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  • Writer's pictureMike V.

Weekend Reading

US Factory activity shrinks

In August the U.S. manufacturing sector shrank for the first time in three years, providing the latest sign that a global manufacturing pullback is weighing on the American economy. For the world as a whole, Tuesday’s IHS Markit index of manufacturing activity had a composite reading of 49.5, indicating a fourth consecutive monthly deterioration of business conditions that makes the summer’s downturn the longest and deepest since 2012. Not only are current conditions bad, but the IHS report showed that expectations for the future also plunged to a level well below anything seen in the prior seven-year history of this indicator. The IHS Markit composite index for U.S. producers hit its lowest level since 2009. The subcomponents for current output and new export orders both indicated outright contraction.

Auto Sales UK and India

The U.K. car industry faces a tough time as new car registrations fell 1.6% in August, less than the 5.6% average drop in the previous 12 months. It was the sixth successive monthly decline in new car sales. While August is a quiet month for new-car sales, the ongoing sales decline will do little for the car sector's nerves ahead of the key month of September. It will likely be worried that a potent cocktail of a weak U.K. economy, a highly unsettled domestic political environment and heightened Brexit uncertainties will deter both consumers and businesses from splashing out.

India's Auto Sector Comes To A Screeching Halt, Sales Crash In August

At the heart of the global manufacturing slowdown, is the slump in the auto industry in China, Europe, and India. The Indian automobile industry continued in the slow lane in August with all major manufacturers reporting a drop in their respective sales. Hard times at Tata Motors contributed to a 49% drop in its August domestic sales, Maruti Suzuki India reported 32.7% decline and Mahindra and Mahindra's (M&M) local sales declined 26%. Nationwide, more than 350,000 workers in the automobile industry have been laid off since 1Q 2019, in response to slowing car sales for the 10th straight month.

TrimTabs: Insider Selling

Corporate insiders have sold an average of $600 million of company stock per day in August. August is on track to be the fifth month of the year in which insider selling tops $10 billion. The only other times that has happened was 2006 and 2007. This kind of selling indicates that there is a tremendous amount of fear among corporate insiders now.

Reuters: Johnson & Johnson Ordered To Pay $572 Million In Landmark Opioid Trial

In the first of verdicts against pharmaceutical companies accused of inciting the opioid epidemic, an Oklahoma judge ruled that Johnson & Johnson must pay a $572 million penalty for helping to fuel the opioid epidemic with irresponsible marketing practices. The seven-week, non-jury trial was closely watched by plaintiffs and defendants in 2,000 opioid lawsuits pending before a federal judges. The judge has been pushing for a settlement ahead of an October trial. Opioid-related overdoses have skyrocketed in recent years as users migrated from pharmaceuticals to street drugs like heroin, much of which is now tainted with powerful synthetic opioids like fentanyl.

Bloomberg: Sackler Family Backs $11.5 Billion Purdue Opioid Settlement

The Sackler family and their embattled drugmaker, Purdue Pharma LP, are backing a proposal to resolve all opioid lawsuits against themselves and the drugmaker for more than $11 billion in what would be the largest settlement to date in the sprawling litigation over the addictive painkillers. Under the proposal, Purdue the maker of OxyContin pain medicine, will file for bankruptcy, hand itself over to a trust controlled by the states, cities and counties that have sued. The Sacklers will dig into their own pockets for at least $3 billion in cash. Funds from those sources would generate $11.5 billion to cover the fallout from the opioid epidemic. In return, the Sacklers and Purdue would see more than 2,000 suits against them wiped out. A deal would resolve claims that the family and Purdue sparked the ongoing U.S. opioid epidemic through wrongful marketing tactics for OxyContin.

Bloomberg: Central Banks Just Love Gold and It's Going to Stay That Way

A major gold-buying spree by central banks is likely to persist in the coming years, the potential for further purchases by nations including China. “In the current environment, where uncertainty in emerging-market currencies is high, we see good reason for countries to continue to diversify their portfolios” ANZ said. Net buying by the sector is likely to stay above 650 tons, it said.

Central banks are likely to increase gold reserves, ANZ says

Central-bank accumulation of bullion has emerged as a increasingly important trend in the global market, offering additional support for prices that have rallied to the highest level since 2013 on rising demand. Authorities have been adding to reserves as growth slows, trade and geopolitical tensions rise, and some nations seek to diversify away from the dollar. Official purchases now account for about 10% of worldwide consumption, according to ANZ.

“The People’s Bank of China holds nearly 1,936 tons of gold, which equates to only 3% of its total foreign reserve holdings, giving the country plenty of room to increase its allocation,” ANZ said. China’s central bank expanded bullion reserves again in July, pressing on with a run that stretches back to December.

Spot gold traded at $1,531.45 an ounce on Tuesday after touching $1,555.07 on Monday, the highest in more than six years. The metal has surged 19% this year as the trade war flared up, bond markets signaled that a U.S. recession may be on the horizon, and the Federal Reserve cut rates.

‘Room to Run’

Central-bank accumulation of gold “has further room to run,” Deutsche Bank AG said in a report, citing factors including a gradual migration of reserve assets away from the dollar. “The stability of central-bank demand should help to bias gold prices higher over longer time frames.”

Goldman Sachs Group Inc. also put the spotlight on the same trend as the bank outlined its bullish stance on gold this month. “Central banks in emerging markets are buying gold,” Jeff Currie, global head of commodities research, told Bloomberg Television. “Why? Because they don’t want to own dollars with sanction risk, geopolitical risk, trade-war risk out there.

Central banks added 374.1 tons in the first six months, helping push total bullion demand to a three-year high, according to the World Gold Council. The trend is expected to continue, with a recent survey of central banks

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