3/12/2014: Russia, Ukraine CDS are climbing

As twitted earlier, Russia is figuring at the top of the daily movers charts in CDS markets today with its sovereign CDS spread on Germany up at 378.45 rising 6.36% d/d (+22.64bps) with current cumulative 5-year probability of default estimated at 22.76%.

Ukraine made it to number 3 in today's moves with its stats far far worse: 5 year spread at an eye-opening 1,779.20 bps up 3.01% d/d (+51.99 bps) and cumulative 5-year probability of default at 67.53%.

Big jumps for both on last week's close:

And massive jumps compared to Q1 2014:

(click on the chart to enlarge)
Note: all data via S&P Capital IQ

No comment on the data.

3/12/2014: Euro Area PMIs: November

And we have a trend toward the *new ugly* (via Markit): Eurozone economic activity growth  signal hits a 16-month low: http://www.markiteconomics.com/Survey/PressRelease.mvc/b7b53af9b6f94a8b8c83172ba9c9bc55

Take a look at these numbers:

Ouch!.. overall growth (most likely not statistically significant) and no signal of recession, yet. But a big slowdown on Composite reading. Pace of expansion is falling:

Caveat to the above: Ireland and Spain are still robust. Italy in a strange surprise (dead-cat-bounce?) and France in a tailspin, while Germany is sliding:

More details on Ireland's performance here: http://trueeconomics.blogspot.ie/2014/12/3122014-irish-services-pmi-november.html

3/12/2014: Irish Services PMI: November

Strong Services PMI performance for Ireland in November with Markit/Investec PMI index for the sector rising to 61.6 from already boiling-high of 61.5 in October. This marks ninth (!) consecutive month of readings above 60.0 (not just 50.0) and the 12mo MA through November is currently running at a massive 61.4.

Shorter-term dynamics are very positive: 3mo MA through November is at 61.9 and this is only marginally lower than 3mo MA through August 2014 at 62.1. The numbers are simply surreally good.

The trend is very similar in Manufacturing (see chart below and note here: http://trueeconomics.blogspot.ie/2014/12/1122014-irish-manufacturing-pmi.html).

Without knowing actual details on disaggregation of the total indices, it is hard to say what is going up and at what rate. Furthermore, again due to Markit/Investec refusal to publish actual data details, I have no idea which sectors are rowing what in both services and manufacturing. My suspicion is that we are seeing continued boom in MNCs-dominated sectors, driven in part even higher by the changes in the MNCs-based operations in Ireland away from profit shifting to either profit booking and/or cost centres. In other words, instead of shifting profits via Ireland to offshore locations, many MNCs are starting to book costs into Ireland or park profits here. All of these activities are net positive for GDP and GNP, albeit of dubious benefit to those of us living here.

3/12/2014: Russia Services & Composite PMIs: November

Pretty tough news for Russian Services and Composite PMIs for November.

As a reminder, Manufacturing PMI for November posted a nice surprise, rising to 51.7 in November from 50.3 in October. However, as I noted in the analysis of Manufacturing figures here: http://trueeconomics.blogspot.ie/2014/12/1122014-russia-manufacturing-pmi.html the devil was always in the services PMI data.

Services PMI came in significantly to the downside. November Services PMI reading fell to an abysmal 44.5 from already poor 47.4, marking second month of contraction, and a sharpest rate of contraction since May 2009.

3mo MA is now at 47.5, and 3mo MA for the period through August is at 49.9, which means 6 months of continued declines (on average) in the sector activity. In 3mo through November 2013, the index averaged 52.3.

Composite PMI, driven by Services downside, fell off the cliff from 49.1 in October to 47.6 in November, marking an outright statistically significant contraction. 3mo average through November 2014 is at 49.2 against 3mo average through August at 50.8 and 3mo average through November 2013 at 52.2.

All three PMIs taken together show continued strong trend to the downside, a trend that was clearly established in Q4 2012 first on foot of structural weaknesses, further reinforced by sanctions and counter-sanctions, plus now being strongly propelled by the drop in global energy prices. Additional driver to the downside is the global environment that currently strongly disfavours all BRICs (here is my analysis of BRICs Manufacturing PMIs: http://trueeconomics.blogspot.ie/2014/12/2122014-bric-manufacturing-pmis.html and stay tuned for analysis of BRICs composite and services data coming up later this week).

Overall, the weaknesses in Russian economy continue to persist and the downside to the Composite PMI index suggests that we are now likely to see contraction in economic activity in Q4 2014. As I predicted before, official recession will most likely be unavoidable in Q4 2014 - Q1 2015. The question now is at what rate the economy will be contracting.

2/12/2014: South Stream Axed. Confusion Magnified.

Two slightly bizarre - in terms of implied contradictions - but nonetheless informative - articles on South Stream pipeline:

1. A very well-argued article by Leonid Bershidsky http://www.bloombergview.com/articles/2014-12-02/putins-gas-deal-with-turkey-is-a-defeat which correctly states the role of Bulgarian Government in effectively ending any prospect for the South Stream.
2. A strange article on FT site claiming that Bulgaria is allegedly 'shocked' by the Russian decision. (Aside from that point - quite an informative article). http://www.ft.com/intl/cms/s/0/1a5954f0-7a41-11e4-a8e1-00144feabdc0.html#axzz3Klrl4xGW

This exemplifies the all-too-often ideological positioning on the issues relating to Russia in the media - causing confusion and haphazardly throwing around statements and comments. 

2/12/2014: BRIC Manufacturing PMIs: November 2014

BRIC Manufacturing PMIs are out for November and here are the results:

• Brazil's Manufacturing Activity posted another (3rd in a row) monthly sub-50 reading, falling to 48.7 in November from 49.1 in October. This is the weakest reading since July 2013, matching the same reading in June 2014. 3mo average through November is at 49.0 against 3mo average through August at 49.2. The rot has been long-running: 3mo average through November 2013 was 50.0.
• Russia's Manufacturing PMI rose to 51.7 in November from 50.3 in October. Details were discussed here: http://trueeconomics.blogspot.ie/2014/12/1122014-russia-manufacturing-pmi.html Overall, Russian manufacturing expanded at the second fastest pace of all BRIC economies in November.
• China Manufacturing PMI disappointed as well - coming in at 50.0 in November 2014 down from already anaemic 50.4 in October. 3mo average is at 50.2 - very weak and 3mo average through August was 50.5. 3mo average through November 2013 was 50.7 - also weak by Chinese standards.
• India Manufacturing PMI posted a significant improvement. In October 2014, PMI reading was 51.6 - the fastest growth of all BRIC economies, with November reading rising to 53.3 - again the fastest growth in the BRIC economies. 3mo average through november 2014 is at 52.0 against 3mo average through August of 52.1 and an improvement on 3mo average through November 2013 at 50.2.

Table summarising Manufacturing PMI for October-November:

All in, strong gains in India continuing, while Russia posted surprising uplift in activity in November that requires future confirmation of an upward trend. Brazil is gravely weak, and getting weaker, while China is on an edge of slipping into contraction.

1/12/2014: Ruble-Oil-Dollar: Riding the Magic Mountains' Rails...

Russian ruble remains in a full tie in with oil prices:

 H/T to @Schuldensuehner

Based on my estimates, given 2015 Budget set at Rub3,500/bbl pricing, USD70/bbl oil price implies a range of Rub/USD pair at 51-52 with probability between 91 and 96 percent depending on the GDP metric one opts for. So on the lower end we can see Rub/USD as far down as 56, assuming no changes in other currencies pairs, but fundamentals-justified pair should be closer to 54-55 at the lower end of Ruble valuations and at around 52-53 for Q1 2015 average. The key to these ranges are EUR/USD and Rub/EUR pairs.

Note 1: I just returned from a rather informative trip to Moscow, so will be updating my outlook for the Russian economy accordingly in days ahead.

Note 2: Few charts explaining oil correlation with Russian GDP and GDP growth

Firstly: real and nominal GDP and nominal GDP per capita all show close links to oil prices at levels basis:

But, relationship is much weaker for changes (e.g. growth rates):

1/12/2014: Russia Manufacturing PMI: November 2014

HSBC and Markit released Russian Manufacturing PMI for November today. The data surprised to the upside, posting PMI at 51.7 - a relatively strong rise on 50.3 in October and the highest index reading since October 2013 (51.8).

3mo MA for the series is at 50.8 against 3mo average through August at 50.4 and 50.2 3mo average for the period through November 2013.

The series have been above 50.0 marker now for 5 consecutive months and current reading is statistically above 50.0.

Full release here: http://www.markiteconomics.com/Survey/PressRelease.mvc/a2c07d1d99984e63bff821447287ae97

Overall, nice surprise to the upside. Confirming the nascent positive trend as shown in chart above. However, to make any strongly positive calls, we need to see:
1) improved performance in the services sector - current a major downward drag on the composite PMI, and
2) continuity in manufacturing series to the upside through December.

1/12/2014: Irish Manufacturing PMI: November 2014

Markit and Investec Manufacturing PMI for Ireland for November came in with some pretty good numbers.

Overall index reading came in at 56.2 a slowdown from 56.6 in October, but ahead of 55.7 in September and the second highest reading in recent years, fourth highest over the last 10 years. Given October performance, some moderation was expected and November reading surprised to the higher side of this.

Current 12mo average is at blistering 55.2 with latest 3mo average at 56.2 slightly ahead of 56.0 for the 3mo average through August 2014.

As chart above shows, series break-away into positive trend that started around Q2 2013 continues, albeit with some flattening in the series from around the end of Q1 2014. All together - good news, albeit with usual caveats on the weak links between final actual economic growth and PMIs in general.

Full release here: http://www.markiteconomics.com/Survey/PressRelease.mvc/b94c35358ea64a0692bbd791519e2cac

29/11/2014: Living in a Ponzi Land of Debt Overhang

An excellent interview with Daniel Stelter on the problem of debt overhang:
http://janelanaweb.com/trends/we-all-are-in-a-ponzi-world-right-now-hoping-to-be-bailed-out-by-the-next-person-interview-with-daniel-stelter/

Worth a read.

One point I disagree with is the idea that debt mutualisation across EU states will solve the problem. It will not: the quantum of debt will not be reduced by mutualisation. We need a QE-like targeted debt deleveraging facilitated by the ECB. Not a 'warehouse for debt' but a debt furnace. 

27/11/2014: QNHS Q3 2014: State Training & Supports vs Jobs Creation

Key summary of the previous posts covering QNHS for Q3 2014 is provided at the bottoms of the post (they are now getting longer than the posts, so I should probably end this analysis).

For the last bit, lets take a look at the unemployed numbers inclusive of the State Training Schemes (JobBridge et al) and State-Supported Employment (Live Register payments).

Official unemployment figures stood at 294,800 in Q3 2014, down 9.76% y/y (a reduction of 31,900). Official unemployment was down 22.91% on crisis peak levels (-87,600) and it was down 19.39% (-70,900) on Q1 2011 levels.

Factoring in State Training and Supports Schemes Participants, number of unemployed and those reliant on state supports for their employment stood at 381,700 in Q3 2014, down 7.74% y/y (-32,040). Compared to peak levels, this measure was down 18.08% or 84,230 and compared to Q1 2011 it was down 14.67% or 65,640.

Interestingly, there have also been significant changes in terms of self-employed.

Numbers of self-employed with paid employees rose 4.72% y/y in Q3 2014 (+4,000), while their counts were down 3.59% (-3,300) compared to Q1 2011. Numbers of self-employed with no paid employees rose 1.64% y/y (+3,700) and was up 13.15% (+26,600) compared to Q1 2011.

Now, as to the Government's claims of massive jobs creation during the Government tenure, total unemployment (ex state training schemes and programmes) fell 65,640 in Q3 2014 since Q1 2011, but 23,300 of this fall was accounted for by higher numbers in self-employment absent employees. Over 3.5 years, Government stewardship of the economy was, therefore, associated with employment-linked unemployment reduction of roughly 12,100 per annum.

(Do note, that any claim that the Government 'creates' jobs is a bit dodgy, and even more dodgy would be a claim that Government 'creates' self-employment, as the current Government has clearly shown by the record of its own policies, e.g. massive tax hikes and failure to equivalise access to supports, that it has zero interest in supporting self-employed in their business endeavours).



Summary of previous posts:
1) Unemployment is falling across all durations and all demographic (age-defined) cohorts, but the pressure of long-term unemployment is rising in the cohort of older workers (40 years of age and older)
2) Irish economy added 27,600 jobs in a year though Q3 2014 compared to Q3 2013. but only 17,300 of these jobs were private sector non-agricultural jobs. On longer-term trend: Non-agricultural Private Sector employment in Q3 2014 was 13.83 lower than 2008 average and Agricultural employment was 4.9% lower. In contrast, Public and State-controlled Sectors employment in Q3 2014 was 3.56% higher than 2008 average.
3) Ireland's participation rate remains below historical average and despite a slight improvement in Q3 2014 compared to Q2 2014, labour force participation rate remains lower than for the same period in 2013.
4) Total population over 15 years of age increased by 0.08% y/y and population at work was up 1.7% y/y (+31,000), marking a slowdown in the rate of growth from 2.17% y/y in Q2 2014 (+39,100). Since Q1 2011 some 58,500 more people are at work, although this reflects seasonal variations. Numbers of those retired from employment rose to 416,700 - up 2.76% (+11,200) y/y and up 68,400 or +19.64% since Q1 2011. Q3 2014 dependency ratio was 40.34 individuals at work to 59.66 individuals not working for various reasons and remains higher than historical average.
5) Both full-time employment and total employment accelerated in Q3 2014 compared to Q4 2013-Q1 2014 dynamics, with most of the new jobs creation taking place in the category of full-time employment. This is good news. Numbers of underemployed individuals fell. Which is another good news. However, as the proportion of total employment, full-time employment remains at the low levels. 

27/11/2014: QNHS Q3 2014: Full-, Part-Time and Underemployed

Key summary of the previous posts covering QNHS for Q3 2014 is provided at the bottoms of the post.

In this post, lets take a look at labour force breakdown by employment status.

For all persons aged 15 and older, 1,860,000 were classified as at work in Q3 2014, up 1.7% (+31,000) on Q3 2013 and up 3.25% (+58,500 on Q1 2011).

Of the above, 1,453,000 were in full-time employment, which represents an increase of 2.07% y/y (+26,100) and an increase of 5.2% (+70,000) on Q1 2011.

Part-time employment numbers rose to 387,000 or +0.6% y/y (+2,300) and their numbers were up 1.58% (+6,000) compared to Q1 2011. Of these, numbers of those claiming not to be underemployed rose 6.25% y/y (+16,100) and were up 3.36% (+8,900) on Q1 2011. In employment but underemployed numbers were down significantly in Q3 2014, falling 10.84% y/y (-13,700) and by 2.42% (-2,800) on Q1 2011.

As the result of the above changes, full-time employment as the share of total employment rose to 78.1% in Q3 2014 compared to 77.9% in Q3 2013. This is still well below the historical average of 83%.

Key conclusions: Both full-time employment and total employment accelerated in Q3 2014 compared to Q4 2013-Q1 2014 dynamics, with most of the new jobs creation taking place in the category of full-time employment. Numbers of underemployed individuals fell. Which is very good news. However, as the proportion of total employment, full-time employment remains at the low levels.



Summary of previous posts:

1. Unemployment is falling across all durations and all demographic (age-defined) cohorts, but the pressure of long-term unemployment is rising in the cohort of older workers (40 years of age and older), 
2. Irish economy added 27,600 jobs in a year though Q3 2014 compared to Q3 2013. but only 17,300 of these jobs were private sector non-agricultural jobs. On longer-term trend: Non-agricultural Private Sector employment in Q3 2014 was 13.83 lower than 2008 average and Agricultural employment was 4.9% lower. In contrast, Public and State-controlled Sectors employment in Q3 2014 was 3.56% higher than 2008 average. 
3. Ireland's participation rate remains below historical average and despite a slight improvement in Q3 2014 compared to Q2 2014, labour force participation rate remains lower than for the same period in 2013. 
4. Total population over 15 years of age increased by 0.08% y/y and population at work was up 1.7% y/y (+31,000), marking a slowdown in the rate of growth from 2.17% y/y in Q2 2014 (+39,100). Numbers of those retired from employment rose to 416,700 - up 2.76% (+11,200) y/y and up 68,400 or +19.64% since Q1 2011. Q3 2014 dependency ratio was 40.34 individuals at work to 59.66 individuals not working for various reasons and remains higher than historical average.