The Boock Report

By

1/13 – Succinct Summation of the Week’s Events

Don’t miss out! BECOME A MEMBER of THE BOOCK REPORT today!

———

Positives

  1. The NFIB small business optimism index spiked by 7.4 pts to 105.8 after rising by 3.5 pts in November. This is the highest since 2004 and the biggest one month gain since July 1980. Here is where the moves were dramatic: Those that Expect a Better Economy rose 38 pts to 50%, the most since March ’02. Those that Expect Higher Sales was up by 20 pts to 31% and those that said it’s a Good Time to Expand was up by 12 pts to 23%. Capital spending plans also improved while Plans to Hire was up 1 pt. Compensation plans were the most since December 2015 and the inflation gauge of those Expecting Higher Prices rose 1 pt to the most since January 2015. The CEO of the NFIB said “Business owners are feeling better about taking risks and making investments.”
  2. Initial jobless claims totaled 247k, 8k less than expected but up from a very low 237k last week. These are extraordinarily low but with the holidays being an influence we wait for coming weeks to see what’s real. Smoothing this out puts the 4 week average at 257k vs 258k last week. The low in the cycle was 250k back in October. After rising to the most since September last week, continuing claims fell by 29k.
  3. European IP in November rose 1.5% m/o/m and 3.2% y/o/y, well above the estimates of .6% and 1.6% respectively. That y/o/y gain is the best since January.
  4. Purchases rose 6.1% w/o/w but still fell by a sharp 17.5% y/o/y. Refi’s were up by 4.4% but to a level that is 31.5% below last year. Higher mortgage rates have definitely had an influence on the industry as seen by those y/o/y numbers. Coincident with the recent fall in Treasury yields, the average 30 yr mortgage rate moderated to 4.32% from 4.39% last week and 4.45% in the week prior.
  5. November job openings totaled 5.52mm, about in line with the estimate and is an increase from the 5.45mm in October (revised from 5.53mm). The increase m/o/m though was all in the government sector as the private sector saw little change in openings. Hiring’s picked up by 59k but the hiring rate held at 3.6% while Separations rose too by 62k with 41k of them quitting. The quit rate though held unchanged at 2.1%.
  6. Business inventories grew by .7% m/o/m in November vs the estimate of up .6% and October was revised up by one tenth. But, because sales were up just .1%, the inventory to sales ratio rose to 1.38 from 1.37 and near the peak in this cycle of 1.41 last year. Of note, dealer inventories of auto’s rose 1.9% m/o/m and 9.5% y/o/y.
  7. Chinese PPI was up by 5.5% y/o/y in December, above the estimate of 4.6% and a quickened pace vs the 3.3% rise in November. After 54 straight months of declines, PPI has now grown for a 4th month y/o/y.
  8. Chinese CPI rose 2.1% y/o/y, a slowdown from 2.3% in November and one tenth less than expected. The moderation though was all due to a slowdown in food price gains. Non food prices picked up by 2% y/o/y vs 1.8% in November and it’s the first time at 2% since November 2011.
  9. Foreign direct investment in China was up 5.7% y/o/y in December, above the estimate of up .8%. The Chinese money flows are not all one way notwithstanding the yuan weakness.
  10. A China and tech proxy that is Taiwan saw a 14% y/o/y jump in December exports vs the estimate of up 10.4%. Comparisons are very easy though as last December saw a 14% decline.
  11. Japanese consumer confidence rose 2.1 pts to 43.1 which was well above the estimate of 41.4 and the highest level since September 2013. It still remains below the Abenomics euphoria of 2013 but all 4 main components were up m/o/m with Income Growth in particular at the most since May 2013.
  12. November exports in Germany jumped by 3.9% m/o/m, well more than the estimate of up .5%. That’s the best month since 2012 but just helped them play catch up on the year as 2016 exports for the 1st 11 months of stats is up less than 1% over the same time period last year.
  13. Germany finished 2016 with a 1.9% GDP growth rate vs 1.7% in 2015 and is the best since 2011.
  14. The euro area unemployment rate held at 9.8% in November, matching the lowest since mid 2009.
  15. After raising rates from 7.25% in 2013 to 14.25% by 2015, the Brazilian Selic rate was cut for a 3rd time since November and this time by 75 bps to 13%. Real rates in Brazil are still around 7%.

Negatives

  1. Core December retail sales rose by just .2% m/o/m, below expectations of up .4% and November was revised down by one tenth. Sales ex auto’s and gasoline saw no change m/o/m instead of rising also by .4%. Auto sales as seen last week were strong with a 2.4% m/o/m jump and finishes the year up 7.4% y/o/y. Online was of course the bright spot with a 1.3% m/o/m rise and 10.4% gain vs last year. Electronics, clothing and restaurant/bar sales disappointed.
  2. Mainly because of higher oil prices, US import prices in December rose 1.8% y/o/y vs a .1% gain in November which followed 27 months in a row of declines. It’s the quickest pace since 2012.
  3. Headline PPI rose .3% m/o/m as expected while the core rate was up by .2% which was one tenth more than expected. This brings the y/o/y gain to 1.6% for both headline and core. The headline gain is the most since 2014 as we continue to take out the sharp energy price drops out of the calculations. Goods prices led the headline rise as they were up .7% with 60% of it due to higher energy prices. Less food and energy prices in goods were higher by .3%. Services inflation was higher by .1% m/o/m but after rising by .5% in November.
  4. The preliminary January UoM consumer confidence index was basically unchanged at 98.1 vs 98.2 in December but slightly below the estimate of 98.5. The index though is up about 11 pts after the election. One year inflation expectations bounced back to 2.6% from 2.2% last month. That is the most since July and likely influenced by the 10% rise in gasoline prices over the past 6 weeks. Income expectations fell 2 pts but after spiking by 7 last month. The employment component improved another 6 pts after December’s 9 pt rise. Those that plan on buying a car or a home both rose. The UoM said the post election confidence “gains were accompanied by an unprecedented degree of both positive and negative concerns about the incoming administration.”
  5. Total yuan loans in December rose by 1.63T yuan, 330b above expectations. This however was down from 1.73T in November and lower by 10% from last December. For the full year 2016, total loans were up 16% vs 2015 at the same time GDP growth slowed. Of the loan growth in December, 1.04T came from banks vs the estimate of 677b and up from 795b in November. Household lending did slow in response to moves to slow down house price appreciation but was completely offset and then some by loans to the non financial corporate sector.
  6. China’s FX reserves shrunk to $3.01T in December, but about in line with the estimate and down from $3.052T in November.
  7. Chinese exports in dollar terms fell 6.1% y/o/y in December, more than the 4% expected decline and November was revised lower. Imports grew by 3.1% which was in line but November was also revised lower. In yuan terms though, both were up more than forecasted. Their trade balance ends the year with a $40.8b surplus, well below where it was one year ago at $59.6b.