note: I will on vacation next week. Have a great last week of the Summer and I’ll see you here afterwards.
Positives:
- Core capital spending orders, defined as non defense capital goods ex aircraft, rebounded in July. They rose 1.6% m/o/m, well more than expectations of up .2% but they still remain deep in contraction on a y/o/y basis, by 7.1%.
- Initial jobless claims totaled 261k, down 1k from last week and 4k less than expected. The 4 week average fell 1k to 264k. After touching its highest level since April last week (the data is also delayed by a week), continuing claims fell by 30k.
- New home sales in July totaled 654k, well above the estimate of 580k and up from 582k in June. This is the best pace of sales in this recovery and was mostly driven by a 61k home sale increase in the South. With the rise in sales, months’ supply fell to 4.3 from 4.9, the lowest since 2013.
- In the first look at trade in US goods in July, exports did pick up 2.4% m/o/m but it was mostly due to an uptick in food and beverage. Capital and consumer goods exports both fell and goods exports overall are down 3.3% y/o/y.
- While wholesale inventories were flat in July m/o/m and June revised down one tenth, the inventory to sales ratio to 1.33 from 1.35. That’s the lowest since October.
- The BoJ is very disappointed but the Japanese is consumer is not that consumer prices ex food and energy slowed to .3% y/o/y from .5% in June and vs the estimate of up .4%. Looking ahead, Tokyo CPI ex food and energy for August slowed to just .1% y/o/y, two tenths below the forecast.
- While below 50 for the 6th straight month, Japan’s manufacturing PMI in August rose to 49.6 from 49.3.
- The eurozone manufacturing and services composite index rose a hair to 53.3 in August from 53.2 with France actually strengthening helping to offset moderation in Germany.
- The ECB said lending to eurozone companies grew by 1.9% in July y/o/y vs 1.7% in June. Loan growth to households held at a 1.8% y/o/y rate. Money supply growth did slow to 4.8% from 5% in June. The estimate was 4.9%.
- The Confederation of British Industry’s retail sales index for August gained 23 pts to +9. This was well better than the estimate of zero but it also follows an 18 pt drop in July after the initial reaction to Brexit was apparent.
- UK CBI August industrial orders index fell 1 pt to -5 but that was 5 pts better than expected.
- In what should be an inspiration to us all as we age, Bruce Springsteen, who is approaching his 67th birthday next month, performed his longest ever US concert last night at 3 hrs and 59 minutes which I was fortunate enough to have attended with my son. “Someday girl I don’t know when we’re gonna get to that place where we really wanna go and we’ll walk in the sun. But till then tramps like us baby we were Born to Run.”
Negatives:
- While the Fed is clearly leaning us more to a rate hike, we now have another 4 weeks to look forward to wasting our time discussing what the Fed will do in September. Rate hike odds for September after the Yellen speech are at 30% vs 24% on Monday and at 58% by year end vs 48% on Monday. With the 2 yr yield at near a 3 month high, the 2s/10s spread is narrowing again by 8 bps on the week to the smallest spread since November 2007 at 75 bps so that says a lot about US growth if they hike. Either way with short rates, US LIBOR has already tightened policy further and the 3 month rate was up another 1 bp on the week to .83%. As for monetary policy generally, Janet Yellen said “my primary message today is that I expect monetary policy will continue to play a vital part in promoting a stable and healthy economy.” That is the fiction she still believes in. The reality is that monetary policy has left the US economy with major financial instability, asset price bubbles, service inflation, starved retirements and massive debt. I use the last 20 years as evidence. Also, that Yellen and other Fed members are saying they’ll use QE again is an implicit admission that the previous one’s have failed. The US economy expands over time in spite of the Fed, not because of it. Sorry for another rant.
- Markit’s US services index for August fell to 50.9 from 51.4. That is the weakest print since February and for perspective, the average last year was 55.9. Markit said “Survey respondents generally cited subdued underlying demand conditions and uncertainty ahead of the presidential election as factors that had dampened growth in August.”
- The Markit US manufacturing index for August fell to 52.1 from 52.9 in July. The estimate was 52.6 and the average year to date is now 51.6.
- The Richmond manufacturing index for August fell a sharp 21 pts to -11.0. The estimate was +6.0. This is the worst number since January 2013. The positive was that the six month outlook was much better than the current conditions.
- Weekly mortgage applications to buy a home fell for the 5th week in the past 6 but the decline this week was small at just .3%. Either way, the index is at the lowest level since February. The index is still up 7.7% y/o/y. Applications to refi was lower by 3.2%, also down in the 5th week in the past 6 but they are still up about 45% y/o/y.
- Existing home sales in July totaled 5.39mm annualized. That is a miss relative to expectations of 5.51mm and down from 5.57mm in June. It’s the lowest since March. Months’ supply rose to 4.7 from 4.5 which matches the most since November. The median home price rose 5.3% which is similar to the Case/Shiller figures. After jumping three tenths in June to 33%, the percentage of first time buyers ticked down by a tenth to 32%. The NAR said “Severely restrained inventory and the tightening grip it’s putting on affordability is the primary culprit for the considerable sales slump throughout much of the country last month.”
- The final UoM consumer confidence index for August fell to 89.8 from the preliminary print of 90.4 and down from 90 in July. It’s at a 4 month low and was one point less than expected. One year inflation expectations held at 2.5% with the initial read but that is down two tenths from July.
- Here are some quotes on the US consumer this week: Dollar General blamed comps falling below expectations on the “challenging sales environment…retail food deflation and a reduction in both SNAP (food stamps) participation rates and benefit levels, coupled with unseasonably mild spring weather, proved to be stronger than expected headwinds to our business. The competitive environment also intensified in select regions of the country.” Williams Sonoma said: “…the overall retail environment has softened and we are being impacted by a more cautious consumer.” Signet said: “…market conditions have been challenging particularly in the energy dependent regions.” Tiffany said: “The global environment continues to reflect well known challenges that we believe have had broad effects on spending by local customers, as well as foreign tourists, especially from China.”
- US Q2 GDP was revised down to a gain of 1.1% as expected from the first release at 1.2%. Spending was revised up but exports, inventories and government spending were revised lower. Corporate profits fell 4.9% y/o/y, the 5th month in a row of declines. As we expect profit margins to continue to fall as labor gets more of the profit pie, we expect this profit trend to continue.
- German IFO business confidence index for August did slip more than expected to a six month low. The index fell to 106.2 instead of rising to 108.5 as expected from 106.2 in July. Both the current conditions and expectations components were down m/o/m. IFO said “The German economy has fallen into a summer slump.”
- French business confidence also fell m/o/m. The index was down 1 pt to 101 which is exactly in line with the 12 month average. Manufacturing confidence though within the headline index did fall to the lowest March 2015. Services and construction were steady.
- Swedish manufacturing confidence index fell to the lowest level since April 2015, dropping for the 7th straight month and by 5.2 pts in August.
- Trade data out of Hong Kong for July was soft. Exports fell 5.1% y/o/y which was more than twice expectations of a decline of 2.1%. While China said its July imports from Hong Kong rose a miraculous 123% y/o/y, Hong Kong said its exports to China were down by 6.4%. Exports also fell to the US and to Germany. Imports fell 3.3% y/o/y vs the estimate of a decline of 1.5%.