Positives
1)All 50 states have at least something reopened, even NJ and NY.
2)This is still a really poor number but better than what was seen in April (anything is). The May Markit manufacturing and services PMI bounced to 36.4 from 27 with most of the gain coming from the services sector which rose to 36.9 from 26.7. Manufacturing improved by 3.7 pts to 39.8. “Encouragement comes from the survey indicating that the rate of economic collapse seems to have peaked in April. In the absense of a 2nd wave of COVID-19 infections, the decline should moderate further in coming months as measures taken to contain the virus are steadily lifted.” The caveat: “However, the sheer scale of the current downturn and associated job losses, and the fact that some restrictions will need to stay in place until an effective treatment or vaccine are found, highlights how a full recovery is unlikely to be swift.”
3)Thanks to low rates and maybe the greater desire for suburban living, purchase applications to buy a home rose 6.4% w/o/w and is now down just 1.5% y/o/y. This is the 5th straight week of gains.
4)The May NAHB home builder sentiment index improved by 7 pts m/o/m to 37 and that was 2 pts above the estimate but still about half the 72 print in March. Present Conditions rose 6 pts to 42 from April and compares with 79 in March. Future Expectations were up by 10 pts m/o/m to 46 and compares with 75 in March. Prospective Buyers Traffic rose to 21 from 13 and vs 56 in the month prior. The NAHB said “The fact that most states classified housing as an essential business during this crisis helped to keep many residential construction workers on the job, and this is reflected in our latest builder survey.” Also, “Low interest rates are helping to sustain demand.” The caveat to all of this though: “high unemployment and supply side challenges including builder loan access and building material availability are near term limiting factors.”
5)Existing home sales in April totaled 4.33mm, better than the estimate of 4.22mm but down from 5.27mm in March. Assume many of these closings were of contracts signed in the December thru March time frame and some closings were delayed at the end of March. First time buyers made up 36% of purchases, the most in years, as investors and all cash buyers stepped away from the market.
6)China finally got rid of its silly GDP targeting regime.
7)We’ll see if this helps but the BoJ is giving away free money and then paying banks to make a loan.
8)As the world reopens, investor expectations in the German economy improved more than expected. The May ZEW rose to 51 from 28.2 and that was well better than the estimate of 30. The Current Situation though weakened further to -93.5 from -91.5. The ZEW said “Optimism is growing that there will be an economic turnaround from summer onwards…However, the catching up process will take a long time.”
9)The UK manufacturing and services composite index rebounded to 28.9 from 13.8 with manufacturing back above 40 and the services component going to 27.8 from 13.4. The estimate was 25.7. “An improvement in business confidence about the year ahead for a 2nd successive month is welcome news, and the easing of restrictions in coming months should help boost activity in some sectors as we head into the summer. However, the UK looks set to see a frustratingly slow recovery, given the likely slower pace of opening up the economy relative to other countries which have seen fewer COVID-19 cases.”
10)In the Eurozone, the services component for May jumped to 28.7 from a truly awful 12 print in April. The manufacturing side rose to 39.5 from 33.4. Markit said “All eurozone countries eased their COVID-19 containment measures to some extent in May, helping to moderate the overall rate of economic decline.” What comes next though is the worry, “An additional concern is that demand is likely to remain extremely weak for a prolonged period, putting further pressure on companies to make more aggressive job cuts as government job retention schemes expire.”
Negatives
1)Initial jobless claims totaled 2.44mm, a bit above the estimate of 2.4mm but down from 2.688mm last week (revised from 2.98mm). It’s the 7th week in a row of moderation, although remains alarming high. Reflecting this concern is the 25mm of continuing claims.
2)The May Philly manufacturing index was -43.1, slightly better than the -56.6 seen in April but a touch below the estimate of -40. The key internals improved from April but remained below zero. Hopes though that things will get better was apparent in the 6 month outlook which rose to 49.7 from 43. Capital spending plans also improved a touch.
3)Refi applications fell another 6.3% w/o/w and I think are still getting caught up in the growing forbearance challenges. They do though remain up by 160%.
4)Housing starts in April totaled 891k, about as expected but due to the obvious that is a moderation from the 1.28mm pace in March. Underneath the hood, single family starts slowed to 650k from 871k in March and over 1mm in February. Multi family starts totaled just 241k vs 405k in March and 533k in February. Looking forward, single permits totaled 669k vs 884k in March while multi family came in at 405k vs 472k in March.
5)The Fed’s growing focus as seen in the recently issued minutes on forward guidance and possibly yield curve control, if implemented, I believe will be completely counter productive.
6)China’s interference into Hong Kong goes to another dangerous level for the city.
7)The Australia May manufacturing and services composite index rose to 26.4 from 21.7 but with all of the improvement coming from just services while manufacturing slipped.
8)The same was seen in Japan as services rose but manufacturing fell with the overall composite index up to 27.4 from 25.8.
9)In the UK, April jobless claims spiked to a total of 856.5k from 5.4k in March.
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.