Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories: What happened in December? A global economic snapshot: the UK, Eurozone, emerging Europe, Asia, Brazil, US, China. John Lewis in Christmas cracker. Digital exceeds £1 billion. Buffett buys into solar farms
What happened in December? A global economic snapshot
Yesterday was the day that Purchasing Managers’ Indices (PMIs) for manufacturing covering December around the world were released. Since they provide a pretty good snapshot, here is the breakdown.
The UK: The news from Blighty was good. The manufacturing PMI rose from 49.2 in November to 51.4, and in so doing passed the critical no change level of 50 for the first time in eight months, and in fact hit a 15 month high.
Rob Dobson, Senior Economist at survey compilers Markit, said: “The domestic market remained the main spur for growth of production and new orders in December, although there are also signs that global trade flows are stabilising as China and the US strengthen and the downturn in the Eurozone eases. If the recovery in overseas markets continues to build at the start of 2013, this would be of major benefit to UK exporters.”
However, looking to the bears, the sub index tracking new export orders was firmly in contraction territory, and manufacturing employment declined for the eighth month running in December (albeit the December decline was very modest). David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said: “The sector is far from out of the woods. The decline in new export orders demonstrates that challenging global economic conditions and the Eurozone crisis continues to act as a drag. Moreover, the slight fall in employment, increased costs and spare capacity are warning signs for the year ahead.”
The Eurozone: Alas, in the Euro area, the news was just as bad. The PMI covering the region fell by 0.1 percentage points to 46.1. The Index has now been below 50 for 17 months.
Drilling down the story is as follows:
Ireland 51.4 – 4-month low.
Netherlands 49.6 – 3-month high.
Austria 48.1 – 2-month low.
Italy 46.7 – 9-month high.
Germany 46.0 – 2-month low.
France 44.6 – 4-month high.
Spain 44.6 – 2-month low.
Greece 41.4 – 2-month low.
Chris Williamson, Chief Economist at Markit, said: “Manufacturers look to be in for another tough year in 2013, though prospects have brightened a little, as producers should benefit from signs of stronger demand in key export markets such as the US and China. Improving competitiveness remains the key to success, however, and Ireland perhaps provides a reassuring example to other countries of how exports can rise on the back of structural reforms.”
Emerging Europe: for the entire region, including Russia and Turkey, the PMI fell from 50.9 to 50.2, suggesting manufacturing in the area was pretty flat. However, a weighted version of the data, produced by Capital Economics, which takes into account the size of the respective economies was 48, suggesting contraction.
The Star of the show was Turkey, where the PMI rose to 53.1, which was a 14 month high. In Russia the PMI was 50, but bottom of the heap was the Czech Republic, with a PMI of 46, the lowest level since November 2009.
Capital Economics cautioned against reading too much into the strength of the PMI for Turkey. Hard data has been less encouraging, and in any case, the Turkish economy is looking increasingly out of balance, with internal demand rather than exports accounting for much of the increase in manufacturing.
India 54.7 – the index has increased for three consecutive months, but was below the average of the last few years.
Vietnam 49.3 – the index has been below 50 for ten of the last 12 months. Vietnam’s GDP grew by 5 per cent in Q4, its worst performance since 1999.
Australia 44.3 – the strength of the Australian dollar is the main impediment to growth.
South Korea 50.1 – this was its first time above 50 since May.
The PMI fell to 51.1, from 52.2 in November. November saw a 20 month high.
The PMI rose from 49.7 to 50.7. The employment index was up to 52.7 from 48.8, new orders at 50.3 was unchanged. The data is consistent with annualized US growth of 1 per cent in Q4 – that’s disappointing, but fears over the fiscal cliff may have been a factor in the indices’ showing. And since the US did not fall down the cliff, January may see an improvement. Then again, don’t; forget the poor can – it has been kicked further down the road.
The story of China’s manufacturing PMI was told yesterday, and (to remind you) it was encouraging, equalling November’s seven month high of 50.6, with the unofficial, but perhaps more credible reading from HSBC/Markit hitting 51.5, the highest reading since May 2011.
However, this morning saw the PMI for China’s non-manufacturing, from the National Bureau of Statistics. It rose from 55.6 to 56.1, the highest reading in four months.
So, December was a good month for China.
John Lewis in Christmas cracker
John Lewis is first, and what a first! Of the main retailers to announce Christmas sales, John Lewis usually is first off the blocks. And in the five weeks to December 29, like for like sales at the stores were up 13 per cent, online sales up 44 per cent.
It was good news for employees, not so good for private investors who can’t buy shares in the company.
But there are lessons nonetheless. Let’s hope that this was no John Lewis one-off, but that its performance was replicated across the High Street.
It is interesting to note, however, that of every £4 spent at John Lewis, £1 was spent at John Lewis.com. The company has done a superb job of migrating sales to its web site. To what extent, do you think, are the actual stores a way of pushing traffic to the web site? Online sales do not necessarily mean the end of the High Street. Old fashioned stores may ultimately act as shop windows for their respective web sites.
Digital exceeds £1 billion
Talking of the Internet, according to the ‘FT’, downloaded music and video games saw their sales pass £1 billion in 2012.
In all, sales were up 11.4 per cent, with video games and particularly social gaming, accounting for just over half of the total.
However, the decline in sales of DVDs and CDs was greater than the increase in online sales
Last year seemed to be tricky one for sales of software for games consoles, but then considering the lack of new hardware that is no surprise.
Frankly, with smart phones and tablet sales on the up, it seems reasonable to assume downloaded music and video games have got a lot more growth, as indeed have downloaded movies.
Buffett buys into solar farms
Once again Warren Buffet is backing solar power.
MidAmerican Energy Holdings, a subsidiary of Berkshire Hathaway, is to pay between $2 and $2.5 billion to acquire and then build two projects in California.
Aside from the solar power industry itself, a big beneficiary of the deal is SunPower, the previous owner of the rights to the projects, which has a market cap of $732 million. The company will remain involved with the project.
It’s the third major investment by Buffett in solar power over the last year or so.
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