The Boock Report

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2/10 – Succinct Summation of the Week’s Events

Positives

  1. Initial jobless claims fell to 234k, 15k below the estimate and down from 246k last week. This is just 1k people away from matching the lowest level since 1973 and brings the 4 week average to 244k from 248k. Continuing claims, delayed by one week, rose by 15k.
  2. Mortgage applications on the week were up slightly. Purchases grew by 1.8% and are up 3.6% y/o/y while refi’s were higher by 2.2% but are still down 40% y/o/y as the average 30 yr mortgage rate is up about 50 bps y/o/y.
  3. The US trade deficit narrowed in December to $44.3b from $45.7B in November. The estimate was $45b. Exports rebounded by 2.7% m/o/m after two months of declines and was mostly driven by a 3.9% jump in the exports of goods. Service exports were up by .4% m/o/m. The absolute level of total exports is the highest since April 2015 and was helped by gains in capital goods and industrial supplies. Imports were also up by 1.5% to the most since March 2015, also driven by the imports of goods (led by auto’s). GDP Q4 revision estimates were not altered in response.
  4. Canada reported a blowout jobs number with a rise in employment of 48.3k, well more than the estimate of an expected decline of 10k. It follows a robust job gain of 46k in December. This is a country of 35mm people. The unemployment rate fell one tenth to 6.8% and matches the lowest since January 2015.
  5. Chinese exports in January rose 7.9% y/o/y in dollars, well more than expectations of up 3.2%. Imports were higher by 16.7%, above the estimate of up 10%. The trade balance in dollars widened to $51.4b, up from $40.7b in December but the surplus with the US shrunk to the smallest level since June. The main caveat with the January data however is the impact of the lunar holiday so it really is better to merge January with February to smooth out the distortions.
  6. Japanese machinery orders in December rose 6.7% m/o/m, double the estimate of up 3% but follows a 5.1% drop in November. The y/o/y gain though was still a good 6.7%.
  7. Japan in December saw regular pay (thus taking out overtime and bonus’) rose .5% y/o/y vs .4% in November and .2% in October. It doesn’t sound like much but it’s the fastest pace since March and is just one tenth away from the best post Abenomics.
  8. The UK December industrial production figure saw a 1.1% m/o/m gain, well above the estimate of up .2%. It was mostly driven by a 2.1% rise in manufacturing. A big boost in particular was a near 10% spike in pharma products which the ONS statistics office called “highly erratic.” Construction also rose.
  9. German December factory orders blew out the estimates with a 5.2% m/o/m jump, well more than the estimate of up .7%. The y/o/y gain was 8.1%. The capital goods component is where all the strength came from and the German economic ministry said “this signals a further revival of momentum in manufacturing in the winter half.”
  10. French industrial production in December was about in line with the estimate if we include the November revision.Italian IP grew by 1.4% m/o/m in December and 6.6% y/o/y, well above expectations of down .1% and up 3.2% respectively.

 

Negatives

  1. Here are important results from the Fed’s Q1 Senior Loan Survey. Demand fell and credit standards for mortgage loans tightened. Demand for home equity loans went negative. Loan standards on commercial real estate tightened to the tightest level since Q1 ’11. Demand for consumer loans with and without auto’s went negative and that includes credit cards. Loan standards for auto loans and credit cards tightened. Have you seen chart for commercial and industrial loans lately? For week ended January 25th it’s at a 4 month low.
  2. The first February UoM confidence number fell to 95.7 from 98.5 and that was 2.3 pts below the estimate. Almost all of the m/o/m decline was due to a cooling of optimism about the future as that component fell almost 5 pts to 85.7. This figure was 76.8 in October and 85.2 in November. Current conditions were about unchanged at 111.2 vs 111.3. This was 103.2 in October and 107.3 in November. One year inflation expectations rose two tenths to 2.8% and that matches the highest level since March 2015. Those expecting higher income over the next year fell slightly as did the employment component. On spending decisions, those that say it’s a good time to buy a home, a car and/or a major household item all dropped m/o/m. Bottom line, the cooling of confidence (although is still at good level) is only natural after the initial election driven euphoria on the part of half of the voters. UoM said “Democrat’s Expectations Index is close to its historic low (indicating recession) and the Republican’s Expectations Index is near its historic high (indicating expansion).”
  3. All due to rising energy prices and favorable comparisons, US import prices grew by .4% m/o/m and 3.7% y/o/y (fastest pace since February 2012). Prices ex food and fuels fell .1% y/o/y.
  4. The number of job openings in December totaled 5.5mm, a bit below the expectation of 5.58mm and little changed with 5.51mm in November. These figures compare with the 2016 average of 5.6mm. The level of hirings grew by 40k but that just kept the hiring rate unchanged at 3.6%. The number of those quitting fell by 98k which brought the quit rate down to 2% which is back to where it was in May from 2.1% in November.
  5. Within the monthly consumer credit data, total student loans owned by the Federal Government as of December is at $1.05T, up 10.5% from 2015. It’s up 24% over the past two years.
  6. Not that we needed a reminder but Fed voting member Charlie Evans solidifies his uber dovishness by saying “negative rates have been largely successful in Europe.” The Euro STOXX bank stock index is down 30% from its 2015 top. And European bank excess reserves parked at the ECB getting penalized .4% each year is up 800% since negative interest rates were first introduced in June 2014.
  7. Germany saw exports fall by 3.3% m/o/m in December which was worse than the estimate of down 1.3%. It follows a 3.9% rise in November. For the full year though, Germany saw a record trade surplus of 253b euros which is about 8% of GDP.
  8. German December industrial production missed badly. It fell 3% m/o/m vs the estimate of up .3% and fell .7% y/o/y instead of rising by 2.5%. The Economic Ministry is downplaying the number by saying it was due to timing issues and less days working because of the holidays.
  9. The amount of China’s FX reserves now has a 2 handle as it came in at $2.998T in January, down from $3.011T in December and slightly below the estimate of $3.004T. It was February 2011 the last time it was below $3T. The State Administration of FX blamed some of the decline on outflows related to the Lunar New Year as residents travel outside the country but there is also no question that other outflows and more FX intervention in order to stabilize the yuan had an impact.
  10. The Chinese private sector weighted services PMI for January weakened to 53.1 from 53.4 but just gives back the .3 pt rise in December. Employment improved and as seen in many places, “service companies also reported higher cost burdens, with the rate of inflation edging up to a solid pace that was the fastest in 47 months.” New orders were above 50 but down slightly from the prior month.

 

I sat down for a podcast with Yra Harris on the implications of The Border Tax, Dodd Frank Changes, and Steepening Yield Curves. Check it out here at FinancialRepressionAuthority.