Positives
1)While the Fed continues to drag its feet with cutting back on buying bonds, it finally does seem that it will begin in December.
2)The Norges Bank in Norway hiked rates off zero by 25 bps.
3)The Bank of England expressed concern with inflation and a rate hike is possible in Q1 2022 after QE ends in December.
4)Those filing for PUA fell again to just 15k vs 23k last week and 94k in the week prior. Delayed by two weeks, continuing PUA fell by 591k to just above a Covid low. Those continuing to file for emergency benefits fell by 161k to the lowest since January.
5)Contract signings to buy a new home in August totaled 740k annualized. That is 25k above expectations and July was revised up by 21k to 729k. Smoothing out this volatile series has the 3 month average at 718k, the 6 month average at 759k and 12 month average of 843k. Months’ supply was 6.1 vs 6 in July and 6.1 in June. This happens to be around the 20 yr average of 5.9. The median price was $390,900, up a robust 20.1% y/o/y and at a record high in part due to mix and lack of inventory. On the mix side, home sales went up for those priced above $500k but fell for those under.
6)Existing home sales in August came in at 5.88mm as expected and vs 6mm in July which was revised up a hair. The average year to date is 6.04mm. Months’ supply remained unchanged at a still very lean 2.6 months vs the historical average of around 6. The median home price rose by 14.9% which is the 3rd month of moderation but mostly because the comps get tougher. And thanks to that, the 1st time home buyer made up only 29% of purchases. That matches the lowest I’ve seen with January 2019 the last time we got there. It was 33% one year ago. The NAR said “potential buyers are out and about searching, but much more measured about their financial limits, and simply waiting for more inventory…High home prices make for an unbalanced market.”
7)Housing starts in August totaled 1.62mm, above the estimate of 1.55mm and up from 1.53mm in July. It was all multi family though as starts here rose to 539k from 447k and that is the most since January 2020. Single family starts fell to 1.076mm to a 4 month low. The permit rise was also driven by multi family with an almost 100k m/o/m increase to 674k. Single family permits were little changed at 1.054mm vs 1.048mm in July and 1.066mm in June.
8)The September NAHB home builder sentiment index rose 1 pt m/o/m to 76 and that was 2 pts better than expected. Looking at the components, the Present Situation was up 1 pt to 82 while Future Expectations were unchanged at 81. Prospective Buyers Traffic was up 2 pts but after falling by 6 last month. The NAHB said “The September show stability as some building material cost challenges ease, particularly for softwood lumber. However, delivery times remain extended and the chronic construction labor shortage is expected to persist as the overall labor market recovers.” As for the demand side for new homes, the “NAHB expects housing affordability will be a key demand side challenge in the coming quarters, given the rapid rate of growth for home prices and construction costs over the last year.”
9)US mortgage apps were up 5% w/o/w as the average 30 yr mortgage rate held at 3.03% for the 4th straight week. Purchases gained 2.2% after last week’s 7.5% increase but they are still down 13% on tough comps. Refi’s broke a 3 week losing streak with a 6.5% rise but are down 5.3% y/o/y also on challenging comps.
10)Japan said its September PMI rose 2.2 pts m/o/m but remains below 50 at 47.7. The service sector rebounded to 47.4 from 42.9 as the vaccination rate accelerates while manufacturing is still above 50 but 1.5 pts less so at 51.2. Also, Markit said “Private sector firms reported intensifying price pressures. Input prices across the private sector rose at the fastest pace for 13 years, with businesses attributing the rise to higher raw material, freight and staff costs amid supply shortages.” Corporate Japan is hopeful though. “Japanese private sector companies were optimistic that business conditions would improve in the year ahead, with the degree of optimism greater than in August. Positive sentiment stemmed from expectations that the impact of the pandemic will diminish following the acceleration of the vaccination program, triggering a recovery in demand in both domestic and external markets.”
11)The Australia September manufacturing and services PMI rose to 46 from 43.3 with continued strength in manufacturing (57.3 vs 52) offset by the Covid restriction damaged service sector (44.9 vs 42.9). With “slight easing of restrictions”, hopefully the service sector has seen its low. As for inflation, “price pressures intensified once again for Australian private sector firms while evidence of worsening supply constraints gathered, all of which remains a focal point for the Australian economy.”
12)The September UK CBI industrial orders index rose 4 pts m/o/m to 22 and that was 6 pts better than anticipated. But, delivering product still ain’t easy. The CBI said “Today’s survey highlights how amidst a variety of supply challenges, companies are beginning to struggle to meet high demand. Despite close to half of manufacturers surveyed reporting order books above normal, output growth has slowed sharply, albeit remaining relatively robust. As well as skill and labor shortages, sharply increasing material costs and shortages of key components, producers now face rocketing energy prices.”
13)French business confidence in September rose 1 pt m/o/m vs the estimate of no change. The components though were mixed as manufacturing fell because of all the supply issues, and retail and employment fell as well. The services component rose 1 pt after falling by 2 last month.
Negatives
1)I’ll print this again from Costco because it’s such a comprehensive look at the cost pressures being felt. “inflationary factors abound: higher labor costs, higher freight costs, higher transportation demand, along with container shortages and port delays, increased demand in certain product categories, various shortages of everything from computer chips to oils and chemicals, higher commodities prices. It’s a lot of fun right now. Some inflationary soundbites, if you will. Price increases on items shipped across the oceans, some suppliers or us paying to six times for containers and shipping. Price increases of pulp and paper goods, some items up 4% to 8%…Plastics, resin increases on things like trash bags, Ziploc SKU’s, pet products, PET products, plastic cups, plates, plastic wrap, many items up in the 5 to 11% range. Metals, aluminum foil, mid single digit cost increases, as well as cans for sodas and other beverages…oil, coffee, nuts, they remain generally according to our buyers at 5 yr highs and so on. Higher import prices on things from Europe like cheeses, but the combination of freight and FX. Three to 10% increases on certain but not all apparel items. And fresh foods, inflation is up in the mid to high single digits, with meat leading the way, up high single to low double digits due to feed, labor and transportation costs.”
2)FedEx highlighted for everyone the extreme challenges they are having by not having enough workers. We know there are anecdotes everywhere but here’s another one I saw today, //www.businessinsider.com/southwest-ceo-whataburger-job-application-stapled-to-food-order-bag-2021-9.
3)The Markit September US PMI fell to 54.5 from 55.4 with both services and manufacturing slightly moderating. That composite figure is the slowest since September 2020.
4)Initial jobless claims totaled 351k, 31k more than expected and up from 335k last week (revised up by 3k). The 4 week average was little changed at 336k. After falling by 138k in the previous read, continuing claims rose by 131k to 2.845mm.
5)Germany’s September IFO business confidence index fell to 98.8 from 99.6 and that was just under the estimate of 99. Both the Current Assessment and Expectations were slightly lower m/o/m. Stagflation was the story. Said IFO, “Problems in the procurement raw materials and intermediate products are putting the brakes on the German economy. Manufacturing is experiencing a bottleneck recession.”
6)The September UK consumer confidence index fell 5 pts m/o/m to -8 and worse than the forecast of -7. GFK said “On the back of concerns about rising prices for fuel and food, the growth in headline inflation, tax hikes, empty shelves and the end of the furlough scheme, September sees consumers slamming on the brakes as those already in economic hardship anticipate a potential cost of living crisis.”
7)The UK CBI retail sales index plunged to 11 from 60 in September. The estimate was 34. CBI said “Demand cooled for retailers… pushing sales below seasonal norms for the first time since March. But volumes are expected to return to more typical for the time of year next month. Low stock adequacy remains a concern across the distribution sector. Respondents to our survey have told us that they do not expect the transport and production issues that are causing these shortages to ease significantly until at least next year and, in some cases, beyond.”
8)The September Eurozone PMI slipped to 56.1 from 59 in August with both services and manufacturing falling m/o/m. This was all about stagflation with Markit citing a “combination of sharply slower economic growth and steeply rising prices. On one hand, some cooling of growth from the two decade highs seen earlier in the summer was to be expected. On the other hand, firms have become increasingly frustrated by supply delays, shortages and ever higher prices for inputs. Businesses, most notably in manufacturing but also now in the service sector, are being constrained as a result, often losing sales and customers.” As for the outlook from here, “Concerns over high prices, stressed supply chains and the resilience of demand in the ongoing pandemic environment has consequently eroded business confidence, with expectations for the year ahead now down to the lowest since January.”
9)The UK PMI fell to 54.1 from 54.8 last month with services little changed at 54.6 vs 55 and manufacturing down by 4 pts to 56.3. Markit used the word ‘stagflation’ not me this time. “The UK economy is heading towards a bout of ‘stagflation,’ with growth continuing to trend lower while prices surge ever higher. While there are clear signs that demand is cooling since peaking in the 2nd quarter, the survey also points to business activity being increasingly constrained by shortages of materials and labor, most notably in the manufacturing sector but also in some services firms. A lack of staff and components were especially widely cited as causing falls in output within the food, drink and vehicle manufacturing sectors.” As for the future, “Business expectations for the year ahead are meanwhile down to their lowest since January, with concerns over both supply and demand amid the ongoing pandemic casting a shadow over prospects for the economy as we move into the autumn.”
10)Germany said its producer price index for August spiked another 1.5% m/o/m and 12% y/o/y. Year to date it is running at an annualized rate of 15%.
11)Japan did see consumer prices fall by .5% ex food and energy y/o/y in August as expected but again weighed down by mobile phone fees which fell by a record 45% y/o/y. This alone takes 120 bps off headline CPI.
12)The Riksbank, Bank of Indonesia, Bank of Japan, Taiwan’s central bank and in the Philippines all left interest rates unchanged but as expected.
13)It really does suck being a Jet fan.
AFC EAST
Buffalo 1-1
Miami 1-1
New England 1-1
NY Jets 0-2
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.