11/18 – Succinct Summation of the Week’s Events

Positives

1. Jobless claims totaled 235k, the lowest level since 1973 and was well below the estimate of 257k and down from 254k last week. Smoothing this number out since it’s such an unusual outlier relative to expectations brings the 4 week average down to 254k from 260k last week. Continuing claims, delayed by a week, fell by 66k to the lowest since 2000.
2. Retail sales in October jumped .8% m/o/m at the core level, double expectations and September and August were both revised up by two tenths. The gains were in most categories with weakness seen again with department stores, a drop in sales at restaurant and bars and a fall in the sales of furniture. Online sales rose 1.5% m/o/m and are up 10% y/o/y.
3. Housing starts in October totaled 1.32mm, well more than the estimate of 1.156mm and that’s the best level since August ’07. There was a jump in both single family and multi family starts. For single family the increase was 84k m/o/m to 869k (most of the gains occurred in the South and West) while multi family normalized at 454k after the plunge to 269k from 440k in the month prior. The permit change wasn’t as drastic as the starts rise as single family permits rose by 20k while multi family permits were down by 16k.
4. The NAHB November builder survey index was unchanged at 63 as expected, remaining well above 50. This number though came before the jump in interest rates and the same can be said for housing starts.
5. The NY manufacturing index for November, the 1^st industrial figure out this month, rose to +1.5 from -6.8, was 4 pts better than expected and follows 3 months of contraction. As for the future, the 6 month outlook fell 6 pts to a 3 month low and capital expenditures and tech spending plans fell a touch.
6. September business inventories rose .1% m/o/m, one tenth below the estimate but because sales rose by .7%, the I/S ratio fell to 1.38, the lowest since August 2015.
7. Producer prices were benign in October as they were flat m/o/m and up just .8% y/o/y and the core rate fell m/o/m and was up 1.2% y/o/y, the same as in September.
8. Looking forward, investors have become more optimistic on the German economy as measured by ZEW whose November index rose to 13.8 from 6.2 in October. That was above the estimate of 8.1 but the current situation component fell a touch unexpectedly.
9. The Italian economy grew in Q3 by .3% q/o/q and .9% y/o/y, both a tenth more than expected. That y/o/y matches the best growth since Q2 ’11.
10. IP in the Eurozone did fall .8% m/o/m in September but that wasn’t as bad as feared and August was revised up.
11. UK retail sales ex auto fuel in October jumped by 2% m/o/m and 7.6% y/o/y, both well above forecasts. With an expected rise in inflation coming, the sustainability will be tested.
12. Japan reported a better than expected Q3 GDP report as it gained 2.2% at an annualized rate vs the estimate of up .8%. The internals were very mixed though as business spending and consumer spending were flattish so it was net exports and government spending that helped to boost GDP.

 

Negatives

1. Since the November 2^nd FOMC statement and of course accelerated by the election, the 10 yr yield has spiked by about 50 bps and the 10 yr inflation breakeven is higher by 20 bps to the most in a year and a half. The 5 yr inflation breakeven is 1 bp from the most in two years. Listening to Yellen’s testimony yesterday, one would have no idea that ‘times they are a changin.’ It is obvious to the rest of us however how far behind they are and the market is now doing the Fed’s job for them. It’s a dangerous place for a central bank to be in a world suffocating from too much debt.
2. Headline CPI in October jumped by .4% m/o/m but as expected and this brings the y/o/y gain to 1.6%, the highest since October 2014. Energy price gains on a y/o/y basis is the main reason as they have accelerated due to easy comparisons. Food prices were flat m/o/m but down .4% y/o/y confirming the food deflation we’ve heard from supermarket companies. The core rate was up just .1% m/o/m, one tenth less than expected. The y/o/y gain was 2.1% vs 2.2% in the month prior. Consumer price inflation is a tax and why I put gains in the negative column.
3. Recycling out the sharp drops in energy prices, input prices rose .5% m/o/m in September, the most since June as petro prices jumped by 7.5% and are now up 4.5% y/o/y. Prices ex fuel though fell both m/o/m and y/o/y.
4. The Philly November manufacturing survey fell a touch to 7.6 from 9.7 last month. That was a hair below the estimate. There was a sharp 25 pt gain in inventories. New orders and backlogs also rose. Employment remained negative but a bit less so while the average workweek was higher. We also saw a sharp rise in the inflation components as prices paid was up by almost 20 pts and prices received spiked by almost 20 pts to the highest since May 2014. The overall 6 month outlook was a bit muted as this component fell by 3.3 pts to the lowest since March.
5. There was no change in US industrial production in October and September was revised down by 3 tenths but mostly due to a decline in utility output. Manufacturing production did though rise by two tenths but that was one tenth less than expected. Positively, mining production is getting less bad as it rose 2.1% m/o/m and the 7% drop y/o/y is a moderation.
6. Dating back to when record keeping began in 1977, September saw the largest month of net foreign selling on record of US notes and bonds, totaling $76.6B. This brings the total amount of selling over the 12 month time period to $310B. Of the $76.6B, $45B came from Asia where China sold another $15B worth (now $83B of selling over the past four months) and Japan liquidated a net $18B.
7. Responding immediately to the spike in mortgage rates, mortgage applications to buy a home fell 6.2% w/o/w as of November 11^th and is now up just 3.3% y/o/y. Refi’s fell by 11% w/o/w but remain up by almost 19% vs last year because one year ago the average 30 yr mortgage rate was around 4.15%. The average 30 yr mortgage rate this past week jumped 18 bps on the week to 3.95%, a level last seen in January.
8. The UK economy for the 3 months ended September added 49k jobs, less than the 91k that was expected but the unemployment rate did tick down by one tenth to 4.8%, the lowest since September ’05. The weaker job growth was followed by the October level of jobless claims that rose by 9.8k, well more than the estimate of up 2k and September was revised up by 5k. It’s the 3^rd month in a row of increases. On the wage front, average weekly earnings ex bonus rose 2.4% y/o/y as expected but the most in a year.
9. Thanks to the weaker pound, wholesale input prices rose 4.6% m/o/m, more than double the estimate of up 2% and the y/o/y gain shot up by 12.2% instead of rising by a still whopping 9.3% as expected. Margins got crushed as wholesale output prices rose just .6% m/o/m and 2.1% y/o/y. As for consumer prices, they rose .9% y/o/y and 1.2% at the core, both two tenths less than expected but the UK citizenry better enjoy that while they can because prices are going higher in coming months and quarters.
10. Germany’s economy in Q3 grew .2% q/o/q and 1.7% y/o/y, both a tenth less than expected.
11. French unemployment went back to 10% from 9.9% in Q3.
12. In China, retail sales grew by 10% y/o/y in October but that was below the estimate of up 10.7% and matches the slowest pace of gain since 2006. Industrial production rose by 6.1% y/o/y, one tenth less than expected and matches the September pace. Fixed asset investment ytd y/o/y was up by 8.2%, one tenth more than the forecast.
13. Chinese home prices continued to gain m/o/m for both new and existing apartments in the number of cities surveyed although the pace y/o/y did moderate. The price increases are still out of control as they rose 27.5% y/o/y in Beijing, 31.1% in Shanghai, and 31.7% in Shenzhen.
14. The China proxy that is Australia saw weaker than expected job growth of 9.8k in October vs the estimate of up 16k and September was revised down sharply.