On my continued big focus on the China reopening, Inside Asian Gaming last night reported “Macau daily visitor arrivals soar past 70,000 as Golden Week starts to shine.” They said this was “by far the highest single day tally since Covid border restrictions were first put in place in early 2020.” Most came from mainland China and Hong Kong and Monday’s figure compares with 32,554 visitors on Saturday and 50,041 on Sunday and they had average daily visitors of just 15,000 in 2022. We still like the Macau casino companies.
Bloomberg also has a story that in China the “Box office during the first four days of the holiday totaled 3.62 billion yuan, according to figures from online ticketing platform Maoyan Entertainment.” This compares with 3.4 billion in 2019. With respect to trips made by road, rail, air and water, Bloomberg calculates “a daily average of roughly 24 million trips, compares with an average of just 18.6 million over the course of the week in 2022.” Also, “Bookings of hotels, guest houses and scenic spot tickets on January 21st through January 24th exceeded the comparable period in 2019, the National Business Daily reported, citing figures from online travel agency Trip.com Group” (a stock we own).
Ahead of the Fed next week and their focus on financial conditions as part of their inflation fight, the Goldman Sachs Financial Conditions index closed yesterday to match the easiest since mid September. Again, I get the excitement of the Fed likely almost done hiking rates but higher for longer that comes next is itself a form of continued monetary tightening because of the debt each month that is coming due will be refinanced (if not paid off or written off) at a much higher rate than the debt coming due.
GS Financial Conditions Index
Unfortunately it took about an hour and half of Microsoft trading above $250 after the earnings print before Satya Nadella said this to open their earnings call, “Just as we saw customers accelerate their digital spend during the pandemic, we are now seeing them optimize that spend. Also, organizations are exercising caution given the macroeconomic uncertainty.” This was then followed up by the CFO who said, “we are seeing customers exercise caution in this environment, and we saw results weaken through December. We saw moderated consumption growth in Azure and lower than expected growth in new business across the standalone Office 365, EMS, and Windows Commercial products that are sold outside the Microsoft 365 suite. From a geographic perspective, we saw strong execution in many regions around the world, however performance in the US was weaker than expected.”
The Texas Instruments call is also chock full of information because their chips going into so many industrial applications. “As expected, our results reflect weaker demand in all end markets, with the exception of automotive. A component of the weaker demand was customers working to reduce their inventories. In the first quarter, we expect a weaker than seasonal decline with the exception of automotive as we believe customers will continue to reduce inventory levels.” We have to wonder though for how much longer automotive will be the exception as auto inventories continue to normalize and the IR person did say “And at some point, we believe that we will see a correction in automotive, it may not, but we just don’t know.”
To the weakness that Microsoft cited in December, MMM said this in their call: “The slower than expected growth was due to rapid declines in consumer facing markets such as consumer electronics and retail. A dynamic that accelerated in December as consumers sharply cut discretionary spending and retailers adjusted inventory levels.” While inflation is certainly easing, “Inflation continues to impact raw material, logistics and energy cost. These pressures remain persistent and are broad based.” More on tech, “Our electronics business declined 10% organically as it continued to be impacted by the significant end market weakness, particularly for smartphones, tablets and TVs.” As for MMM’s consumer business and the factors cited above, “we anticipate those trends to continue at least through the first half of 2023.”
Kimberly Clark (a stock we own) continued the pattern seen with other consumer product companies. Q4 2022 organic sales rose 5% “as net selling prices rose approximately 10% and product mix increased sales 1% while volumes declined 7%.”
In the DR Horton call, we know the current situation and they said “we expect challenging market conditions to persist, with continued uncertainty regarding mortgage rates, the capital markets and general economic conditions that may significantly impact our business.” They did say positively “We have seen increased sales activity in the first few weeks of January.”
To that last point, the post holiday activity continued according to the MBA as purchases rose 3.4% w/o/w and refi’s rose by almost 15% w/o/w. I still emphasize that this is typical after the new year. Versus last year, purchases are still down 39% and refi’s by 77%.
Overseas, the Bank of Thailand hiked rates by 25 bps as expected but still to only 1.50%. Expect more hike said the Assistant Governor who said “The economy is taking off so it’s still appropriate to raise the rate for a while. But how far we will go is the key task for the following meetings.”
The Bank of Canada is expected to raise its benchmark rate by 25 bps at 10am est to 4.50% as they just might be finishing their hikes before pausing but QT will continue on.
The German IFO January business confidence index rose to 90.2 from 88.6, about as expected but the components were mixed as the Current Assessment fell a touch but offset by a rise in Expectations. AS they always do succinctly, the IFO said “The German economy is starting the new year with more confidence.” I’ll add that China’s reopening and lower energy prices are a big help to the German economy, to state the obvious.
Wholesale price pressures eased a bit in the UK but still remain VERY high. Input prices rose 16.5% in December vs 18% in November while output charges grew by 14.7%, down from 16.2% in November. As we’ve already seen December CPI, inflation breakevens aren’t moving much in response and gilt yields are lower along with other European sovereign bond yields.