The economic data this week shifts more so to housing with the NAHB builder survey today, housing starts tomorrow, the weekly mortgage apps Wednesday and existing home sales on Friday. The lack of inventory, skyrocketing costs and aggressive price increases will remain the theme. We also hear from more Fed members including Fed Chair Clarida today but we’ve already heard from many of them over the past few weeks so don’t expect anything new. If there is one topic they ALL seem to be avoiding answering with any specificity it is housing. Because they decided again to allocate credit to a preferred part of the economy, aka housing, via the purchases of MBS, it then becomes caught up in the general debate on when they feel it is time to pullback and they can’t seem to separate it out. I mean they are literally poring fuel on the hot housing market and seemingly have no qualms about it. The result is a stagflationary situation where growth is slowing while costs and prices propel higher which then leads to more renting that eventually shows up in higher CPI and PCE stats.
In fact, stagflation behavior is becoming more common. Examples, a restaurant that can’t reopen at the level of previous hours because they can’t find enough help. A new store that can’t get started due to a lack of employees. An auto factory that needs to limit shifts or close completely because they can’t find chips.
I got questions last week and saw comments from those who believe the rise in inflation is temporary on why the Treasury market didn’t respond to all the upside inflation surprises we saw in the data. My response is what I argued in March, that the 85 basis point 10 yr yield rise from January thru March likely priced in the inflation data we were going to see in the subsequent months. It will only be this summer when people realize that the inflation stats won’t reflect a transitory rise that will set the stage for another leg up in yields. I’m sticking to that thought.
With crypto prices now being driven by the words and actions of one man, Mr. Musk, I’ll repeat again what I said last week that I can’t understand the hoopla on whether a company will accept crypto or not for payment. I say this because the IRS is treating an exchange of bitcoin and others as a taxable event. Thus, why realize a capital gain, pay a tax and then use the after tax dollars to buy something if one can afford to pay in cash and have no taxable event. It is why bitcoin or any crypto currency will NOT be much of a medium of exchange under current tax laws.
The news is quiet in Europe today but we are seeing another day of selling in European bonds. The German 10 yr started 2021 with a yield of -.57% and today that stands at -.11%, up another 2 bps today and higher for an 8th day in the past 9. That’s the least negative since May 2019. I’ll say again, we can analyze all we want the US data in trying to figure out where rates go but where European bonds go from here will be a big influence as they are the epicenter of the global bond bubble with the high amount of negative yielding securities. The euro is quietly at the highest level since late February vs the US dollar.
GERMAN 10 yr BUND YIELD
EURO
China reported some key April stats where industrial production and property investment were about as expected but retail sales saw a big miss. On the latter, sales rose 17.7% vs the estimate of up 25%. I don’t know how much of the consumer spending behavior of consumers was influenced by the desire to wait for the early May national holiday. China is one of the few countries that at least optically is trying to slow down the pace of excessive credit growth. The Shanghai comp was up .8% while the H share index was higher by 1%. The yuan is little changed. Copper and iron ore are rebounding after last week’s pullback.
Even Japan is seeing higher inflation, particularly on the wholesale front as April PPI jumped .7% m/o/m, two tenths more than expected after a 1% rise in March, revised up by 2 tenths. The increase was led by higher commodity prices. As PPI is not market moving in Japan, JGB yields were unchanged in response but the Nikkei fell another .9%. It seems that the BoJ is buying less ETF’s after already owning about 70% of that market.
Singapore saw an 8.8% m/o/m non oil drop in exports in April, well worse than the estimate of down 2.8%. Versus last year exports were up by 6%. A big factor was a sharp drop in pharma exports y/o/y after a March jump. Electronic products saw another gain y/o/y but the pace moderated as they also deal with a shortage of semi’s. Exports to the US and EU declined but was mostly offset by strength to other parts of Asia. Singapore is currently going thru another round of covid restrictions adding another fit to the economy starts. Hong Kong just announced a whopping 21 day quarantine for incoming Singaporeans. The Singapore Straits index was up .8% overnight and I remain bullish on Singapore stocks.
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.