Wednesday, April 04, 2012
At least we get some better news
Commercial paper is not great. Domestic nonfinancial and total nonfinancial are turning down a bit. That one needs to be watched. You can make the argument that growing car sales are returning capital to the companies to clear this debt, and it's a good argument.
I am not a big fan of ISM data, because I don't find it very predictive, but the March reports do not show much in the way of angst-fodder - quite the reverse.
In general, Mr. Market does not seem to know what to think. ECB (Draghi) sort of poured cold water on any irrational exuberance, and the Fed said mean words over QE3, and unfortunately Markit PMIs do show a Europe in a mild recession - with Ireland being the bright spot. Irish households aren't seeing it - the Irish property tax levy is not going well. I suspect it's because a lot of the households really can't afford to pay, but in any case, it is now the Land of Ire. Something will happen and some compromise will emerge. French service data doesn't support a strong April. Italy's decline continues decisively. Spain is getting nearer to the bottom, but input cost rises really do not help. As long as margins keep dropping, this won't end.
Brazil is still chugging along, with the manufacturing resurgence flowing over into services and turning in a good Q1. It probably doesn't have much in the way of surge left, though. India may be slowing a bit. India is a huge epic drama of its own, with definite structural problems, capacity limits, fiscal issues, etc. The high fuel costs don't help any of that one bit.
Mr. Market seems most concerned about Spain. I concede that the announcement that Spain's debt will reach the R&R lower limit of 80% isn't good news, but Italy overall still looks worse to me. Structurally, Spain should begin at least stabilizing in 2013, and see some growth in 2014. Italy has no space, and it's quite difficult to collect taxes from unemployed people.
Japan's rebound is picking up pace. This is important, because the government needs to begin a slow process of fiscal consolidation. But rising input costs and falling output charges imply some real limitations to this rebound. Still, it should be enough to keep that area on the plus side for a few months, which is great news.
US petroleum - there have been some methodology changes in the WPSR summary, explained here. The net effect would be to overstate US petroleum consumption previously. This makes total sense to me, because it is very confusing to read the current estimates and look at jobs - those two numbers should not diverge like that even with fleet changes.
So read that before you look at the overview (quite negative YoY for consumption) and the summary, showing YoY consumption drops. US petroleum inventories are currently very high - above the upper limit of the 5 year average range. The crude build was 9 million barrels and the total increase was more than 12 million barrels. The accuracy of that estimate shouldn't have changed. Refineries were running close to 86%.
The YTD average (thousands of barrels a day) of product supplied is 18,180 compared to a four-week of 18,159. This is very low. For example, in March of 2002, when the US economy was in a state of unpleasantness, the average was about 19,190. By March of 2005, when the construction boom was in full swing, it was more like 20,680. Over time conservation and an aging population can explain some of this. Not all.
One of the reasons I have been watching these numbers is because I think they will tell us something about construction activity - construction is a fuel-intensive economic function and fuel consumption should closely track with the pace of new construction.
Note: There is much more buying support for prices of petroleum product than there seems to be for crude - this suggests a ledge in the making and it is time to be very wary.