Major Automakers Still Facing Global Headaches and HeadwindsMay7

Daily Intelligence Briefing

Identifying Change-Driven Investment Themes

Tuesday, May 7, 2019

Autos

Trump’s tariffs on China are a ‘harbinger’ for Europe, here’s why

President Donald Trump announced Sunday that the current tariffs of 10% on $200 billion of Chinese goods will increase to 25% on Friday. In a Twitter post, he also threatened to impose an extra 25% levies on an additional $325 billion of Chinese goods “shortly”. His decision sparked a sell-off in global equity markets and created further jitters in Europe whose exports could also face similar U.S. tariffs.

“It is a harbinger of what is likely to come for Europe,” Fredrik Erixon, head of the European Centre for International Political Economy (ECIPE), told CNBC via email. “Trump may be an economic illiterate, but he means what he says, and the message that has been coming for quite a while is that European auto producers will be hit with higher tariffs as well,” Erixon added. On Monday, European auto stocks fell more than 3%.

“On the one hand, this (tariff announcement on China) just confirms what we already know, which is that President Trump is willing to publically escalate conflicts to achieve policy objectives. So, we may also see volatility in the settling of European trade negotiations,” Mark Haefele, chief investment officer at UBS Global Wealth Management, told CNBC via email.

“On the other hand, what has also not changed is that President Trump will continue to need a strong U.S. economy as we move towards the U.S. election—that should make the administration increasingly interested in finding a way forward that supports economic growth and the markets,” Haefele also said.

Read the full article from CNBC +

Autos

Amid high new-car prices, used-car consideration climbs

Two years ago, 59% of vehicle shoppers were focused on used cars. According to the 2019 Cox Automotive Car Buyer Journey study, that number is now 64% — and the struggle around new-vehicle affordability is a major reason why.

The numbers reflecting used-leaning shoppers include those that are either A) only shopping for used cars or B) those that are primarily shopping for used, but browsing some new. The number of total shoppers only considering used has climbed from 23% to 28% in the last two years, according to the study.

In a news release recapping the study, Cox Automotive analysts said that, “consumers continue to be frustrated by new-vehicle prices and are more likely than ever to be shopping for used vehicles.” And many are moving into certified pre-owned vehicles. First quarter CPO sales were up 0.4% year-over-year at 677,038 units, according to Cox Automotive. In March, certified sales climbed 2.7% to 265,878 units.

Company analysts said in Wednesday’s Data Point report that record-high new-vehicle prices and the highest interest rates since 2011 are “perhaps” among the drivers of such CPO sales strength in Q1. As the used-vehicle market continues to see strong consumer demand with favorable supply of off-lease units coming to market, the CPO market is primed to continue its growth heading into the spring selling season.

Read the full article from Auto Remarketing +

Autos

China’s sliding auto sales may be obscuring a change in buyers’ tastes

China’s auto industry has hit a soft patch, but there may be a bright spot. Auto sales have fallen in China for nine straight months, including a 5.2 percent decline in March.

But electric-powered cars were on display from start-ups and foreign auto giants alike at this week’s Shanghai Auto Show. For some in the industry, they say it will be the smartphone-like interface of the new vehicles that will really attract buyers. Those consumers are increasingly using internet-connected services such as food delivery for daily life, especially in China.

So-called new energy vehicles are booming, with sales jumping 62 percent last year. And not just because of the way they’re powered. “The key point is not new energy. The key is smart,” Fu Qiang, president and co-founder of electric vehicle start-up Aiways, said Wednesday in a Mandarin-language interview translated by CNBC.

The category — which includes both pure battery-powered vehicles and hybrids — has been a bright spot in China, helped by favorable government policies. Sales grew 62 percent last year, while overall auto sales fell for the first time in more than 15 years, according to data from the China Association of Automobile Manufacturers accessed through the Wind Information database.

Read the full article from CNBC +

Autos

Canada auto sales fall 3.5 pct in April

Canada’s auto sales dropped 3.5 percent in April from a year earlier, according to industry data released on Wednesday, marking the 14 straight month of declines. Passenger cars sales tumbled 15.9 percent, while light trucks sales eked out a 1.8 percent increase, a report by DesRosiers Automotive Consultants showed.

“April’s sales seem to reflect consumer confidence – which was down 6 points after three straight months of increases, according to the Conference Board of Canada,” said David Adams, president of industry association Global Automakers of Canada. The industry is still looking at a year that is trending toward close to record levels, he added. Auto sales fell to 185,158 units in April, according to the DesRosiers report.

Separately, Fiat Chrysler Automobiles NV reported a 9.8 percent fall in April sales in Canada. The company, which is one of the top carmakers in the country, sold 20,802 vehicles, with its Chrysler brand reporting a 71 percent slump in sales. In the luxury market, Mercedes and Audi sales tumbled 19.6 percent and 17.7 percent but the decreases were offset by double-digit sales increases among other luxury brands, DesRosiers said. Toyota Motor Corp and Fiat Chrysler Automobiles NV , reported a fall in U.S. auto sales for April, as rising prices, higher interest rates and reduced incentives kept away buyers.

Read the full article from Reuters +

LONG

ASEAN Markets

LONG

Electric Utilities

LONG

Lithium

LONG

Obesity

LONG

Solar

LONG

Value Over Growth

LONG

3D Printing

SHORT

Autos

LONG

Gold & Gold Miners

SHORT

Long-Dated U.S. Treasuries

LONG

Oil & U.S. Energy

SHORT

U.S. Housing

LONG

Video Gaming

Eurozone Output Growth Eases in April

The IHS Markit Eurozone Composite PMI was revised higher to 51.5 in April 2019 from a preliminary estimate of 51.3 and compared to the previous month’s 51.6. Looking ahead, business sentiment was unchanged in April.

Click here to access the data +

Chinese Yuan Tumbles

The offshore yuan, which trades outside the mainland, fell as much as 1.3% to 6.82 per dollar on Monday, its weakest in 2-1/2 months, after US President Donald Trump threatened to increase tariffs on $200 billion worth of Chinese goods this week and to impose 25% levies on an additional $325 billion of Chinese goods “shortly.”

Trump also said trade talks with China were going too slowly ahead of Wednesday’s trade talks. Meanwhile, the onshore yuan dropped to as low as 6.7994 per dollar, its weakest level in 3-1/2 months.

Click here to access the data +

Soybean Prices Slump on Trade Worries

Soybean prices fell as much as 2% to $8.10 a bushel Monday morning, hitting the lowest level since December 2008, on renewed concerns over a trade war between the world´s two biggest economies after US President Donald Trump threatened to hike tariffs on Chinese goods this week.

Click here to access the data +

Economics & Trade

Trade War

Trump’s Tariff Threat Leaves Beijing Stalling on Next Talks

Talks between the U.S. and China to resolve their year-long trade standoff appeared to be on life-support Monday, with Beijing struggling to respond to tweets by President Donald Trump that threaten an escalation of tariffs by the end of the week.

China’s foreign ministry said that officials were still planning to travel to the U.S. for the next round of talks — but was unable to confirm when amid signs that a delay is now being considered. Meanwhile, a media blackout on Trump’s threat left investors baffled as stocks and the yuan tumbled on rumors that the trade war is now back on.

“We are now trying to get more information on the relevant situation,” ministry spokesman Geng Shuang told a briefing in Beijing. “What I can tell you is that the Chinese team is preparing to travel to the U.S. for trade talks.”

Trump on Sunday raised pressure on Beijing to strike a trade deal by announcing he would increase tariffs on $200 billion of Chinese imports Friday to 25 percent from 10 percent. He also floated the possibility of extending a new 25 percent duty on another $325 billion of imports not already covered.

Read the full article from Bloomberg +

Trade War

Trump just turned up the heat in his trade battle with Beijing. There are 4 major implications for China.

According to Julian Evans-Pritchard, a senior China economist at Capital Economics, there are four things China needs to be worried about.

1. China’s economy could slow down even more. Pritchard said the original tariffs caused a 0.4-percentage-point drag on Chinese gross domestic product, which was amplified by the reversal of front-loading of US imports from China in the second half of last year.
2. China would probably have to step up its stimulus efforts. While noting a 0.3-percentage-point hit to GDP would “not be disastrous,” Pritchard believes such a slowdown would weigh on household and corporate sentiment.
3. China’s currency could take a hit. Pritchard said that China’s state-run banks were most likely keeping the yuan steady as a “gesture of goodwill” during trade talks but that Beijing would most likely let the currency weaken with Trump escalating things.
4. A bear market may be coming in Chinese stocks. The Shanghai Composite has been the top-performing major market this year amid the beliefs that a trade deal was coming and that policy stimulus would ignite a rebound in economic activity and corporate earnings, according to Pritchard.

Read the full article from Business Insider +

Finance

Banks

Big Banks Seek to Liberate Billions of Dollars in Funds

Big banks have complained for years about a key feature of the Dodd-Frank overhaul requiring them to keep billions of dollars of cash in reserve. Some are trying to find a way around it. Commercial banks including Wells Fargo & Co. have been dangling higher rates over the past year to attract deposits from Fannie Mae, Freddie Mac and other government-backed lenders, according to industry executives. The goal is to replace one type of funding banks use to manage their daily finances, overnight loans, with another, deposits.

The two are functionally the same—money is wired to the bank at night and leaves in the morning—but they are treated differently in Washington. Regulators give more credit for deposits, which are thought to have more staying power than overnight loans, when determining whether a bank has enough stable funding to stay afloat under stress.

Replacing loans with deposits improves, on paper, a bank’s financial health. The banks could then take cash that they previously would have had to hold aside to meet regulatory standards, and put it to more profitable uses.

Securities filings suggest that banks have netted as much as $20 billion in new deposits over the past year or so from Freddie Mac, Fannie Mae and other government lenders. Under current rules, that could free up $15 billion that banks could put toward things that make them money, like loans or investments.

Read the full article from The Wall Street Journal +

Construction & Real Estate

Industrials

Construction industry unemployment at record low

With 33,000 net new jobs added to the industry in April, construction unemployment at a record low and other positive signs across the broader economy, a downturn is at bay for at least another year, according to Associated Builders and Contractors’ analyses of Bureau of Labor Statistics data.

The construction industry had 256,000 more jobs last month than March 2018, which represents a 3.5% increase. Last month, the nonresidential sector added 32,400 net positions, the majority of which (22,100) were created by specialty trade contractors. Year over year, that subsector created 114,200 jobs, according to BLS.

April also saw the lowest construction unemployment rate since BLS started the series in 2000. Compared to a 3.6% national unemployment rate, the lowest level since 1969, construction unemployment decreased 2.2% year over year to 4.7%.

“The case for an economic downturn over the next 12 to 18 months is fading fast,” said ABC Chief Economist Anirban Basu, noting that the country has created new jobs for 103 months consecutively. “With inflation and interest rates low, the cost of capital remains suppressed, helping to induce ongoing spending growth among companies, consumers and governments alike. Corporate earnings remain strong, and today’s employment report indicates that many remain firmly in growth mode.”

Read the full article from Construction Dive +

Services

Mobile Gaming

Gamers Prefer Smartphones Over PCs and Gaming Consoles

Video games were once mostly played on PCs or consoles. However, smartphones gradually overtook both platforms over the past decade, and eMarketer recently found that roughly two-thirds of all male and female gamers worldwide played mobile games. The study also shattered the stereotype of the young male gamer. Eighty-eight percent of men and 83% of women played games, and over 70% of adults aged 45-64 still played games at least once a month.

This market shift is great news for mobile game developers, but it’s less encouraging for console makers like Sony, Microsoft, and Nintendo. However, Sony is already preparing for a console-free future with PlayStation Now, a cloud gaming service that runs on multiple platforms. Microsoft is developing a similar platform called Project xCloud, and Nintendo already publishes mobile games. Alphabet’s Google also plans to launch its cloud gaming platform, Stadia, later this year.

It’s unlikely that smartphone games will ever render PC and console games obsolete. Instead, this shift should significantly expand the gaming market, and developers will likely launch a wider range of games to reach a broader audience.

Read the full article from The Motley Fool +

Cloud Gaming

Here’s What Activision Blizzard Thinks About Cloud Gaming

Cloud gaming is poised to potentially be the Next Big Thing for gaming, and one of the companies that stands to benefit the most is Activision Blizzard, according to CEO Robert Kotick. In an earnings call, Kotick said new platforms like Google Stadia are good for gaming to help grow the market, but these platforms can’t succeed without content.

Activision Blizzard owns and controls decades worth of content, and that positions the company uniquely, Kotick said. “When you own 30 years of IP like we do, there’s probably never been a better time to be in the games business,” Kotick said. “When these big, well-funded companies are building out platforms where they have limited amounts of content to actually serve up to customers, I’d say there’s a great opportunity for a company like ours.”

“For starters, they will all try to broaden the audience for gaming and make big investments and commitments to doing so and that’s just helpful for growing the market,” Kotick added. “But in each case, none of these platforms can succeed without great content. Truthfully, they really don’t know how to make it. So when you think about what will be required, it will be support from us [and other game publishers] to allow them to actually build an audience. We have a better audience than most to capitalise on all these new platforms.”

Read the full article from GameSpot +

Plant-Based

Tyson Readies Alternative-Meat Debut After Exiting Beyond

By the end of the year, Tyson Foods Inc.’s new alternative-meat product could already be a major player in the U.S., perhaps giving the likes of the Beyond Burger and the Impossible Burger a run for their money. Tyson is preparing to introduce meatless protein products on a limited basis around the middle of the year and on a much larger scale soon after that, Chief Executive Officer Noel White told analysts on an earnings call Monday.

It’s likely why the top U.S. meat processor sold out of Beyond Meat Inc. just before the plant-based protein maker’s history-making stock debut last week. Tyson’s distribution network allows it to move quickly into the marketplace, and the company has a “deep understanding” of how to develop new products and brands, White said.

Tyson missed out on a huge potential windfall from Beyond IPO, selling its 6.5% stake in the startup shortly beforehand. Beyond shares rose 163 percent from the offering price on their first trading day Thursday.

While overall meat consumption is increasing globally along with purchasing power in developing countries, the number of people committing to a strictly plant-based diet has risen in rich countries, as have the ranks of occasional meat eaters.

Read the full article from Bloomberg +

Technology

Semiconductors

Trump’s trade-war escalation is a ‘major concern’ for chipmakers AMD and Nvidia

The semiconductor stocks AMD and Nvidia were under pressure early Monday after President Donald Trump turned up the heat in the US’s trade dispute with China. Shares of both companies were down about 4% on the news as the semiconductor industry is particularly sensitive to Chinese demand.

Trump, on Sunday, warned that he will raise the tariffs on $200 billion worth of Chinese goods from 10% to 25%, and slap a fresh 25% tariff on another $325 billion worth of Chinese goods. The new tariffs are set to go in place on Friday.

In response, China has threatened to cancel trade talks scheduled for this week, and is likely looking at ways it can retaliate. One of those areas that China could go after is semiconductors, which are particularly vulnerable to Chinese trade as the country is an important source of demand for the chipmakers.

The sector was hammered in the fourth quarter amid fears a trade war would continue without resolution. AMD and Nvidia both fell about 50% from their Q4 peaks before recovering in 2019. As concerns began to ease, AMD rallied sharply, cutting its drop to 15% from its 2018 fourth-quarter peak. Nvdia is still down 37%.

Read the full article from Business Insider +

Transportation

Autos

Trump’s tariffs on China are a ‘harbinger’ for Europe, here’s why

President Donald Trump announced Sunday that the current tariffs of 10% on $200 billion of Chinese goods will increase to 25% on Friday. In a Twitter post, he also threatened to impose an extra 25% levies on an additional $325 billion of Chinese goods “shortly”. His decision sparked a sell-off in global equity markets and created further jitters in Europe whose exports could also face similar U.S. tariffs.

“It is a harbinger of what is likely to come for Europe,” Fredrik Erixon, head of the European Centre for International Political Economy (ECIPE), told CNBC via email. “Trump may be an economic illiterate, but he means what he says, and the message that has been coming for quite a while is that European auto producers will be hit with higher tariffs as well,” Erixon added. On Monday, European auto stocks fell more than 3%.

“On the one hand, this (tariff announcement on China) just confirms what we already know, which is that President Trump is willing to publically escalate conflicts to achieve policy objectives. So, we may also see volatility in the settling of European trade negotiations,” Mark Haefele, chief investment officer at UBS Global Wealth Management, told CNBC via email.

“On the other hand, what has also not changed is that President Trump will continue to need a strong U.S. economy as we move towards the U.S. election—that should make the administration increasingly interested in finding a way forward that supports economic growth and the markets,” Haefele also said.

Read the full article from CNBC +

Autos

Amid high new-car prices, used-car consideration climbs

Two years ago, 59% of vehicle shoppers were focused on used cars. According to the 2019 Cox Automotive Car Buyer Journey study, that number is now 64% — and the struggle around new-vehicle affordability is a major reason why.

The numbers reflecting used-leaning shoppers include those that are either A) only shopping for used cars or B) those that are primarily shopping for used, but browsing some new. The number of total shoppers only considering used has climbed from 23% to 28% in the last two years, according to the study.

In a news release recapping the study, Cox Automotive analysts said that, “consumers continue to be frustrated by new-vehicle prices and are more likely than ever to be shopping for used vehicles.” And many are moving into certified pre-owned vehicles. First quarter CPO sales were up 0.4% year-over-year at 677,038 units, according to Cox Automotive. In March, certified sales climbed 2.7% to 265,878 units.

Company analysts said in Wednesday’s Data Point report that record-high new-vehicle prices and the highest interest rates since 2011 are “perhaps” among the drivers of such CPO sales strength in Q1. As the used-vehicle market continues to see strong consumer demand with favorable supply of off-lease units coming to market, the CPO market is primed to continue its growth heading into the spring selling season.

Read the full article from Auto Remarketing +

Autos

China’s sliding auto sales may be obscuring a change in buyers’ tastes

China’s auto industry has hit a soft patch, but there may be a bright spot. Auto sales have fallen in China for nine straight months, including a 5.2 percent decline in March.

But electric-powered cars were on display from start-ups and foreign auto giants alike at this week’s Shanghai Auto Show. For some in the industry, they say it will be the smartphone-like interface of the new vehicles that will really attract buyers. Those consumers are increasingly using internet-connected services such as food delivery for daily life, especially in China.

So-called new energy vehicles are booming, with sales jumping 62 percent last year. And not just because of the way they’re powered. “The key point is not new energy. The key is smart,” Fu Qiang, president and co-founder of electric vehicle start-up Aiways, said Wednesday in a Mandarin-language interview translated by CNBC.

The category — which includes both pure battery-powered vehicles and hybrids — has been a bright spot in China, helped by favorable government policies. Sales grew 62 percent last year, while overall auto sales fell for the first time in more than 15 years, according to data from the China Association of Automobile Manufacturers accessed through the Wind Information database.

Read the full article from CNBC +

Autos

Canada auto sales fall 3.5 pct in April

Canada’s auto sales dropped 3.5 percent in April from a year earlier, according to industry data released on Wednesday, marking the 14 straight month of declines. Passenger cars sales tumbled 15.9 percent, while light trucks sales eked out a 1.8 percent increase, a report by DesRosiers Automotive Consultants showed.

“April’s sales seem to reflect consumer confidence – which was down 6 points after three straight months of increases, according to the Conference Board of Canada,” said David Adams, president of industry association Global Automakers of Canada. The industry is still looking at a year that is trending toward close to record levels, he added. Auto sales fell to 185,158 units in April, according to the DesRosiers report.

Separately, Fiat Chrysler Automobiles NV reported a 9.8 percent fall in April sales in Canada. The company, which is one of the top carmakers in the country, sold 20,802 vehicles, with its Chrysler brand reporting a 71 percent slump in sales. In the luxury market, Mercedes and Audi sales tumbled 19.6 percent and 17.7 percent but the decreases were offset by double-digit sales increases among other luxury brands, DesRosiers said. Toyota Motor Corp and Fiat Chrysler Automobiles NV , reported a fall in U.S. auto sales for April, as rising prices, higher interest rates and reduced incentives kept away buyers.

Read the full article from Reuters +

Drones

Commercial drones are way more popular than the FAA expected

The Federal Aviation Authority (FAA) has unveiled its predictions for the future of drones, and the findings came as a surprise, even to the FAA itself. Non-commercial drone growth has greatly exceeded expectations, increasing by 170 percent last year, despite officials thinking that it would only grow by 44 percent. This also forced experts to race back to the drawing board and re-write its predictions for the entire industry as a result.

The percentages are impressive, but it’s worth bearing in mind that the actual numbers aren’t huge: the total number of commercial drones registered with the FAA now sits at 277,000. By contrast, there are about 1.25 million personal drones in the US, expected to rise to 1.4 million by 2023.

In that same year, the FAA now predicts there will be 835,000 commercial drones, which represents a tripling of the total over the next five years. Their original prediction was that there’d be about 452,000 commercial drones flying by 2022, but based on their unexpectedly fast takeup, that figure now looks likely to be achieved in early 2020 instead.

Read the full article from Engadget +