Positives
1) US GDP growth in Q2 q/o/q annualized was above 4% for the first time since 2014 at 4.1%. Consumer spending and exports (mostly soybeans) were the main contributors to growth with also help from government spending. Overall investment was little changed as gains in business spending and structures was offset by a decline in residential construction. Inventories were an outright drag and inflation ran much higher than expected.
2) Core durable goods orders in June grew .6% m/o/m, one tenth more than expected and off a higher than expected base as May was revised up by 4 tenths. Core durable goods orders have risen for a 3rd straight month and are up 6.8% y/o/y. On an absolute dollar basis they now stand at the best level since September 2014.
3) The Richmond Fed survey for July did fall 1 pt m/o/m to 20 but that was 2 pts above the estimate. The price pressures just don’t stop. Prices paid rose to the highest level in 6 years and prices received did as well.
4) The final July UoM consumer confidence index was 97.9 vs the initial print of 97.1 and the estimate was for no change. That is though down from 98.2 in June and is the lowest since January. From June, current conditions fell 2 pts while expectations were up by 1 pt. One year inflation expectations were 2.9% vs 3% in June. Those expecting Higher Income fell 4 pts but household finances did improve. Employment expectations did moderate but only after a jump last month. Business expectations was the area of particular weakness as they fell 23 pts m/o/m due to tariff worries. Spending intentions were mixed as those that said it’s a good time to buy a car/truck fell to the lowest level since 2013. Those that said it’s a good time to buy a home held at the weakest level since 2011. Those that said it’s a good time to sell a home is within 1 pt from a record high. Not surprising now on both with the average home price at a record high.
5) An agreement to discuss some trade deals between the US and Europe was made which will hopefully soon end the recently imposed steel and aluminum tariffs. More soybean buying by the Europeans will help offset the sharp drop in demand from China. We’ve also likely taken off the table auto tariffs.
6) Is the BoJ on the cusp of letting the JGB yield curve steepen a touch to give some life to its banking system? The pressure on them is intensifying. The 10 yr yield closed the week at .104% vs .035% one week ago. The 40 yr yield closed at .955% vs .81% last Friday. The Japanese Topix bank index rallied 5.2% this week.
7) The ECB and Mario Draghi’s press conference was a complete non event. Things change though in about two months as QE essentially ends.
8) The ECB reported a pick up in money supply growth in June of 4.4% y/o/y, above the forecast of up 4%. Loan growth to non financial companies picked up to 4.1% y/o/y from 3.7% in May and that is the best this cycle. Household lending growth stayed at 2.9% y/o/y.
9) In Germany, the IFO business confidence index for July was little changed at 101.7 vs 101.8 in June but that was a touch above the estimate of 101.5. There was a slight .1 pt gain in the Current Assessment and a .3 pt drop in Expectations. The IFO said simply, “The German economy continues to expand, but at a slower pace.”
10) The UK CBI retail sales data for July was better than expected at 20 for July vs the estimate of 15 but that is still down from 32 in June.
11) The UK July CBI industrial orders index fell 2 pts m/o/m to 11 but that was 3 pts better than expected. This is still a good level of production but CBI also said “rising trade tensions and ongoing uncertainty over our future trade and customs arrangements are clearly taking their toll on manufacturers’ confidence and investment.”
Negatives
1) Off last week’s lowest level since 1969 of 208k, initial jobless claims totaled 217k, 2k more than expected. Smoothing out the seasonal issues of July calculations because of auto shutdowns during the summer saw the 4 week average fall by 3k to 218k. Continuing claims, delayed by a week, fell by 8k after last week’s rise of 10k.
2) New home sales in June slowed to a pace of 631k, 37k less than expected and May was revised down by 23k to 666k. The June figure is the slowest rate of new home sales since October 2017. Three of the four regions saw m/o/m sales declines and with a rise in the number of homes for sale, months’ supply rose to 5.7 from 5.3. That is the most since last August. The median home price fell 4.2% y/o/y to $302,100 which is the least since February 2017. Part of the reason for this is mix as there was a decline in the number of homes sold priced above $500,000.
3) Mortgage applications in the US were little changed w/o/w. The purchase side fell 1% w/o/w but are still up 2.2% y/o/y. Refi’s were up .9% w/o/w but still down 30% y/o/y. As this data is as of July 20th, it did not capture the spike in rates over the past few days.
4) Existing home sales in June totaled 5.38mm, 60k below the estimate and down from 5.41mm in May which was revised lower by 20k. For the year to date, home sale closings are down 2.2% y/o/y and the June number matches the slowest rate since September 2017. The median home price rose 5.2% y/o/y to a new all time high at $276,900. Inventory levels did improve in June as the number of homes for sale did rise .5% y/o/y, the first y/o/y increase in three years. Months’ supply rose to 4.3 from 4.2 and that matches the highest since September 2016 as inventories finally move up and sales slow. The number of first time home buyers remained at 31% and stayed stuck in the low 30’s range
5) The Markit US manufacturing and services composite index for July fell a touch to 55.9 from 56.2. Manufacturing was up .1 pt but off a 4 month low. Services fell .3 pts m/o/m to the lowest since April. Within manufacturing, Markit said new orders were “robust” but there was a “slight fall in export sales. Although marginal, the latest drop in new work from abroad was the greatest since May 2016.” On inflation, factory gate price inflation rose to the highest since May 2011. Looking forward, “manufacturing companies remained upbeat about the year ahead business outlook…which partly reflected optimism regarding the outlook for domestic economic conditions.” Still, “Trade frictions have clearly become a major cause of concern.” With services, backlogs fell for the first time since April 2017 as “there were signs of reduced pressure on operating capacity in July, despite another sharp rise in new business intakes.” Maybe tariff related but “there were signs of greater caution in terms of staff hiring, with the latest upturn in employment numbers the weakest since January.”
6) The KC Fed’s manufacturing index fell 5 pts m/o/m and was 2 pts below the forecast. They said “Many firms remain concerned about labor availability and tariffs, but optimism is still high.”
7) Are we on the cusp of seeing a rise in Japanese bond yields which along with the soon to be end to ECB QE and more Fed QT will lead to a worldwide rise in long term interest rates?
8) Tokyo reported July CPI that rose .8% y/o/y ex food and .5% ex food and fuel. Both were up one tenth from June and one tenth higher than expected. That core-core rate matches a two year high.
9) Japan’s July manufacturing PMI fell to a 20 month low at 51.6 from 53 in June. Markit said “New business grew at a much weaker rate and was broadly flat, while export demand, despite further yen depreciation, deteriorated for a 2nd month running.” The concerns in Japan didn’t end there, “Slowing demand presents a worrying development given input delivery times lengthened to the sharpest extent in over 7 years. Supply chain difficulties reportedly contributed to the fastest rate of input price inflation since March 2011. Although output prices were raised at a relatively notable pace, the rate of increase was far weaker than that of costs, implying profit margin erosion.”
10) The yuan is down for the 7th week in a row. There doesn’t seem to be any notable talks going on between China and the US. According to BN, “The Chinese government has drawn up plans to retaliate against any additional US tariffs, regardless of the volume of goods targeted.” They also announced a slew of fiscal stimulus easing steps to encourage banks to ramp up lending again.
11) Exports out of Hong Kong rose by 3.3% y/o/y in June, well less than the forecast of up 7.9%. Imports up by 4.4% y/o/y was half the estimate. The Hong Kong government said in its press release that “Looking ahead, while growth momentum of the global economy has been sustained so far this year, rising trade conflicts between the US and other major economies could weigh on global economic sentiment and trade expansion going forward, posing downside risks to Hong Kong’s export outlook.”
12) The French economy grew by 1.7% y/o/y in Q2, down from 2.2% in Q1 and below the estimate of up 1.9%. The strikes in Q2 are definitely partially to blame but consumer spending did fall too.
13) French business confidence in July was unchanged but the manufacturing component fell to a one year low.
14) The PPI in June in France rose 3.4% y/o/y up from 3% in May. That is two tenths from matching a 6 year high. In Spain, PPI rose 4.1% y/o/y, up from 3% in May and the most since May 2017. In Sweden, which still has negative interest rates along with the eurozone, PPI spiked 8% y/o/y.
15) In Europe, the July manufacturing and services composite index fell to 54.3 from 54.9 and vs the estimate of 54.8. It marks the 5th month in the past 6 that has moderated and is the 2nd lowest print since November 2016. Manufacturing did rise .2 pts but off the lowest level in a year and a half. That was more than offset by a .8 pt drop in services.
16) German import prices jumped by 4.8% y/o/y in June, the most since April 2017.
17) The Turkish lira furthered its collapse after their central bank unexpectedly kept rates on hold vs the estimate of a 100 bps hike.