The Boock Report

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Succinct Summation of the Week’s Events – 2/23/18

Positives

  1. Initial jobless claims totaled 222k, 8k less than expected and down from 229k last week. The 4 week average fell to 226k from 228k and that is just off the lowest since 1973. Continuing claims, delayed by a week, fell by 73k to also near the lowest since the early 1970’s.
  2. The Markit US manufacturing and services index for February did improve by 2.1 pts to 55.9 off the lowest level since May 2017 and now matches the best level since May 2015. Almost all of the improvement was seen in the services component which was up 2.6 pts while manufacturing was higher by a more modest .4 pt. Within services, “Input costs meanwhile increased sharply in February, with the latest rise the strongest for around four-and-a-half years. Average prices charged by service sector firms increased at the fastest pace since September 2014.” As for inflation pressures in manufacturing, “there were signs of stretched supply chains, with delivery times from vendors lengthening for the fourteenth month running. Greater demand for inputs and rising commodity prices contributed to a sharp rise in average cost burdens across the sector. The latest increase in manufacturing input prices was the fastest since December 2012. Efforts to alleviate pressure on operating margins led to the steepest rate of factory gate price inflation for just over four years in February.”
  3. The positive within the UK labor market data for the 3 months ended December was a pick up in wage growth to 2.5% y/o/y ex bonus’ from 2.3% in the month prior and with CPI running at 3%. Also, jobless claims in January did fall for the first time since August.
  4. The KC regional manufacturing index in February rose 1 pt to a 4 month high.

 

Negatives

  1. Notwithstanding near decade highs in yields, the US Treasury had a challenge in selling 2s, 5s, and 7 year paper. Supply will certainly be abundant in 2018.
  2. On its path to 2%, US 3 month LIBOR rose another 4 bps on the week to 1.92%. It was at .26% 3 years ago.
  3. With another rise in the average 30 yr mortgage rate to 4.64%, the highest in 4 years, the MBA said mortgage applications fell for a 2nd week. Purchases were down by 6.2% w/o/w after a similar fall last week and they are now down for the 3rd week in the past 4. While still up 3.4% y/o/y, that rate of gain is shrinking and the absolute level of the index is at the lowest figure since September. Refi’s fell 7.1% w/o/w and are now down 3.6% y/o/y. They are 4% from the smallest number of refi’s in 10 years.
  4. January existing home sales totaled 5.38mm, 220k below expectations and down from 5.56mm in December. That is the 2nd lowest print since August 2016. The 3 month average is 5.55mm vs the 6 month average of 5.49mm and the 2017 average of 5.54mm. The number of homes for sale did increase and months’ supply rose to 3.4 from 3.2 even with the drop in sales. On trend, the median home price rose 5.8% y/o/y. First time buyers made up 29% of purchases, down from 32% in December and vs 33% in January 2017. These figures captured activity BEFORE the recent rise in mortgage rates. The NAR said buyer demand was good but “It’s very clear that too many markets right now are becoming less affordable and desperately need more new listings to calm the speedy price growth.”
  5. The German IFO fell to 115.4 from 117.6. The estimate was 117. Last month though was the highest on record since reunification. Both Expectations and the Current Assessment components fell. The Germany IFO said simply, “After the euphoria of recent months, companies’ assessments of the business outlook for the months ahead were also far less optimistic.”
  6. French business confidence in February fell 2 pts m/o/m to 109 and that was 1 pt below the forecast. This however is still near the highest level since 2011.
  7. We saw a moderation in the manufacturing and services composite index from Markit for the Eurozone with both components lower. The index fell to 57.5 from 58.8 which was a 12 year high with declines seen for both Germany and France. On inflation which I keep harping on, things moderated a touch. “Price pressures meanwhile remained elevated, in part because stronger demand has enabled more firms to raise their selling prices. However, some comfort can be gleaned from a slight easing in the overall rate of inflation compared to January’s recent high.”
  8. In the UK, job growth in the 3 months ended December missed expectations. They were higher by 88k vs the estimate of 165k and the unemployment rate rose one tenth to 4.4% off the lowest level since the 1970’s.
  9. The UK CBI industrial orders figure did fall 4 pts to 10 but that was about in line with the forecast of 11. It’s at a 4 month low and noteworthy was the 15 pt drop in Selling Prices but I need to emphasize, off the highest level since 1984. CBI highlighted the mixed situation with the UK economy. “Demand in the manufacturing sector should continue to be buoyed by the lower pound and buoyant global economy. But we expect consumer facing companies and retailers to continue to struggle while consumer incomes remain under pressure from higher inflation.”
  10. Germany said its PPI rose .5% m/o/m, almost twice the estimate of up .3% while the y/o/y rate was up by 2.1%. It marks the 13th straight month of a print north of 2%.
  11. index fell to 17.8 from 20.4 but was a bit above the estimate of 16. The Current Situation also fell m/o/m and was below the forecast. ZEW said “Economic growth in Germany is substantially driven by the very good development of both the global economy and private consumption. Inflation expectations for Germany and the Eurozone have also started to increase.”
  12. Japan’s manufacturing PMI fell to 54 from 54.8. Output and new orders slowed to a pace last seen in October. The stronger yen also hit export orders. Positively, the employment component rose to the best in 11 years. As for the price pressures that even the Japanese have been seeing, the rise in the yen helped to moderate both input and output charges.
  13. January headline CPI in Japan rose 1.4% y/o/y, one tenth more than expected and up from 1% in December. That is the quickest since the VAT induced spike in 2014 and 2015. Prior to this, it is the biggest rise since 2008. Stripping out energy, prices rose by .9% y/o/y, also one tenth above the estimate but unchanged with the month prior. Taking out both food and energy saw prices up .4% y/o/y, one tenth above the forecast and up one tenth from the month prior. That core/core rise is the most since July 2016.
  14. CPI in Canada in January rose .7% m/o/m and 1.7% y/o/y, both 2 tenths more than expected.