Positives
1)While still very high, initial jobless totaled 1.54mm, about in line with the estimate of 1.55mm and down from a revised 1.9mm last week (up 20k from the initial). This is the 10th week in a row of moderation since the print in late March of almost 6.9mm. While these numbers have fallen they still remain high and continuing claims only fell by 339k to 20.9mm.
2)While up another $3.7b on the week to a new high of $7.17 Trillion, the Fed’s balance sheet saw the slowest pace since it ramped in size in early March.
3)The preliminary June UoM consumer confidence rose to 78.9 from 72.3 in May and that was above the estimate of 75. This data point was 89.1 in March and 101 in February and bottomed at 71.8 in April. Both Current Conditions and the Expectations components were higher m/o/m. After jumping to 3.2% in May mostly due to the spike in food prices from 2.1% in April, one year inflation expectations slipped a touch to 3%. The employment component jumped by 19 pts m/o/m which buoyed the headline figure but Income expectations did slip to just 4. Spending intentions did improve with the better mood. The caveat to the headline improvement was this from the UoM: “despite the expected economic gains, few consumers anticipate the reestablishment of favorable economic conditions anytime soon. Bad times financially in the economy as a whole during the year ahead were still expected by two-thirds of all consumers, and a renewed downturn was anticipated by nearly half over the longer term. The most often cited cause of a renewed downturn is a resurgence in the spread of the coronavirus, and the most often cited cause of a slow economic recovery is the financial damage from persistently high unemployment.”
4)Producer prices in May rose .4% m/o/m after a 1.3% decline in April. The estimate was up .1%. The core rate fell .1% m/o/m as expected and if you also take out trade, it was up .1% after a .9% drop in April. On a y/o/y basis, headline prices fell .8% while the core rate was higher by .3%. The headline gain was driven by a 6% m/o/m jump in food prices (40% spike in meat prices) and 4.5% rebound in energy (after sharp declines in prior 3 months). Services prices fell for the 3rd month in the past 4.
5)Both headline and core CPI in May fell .1% m/o/m vs the estimate of no change. Versus last year headline CPI is up just .1% while the core rate is higher by 1.2%. The sharp drop in energy prices offset another jump in food prices. Energy prices are down by 19% y/o/y while food prices are now up 4% y/o/y with higher supermarket bills being the main reason. Services inflation ex energy moderated as prices were unchanged after a .4% rise in the month prior. Prices are still up 2% y/o/y but that is a slowdown from the persistent 2.5-3% annual gains we’ve seen for years. Goods prices ex energy and food saw a .2% m/o/m drop, lower for a 3rd month and down by 1% y/o/y.
6)Purchase applications rose 5.3% w/o/w and are higher 12.7% y/o/y. Refi’s finally bounced after a month of declines. They rose 11.4% w/o/w and are up 80% y/o/y.
7)The May NFIB small business optimism index rose to 94.4 from 90.9 in April and vs 96.4 in March and 104.5 in February. Just by reopening the economy again has the internals improving m/o/m. Bill Dunkelberg at the NFIB said “As states begin to reopen, small businesses continue to navigate the economic landscape rocked by Covid 19 and new government policies. It’s still uncertain when consumers will feel comfortable returning to small businesses and begin spending again, but owners are taking the necessary precautions to reopen safety.”
8)China said aggregate financing in May totaled 3.19 Trillion yuan, a touch above the estimate of 3.1 Trillion with bank loans making up 1.48 Trillion of this, below the forecast of 1.6 Trillion. The May figure compares with 3.09 Trillion in April. Money supply growth, as measured by M2, rose 11.1% y/o/y, in line with the pace of April and the quickest pace since late 2016.
9)Chinese exports fell 3.3% y/o/y, about half the estimate of a decline of 6.5%. Helping exports was a pick up in the sale of medical supplies such as masks offset by still soft overseas demand. Imports though dropped by 16.7%, well more than the forecast of down 7.9%. That was partly weighed down by the drop in the price of oil which we know China is a large importer of.
10)China’s auto sales rose 14.5% y/o/y in May after rising in April for the 1st time in 21 months.
11)Taiwan, the tech export powerhouse, saw its May exports fall 2% y/o/y, not as weak as the estimate of down 4.2%. As China has reopened, that helped exports rise by 10.6% to them. Exports also picked up to the US by 9.3% y/o/y. Imports though fell 3.5% vs the forecast of a rise of 2.1%. That import number was also weighed down by the price of oil.
Negatives
1)Jay Powell basically claimed this week that outside of negative rates, the Fed’s monetary policy will remain the same as that of the ECB, BoJ and BoE to name a few. All repeating actions that have not proven at all to improve economic activity and which damages it instead via hurting the profitability of the financial businesses, creating zombie companies and impeding the discovery of market prices. It instead just layers on more debt onto an already indebted world and inflates asset price bubbles. What helps the economy at this point is simply reopening it and containing the virus, whether thru drugs or wearing a mask.
2)Case counts are increasing in some states but I have to believe it’s because mask wearing is not being followed much.
3)Import prices in May jumped by 1% m/o/m, almost twice the estimate of up .6% but after sharp declines in the two prior months. Prices ex petro was higher by .1%, 3 tenths more than expected.
4)Good for the Hertz bondholders if the company can pull off selling stock to Robinhood investors, but not a good sign for anyone looking for logic in markets. I know, many times that’s an oxymoron.
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.