Bullish Sentiment Cools Down, Mortgage Refis, Some Overseas Data

Friday’s failure on healthcare and the flattening yield curve (among other things) resulted in a sharp 7.2 pt drop in the number of Bulls in the weekly Investors Intelligence survey to 49.5 which is the lowest point since November 9^th (which captured sentiment pre election even though it was released the day after). Almost every single one though went to the Correction side who consists of those that are still considered bulls and want to buy the pullback. As for Bears, just .8 pts were added to that lonely crew at 18.1. Bulls reached its recent peak of 63.1 on March 1^st which was a 30 yr high and that date also happened to be the closing record high in the S&P 500. Bottom line, the cooling of bullish sentiment is a good contrarian backdrop for a short term bounce and maybe yesterday’s rally reflected that. The lack of bears is the same ole story until proven otherwise.

Even with the sharp 13 bps w/o/w drop in the average 30 yr mortgage rate to 4.33%, refi applications still fell 2.9% w/o/w and down for a 2^nd week. They are lower by 26% y/o/y. Purchases though did rise by 1.2% but after falling by 2.1% last week. They are still up by 4.3% y/o/y. As seen in yesterday’s S&P/CoreLogic home price index, price gains of 5-6% are still pretty consistent, benefiting homeowners but to the detriment of those looking to buy, especially the first time household. It’s the same theme and I’m not going to repeat it again here other than saying this. We see pending home sales at 10am and with it being a measure of contract signings in February it is a relatively timely snapshot of sales as we head into the important spring selling season.

The uneven recovery in Japan continues after retail sales in February rose .2% m/o/m, one tenth less than expected and off a lower than expected base as January was revised down by 3 tenths. Sales y/o/y were up just .1% vs the estimate of up .7%. Sales at department stores/supermarkets fell for the 7^th straight month. This has been the consistent theme where consumers remain reluctant to spend (and why wanting higher inflation is a really bad idea) while the manufacturing/industrial side of the economy is faring better with exports. As for consumers, the annual spring wage talks were disappointing, mostly for full time workers. Part time wage gains are rising at a quicker pace but are of course not as stable. The Nikkei was flat overnight with the yen sitting near a 4 month high.

German inflationary pressures continued in February as import prices rose .7% m/o/m, almost double the estimate of up .4%. This brings the y/o/y rise to 7.4%, the highest since a 7.6% print back in April 2011. It was only back in October when this figuring was printing minus signs. Yes, energy prices were a key factor but taking them out still saw a .2% m/o/m rise and a 4.5% y/o/y gain. As this inflationary uptrend has been known, the euro inflation 5 yr 5 yr inflation swap is little changed and bund yields are slighly lower. We have 3 days left of the current pace of ECB QE. Jens Weidmann on Monday said “I would like to see a less expansive stance.” Well, he’ll get one next week but its what comes after that now matters most for markets.

Also out of Europe we saw an Economic Sentiment index in Italy which rose to 105.1 from 104.3 and that is the highest level since December 2015 as manufacturing surprised to the upside. Consumer confidence also improved. There is no question that the economic data out of Europe has gotten much better with the Citi Surprise Index for the eurozone near the best level in 4 years. This will still only likely translate into economic growth of around 2% but the world will take it. All the political worries of many are just not coming to fruition and at least in some European countries they are seeing the benefits of labor market reform. That said, the profitability of the banking system is still troubled with negative interest rates still hurting. Lending has improved but is still barely growing.