The Boock Report

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2/24 – Succinct Summation of the Week’s Events

Positives

  1. Existing home sales in January, likely covering contracts signed between October and December (and thus straddling the pre and post election move in mortgage rates) totaled 5.69mm, 140k more than expected and up from 5.51mm in December. This is a new high in this cycle but still remains well below the bubble peak of 7.25mm back in September 2005. Inventory remains a big issue as months’ supply remained at a very low 3.6, the lowest since January ‘05. Home price gains remained robust and rising well above the rate of inflation. The median price was up by 7.1% y/o/y (7.3% for single family). First time buyers purchased 33% of sales, up from 32% in December, still well off its historical level but on a still rising absolute sales pace.
  2. The final read of the UoM consumer confidence index for the month of February was 96.3, above the preliminary print of 95.7 and vs the estimate of 96 but a drop from 98.5 in January. The post election response remains still clear as the October level of confidence was at 87.2 but there is quite a country split. UoM said “Normally, the implication would be that consumers expected Trump’s election to have a positive economic impact. That is not the case, since the gain represents the net result of an unprecedented partisan divergence, with Democrats expecting recession and Republicans expecting robust growth.” Current Conditions held steady with January but Expectations is down almost 4 pts m/o/m. One year inflation expectations were 2.7%, up one tenth from January and matching the highest since April 2016 but down one tenth from the 1st look.
  3. The KC manufacturing index for February rose 5 pts to 14. The estimate was for no change and it’s at the highest level since June 2011.
  4. The Eurozone manufacturing and services composite index is at its best level since April 2011. It came in at 56 vs the estimate of 54.4. Most of the upside was seen in services as this component was up almost 2 pts led by France. Manufacturing rose .3 pts m/o/m and that was driven by Germany as French manufacturing fell. Markit said “job creation was the best seen for 9 ½ years, order book growth picked up and business optimism moved higher, all boding well for the recovery to maintain strong momentum in coming months.” For Mario Draghi’s focus, “Inflationary pressures meanwhile continued to intensify.” Input costs rose at the fastest pace since May 2011, “with rates accelerating in both services and manufacturing.”
  5. The IFO German business confidence index rose 1.1 pts to 111, back to where it was in December but that’s still the best level since 2011. Both current conditions and expectations improved. IFO said “After making a cautious start to the year, the German economy is back on track.”
  6. French confidence was unchanged at 104 in February as expected. That’s 1 pt though from matching its highest level since 2011.
  7. Italian economic sentiment in February rose .7 pts to 104 which is the best level since December 2015. Manufacturing and retailer confidence drove the gain.
  8. UK CBI industrial orders index in February rose to 8 from 5 and above the estimate of 4. It’s the highest level since February 2015 helped by the weaker pound but came with continued price pressures as ‘selling prices’ rose to the most since April 2011 to 32, up 31 pts since Brexit.
  9. Japan’s manufacturing PMI for February improved to 53.5 from 52.7. That’s the most confident since March 2014.
  10. This could easily have gone into the Negative side. In the midst of a property bubble, 66 of 70 Chinese cities saw y/o/y price gains for new apartments in January vs 65 in December. For existing apartments, price gains were seen in 61 cities, the same as in December. On a m/o/m basis, the trend looks different as price gains were seen in just 45 cities for new homes, a lesser amount for the 5th month. For existing apartments, price gains were seen in 51 cities m/o/m vs 45 in December.
  11. With room to move because of falling inflation, the Selic rate in Brazil was lowered by 75 bps to 12.25%. It would certainly be nice for the largest economy in South America to start growing again.

 

Negatives

  1. Initial jobless claims totaled 244k, 4k more than expected and up from 238k last week. As a 260k print fell out of the 4 week average, it fell to 241k, the lowest since 1973 from 245k. Continuing claims, delayed by a week fell by 17k.
  2. Mortgage applications to buy a home fell 2.8% w/o/w to the lowest level since mid November and thus giving back all of the post election bump higher with higher mortgage rates the likely factor. They still though are up 9.5% y/o/y. Refi’s fell 1% w/o/w and are lower by 40% y/o/y.
  3. January new home sales totaled 555k annualized, 16k below the forecast but up from 535k in December. Since mortgage rates started jumping in November, new home sales have definitely been impacted. October sales totaled 571k and November sales was the recent peak at 598k as there was likely a rush to lock in rates post election. Months’ supply held at 5.7 months, not far from historical average of around 6. Home prices jumped by 7.5% y/o/y.
  4. Markit’s February US manufacturing and services composite index fell to 54.3 from 55.8 in January. This index is now back below the pre election October level of 54.9 with manufacturing slightly above and services now below. Manufacturing dipped by .7 pts to 54.3 while services were down by 1.7 pts to 53.9. Markit said the “latest survey data indicated that business optimism moderated among US private sector firms in February, driven by weaker confidence across the service economy. Measured overall, survey respondents were the least upbeat about the growth outlook since September 2016.” With services, new orders fell to a 5 month low as “some service providers commented on a greater degree of caution in terms of client spending.” Job growth also slowed to a 3 month low. With manufacturing, “softer output and new order growth were the main factors” for the m/o/m drop. Prices paid rose at the fastest clip since September 2014 due to the rise in “a range of raw materials.” Prices received though fell to a 3 month low “suggesting a continued squeeze on operating margins.”
  5. The Eurozone CPI for January was left un-revised with a 1.8% y/o/y headline gain, up from 1.1% in December and .6% in November. Quite a rapid move due to energy prices. The core rate though was more stable with a .9% y/o/y gain, unchanged with December and vs .8% in November.
  6. German PPI in January rose .7% m/o/m, well above the estimate of up .3% and brings the y/o/y gain to 2.4% from 1% in December. This is the fastest pace of gain since March 2012 and yes energy is the main culprit but PPI ex energy was still up a sharp .6% m/o/m and 1.8% y/o/y.
  7. Japanese exports rose just 1.3% y/o/y in January, below the estimate of up 5%. Actual trade volume fell .3% due to declines to the US and EU. Imports were more positive as they rose 8.5% y/o/y with merchandise volumes up by 6.2% with a sharp import gain from the US.