Positives
- Some would put this in the Negative column on the grounds of unneeded political intervention but I have it here because I believe it’s important for central bankers that are unelected and have done extraordinary things to both hear complements and criticism. They seem only to accept the former and claim independence when they hear the latter. MP Michael Gove in the UK, who almost became Prime Minister, wrote in a Fiscal Times piece said Mark Carney should “curb his arrogance” and accused him of “wreaking all kinds of economic disasters.” Gove also said “The trouble with technocrats is because they believe they’re smart, expert indeed, they don’t do what all humans should – and all politicians must – acknowledge when they’ve made mistakes, learn from errors and adjust their assumptions. Because to so would be to challenge their conception of themselves as bearers of superior insights who are not susceptible to error as the rest of us.”
- September US existing home sales totaled 5.47mm, above the estimate of 5.35 while August was revised down by 30k to 5.3mm. This puts the 6 month average to 5.44mm and the year to date average of 5.4mm. Months’ supply ticked down to 4.5 from 4.6 and remaining below the long term average of around 6 months. The median home price rose 5.6%, continuing the trend of 5-6% increases. The most positive component within the data was the 3 pt increase in the % of sales going to first time households. They bought 34% of homes sold vs 31% in August and up from 29% one year ago. Imagine what can happen if the Millennials, where the average age is 33, decide to own instead of rent. We may need some new supply.
- Multi family construction permits in September rose 70k to 486k, the most since November 2015. Single family permits were little changed, rising by 3k m/o/m to 739k.
- Purchase applications to buy a home rebounded by 3% w/o/w after falling by 2.6% last week. The y/o/y gain was 13%. This comes as the average 30 yr mortgage rate jumped by 5 bps on the week and 11 bps over the past two weeks to the highest level since June.
- The NAHB home builder survey for October fell to 63 as expected from 65 in September which itself was a 6 pt jump to the highest of the year from August. Thus, this is the 2nd best reading in the recovery. The internal components were mixed as the Present Situation fell 2 pts after rising by 6 last month. Future expectations rose 1 pt, a follow up to the 5 pt rise in September. Prospective Buyers Traffic still can’t get back above 50 (hasn’t been there since October 2005) as it fell 1 pt to 46 after rising by 3 pts last month. The NAHB said “builders in many markets continue to express concerns about shortages of lots and labor.”
- The October Philly manufacturing index remained positive at 9.7. That was down from 12.8 in September but almost double the estimate of 5. As for the future, confidence in the 6 month outlook fell 5 pts to a 4 month low but cap ex plans rose 12.6 pts after falling by 10.6 pts in August.
- The Chinese economy magically grew by 6.7% y/o/y in Q3, right in line with expectations and which was the same pace of growth in Q2 and in Q1. It still is the slowest rate since Q1 2009. The services side grew by 7.6% while mining, manufacturing, construction and utilities grew by 6.1% predominantly triggered mostly by state spending. Separately, retail sales and fixed asset investment grew as expected.
- For the 3 months ended August (thus capturing two months post Brexit), the UK economy created 106k jobs, 30k more than expected while the unemployment rate remained steady at 4.9%, the lowest since 2005. Earnings were also pretty steady as they grew by 2.3% y/o/y ex bonus’ as expected but is down a touch from the 2.4% rise in July. Looking at September jobless claims saw a gain of .7k which was below the estimate of a 3.2k gain but that was more than offset by an upward revision of 4.7k in August.
- With room to move, Brazil and Indonesia each cut interest rates by 25 bps.
Negatives
- Initial jobless claims totaled 260k, up 13k on the week off the lowest level since 1973 and 10k more than expected. The 4 week average rose to 252k from 250k and vs 253k in the week prior. Continuing claims, delayed by a week, rose by 7k off the lowest level since 2000.
- Headline CPI rose .3% m/o/m and 1.5% y/o/y. That y/o/y gain is up from 1.1% in August and is the quickest pace of gain since October 2014. While the headline was in line, the core rate was one tenth less than expected with a .1% m/o/m rise and 2.2% y/o/y jump. Services inflation ex energy was up by 3.2% y/o/y.
- September housing starts totaled 1.047mm, well below the estimate of 1.175k and down from 1.15mm in August (revised up by 8k). That is the slowest pace of starts since March 2015 BUT the mix was hugely divergent. Multi family starts plunged by 162k, from 426k to 264k. Single family starts actually improved to a 783k annualized run rate up from 724k in August. That’s the quickest pace February.
- Net foreign selling of US Treasuries continued in August with another $24.8b of notes and bonds shed. This is now the 5th straight month and brings the year to date total of net selling to $180b, an unprecedented pace with foreign governments doing all of the selling as private foreign buying remains positive. China sold another $19.2b and has liquidated almost $70b worth over the past 3 months. Japan was a seller of $9.3b of notes and bonds. Saudi Arabia continued their selling as well.
- Due to the jump in rates, refi applications fell .8% to the lowest level since late June and are down for the 4th week in the past 5. They still remain though 22.4% above last year’s level when mortgage rates were near 4%.
- The NY manufacturing index fell to -6.8 from -2.0 in September. That was 7.8 pts below expectations and marks the 3rd month in a row of a contraction. The internals actually improved slightly m/o/m (headline number is not a sum of its parts) but still remained negative mostly across the board. The six month outlook was up by 1.5 but at 36 it is the best since April 2015. Capital spending plans were mixed.
- US industrial production in September rose .1% m/o/m, in line with the estimate while August was revised down one tenth. The manufacturing component rose .2% after a .5% decline last month and we’ll call that in line with the August revision included. The manufacturing index at 103.1 compares with 102.6 in October 2014 and 103.5 in November 2014.
- The Chinese just can’t quit the credit high. Aggregate financing in September totaled 1.72T yuan, 330b yuan more than expected and up from 1.47T in August. That is also up 29% y/o/y. Of the total, banks issued 1.22T of the loans. The main factor explaining the increase was a 230b yuan increase m/o/m in yuan denominated loans with a large chunk being household loans used to buy apartments.
- With a huge bubble on their hands, on a y/o/y basis, new apartment prices in China rose in 64 cities in September vs 62 in August. This number stood at 21 back in December. For existing ones, prices rose in 57 vs 53 in August and 35 in December. On a m/o/m basis, it was mixed as the number of cities that saw gains for new apartments fell by 1 but rose in 3 for existing apartments. Home prices in Shanghai rose 28% y/o/y, by 33% in Shanghai and 34% in Shenzhen to name a few. If you happen to be in Xiamen, prices there rose 46.5% y/o/y.
- In the UK, the September CPI y/o/y gain was 1% (vs .6% in August) and the core rate was higher by 1.5%. Both were one tenth more than expected. That headline rate is the highest since November 2014 as energy prices fell just .1% y/o/y.
- UK retail sales in September were unchanged ex fuel oil which was two tenths worse than expected but that was offset by a two tenths upward revision to August and is thus a push. The y/o/y gain of 4% is still pretty good but with inflation about to spike in coming months and quarters this should be considered old news.
- The final look at September CPI in the eurozone was no different than the preliminary look a few weeks ago. Headline CPI rose .4% y/o/y and .8% at the core level. That headline level by the way matches the most since June 2014 as the declines from energy dissipate.
- Chinese industrial production for September grew by 6.1% y/o/y, three tenths less than expected and it hovers at the slowest pace of growth since December 2008.
- Australia reported a September jobs miss relative to expectations due to a sharp drop in full time employment. Payrolls fell by 9.8k people instead of rising by 15k that was expected. August was also revised lower. A drop in the participation rate kept the unemployment rate in check at 5.6%.
- Mario Draghi is now learning firsthand while it’s so easy to fly the money printing copter drop, it is much more difficult to land.