Succinct Summation of the Week’s Events:
Positives,
1)It’s Friday and the market is closed for the next two days.
2)Putting aside the intense bailout debate and sorry for stock and bond holders of SVB and SBNY, VC funded companies and others live to fight another day.
3)Initial claims fell back below 200k to 192k, 13k below expectations and vs 212k last week. The 4 week average was little changed at 197k. After rising by 64k last week to near the highest since last February, continuing claims fell by 29k.
4)February PPI fell one tenth headline unexpectedly as the estimate was for up 3 tenths. And, this comes off a downward revision of 4 tenths to January to up 3 tenths. The core rate was flat m/o/m instead of rising by .4% as forecasted and January was revised lower by 4 tenths. The y/o/y headline gain slowed to 4.6% from 5.7% last month. The core rate was higher by 4.4% vs 5% in January.
5)Retail sales in February, somewhat of a lost month in that it’s post holiday sales in November and December and gift card uses and returns in January, was a bit better than expected. Core sales grew by .5% m/o/m, much better than the estimate of down .3% and January was revised up by 6 tenths.
6)The March NAHB home builder index rose 2 pts m/o/m to 44 and that was 4 pts above expectations, though still below the breakeven of 50. Present conditions were up 2 pts to just below 50 at 49. The outlook though slipped 1 pt to 47 and prospective buyers traffic remained well under 50 at 31 but that is up 3 pts m/o/m. The NAHB said “a follow-on effect of the pressure on regional banks, as well as continued Fed tightening, will be further constraints for acquisition, development and construction (AD&C) loans for builders across the nation. When AD&C loan conditions are tight, lot inventory constricts and adds an additional hurdle to housing affordability.”
7)With the drop in the average 30 yr mortgage rate by 8 bps for the week ended March 10th, refi’s rose 7.3% w/o/w but still lower by 38% y/o/y. Refi’s were down by 4.8% w/o/w and are still down 74% y/o/y.
8)Housing starts in February totaled 1.45mm, a large 140k above expectations and up from 1.32mm in January. It was almost all multi family as those starts jumped 120k m/o/m while single family was up just 9k to 830k after dropping by 60k in the month before. Permits also jumped but again mostly due to multi family. Multi family permits were up by 130k m/o/m to 747k, the most since last July. Permits for single family rose by 55k to 777k, which is a 3 month high, and helped by the January drop in mortgage rates but was over 800k last October.
9)February import prices were down one tenth m/o/m vs the estimate of down 2 tenths while January was revised lower to -.4%. Ex petro import prices were down by 4 tenths vs the forecast of up one tenth. A continued drop in the prices of industrial supplies is offsetting continued increases in the import prices of food/beverages, capital goods, autos and consumer goods.
10)The NFIB small business optimism index for February, thus pre SVB and the plunge in regional bank equity values, rose .6 pts to 90.9. This is about in line with the 6 month average of 91.1. The NFIB said “Small business owners remain doubtful that business conditions will get better in the coming months. They continue to struggle with historic inflation and labor shortages that are holding back growth. Despite their economic challenges, owners are working hard to create new jobs to strengthen the economy and their firms.”
11)In the NY Fed February Survey of Consumer Expectations, one yr inflation expectations fell sharply, by 8 tenths to 4.2% but was unchanged at the 3 yr time frame at 2.7%. Lower price expectations showed up for gasoline, food, medical care, education and rent. The answers to the labor market questions were steady. As for household spending, “growth expectations decreased to 5.6% in February from 5.7% in January. This is the fourth consecutive decline in the series.”
12)US industrial production was about as expected while the manufacturing component was better due to a lift in non auto manufacturing production.
13)There is still robust non-central bank buying of US Treasuries, and who exactly are these entities in the Cayman Islands?
14)Because the ECB had rates at only 2.5%, they needed to hike 50 bps and just don’t have the same bank challenges, at least for now, notwithstanding Credit Suisse which is the Swiss government’s challenge. They’ll however go really slow from here.
15)In the UK, their January jobs data was a bit better than expected with the 3 months ended January saw a job gain of 65k, 12k more than expected and the unemployment rate held at a low 3.7%. Wage growth ex bonuses rose 6.5% y/o/y, though still well below the rate of inflation and one tenth less than expected. Jobless claims in February did fall 11.2k, the 3rd month in a row of declines and the labor market in the UK remains tight too.
16)In Japan, it looks like the ‘Spring Offensive’ wage discussions between companies and unions is resulting in a 3.8% wage gain, the biggest since 1993 with base pay making up 2.3% of the rise. While this is good for Japanese employees, there was hope for something closer to 5%, but unrealistic and employees at bigger companies will get bigger raises than smaller ones who have less profitability.
Negatives,
1)We’re in this no man’s land of whether uninsured deposits are government guaranteed or not. Either way, a bailout nation (h/t BR) continues on and the economy is worse off for it.
2)The Fed’s balance sheet goes back to the highest level since November, all that QT for naught.
3)The February CPI rose .4% m/o/m headline as expected while the core rate was up by .5% m/o/m, one tenth above what was expected. The y/o/y gains are 6% and 5.5% respectively vs 6.4% and 5.6% in the month before. With respect to services, prices ex energy rose .6% m/o/m and 7.3% y/o/y with the latter at a fresh 41 yr high because of the old news of almost 10% rent growth. On the goods side, core prices were unchanged and no longer falling for a 2nd month and are up 1% y/o/y, the slowest since August 2020.
4)The February Atlanta Fed’s sticky inflation print was up 6.7%, matching the high in this cycle.
5)With most answers coming before SVB, the initial March UoM consumer confidence index fell to 63.4 from 67 and that was below the estimate of no change. Both Current Conditions and the Expectation components were lower m/o/m by similar amounts. One yr inflation expectations fell below 4% to 3.8% (lowest since April 2021 but still above the 20 yr pre Covid average of 2.9%) from 4.1%, helped by lower gasoline price assumptions while the 5-10 yr guess was lower by one tenth to 2.8%. Employment expectations improved after the recent weakness, rising 6 pts while the current view of income was little changed but expectations fell. There was a drop in the mean % of those expecting family income to exceed inflation in the coming 5 years. Expectations for business weakened too. Spending intentions weakened for all 3 main categories of auto’s, major appliances and homes. The UoM said “Sentiment declines were concentrated among lower income, less educated, and younger consumers, as well as consumers with the top tercile of stock holdings. Overall, all components of the index worsened relatively evenly, primarily on the basis of persistently high prices, creating downward momentum for sentiment leading into the financial turmoil that began last week.”
6)Both the NY and Philly manufacturing indices were well below zero, extending the manufacturing recession into March.
7)Cass Freight said its February shipments index was down .3% m/o/m seasonally adjusted and down by the same amount y/o/y. They said “Soft real retail sales trends and ongoing destocking remain the primary headwinds to freight volumes, and sharp import declines suggest this type of environment will persist for several more months.”