The Boock Report

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1/20 – Succinct Summation of the Week’s Events

Positives

  1. Jobless claims plunged to 234k, 18k less than expected and down from 249k last week. It’s likely that MLK day had a seasonal adjustment influence on the number. The 4 week average fell to 247k from 257k but again, influenced by the holidays. Continuing claims, delayed by a week, fell by 47k.
  2. Housing starts in December totaled 1.226mm, above the estimate of 1.188mm. The m/o/m increase was all in multi family as single family starts fell by 33k to 795k. Multi family starts jumped back by 157k to 431k after an inexplicable drop in November and compares with 452k in October. On the permit side, single family permits was higher by 37k to 817k, the most since October 2007 and helps to explain the optimism on the part of builders seen in the NAHB survey. Permits for multi family construction fell by 39k m/o/m but still remain high at 393k.
  3. The Philly manufacturing index for January rose about 4 pts to 23.6 which was 8.3 pts higher than expected. It’s the most optimistic since November 2014. The components were good as new orders, backlogs, inventories and employment all rose. This all came however with rising inflation pressures as prices paid rose 4.5 pts to the most since February 2012 and prices received spiked by almost 19 pts to 26.8, the highest since June 2008. The General Business Activity 6 month outlook rose by 8 pts to 56.6, the best since August 2014. Capital spending plans though fell back by 10.4 pts after jumping by 13.6 pts in December.
  4. With the drop in mortgage rates for a 3rd week, refi applications rose 6.8%, up for a 3rd week but is still down 23% from last year.
  5. With the desire to avoid overheating, of the 70 Chinese cities surveyed, 46 saw m/o/m gains in December for newly built apartments vs 55 in November and 62 in October. This was 65 last April. For existing apartments, 45 cities said there was price gains vs 47 in November and 55 in October. On a y/o/y basis though for both saw no change.
  6. For the 3 months ended November in the UK there was a job loss of 9k after a drop of 6k in the prior period but that was not as much as the forecasted decline of 35k. The unemployment rate though did hold at 4.8% as expected. In December, jobless claims fell by 10.1k, much better than the estimate of a gain of 5k. On the wage front, weekly earnings ex bonus y/o/y in November was up by 2.7%, the most since August 2015 and compares to CPI rising by 1.6% y/o/y.
  7. For better or worse, Theresa May lays out a plan to leave the EU.
  8. Eurozone exports rose 3.3% m/o/m in November which led to a widening of their trade surplus. Is this a key reason why the euro won’t break below $1.00?
  9. Believe it or not, Chinese GDP grew 6.8% y/o/y in Q4 and basically smack in the middle of the 6.5-7% target range. Retail sales were up 10.9% y/o/y, two tenths more than expected.
  10. The China proxy that is Australia saw better than expected job growth in December but their unemployment rate ticked up one tenth to 5.8%.
  11. Meet the new boss, quite different from the old boss.

 

Negatives

  1. The CPI data was in line with expectations but at levels last seen a few years ago. Headline CPI rose .3% m/o/m and 2.1% y/o/y. That is the first time we’ve seen a 2 handle since July 2014. The core rate was up by .2% m/o/m and 2.2% y/o/y. Energy prices are certainly the main catalyst for the headline move as it was up 1.5% m/o/m and 5.4% y/o/y but it still comes on top of a sticky services figure ex energy which rose another .3% m/o/m and 3.1% y/o/y. Rising rents and healthcare continue to weigh on household budgets. If you own a home, I’m sure property taxes are up a bunch too.
  2. The NY manufacturing index in January was 6.5, 2 pts less than expected and December was revised (benchmark revisions were done) down by 1.4 pts to 7.6. New orders fell but backlogs, employment and inventories rose m/o/m. Price pressures also were very evident for both prices paid and those received which were up sharply. Six month business activity expectations were unchanged.
  3. The change in Treasury holdings of notes and bonds was small as foreigners were net sellers of $200mm in November which follows a $63.5b outflow in October and $76.6b in September. The year to date pace of selling is now an unprecedented $321b. If this continues in the years to come and the Fed eventually lets its balance sheet shrink, we’re going to have to find some new buyers of our debt.
  4. The NAHB home builder index for January was 67, 2 pts less than expected and down from 69 in December which was revised from 70. Each of the three components moderated from last month but still remain above the pre election level seen in October. “Streamlining and reforming the regulatory process” drives the optimism but “concerns going into the year include rising mortgage rates as well as a lack of lots and access to labor.”
  5. The MBA said purchase applications fell 5.2% w/o/w and is down 1.1% y/o/y.
  6. While headline US industrial production was up by .8% m/o/m in December, it was all weather driven utility output. Manufacturing IP was up by just .2%, half the estimate. Auto production grew by 1.8% but manufacturing ex this was flat m/o/m. The manufacturing index is no different than it was two years ago. Capacity utilization was 75.5% and still remains well below its 25 yr average of 78.8% and its long term average of 80%.
  7. Bill Dudley said this week “A return to a reasonable pattern of home equity extraction would be a positive development for retailers, and would provide a boost to aggregate growth.” Do some never learn?
  8. Input prices rose 15.8% y/o/y in December in the UK, a touch above the estimate of 15.5%. Margins are in trouble as output prices rose just 2.7% y/o/y but we should expect that to move much higher. At the consumer level, headline CPI was up by .5% m/o/m and 1.6% y/o/y, both two tenths above the forecast and brings the y/o/y rise to the most since the summer of 2014. The core rate was also up 1.6%.
  9. Likely in response to rising consumer prices, retail sales ex auto fuel in the UK fell 2% m/o/m in December, worse than the estimate of down .4% and November was revised down by 3 tenths. Be careful of the higher inflation central bankers want.
  10. The German ZEW investor expectations index on the German economy rose to 16.6 from 13.8 but that was below the estimate of 18.4. Current conditions though was 12 pts above the forecast at 77.3, the best since 2011. ZEW said “the slight increase of the ZEW indicator of Economic Sentiment is mainly due to the improved economic situation across European countries.”
  11. A few weeks after seeing a 1.7% CPI print in Germany, PPI rose 1% y/o/y in December. That’s still modest but the most in 4 years.
  12. Mario Draghi is still way too confident in his perceived nobility of negative interest rates and massive QE. I will continue to ask, what happens when it ends considering how suppressed rates are?  The German 10 yr yield is about to close the week at a one year high.
  13. Industrial production in China rose by 6% y/o/y, a hair below the 6.1% estimate and matches a one year low. Some of the slowdown is certainly in response to the modest pace of global trade but some of it was the forced shutdown of excess capacity in steel, coal, etc…Fixed asset investment was up by 8.1% ytd y/o/y, 2 tenths less than the forecast and matches the weakest pace since 1999.