The Economy Show – General Economic Backdrop, Small Business and Emerging Markets

This week we will try to introduce some new charts and talk about the general economic backdrop, situation of small businesses and what’s happening in the emerging markets.

Economic Activity – Ind. prod increase through June, July may do so as well. But capex spending, earning and unemployment all ring the alarm bells. The question is will this uptick will continue its trend or hit a plateau?

One of the things that have gone “limit up” is Lumber – increase in demand, we are in short supply people from urban to suburban. but how can be economy be weak when Housing is strong? Homes are indeed being built but there remains other questions, but do they have the capital? will they spend? Public sector market has increased but overall issues remain. Self employed individuals also decreasing. It is continue to weigh on overall spending.

Small business revenue: Albeit States have reopened but there is no transition in revenue (recall our mobility slides). Main reason? Jobs! job cuts by companies are happening all around the world, including U.S. Furloughs may turn into full unemployment as companies lack revenue.

A good indicator to gauge this is Small business optimism indicator. As the elections are nigh we see that there has been a drop in this indicator but you will see the same case in 2016 , before the election. People are asking questions about whether Biden will lead, if he does, is he good for the economy etcetera? There is COVID-19 too, concerns for general activity too, weigh on optimism level.

Actual earnings low — The earnings are low, the spending is lower too this gives birth to a vicious circle. The government has been providing money to the individuals but what about the businesses?

There is a tightness in loan markets too, for large & medium firms, lending will remain difficult for next 6 to 12 months.

Loan performance: Smack shot of what is happening. Loan performances have started to weigh.

Rent collection: stimulus has stopped from the government, rent collection will go low.

Inflation: Numbers are high, this will continue to weigh, connect it with above description. People will have to spend more money into other important things. Costs are increasing at the same time the income is being cut. What will this look like as we go through the remainder of the year?

Also, what is happening on business closures? Small business are the lifeblood of US economy. But unfortunately, they are closing at an exponential rate! Which will result into more unemployment too. How do we close that gap? As we see spending, mobility and businesses spending plateau !

Talking about Mobility data – lets look at the opentable data. from may into June increase in re-openings but then reinfections  resulted into more pressure, but it will remain like that throughout the year. Even if restaurants reopen, they are going to do that with reduced utilization rates. Wages and spending low – how much people are going to eat out!

Let’s talk about perceptions – Explain the chart. What should we be spending on? Houses? dinner?

Manufacturing side – look at the chart below. Let’s focus on India. Why? It is the second most populous country in the world is a good indicator to gauge demand and activity. Manufacturing activity in India has dropped steeply and they will not be able to regain the growth they achieved through 2010. Manufacturing remains a key component of many economies but due to weakness in international trade, low PMI figures and other bearish indicators we mentioned in our last Economy show – the picture looks quite grim.

Recovering Plateauing – Too many concerns , questions hinder people in daily life so not much to be expected here. Things don’t look so good for the Eurozone too. tourism is down, general spending too. Government is trying to stimulate giving not only loans but also grants but things have only gone slightly better. Households are still way below the post COVID-19 levels.

Indian Credit Growth also remain slow. Investors are being wary of the emerging markets as business confidence have plunged sharply. Lenders are shy to lend. and India isn’t alone, it is all through the emerging market levels but this is a good bellwether. 2019 has been a start of weakness in terms of shipping demand, distillates, carload movements and this has only continued further exacerbating the issue. this will reverberate in other sectors too, especially oil demand.

China Updates: tanker Glut level chart. there are a lot of super tankers being available for middle east. This gives them a flexibility to be a bit more competitive. this is something to observe as Asia continues to experience increase in floating storage. Last week we said that supertankers heading to China dropped off – and all of these ships are coming back and waiting to be filled with some sort of products.

This takes us to OPEC+ compliance levels. Iraq, Angola and  Nigeria missed on a bigger level. the issue is how do we define condensates? Nigeria keeps saying that several of there blends are condensates and should not be considered in the cuts as condensates are exempted. We expect to see cheating to remain robust.

We have talked about India what about China? Imports fell in July also in August. But MoM exports of products increase pointing to weakness in local demand and over saturation in local storage. Asian Floating Storage has also increased.

Lastly, what is happening in the Mediterranean – Urals continue to trade at a steeper discount, starting to see some of the pressures increase, Libyan flow not getting to markets is helpful for European prices. But this will have to be resolved. What about Turkey and Russia relationship? What about Lebanon now that the government has resigned there. These are some intricacies in the Mediterranean.

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