On the heels of Friday’s payroll report, I want to make sure you saw the WSJ article which was in Friday’s paper titled “Layoffs Hit White-Collar Workers as Amazon, Walmart, Others Cut Jobs…Recent wave of job cuts marks departure from previous downturns when blue-collar workers were shed first.” I’m going to distill this even further. Labor demand and shortages still exist in parts of the market where businesses physically need workers on premises, like hotels, restaurants, airports, airplanes, hospitals and other healthcare facilities to name a few. This as opposed to many white collar jobs that are now more expendable or at least these workers have less leverage, especially if its work from home as now employers can shop anywhere for that job.
The article went on to say, “Demand has fallen sharply for professionals in technology, legal, scientific and finance fields, and companies that ramped up staffing during the pandemic, including tech firms, are slowing down hiring or cutting jobs as they close down some projects or scale back others.” They also quoted the chief economist of ZipRecruiter who said “There’s a very clear white-collar recession in demand for labor.”
Back to my point that workers are more needed in sectors where the physical presence of a worker is crucial, the CEO of BHP said this, “If you don’t have somebody that could drive a truck, you’re losing production as a result of that.” And they continue “to hire in a tight labor market, particularly for front-line workers, whose absence can most immediately affect results.”
The China stock rally continued overnight with the H share index up another 5.3%, the Shanghai comp higher by 1.8% and the Hang Seng rallying by 4.5%. We continue to like and own some Macau casino plays and other Asian travel names as a way to take advantage of this reopening. Copper, iron ore and oil are also rallying in response to more evidence of a major policy shift in China that has now become clear.
With respect to oil and the new Russian price caps, with Russia not currently get paid much more than $60 per barrel anyway, I’m not sure if there will be much impact on how much Russia will collect but whenever I see any kind of price controls occur, we have to worry about future supply. We remain bullish on energy stocks.
China H share index
Reflecting still the shutdowns and real estate distress, China’s Caixin November services index capturing the private sector (about 80% of employment in China is with private companies by the way) fell to 46.7 from 48.4 but we can assume this is the bottom. Hong Kong’s PMI fell to 48.7 from 49.3 and hopefully we can say the same thing here.
For Singapore, which has been open and thriving, its PMI fell 1.5 pts m/o/m to 56.2. S&P Global said “Private sector activity continued to expand at a robust pace midway into the final quarter of 2022 but saw the rate of expansion moderate from October’s high. Survey respondents remarked that virus-related disruptions underpinned the slowdown. Indeed, lead times lengthened at a substantial rate in November amid reports of Covid related delays and manpower constraints…While firms were generally hopeful that sales will continue to improve, the average level of optimism fell to a modest one with recession risks, higher GST (goods and services tax) impact on sales and Covid implications reported to have negatively affected sentiment.” The Singapore Straits is one of the few global stock markets that is in the green this year with a 4.6% rally. We remain positive.
India has been an economic bright spot too and remains a great long term story. It’s November services PMI rose to 56.4 from 55.1. S&P Global said “Indian service providers continued to reap the benefits of strong domestic demand…Moreover, expectations of demand buoyancy in the medium-term promoted further job creation.” Inflation though remains stubborn as “The overall upturn in input costs was sharp and little changed from October, while output charges rose at the quickest rate in over five years.”
The Eurozone November services PMI was revised a hair to 48.5 from 48.6 seen a few weeks ago. That is though down for a 7th straight month and to the weakest since February 2021 when the Delta variant was raging. S&P Global said “Weak demand conditions were a major factor behind the drop in output in November. Incoming new business receipts fell for a 5th month running, with the pace of decline unchanged from October’s 20-month record.” Inflation stayed very high but less so. “There was another marginal uptick in the level of optimism at service sector companies, although the business outlook remained subdued.”
Finally with the PMI’s, the UK services index was left unrevised at 48.8 and that is unchanged with October’s weakest level since January 2021.” S&P Global cited “cost of living challenges weighing on discretionary spending. Cost pressures showed little signs of abating, with operating expenses again rising sharply, although pricing power was limited to some degree by rising competition and falling sales.” The business outlook did improve “somewhat” though “remains historically subdued.” Instead of tax cuts from Liz Truss who also wanted to stop the corporate rate from going to 25% from 19%, Rishi Sunak is giving the UK more tax increases which will only making it more difficult for their economy to grow in this tough environment.