Member Briefing August 6, 2024
Global Manufacturing PMI dropped to 49.7 in July – JPMorgan Chase
In July, the global manufacturing sector faced a notable slowdown, with output growing at the weakest rate in seven months. The slowdown was attributed to reduced growth in the U.S. and China, an ongoing downturn in the euro area and Japan’s return to contraction. New business orders declined for the first time since January, significantly contributing to the weaker expansion. The J.P. Morgan Global Manufacturing PMI dropped to 49.7 in July from 50.8 in June, indicating a contraction for the first time in 2024. Two of the five PMI components (new orders and stocks of purchases) indicated worsening operating conditions, while employment remained unchanged and output growth decelerated.
By sector, consumer and intermediate goods industries experienced slower output growth, while investment goods production fell for the second consecutive month. All subindustries saw declines in new business, with the steepest drop in investment goods. Among 32 nations, only 15 reported increased manufacturing production in July, led by India. Growth was also recorded in China, the U.S., the U.K. and Brazil. The euro area remained a significant weak spot, with output falling for the 16th month in a row. Additionally, sharp slowdowns in China and the U.S., along with Japan’s renewed contraction, contributed to the global slowdown. Manufacturing employment stayed flat, with job gains in the U.S. and Japan balancing out losses in the euro area and China.
What’s Driving the Market Meltdown?
Financial markets are supposed to capture the wisdom of the crowd, but on Monday the crowd ran in all directions waving its hands in the air screaming. Japan’s stock market fell the most in 37 years and the VIX index of implied U.S. stock volatility had the second-biggest rise in data back to 1990. Panic hit. The selloff was triggered by Friday’s jobs data prompting a sudden switch in the economic narrative from soft landing to hard landing. Add to the mix a period of deflating hype about artificial intelligence and a Bank of Japan rate rise designed to strengthen the yen. News that Warren Buffett’s Berkshire Hathaway had sold half its Apple shares and boosted its cash pile added to the pain.
But the triggers can’t possibly justify the scale of the moves. The selloff was big because investors had been all-in betting that things would work out well. The question is how far the unwind of these bets—and the leverage behind them—will go. If it continues, will the selloff feed back into higher savings and a weaker economy or, worse, hit the financial system? The extreme examples of past effects from big market falls are 1987’s crash, 1998’s Long-Term Capital Management blowup and 2008’s global financial crisis. History is never perfect, but so far this looks more like a (milder) version of 1987 than it does the other two.
ISM: US Services PMI at 51.4 in July
Economic activity in the services sector expanded in July, according to the nation's purchasing and supply executives in the latest Services ISM® Report On Business®. The Services PMI® registered 51.4 percent, indicating sector expansion for the 47th time in 50 months.
- The Business Activity Index registered 54.5 percent in July, which is 4.9 percentage points higher than the 49.6 percent recorded in June and a return to expansion after one month of contraction.
- The New Orders Index expanded to 52.4 percent in July, 5.1 percentage points higher than June's figure of 47.3 percent; however, the index's current reading is its fourth-lowest since early in the pandemic.
- The Employment Index expanded for just the second time in 2024; the reading of 51.1 percent is a 5-percentage point increase compared to the 46.1 percent recorded in June.
- "The Prices Index registered 57 percent in July, a 0.7-percentage point increase from June's reading of 56.3 percent. The Inventories Index contracted for the second consecutive month in July, registering 49.8 percent, an increase of 6.9 percentage points from June's figure of 42.9 percent.
- The 10 services industries reporting growth in July — listed in order — are: Arts, Entertainment & Recreation; Accommodation & Food Services; Mining; Construction; Management of Companies & Support Services; Transportation & Warehousing; Public Administration; Finance & Insurance; Health Care & Social Assistance; and Utilities.
- The eight industries reporting a decrease in the month of July — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Real Estate, Rental & Leasing; Wholesale Trade; Retail Trade; Professional, Scientific & Technical Services; Information; Educational Services; and Other Services.
Global Headlines
Middle East
- Israel And Hamas: The Latest News – The Guardian
- Hamas Seeks Iran-Friendly Leader To Help Post-War Recovery - Reuters
- Iranian Lawmaker Calls for 'Death' of Benjamin Netanyahu - Newsweek
- Iran Warns Pilots to Avoid Airspace as Middle East Awaits Attack - WSJ
- Iranian Attack On Israel Could Happen ‘As Early As Monday’ - Yahoo
- Israel Returns 80 Palestinian Bodies To Gaza, Keeps Up Military Pressure - Reuters
- Yazidis Seek Justice On 10th Anniversary Of Islamic State Genocide - VOA
- Interactive Map- Israel’s Operation In Gaza – Institute For The Study Of War
- Map – Tracking Hamas’ Attack On Israel – Live Universal Awareness Map
Ukraine
- Ukraine And Russia: The Latest News – The Guardian
- Russia Detains Senior Defence Official Over Suspected Fraud At Military Theme Park - Reuters
- Russians Avoiding 'Head-On' Battles With Ukraine's Bradleys - Newsweek
- Ukraine Reports Downing 24 Russian Drones - VOA
- Angered By Paris Ban, Russia's Media Scorns 'The Olympics Of Hell' - BBC
- French General Wants To Slash ‘Unbelievable’ Red Tape To Move Troops Faster Across Europe - Politico
- West Has 'No Strategy' for Ending Ukraine War, Warns Ex-NATO Representative - Newsweek
- Interactive Map: Assessed Control Of Terrain In Ukraine – Institute For The Study Of War
- Map – Tracking Russia’s Invasion Of Ukraine – Live Universal Awareness Map
Other Headlines
- Bangladesh PM Sheikh Hasina Resigns, Interim Government To Be Formed - Reuters
- Australia Raises Terrorism Threat Level - WSJ
- Mali Says Cutting Ties With Ukraine Over Alleged Involvement In Rebel Attack On Wagner – France 24
- UK Probes Whether ‘State Actors’ Stoked Far-Right Riots – Politico
- Humiliated and Furious, Maduro Locks Up 2,000 Venezuelans in Fiercest Crackdown of His Rule - Yahoo
- German Automakers Recalibrate Luxury Lineups Amid Cooling EV Demand – Automotive News
- Even After A Year In Jail, Imran Khan Still Dominates Pakistan's Politics - BBC
- Ukraine Displays First F-16 Jets Donated By Western Allies – France 24
- China Shows Off New Drones Disguised as Birds - Newsweek
Policy and Politics
US Yields Slide As Traders Bet On Big Fed Rate Cuts After Weak Data
U.S. Treasury yields tumbled on Monday as traders moved to price in big rate cuts from the Federal Reserve, after weak jobs data stoked worries that the U.S. economy could be heading for a recession. The two-year U.S. Treasury yield, which is sensitive to Fed rate expectations, dropped to 3.691% in European trading, its lowest since May last year. It was last down 10 basis points (bps) at 3.77%. The yield, which moves inversely to the price, plunged 53 bps last week.
The yield on the benchmark U.S. 10-year Treasury note was down 5 bps at 3.742%, having touched a one-year low of 3.678% earlier in the session. The yield sank nearly 40 basis points last week, the largest weekly fall since March 2020. Michael Weidner, co-head of global fixed income at Lazard Asset Management, said the rally in bond markets was being amplified by investors worrying about their positions in tech stocks and by thin summer markets. The closely watched U.S. 2-year-to-10-year yield curve narrowed its inversion, to 2 bps , the least since July 2022, reflecting expectations for a sharp easing of short-term yields.
Plea Deals for 9/11 Defendants Revoked, Leaving Cases in Limbo
It took more than two years of negotiations between military prosecutors and defense attorneys to reach a plea bargain resolving the case against Khalid Sheikh Mohammed and two other Guantanamo detainees accused of orchestrating the Sept. 11, 2001, terrorist attacks that killed nearly 3,000 people and launched the U.S. into a two-decade war in Afghanistan. It took only two days to rip up the deal after its announcement Wednesday sparked sharp criticism from Republicans accusing the Biden administration of coddling terrorists.
Late Friday, Defense Secretary Lloyd Austin issued a terse memo canceling the agreement prosecutors had concluded was the best—and perhaps only—way to resolve a case marred by allegations that the U.S. tortured the defendants. The deal would have kept the defendants in prison for life, taking the death penalty off the table in exchange for guilty pleas. “I have determined that, in light of the significance of the decision to enter into pre-trial agreements with the accused in the above-referenced case, responsibility for such a decision should rest with me,” Austin said in the memo to Brig. Gen. Susan Escallier, who is the convening authority, or head, of the military commissions apparatus. “I hereby withdraw from the three pre-trial agreements that you signed on July 31, 2024,” he wrote.
Hurricane Tracker: Debby To Soak Southeast, Unlikely to Impact New York
Hurricane Debby made landfall in northern Florida as a Category 1 storm on Monday morning and could impact our weather later in the week. The storm made landfall as a Category 1 storm near Steinhatchee, a tiny community in northern Florida of less than 1,000 residents on Florida's Gulf Coast. It had maximum sustained winds of 80 mph (129 kph) and was moving northeast at 10 mph (17 kph), the National Hurricane Center in Miami said.
Debby was expected to move eastward over northern Florida and then stall over the coastal regions of Georgia and South Carolina, thrashing the region with potential record-setting rains totaling up to 30 inches (76 centimeters) beginning Tuesday. One model keeps the bulk of the moisture south of New York, but another model shows Debby barreling past a blocking cold front bringing us flooding rain Friday and Saturday.
Health and Wellness
COVID-19 Variant KP.3.1.1 Becomes Dominant In US
The KP.3.1.1 COVID-19 variant is the dominant strain of the virus, the latest projections from the Centers for Disease Control and Prevention (CDC) show. The agency's Nowcast data tracker, which displays COVID-19 estimates and projections for two-week periods, projects the KP.3.1.1 variant accounting for 27.8% of positive infections, followed by KP.3 at 20.1% in the two-week stretch starting July 21 and ending Aug. 3.
"The KP.3.1.1 variant is very similar to other circulating variants in the United States. All current lineages are descendants of JN.1, which emerged in late 2023," Rosa Norman, a spokesperson at the CDC, previously told USA TODAY. "At this time, we anticipate that COVID-19 treatments and vaccines will continue to work against all circulating variants. CDC will continue to monitor the severity of variants and will monitor vaccine effectiveness." The CDC has not said if KP.3 or KP.3.1.1 have their own specific symptoms. However, Norman previously explained that the symptoms associated with KP.3 are similar to those from JN.1. The government agency outlines the basic symptoms of COVID-19 on its website.
Election 2024
- Harris To Debut Running Mate Tuesday Night As Part Of Battleground Blitz – The Hill
- Cracks in Economy Pose Risk to Harris’s Momentum - WSJ
- ‘Squad’ Star Cori Bush in Tough Re-Election Fight - WSJ
- Two US Battleground States Seen Vulnerable To Post-Election Chaos - Reuters
- 5 Races To Watch In The Kansas, Michigan, Missouri And Washington Primaries – The Hill
- Ukraine Might Breathe a Sigh of Relief — Whether Trump or Harris Wins - Politico
- RFK Jr Admits Dumping Bear Carcass In New York's Central Park - BBC
- Real Clear Politics Latest GOP Primary Polls – Real Clear Politics
- Real Clear Politics Latest General Election Polls – Real Clear Politics
- Latest Polls - Fivethirtyeight
Industry News
Senate Appropriators Recommend ‘Full Funding’ For Replicator — And Potentially Even More Money
The Senate Appropriations Committee approved a defense spending bill for fiscal 2025 last week that would provide “full funding” for the Pentagon’s high-profile autonomous systems initiatives known as Replicator — and lawmakers raised the possibility that even more money could be allotted for the effort. Tranche one includes kamikaze drones, unmanned surface vessels and counter-drone systems.
Defense Department leaders are expected to decide on their selections for tranche two capabilities soon, which could include additional platforms and supporting technologies such as command and control, artificial intelligence and other software that are intended to boost the overall effectiveness and collaboration of these systems. A key goal of Replicator is to field thousands of “attritable autonomous” platforms across multiple domains by August 2025 to counter China’s military buildup in a cost-effective manner.
The U.S. Has Been Spending Billions to Revive Manufacturing. But China Is in Another League.
Countries around the world are throwing tens of billions of dollars at manufacturing in a race to dominate clean energy, computer chips and other technologies of tomorrow. But when it comes to lavishing support on its favored industries, China is in a league of its own. Beijing easily outspends the U.S., the European Union and even other Asian export powerhouses in the support it grants its factories. By one estimate, China shovels a sum equivalent to almost 5% of its annual national income toward its industries, six times the level of support extended by the second-biggest spender, South Korea.
The immensity of China’s financial support for manufacturing is at the heart of the growing global backlash against a rising tide of Chinese exports pouring onto global markets. Western businesses are being outgunned and outclassed in everything from electric cars to solar panels and batteries. Homegrown industries in emerging markets can’t compete with the onslaught of cheap Chinese competition. Trade barriers to Chinese imports are going up around the world.
Honda Quarterly Operating Profit To Top $3 Bln, Nikkei Reports
Japan's Honda Motor will report consolidated first-quarter operating profit of more than 450 billion yen ($3.17 billion), boosted by strong U.S. hybrid vehicle sales, the Nikkei newspaper reported on Monday. A Honda spokesperson said the information was speculation by Nikkei, adding that it was not something the company had released. Japan's second-biggest automaker is scheduled to report financial results for the April-June quarter on Wednesday.
US Expected To Propose Barring Chinese Software In Autonomous Vehicles
The U.S. Commerce Department is expected to propose barring Chinese software in autonomous and connected vehicles in the coming weeks, according to sources briefed on the matter. The Biden administration plans to issue a proposed rule that would bar Chinese software in vehicles in the United States with Level 3 automation and above, which would have the effect of also banning testing on U.S. roads of autonomous vehicles produced by Chinese companies.
The administration, in a previously unreported decision, also plans to propose barring vehicles with Chinese-developed advanced wireless communications abilities modules from U.S. roads, the sources added. Under the proposal, automakers and suppliers would need to verify that none of their connected vehicle or advanced autonomous vehicle software was developed in a "foreign entity of concern" like China, the sources said. The Commerce Department said last month it planned to issue proposed rules on connected vehicles in August and expected to impose limits on some software made in China and other countries deemed adversaries.
Crowdstrike Says It Isn’t To Blame For Delta’s Flight Cancellations After July Outage
CrowdStrike on Sunday said Delta Air Lines had rejected onsite help during last month’s massive outage that sparked thousands of flight cancellations. Delta CEO Ed Bastian told CNBC’s “Squawk Box” last week that the mass cancellations following the outage, which occurred at one of the busiest times of the year, cost the company about $500 million, including customer compensation. The airline has “no choice” but to seek damages, he said.
Bastian told staff on Friday that the airline had informed CrowdStrike and Microsoft that the company was “planning to pursue legal claims” to recover its losses stemming from the outage and that it had hired law firm Boies Schiller Flexner. In response, Michael Carlinsky, CrowdStrike lawyer and co-managing partner at Quinn Emanuel Urquhart & Sullivan wrote to Delta’s lawyer David Boies on Sunday that Delta’s litigation threats “contributed to a misleading narrative that CrowdStrike is responsible for Delta’s IT decisions and response to the outage.” Delta canceled more than 5,000 flights between the July 19 outage, caused by a botched software update, through July 25, more than its rivals.
Manufacturers Eye Automation Energy Efficiency Improvements
The volatility of electricity pricing and ongoing pressure on manufacturers to reduce expenses has sparked interest in energy optimization. Emerging technologies like intelligent sensors, enhanced connectivity, advanced analytics, the cloud and ultimately, AI are putting solutions within reach. Manufacturers see opportunity to bring technologies and process change to bear on energy efficiency challenges and goals in much the same manner they channeled budget and resources to automation solutions aimed at reducing downtime and boosting OEE.
There are several use cases for applying automation in energy monitoring and optimization applications that are starting to gain traction. Many early initiatives in this area focused on reducing CO2 emissions and guiding a transition to more sustainable power sources. This has evolved into current activities focused on using automation hardware, software and cloud platforms to mitigate energy waste resulting from idle machinery, sub-optimally configured control systems and foster insights to redirect power usage away from peak electricity cost periods.
Big Truck Makers Bet On Hydrogen To Extend Combustion Engine Life
Some of the world's biggest truck makers, including Volvo and MAN, are reworking combustion engines to run on low-emission hydrogen instead of polluting diesel, a quicker low-cost fix to their energy transition challenge that may give the dying technology a fresh lease of life. The global truck making industry faces a complex balancing act to get to zero emissions. Electric batteries are too heavy for long-haul freight operations and take too long to charge. Using hydrogen fuel cells to generate electricity reduces the weight and extends the range of trucks, but switching to this technology is expensive as companies need to design new truck systems.
That is why truck makers and their suppliers have shifted their immediate focus on developing hydrogen combustion engines as a quicker, cheaper solution that can rely on existing manufacturing lines that have for years been a key economic motor for countries like Germany, executives at major truck brands and their suppliers told Reuters. In its first pilot project, MAN will deliver around 200 trucks with engines that run on hydrogen to European customers next year to test in their fleets, a key step on the way towards mass production.
Warren Buffett Is Selling Stocks and Raising Cash. How Worried Is He About the U.S. Economy?
Warren Buffett appears concerned. The Berkshire Hathaway CEO is hunkering down by selling stocks and raising cash for the conglomerate, raising questions about whether he is souring on the outlook for the stock market and economy. The big news Saturday morning in Berkshire’s financial report for the second quarter was a nearly 50% reduction in the size of Berkshire’s Apple stake to about 400 million shares–as well as the sharp rise in total cash levels to a record $277 billion on June 30, up $88 billion from the total on March 31. The Apple stake is now worth about $88 billion.
Jim Shanahan, an Edward Jones analyst says Buffett’s actions “make me concerned about his outlook for the markets and economy. It’s incredible how much the cash has grown.” With its dozens of operating businesses, Berkshire is a microcosm of the U.S. economy in a single company. The trends at Berkshire offer Buffett insight into the economy. And it’s notable that Buffett’s actions have occurred as key economic indicators are showing a weakening U.S. economy. All told, Berkshire sold $77 billion of stocks in the second quarter, dropping the size of its equity portfolio to $285 billion. It was a buyer of just $1.6 billion stocks in the period. In the first six months, Berkshire sold $97 billion of stocks and bought just $4.3 billion, according to its 10-Q report released Saturday morning in conjunction with its earnings period for the second quarter.
Precision: This Is How Noah Lyles Won the Closest Finish in 100 Meter History
It took Noah Lyles 9.79 seconds to run 100 meters on Sunday night. It took 29.47 seconds for him to find out that he actually won. To determine that Lyles had won by a margin of five thousandths of a second, it took three judges, three high-speed cameras—and a willingness to make the fastest men alive stand around and wait. During those agonizing moments, the runners’ fates were in the hands of a team from Omega Timing, which has been responsible for tracking every fraction of a second at the Olympics for nearly a century.
This year, the company that operates with Swiss precision debuted something called Scan’O’Vision Ultimate, a new ultra-high-speed camera. And on Sunday night, as Lyles and Thompson crossed the finish line at almost exactly the same time, there were two of those cameras positioned to shoot down the finish line from outside the track, while a third sat inside the oval capturing the reverse shot. The impossible closeness of the race—barely a tenth of a second separated first and last place—made it “a perfect showcase for our technology,” said Omega CEO Alain Zobrist.