Peter Boockvar

Succinct Summation of the Week’s Events:

Positives,
1)Thanks to incentives, new homes in October totaled 632k, 60k more than expected while September was revised down to 588k from 603k. A rebound in sales in the Northeast and South offset a drop in the Midwest and no change out West. Months’ supply fell to 8.9 from 9.4 but is still well above historical averages even though not all of these homes are completed. The median price, very volatile month to month because of mix, rose 15.4% y/o/y as the number of homes sold over $500k rose while those below declined.

2)The final November UoM consumer confidence index ended up at 56.8, up 2.1 pts from the preliminary one seen a few weeks ago. Most of the improvement came from the Expectations component but confidence overall is still down from 59.9 in October and it’s the 2nd weakest going back decades. One yr inflation expectations was 4.9% vs 5.1% in the initial read and vs 5% in October. Longer term expectations was 3% vs 2.9% last month. The UoM said “Along with the ongoing impact of inflation, consumer attitudes have also been weighed down by rising borrowing costs, declining asset values, and weakening labor market expectations…For the 6th straight month, over 40% of consumers reported that their living standards are being eroded by inflation, with few differences across the income distribution.”

3)Core durable goods orders for October rose .7% m/o/m which was better than the expected forecast of no change but partly offset by a 4 tenths downward revision to September to a drop of .8%. Shipments of previously ordered goods were better than expected and will lead to an increase in Q4 GDP estimates.

4)With another fall in the average 30 yr mortgage rate to 6.67% vs 6.90% last week and vs 7.14% in the week before, mortgage apps rose 2.2% w/o/w. Within that, purchases were higher by 2.8%, up for a 3rd week but still down 41% y/o/y. Refi’s rose 1.8% w/o/w but are lower by 86% y/o/y.

5)The RBNZ and the South Korean central bank continued on with their fight against inflation with rate hikes of 75 bps and 25 bps respectively as expected. 

6)The November Eurozone PMI rose .5 pt but is still below 50 at 47.8. The estimate was for a drop to 47. The services component was unchanged at 48.6 while manufacturing rose almost 1 pt to a still weak 47.3. The reasons for the overall uptick was a “reduced rate of loss of new business, fewer supply constraints and a pick-up in business confidence about the year ahead.” Also, “Warm weather has also allayed some of the fears over energy shortages in the winter months.” But, “Business sentiment nevertheless remained gloomy by historical standards, and demand continued to fall at a steep rate, leading to a pull-back in employment growth during the month.” Prices pressures softened within manufacturing.

7)The UK PMI was little changed at 48.3 vs 48.2 in October and that too was just above the estimate of 47.5. The UK will likely see another contraction in Q4 GDP and “Forward looking indicators, notably an increasingly steep drop in demand for goods and services, suggest the downturn will deepen as we head into the new year.” While business confidence has ticked up, “the business mood remains among the gloomiest seen over the past quarter century amid the numerous headwinds, which include the cost of living crisis, the Ukraine war, steepening export losses (often linked to Brexit), higher borrowing costs, fiscal tightening and heightened political uncertainty.”

8)Breathing a sigh of relief is the ECB after the largest German trade union, IG Metall, agreed to a wage boost for its members of only 8.5% over two years. They will get a bonus of 1,500 euros early in 2023 and a pay raise of 5.2% next June to be followed by another bonus in early 2024 of 1,500 euros and a 3.3% wage boost in May 2024. The chair of IG Metall said “Employees will soon have significantly more money in their pockets – permanently.”

9)Also lending some relief was the 4.2% m/o/m drop in PPI in October in Germany mostly due to drops in natural gas and electricity prices. This is after massive jumps in the prior 3 months of 2.3%, 7.9% and 5.3% respectively. The estimate was for a rise of .6% m/o/m and prices are still up 35% y/o/y.

10)The November German IFO business confidence index rose to 86.3 from 84.5 and that was better than the estimate of 85. Optimistically, the IFO said “The recession could prove less severe than many had expected.” 

11)French business confidence for November was unchanged at 102 but both manufacturing and services confidence fell as they did for employment. Retail and wholesale trade saw upticks. 

12)Consumer confidence in both German and France rose a touch m/o/m.

13)The November UK CBI industrial orders index fell 1 pt to -5 but that was 4 pts better than expectations. CBI said “The rise in manufacturing output this month appears to be at least partly driven by improvements to supply chains, with several companies reporting they were able to fulfill orders as materials and components became more readily available. Total order books remained much weaker than earlier in the year, however, and output is expected to fall again in the quarter ahead.” 

14)Italian economic sentiment improved as well with its index up to 106.4 from 104.7 with a jump in consumer confidence, services and manufacturing while construction was weak.  

15)//www.youtube.com/watch?v=AZC-b56ISa8

Negatives, 

1)The US November manufacturing and services PMI fell deeper under 50 at 46.3 from 48.2 in October and is the 5th straight month in contraction with manufacturing now falling for the first time in this post covid rebound. Services dropped to 46.1 from 47.8 while manufacturing declined to 47.6 from 50.4. With services, S&P Global said “Panelists often stated that the impact of inflation and interest rates on customer disposable income had dented demand conditions.” On manufacturing, it was the first trip into contraction since June 2020. The bottom line from S&P Global, “Companies are reporting increasing headwinds from the rising cost of living, tightening financial conditions – notably higher borrowing costs – and weakened demand across both home and export markets.”

2)Initial jobless claims jumped to 240k, 15k more than expected and the highest print since mid August. This is up from 223k last week and brings the 4 week average to 227k from 221k and that is the most since early September. Continuing claims rose to 1.551mm and that is the most since early March and up 48k w/o/w.

3)China cutting its reserve requirement ratio by 25 bps to 11% is a waste as long as cities are still being shutdown. 

4)Japan’s manufacturing and services November PMI fell to 48.9 from 51.8 with both components lower with the former now below 50 and the latter at exactly 50. In manufacturing, “Cooling demand conditions and acute inflationary pressures reportedly continued to hamper output and new orders, which both saw solid reductions that were the strongest in 26 and 27 months, respectively.” Services stayed above 50 because of a boost in tourism. 

5)November CPI in Tokyo rose by 3.8% y/o/y headline, 2 tenths more than expected and the highest in 40 years. The core/core rate was up by 2.5%, also 2 tenths above the forecast and up from 2.2% in October. 

6)Australia’s November composite index weakened further to 47.7 with services down to 47.2 and manufacturing, while staying above 50, slipping to 51.5 from 52.7. This is the 2nd straight month with a below 50 print, “faced with deteriorating demand conditions” with the service sector in particular “affected by higher interest rates and capacity constraints.”

7)Taiwan’s October exports fell by 6.3% y/o/y, more than the estimate of down 1.9%. It’s the 3rd month in the past 4 that has seen a y/o/y decline. Exports to China and Hong Kong fell by 27% y/o/y while rising by 1.2% to the US. The weakness was led by plastics, textiles, machinery and metals.

8)South Korea said its November exports in the first 20 days of the month fell 16.7% y/o/y, the 3rd straight month of y/o/y declines and led by a drop in semi’s while auto shipments rose. Exports to China fell 28.3% y/o/y, dropped by 1.5% to the EU and rose by 11% to the US. Imports were weaker by 5.5% y/o/y.

9)Rather than doing what is economically correct, the Turkish central bank continues to be a hostage of President Erdogan as they cut rates by 150 bps to 9% in the face of 85% inflation.