Apartment List National Report/PMI’s

I’ve argued before and will again, any give back in the pace of price increases on the goods side (used car prices will see a slower increase of rapid gains but other industries will continue to raise prices) will be offset by the rise in rents. Last week the Apartment List National Rent Report for July came out and they saw a 2.5% m/o/m increase, “continuing a month’s long trend of rapidly accelerating rent growth. So far in 2021, the national median rent has increased by a staggering 11.4%. To put that in context, in the pre-pandemic years from 2017-2019, rent growth from January to July averaged just 3.3%. This month’s spike continues to push rents well above where they would be if growth had remained on its pre-pandemic trend.” The cities that lagged, like San Francisco and NYC, are seeing sharp snap backs and other cities continue to have rapid rental gains led by Boise, Idaho where rents are up 39% since the start of the pandemic. Keep in mind, the CPI and PCE stats seen over the past few months are showing .2-.3% m/o/m gains. //www.apartmentlist.com/research/national-rent-data. There is nothing temporary here and further squeezes household budgets which in turn leads to slower economic growth.

The MBA said the average 30 yr mortgage rate slipped back under 3% at 2.97% but mortgage applications were still lower. Purchase apps fell 1.7% w/o/w and that is now down for the 5th week in the past 6 and lower by 18% y/o/y. The lack of supply and excessive price gains have slowed the pace of transactions as we all know by now. Refi’s were also weaker by 1.7% w/o/w but after an 11.2% rise last week and the y/o/y change is down 3.2% on tough comps.

After reporting the manufacturing PMI a few days ago, Caixin said its July China services PMI rose to 54.9 from 50.3 and that was well better than the estimate of 50.5. Caixin said “The stronger upturn coincided with the successful containment of the recent uptick in Covid cases, which in turn led to greater customer numbers and boosted new order intakes. As a result, firms registered a renewed increase in backlogs of work, which led to a slight rise in payroll numbers. Business confidence also strengthened from that seen in June.”

With respect to inflation, “Prices in the services sector rose, indicating that inflationary pressure again increased. The downward trend in the gauges for input prices and prices charged by service companies in June did not last, with both rising in July, indicating a surge in inflationary pressure. Labor, energy and raw material prices all increased. As a result, input prices rose for the 13th straight month in July. That led to the gauge for prices charged by service enterprises to rise more than 4 pts from the previous month.” To repeat, this inflation thing is global.

Thanks to a high vaccination rate and the easing of some restrictions, Singapore’s July PMI jumped to 56.7 from 50.1. Business confidence rose to the best since 2020 but “supply constraints and price pressures nevertheless lingered for private sector firms, constraining output growth to some extent.”

Hong Kong’s July PMI was little changed at 51.3 vs 51.4 but “Firms were nevertheless cautious with hiring and purchases, particularly during a period when foreign demand remained weak, affected by lingering Covid implications. Price pressures and supply constraints sustained for firms, though overall optimism improved with better economic conditions.”

India’s July services PMI rebounded to 45.4 from 41.2 but is still well below 50. The world is worried about Delta but after cases spiked in India a few months ago, they came crashing back down. It’s still around of course and the restrictions too and it is why this index is still below 50.

Outside of Japan, Asian stock markets were all in the green with the Shanghai comp up by .9%, the Kospi by 1.3%, the Singapore Straits by 1.1% and the Sensex by 1%.

The Eurozone July services PMI was revised to 59.8 from the initial print of 60.4 and where the estimate was for no change. It still is up from 58.3 in June and this is the best since June 2006 with Spain outperforming the big economies. Said Market, “domestic and international demand combined rose at the quickest rate in 14 years. However, operating capacities were tested in July, as evidenced by a joint-record increase in backlogs of work. This encouraged the greatest expansion in employment across the eurozone service sector for almost 3 years.” The outlook remained positive but a bit less so from June. With pricing, “inflationary pressures subsided slightly during the latest survey period, with both output price and input cost inflation slowing since June. Nevertheless, rates of increase remained historically elevated.” The euro is little changed as this is just a revision but bond yields continue lower which in turn is raising the pile of negative yielding securities to the highest since January at $16.67 Trillion.

$ Pile of Negative Yielding Bonds

The UK services PMI was revised to 59.6 from 57.8 initially but down from 62.4 in June. Markit said “Staff shortages and supply issues were a severe constraint on business capacity, which led to another strong rise in backlogs of work.” Any US company could have said the same. While the UK is fully open, “there were reports that Covid isolation rules had negatively influenced sales volumes.” With inflation, the overall rate “was the steepest since the survey began 25 years ago. A combination of rising input prices and stronger demand meant that service providers increased their average charges at a survey record pace in July.” The UK inflation breakeven is little changed but sits at the highest since mid June at 3.58%. Gilt yields are slightly higher and the pound is higher. I remain bullish on UK stocks and the pound.