the first tranche of these bonds.

A major factor impeding the property market is the gap between mortgage rates and rental yields. Mortgage rates currently range between 3% and 4$, whereas rental yields are below 2% in major Chinese cities.

The article noted that whereas China’s policies to support domestic housing and real estate have yet to show results, its support for the manufacturing sector has successfully boosted investment and factory output and is reducing China’s reliance on foreign suppliers of key technologies. However, as domestic consumption remains weak and unable to absorb additional manufacturing output, factories have been forced to cut prices and seek overseas buyers for its products.

As reported previously, Chinese exports in may were up 7.6% YoY, following an increase of 1.5% YoY in April, prompting global resistance and increased tariffs on Chinese products.

Bloomberg reported on 20 June that Chinese EV industry received “at least $231 billion in government subsidies and aid from 2009 through the end of last year.” However, the amount of support per vehicle has declined as EV output surges.

Slightly more than half of the support came in the form of sales tax exemptions, with the remainder comprised of approved buyer rebates, government funding of infrastructure including charging stations, government procurement of EV’s, and R&D support programs.

Generous Chinese support for its EV industry has prompted the EU to boost tariffs as high as 48%, with the US quadrupling its tariffs and Canada preparing to implement new tariffs.

On a per-vehicle basis, Chinese support has declined from $13,860 USD in 2018 to $4,600 in 2023. Sales tax exemptions increased from under $10 billion USD in 2020 to $40 billion USD in 2023 as sales of Chinese EV’s exploded.

Thailand

“The THB ended modestly lower this week”

“Thailand considers FY 2025 budget to boost spending to support increase growth”

“Thailand ranked 25th in World Competitiveness, up from 30th”

“Thailand seeks BRICS membership”

The THB ended moderately lower this week, from 36.68 per USD on 14 June 2024 to close at 36.75 per USD on 21 June 2024. The THB is down 0.19% for the week, down 0.05% over the past month, down 6.89% YTD, and down 4.28% over the past 12 months.

The Thai lower house of parliament voted in favor of a $102 billion USD budget for FY 2025, as reported on 21 June by Bloomberg. The budget seeks to boost state spending to increase GDP growth. The Thai Government has set an annual growth target of 5%, following an average growth rate of less than 2% for the past decade.

The budget includes the controversial Digital Wallet program to give THB 10,000 (approx. $280 USD) to each Thai citizen 16 years of age and older, to create a “whirlwind” impact fueling consumption and manufacturing.

The proposed budget would increase the annual deficit to 4% of GDP, raising the total debt to 67.9% of GDP. Thailand has a statutory debt limit of 70% of GDP.

Thai deficits are forecast to decline to 3.5% in FY 2026, falling to 3.1% in FY 2028.

The draft budget estimates headline inflation of 0.9% to 1.9% in 2024, and 1.1% to 2.1% in 2025.

The budget plan will be reviewed by various committees and is scheduled for Senate consideration and approval in early September.

Meanwhile, the IMD World Competitiveness Center has ranked Thailand 25th out of 67 economies, placing it in second place in ASEAN just ahead of Malaysia. Thailand was ranked 30th in 2023, as reported on 18 June by the National News Bureau of Thailand (NNT).

The improved ranking was primarily due to improved economic performance, which climbed from 16th place to 5th place on stronger international trade and a more favorable current account balance.

However, Thailand’s overall score declined from 74.5 in 2023 to 72.5 in 2024, aligned with a general trend of declining scores among assessed economies.

Thailand’s international trade ranking surged from 29th place to 6th, and its domestic economy rosed from 44th place to 39th.

Thailand’s business efficiency ranking climbed from 23rd to 20th place on improved management practices.

However, Thailand’s ranking for business legislation fell from 31st to 39th place.

Thailand’s Foreign Minister delivered an official letter to Russia’s Foreign Minister outlining Thailand’s intention to join the BRICS alliance, as reported on 17 June by GZEROMEDIA.

Thailand holds Non-NATO Major Ally Status with the USA, but Thailand hopes that joining BRICS will help it “play a more active role in South-South cooperation.”

Brazil was the first US ally to join BRICS, followed by Egypt.

Energy

“Crude ended moderately higher again this week”

“Henry Hub and EU Natural Gas ended moderately lower this week.

“Geopolitical risks driving oil price increases”

“US shale oil output set to peak in 2028”

Brent Crude finished moderately higher again this week, from $82.67 USD on 14 June 2024 to close at $85.02 USD on 21 June 2024.

Henry Hub finished moderately lower again this week, from $2.89 USD per MMBTU on 14 June 2024 to close at $2.72 USD per MMBTU on 21 June 2024.

EU Natural Gas finished moderately lower this week, from €35.46 per MWh on 14 June 2024 to close at €33.96 per MWh on 21 June 2024, equivalent to $9.31 USD per MMBTU. EU Natural Gas is up 4.98% YTD.

Oil prices rose this week supported by increased geopolitical risks in Europe and the Middle East, as reported on 18 June by Reuters. Ukraine continues to attack Russian oil infrastructure, including an oil terminal in the southern Russian port of Azov.

Israel also warned this week that a “decision on an all-out war with Hezbollah” was coming soon. The US dispatched a special envoy to Lebanon in hopes of avoiding an expansion of the war amid ongoing attacks by Hezbollah on Israel.

Meanwhile, Bloomberg reported on 18 June that US shale oil producers will continue to boost production until peaking in 2028, as improvements in drilling and fracking along with corporate takeovers offset reductions in drilling rig deployments.

The article cited analyst predictions that US shale fields will increase production by 400,000 barrels per day in 2025.

Logistics

“BDI closed modestly higher again this week”

“The CFI finished moderately higher this week, nearly doubling since late April”

“Lack of containers amid peak demand driving ocean freight costs”

“US Navy’s battle with Houthis is toughest fight since WWII”

Baltic Dry Index finished moderately higher again this week, from 1,948 on 14 June 2024 to close at 1,997 on 21 June 2024. The BDI is down 4.63% YTD. Trading Economics has maintained its BDI forecast this week at 1,909 by the end of 2Q24 and 2,220 in 12 months.

The Containerized Freight Index finished moderately higher again this week, from 3,379 on 14 June 2024 to close at 3,475.6 on 21 June 2024. This index tracks the current freight prices for containerized transport from the most important Chinese ports. The CFI is up 92.1% YTD. Trading Economics has maintained its CFI forecast this week at 3,173 by the end of 2Q24 and 3,592 in 12 months.

The CFI has nearly double since late April 2024, rising 196% from 1,769.5 on 25 April.

CNBC reported on 23 May that a lack of shipping containers as the peak shipping season starts, combined with longer transit times to avoid the Red Sea are supporting a sudden and unexpected spike in ocean freight rates.

Containers are on the water longer due to longer transit times and are therefore not available to support new shipments. Bad weather has also delayed port operations in China, Malaysia, and Singapore, further reducing container availability.

Ocean spot market freight rates are increasing relative to long-term rates. The increased spread between long- and short-term rates increase the risk of cargo being “rolled.”

Some analysts are predicting spot rates to reach a “post-pandemic high.”

US logistics managers are also moving up their shipping “peak season” from July to June in anticipation of a possible labor slowdown or strike at US East Coast or Gulf Coast ports this fall.

The Internal Longshoremen’s Association representing port workers at East Coast and Gulf Coast ports holds a master six-year contract that expires on 30 September 2024.

Meanwhile, the US Navy’s fight against Yemen’s Houthis is its “toughest fight since WWII” as reported on 16 June by Business Insider.

The Houthis are gaining experience as they continue to attack maritime and naval vessels. Former Navy submariner and Senior Fellow at the Hudson Institute Bryan Clark said, “We're sort of on the verge of the Houthis being able to mount the kinds of attacks that the US can't stop every time, and then we will start to see substantial damage. This is the most sustained combat that the US Navy has seen since World War II — easily, no question."

The Houthis attacked commercial vessels at least 53 times since 17 October 2023 and early May, and US warships have fired over 500 munitions at Houthis targets, including radar sites that allow the Houthis to target maritime vessels. The cost of the US munitions fired at Houthis targets cost is more than $1 billion USD.

US Director of National Intelligence Avril Haines warned in May that the Houthis were “likely to remain active” for some time and that the intensity of the combat shows no sign of abating.

The Houthis are using anti-ship ballistic and cruise missiles, one-way attack drones, and uncrewed surface vessels sourced from Iran.

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