Positives
1)Initial jobless claims totaled 250k, 14k less than expected and last week was revised down by 10k. The 4 week average fell to 247k from 250k last week and vs 248k in the week before. Continuing claims moderated to 1.437mm from 1.455m in the week before.
2)Core retail sales in July exceeded expectations with an .8% m/o/m gain in nominal terms, two tenths more than expected and while June was revised down by one tenth, May was revised up by 110 bps.
3)In contrast to the plunge in the NY manufacturing index, the August Philly index rose to +6.2 from -12.3 and vs -3.3 in the month prior and that was 11 pts better than expected. The internals though were mixed. As for the 6 month average of Business Activity, it’s negative for a 3rd month at -10.6 vs the 6 month average of -.4. July saw the weakest print since 1979. Capital spending plans did rebound to a 4 month high and is above its half yr average in contrast to the NY print. The bottom line from the Philly Fed, “Although the general activity index turned positive, it was low, and the new orders index remained negative.”
4)Industrial production in July rose by .6% m/o/m, double the estimate and follows no change in June which was revised up by 2 tenths. A better than expected manufacturing component was the main reason for the upside and we can attribute that mostly to a 6.6% jump in the production of auto’s/parts as supply tries to catch up as semi supply improves. The rest of the internals were more mixed.
5)Zillow said home prices fell .1% in July from June. That might not sound like a big deal after the big increases seen and Zillow said “It’s not unusual for home price growth to decelerate this time of year, but the small decline is the first monthly dip since 2012.” It would be a very good thing if home price appreciation cooled sharply.
6)Cass Freight said its shipments index rose .6% y/o/y in July after declining by 4.1% in June seasonally adjusted. They said “Freight demand has flattened out this year with inflation near 9% and significant substitution from goods back to services. Considering the extraordinary goods consumption during the pandemic, a reversal as services have reopened shouldn’t be much of a surprise.” Nothing we don’t already know. While inventory for some things have risen, the “inventory to sales ratios are still below historic norms, so this major tailwind for freight demand over the past 18 months is likely fading but has not turned to a headwind at this point.” As for freight rates, the implied rate rose 28% y/o/y, down slightly from the pace seen in June. The moderation was due in part to lower fuel prices “but with looser truckload market conditions, further deceleration is very likely…With the tight/supply demand balance in US trucking markets easing considerably this year, industry rates are topping out and set to slow sharply in the months to come.”
7)For the 5th month in the past 6 thru June, foreigners have been large buyers of US Treasury notes and bonds but the make up of the buyers has shifted. Foreigners bought $58.9b worth in June and year to date have purchased $356b of notes and bonds, on track for the biggest year since 2012. More than half of the net buying came from the UK but whose large banks could have been used by any international buyer to execute the transactions. China and Japan both reduced further their holdings of notes and bonds. For Japan though, they increased their holdings of bills while China let them mature.
8)UK retail sales volumes exceeded expectations in July helped by online sales and checks sent to low income families.
9)In Asia, we saw better than expected trade data out of Japan and Singapore. Japan’s exports are certainly getting helped by the weak yen, as well as for auto’s and chip equipment and their imports, up 47% y/o/y, are juiced by higher energy prices. Singapore’s exports were helped by a rise in electronic products.
10)Japan’s economy in Q2 finally got back to its pre covid level with a 2.2% q/o/q annualized increase. It was below the forecast of 2.6% but Q1 was revised up, more than offsetting that. Spending on leisure/hospitality helped the consumption component. Capital spending was also pretty good.
11)Norway and New Zealand both raised interest rates by 50 bps as expected.
12)I was great to see Geddy Lee and Alex Lifeson back on stage again, //www.youtube.com/watch?v=fPouKL83RR8.
Negatives
1)The August NY manufacturing index collapsed to -31.3 from +11.1 and well worse than the estimate of +5. That’s the weakest since May 2020 when it was at -48.5. After falling by 20 pts in July to -6.2, the 6 month outlook got a touch back above zero at +2.1. The NY Fed said this was the “2nd largest monthly decline in the index on record, and among the lowest levels in the survey’s history.”
2)The August NAHB home builder sentiment index is in contraction now at 49, with 50 the breakeven line. That is down from 55 in July and below the estimate of 54. The Present Situation fell to 57 from 64 while the Future Expectations component fell another 2 pts to 47. More expensive homes, up 40% over the past 2 years, and higher mortgage rates drove a 5 pt drop in Prospective Buyers Traffic which is now down to 32, 18 pts below the breakeven pace. Also, that buyers traffic number is at “the lowest level since April 2014 with the exception of the spring of 2020 when the pandemic first hit” said the NAHB chairman. The NAHB chief economist said it pretty succinctly as a bottom line here, “Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession.”
3)Housing starts in July took another leg down, totaling 1.45mm, 80k less than expected and vs 1.6mm in June. Single family starts in particular slipped below 1mm for the 1st time since June 2020 at 916k. Multi family starts, very volatile month to month, were 530k, down 50k from June but around the 3 month average as May printed 489k. With respect to the forward looking permit data, single family permits fell by another 52k in July to 928k, also the lowest since June 2020. Multi family permitting in contrast rose 20k to 746k and that is the most since December 2021.
4)The average 30 yr mortgage rate was little changed w/o/w at 5.45% vs 5.47% last week but purchase applications fell .8% w/o/w and by 18.4% y/o/y. Refi’s declined by 5.4% w/o/w and down by 82% y/o/y.
5)Natural gas prices in Europe jumped by another 20% this week. Power prices in Germany do the same.
6)In Germany, its August ZEW investor confidence index fell a touch to -55.3 from -53.8 but that is still the weakest since 2008. Current Conditions declined slightly too. ZEW said “The still high inflation rates and the expected additional costs for heating and energy lead to a decrease in profit expectations for the private consumption sector.”
7)Also in Germany, the estimate for their July PPI was up .7% m/o/m and 31.8% y/o/y. Instead, they rose by 5.3% m/o/m and 37.2% y/o/y. Scary numbers.
8)The August UK GFK consumer confidence index fell again to -44 from -41. That’s the lowest since records began in 1974. GFK said “These findings point to a sense of capitulation, of financial events moving far beyond the control of ordinary people. With headline after headline revealing record inflation eroding household buying power, the strain on the personal finances of many in the UK is alarming. Just making ends meet has become a nightmare and the crisis of confidence will only worsen with the darkening days of autumn and the colder months of winter.”
9)Inflation in the UK was hotter than expected in July as CPI rose 10.1% y/o/y and the core rate was higher by 6.2%, both 3 tenths more than anticipated. The retail price index jumped by 12.3% y/o/y. There was some relief with regards to producer prices with input prices rising just .1% m/o/m but only after spiking by 1.8% in June. Output prices were up another sharp 1.6% m/o/m.
10)In the UK, job adds were below expectations for the 3 months ended June. A net 160k were hired, about 100k less than expected but their unemployment rate held at 3.8%, one tenth off the lowest since the 1970’s. Wages did accelerate, up 4.7% y/o/y ex bonuses but that is still WAY below the rate of CPI. The more timely July jobless claims figure positively saw a drop of 10.6k.
11)Japan said its headline July CPI rose 2.6% y/o/y from 2.4% in June. The core rate, which just takes out food and is the focus of Kuroda, was higher by 2.4% y/o/y, also up 2 tenths m/o/m. Also taking out energy saw prices rise by 1.2% y/o/y, one tenth more than forecasted. As for the headline print, take out the previous VAT hikes which goosed inflation, this is the fastest pace since 1991. The core/core rate, also taking out the VAT influence, is at the quickest pace since 1993.
12)Retail sales, IP and fixed asset investment all coming in below expectations in China helped to trigger a meaningless 10 bps rate cut for the PBOC 1 year medium term lending facility rate.
13)Turkey’s Erdogan continues on with his economically catastrophic experiments as its central bank cuts rates by 100 bps to 13% in the face of 80% consumer price inflation.
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.