Positives
1) A story with no detail and no comments but “two people familiar with the matter said” that China has plans to cut sometime next month the average tariff rate that it puts on many of its imports.
2) Initial jobless claims totaled 201k, 9k less than expected and down from 204k last week. This brings the 4 week average down to 206k from 208k last week. November 1969 was the last time it was lower.
3) After falling from 25.7 to 11.9 last month, the September Philly manufacturing index rebounded to 22.9. The 6 month business outlook fell 2.5 pts but after jumping by 10 last month. Capital spending plans fell slightly but to a 4 month low. The Philly Fed summed up the report by saying “Responses to the Manufacturing Business Outlook Survey indicated continued growth for the region’s manufacturing sector in September. The survey’s broad current indicators increased from their readings last month. Looking ahead six months, the firms remain optimistic, although most future indicators moderated somewhat from their readings in August.”
4) After selling a net $48.6b of US notes and bonds in June, the largest amount since October 2016, foreigners stepped back in with net purchases of $18.9b in July. This brings the year to date purchases to $39b thanks solely to a big month of buying in February which compares to full year buying in 2017 of $20b. For the 4th month in the past 5 China was a net seller of longer term Treasuries and has taken their total holdings to the least since January. Japan continued their selling but did so only modestly in July and it was offset by the buying of bills. Their holdings stand just off the lowest amount in 7 years.
5) The NAHB September home builder sentiment index held at 67, 1 pt better than expected. It remains though the lowest print since September 2017 but is still at an elevated level. Current conditions rose 1 pt m/o/m after falling by 1 pt last month. The outlook was up by 2 pts. Prospective Buyers Traffic was unchanged at 49, matching the lowest since October. Regionally, it was a sharp rise in the Northeast that accounted for all the enthusiasm m/o/m in the headline number as the other three regions were flat to down slightly. The Chairman of the NAHB said “Despite rising affordability concerns, builders continue to report firm demand for housing, especially as millennials and other newcomers enter the market. The recent decline in lumber prices from record high levels earlier this summer is also welcome relief, although builders still need to manage construction costs to keep homes competitively priced.” But, “housing affordability is becoming a challenge, as builders face overly burdensome regulations and rising material costs exacerbated by an escalating trade skirmish. Interest rates are also forecasted to keep rising.”
6) August housing starts totaled 1.282mm, about 40k more than expected and to a 3 month high.
7) Even with or because of (people rush to act) a 7 ½ year high in mortgage rates, the MBA said mortgage rates rose w/o/w. Purchase apps were up a touch, by .3% and 4.3% y/o/y. Refi’s rose off its 18 yr low by 3.7% but remain down 19% y/o/y.
8) The BoJ seems to be on the continued path to tapering their QE purchases of JGB. After breaking that market, hopefully it can restore itself over time.
9) Japan also reported its August CPI data and the key components were as expected. Their core rate (just ex food) was higher by .9% vs .8% in July and that is the quickest since February. The core/core rate (ex food and energy) was higher by just .4% but that matches the most since March.
10) The Japanese September manufacturing PMI rose to 52.9 from 52.5. The year to date average is 53.3. Markit said this on inflation, “Input cost inflation accelerates at fastest pace since March 2011.” They also said “Geopolitical tensions weigh on sentiment, with future output index dipping further.” Positively, there was “the first rise in export sales since May amid ongoing global trade frictions.”
11) Japanese exports rose by 6.6% y/o/y in August, above the forecast of 5.2%. Imports also beat the estimates. It’s impossible to know what’s been front loaded and what’s organic with all the tariff issues going on.
12) UK retail sales ex auto fuel rose .3% m/o/m in August, better than the estimate of down .2%. The ONS said sales were helped by household goods like electrical appliances and furniture.
13) As expected, the Norwegian central bank joined the rate hike club with a 25 bps raise to .75%. It is their first interest rate increase since 2011 and they will likely do so again in Q1 2019.
Negatives
1) Another $200b of tariffs on China, another $60b on us.
2) UK PM in a press conference said they are at an impasse on two very important issues with the EU. She said “at this late stage in the negotiations it’s not acceptable to simply reject the other side’s proposals without a detailed explanation and counter proposals.” The pound fell sharply in response.
3) The US Markit September manufacturing and services composite index fell to 53.4 from 54.7 and that is the weakest since April 2017. The components though were mixed. Manufacturing rebounded by .9 pts off the lowest level since November but the service component (about 80% of the US economy) was down by 1.9 pts to the lowest since March 2017. Markit did say however that “anecdotal evidence suggested that some of the slowdown in overall output growth reflected company shutdowns on the east coast ahead of hurricane Florence.” On inflation, “Average prices charged by private sector firms increased at the sharpest rate seen in the 9 yr survey history. Service providers signaled a particularly steep rise in output charges in September, which they commonly attributed to the pass through of higher labor costs and increased prices for inputs sourced from abroad. Manufacturers widely noted that trade tariffs had led to higher prices for metals and encouraged the forward purchasing of materials. Some firms commented that higher demand and resilient order books had helped them to offset squeezed margins by pushing up output charges.” As for the outlook on business, “Future expectations meanwhile fell to the lowest so far in 2018, and the 2nd lowest in over two years, as optimism deteriorated in both the manufacturing and service sectors.” The positive within the data was on hiring and with new orders “which survey respondents attributed to resilient demand conditions across the wider US economy.”
4) Existing home sales in August totaled 5.34mm annualized, 30k less than expected and that level is unchanged from July which was the slowest since February 2016. Home prices rose 4.6% and is below 5% for the 3rd straight month which I believe is a welcome retreat for would be home buyers. Months’ supply was unchanged at 4.3. Those first time buyers made up 31% of total purchases which is about in line with trend but still well below historical trends. On this last point the NAR said “Rising interest rates with high home prices and lack of inventory continues to push entry level and first time home buyers out of the market. Realtors continue to report that the demand is there, that current renters want to become homeowners, but there simply are not enough properties available in their price range.”
5) The NY manufacturing index fell 6.6 pts m/o/m to 19, 4 pts less than expected. That is a 5 month low. Looking ahead, the 6 month business activity outlook moderated by 4.5 pts to a 5 month low at 30.3. Expectations also fell for new orders, backlogs, shipments, inventories, and employment. Expectations for prices paid rose to the highest level since May 2012. The outlook for prices received rose to a 5 month high. With respect to capital spending plans, they fell by 7.2 pts m/o/m to 19.5, the 2nd lowest print since August 2017. Expectations for tech spending was down by 2 pts to 10.6, the 2nd lowest since last November.
6) Permits, a precursor to starts, in the August housing start data fall to the lowest level since May 2017. Single family permits drop to weakest since August 2017.
7) The BoJ seems to be on the continued path to tapering their QE purchases of JGB. The excess this time around was in bonds/rates and air has begun to leak. Can central banks in their entirety really pull off the end of QE without incident? We’ll soon see in Q4 when the flow slows to zero among the big three.
8) The European manufacturing and services composite index for September moderated to 54.2 from 54.5. No change was expected. The decline in manufacturing offset a slight rise in services. Markit bottom lined the report by saying “Trade wars, Brexit, waning global demand (notably in the auto industry), growing risk aversion, destocking and rising political uncertainty both within the Eurozone and further afield all fueled the slowdown in business activity.” They did emphasize that this disappointing commentary was limited to manufacturing as the service sector continued to benefit from domestic demand.
9) The UK CPI in August rose 2.4% y/o/y, two tenths more than expected and the core rate jumped by 2.7%, 3 tenths above the forecast. PPI slowed but was still up 8.7% y/o/y.
10) The Swiss National Bank remains trapped at -.75% with its policy as they left things unchanged.
11) Indonesia said exports rose 4.2% y/o/y in August, well less than the estimate of up 10% notwithstanding the plunge in the rupiah. Imports were strong, up 25% but some of that was front loading ahead of import tariffs implemented in order to lower their trade deficit to stem the decline in their currency.
12) I spoke too soon on the Jets last week.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.