Positives
1)The Fed continues on with its commitment to lower inflation.
2)We also saw hikes this week from the BoE (50 bps as expected), the SNB (75 bps as expected), the Riksbank (100 bps, 75 bps expected), the Norges Bank (50 bps as expected), the Bank of Indonesia (50 bps vs 25 bps that was expected), the central bank in Taiwan (12.5 bps as expected), the Hong Kong Monetary Authority (75 bps as they match the Fed), the BSP in the Philippines (50 bps as expected) and the Vietnamese central bank (100 bps, not expected).
3)The US composite September PMI bounced to 49.3 from 44.6 with manufacturing up by .3 pts m/o/m to 51.8 and services rebounding back to near 50 at 49.2 from 44.6 last month.
4)Initial jobless claims totaled 213k, 3k less than expected and last week was revised down by 5k to 208k. This brings the 4 week average down to 217k from 223k and that is the lowest since early June. Continuing claims fell back below 1.4mm at 1.38mm, about 40k less than expected and down from 1.4mm in the week prior.
5)Although the average 30 yr mortgage rate rose another 24 bps w/o/w to 6.25%, there was a 10.4% w/o/w increase in refi’s after 5 straight weeks of declines, though they are still down 83% y/o/y. Purchase apps grew by 1% w/o/w but are lower by 30% from the same week last year.
6)Old news but existing home sales totaled 4.80mm in August, 100k more than expected but is down slightly from the 4.82mm seen in July and is the lowest since May 2020. Assume many of these closings saw contracts signed in the April thru July timeframe. After jumping in July, the number of homes for sale fell a touch but months’ supply was unchanged at 3.2. That is double the record low seen in January but still about half the long term average. Home price gains continue to moderate, both because of really tough comps but also because of the new reality housing market we’re in. The median y/o/y gain was 7.7% vs 9.5% in July, 12.8% in June, and 15% in May.
7)Housing starts in August totaled 1.575mm annualized, 125k more than expected and up from 1.404mm in July which was revised down by 42k and which compares with the same level of 1.575mm seen in June. Most of the upside was in the multi family category where starts jumped by 140k m/o/m to 640k and that is the most since 1986. Single family starts were 935k vs 904k in July and 1.013mm in June. That’s the 2nd lowest print since mid 2020.
8)Zillow gave its new home price estimate and said they expect 1.2% “home value growth through August 2023.” This is down from 2.4% that they expected last month and down from “the current rate of 14.1% annual growth.” Good for first time buyers to mitigate the spike in funding costs.
9)Manheim said wholesale used car prices fell 2.3% in the first half of September from August. That is now basically flat y/o/y, higher by .6% seasonally adjusted. Manheim said “all major segments saw price declines, with full-size and sports cars down the most and pickups and compact cars down the least.”
10)The Japanese Finance Minister finally stepped in to halt the relentless yen selling.
11)South Korea said its daily shipments rose 1.8% y/o/y in the 1st 20 days of September led by a rise in semi’s. Overall exports were down by 8.7% y/o/y though as deliveries to China fell by 14%. Exports to the US fell by 1.1% y/o/y.
12)Taiwan said its exports in August rose 2% y/o/y and again was driven by a rise in electronics. Exports though to China and Hong Kong fell by 26%, though offset by a 7.5% increase to the US and gains to Europe, ASEAN, Japan and others.
13)Hong Kong ends its hotel quarantine for incoming visitors. Hopefully a step closer to a full China mainland reopening.
14)In the UK, the September CBI industrial orders index rose to -2 from -7 and that was better than the feared decline to -13. CBI said “It is clear that the downturn, which originated in consumer-facing services, has spread to manufacturing, with output falling for the second month running. When adding an uncertain demand environment to ongoing input and labor shortages, and a cost of doing business crisis, the outlook looks increasingly challenging for the sector.”
Negatives
1)The rapidity and velocity of the Fed’s interest rate hikes are now entering dangerous territory. I’m ok with their destination, if they even get there, but no longer the pace.
2)The sharp rise in rates around the world along with the pronounced FX volatility.
3)Permits reflected a softening for both single and multi family. Single family permits fell by 33k m/o/m to 899 and that is the least since June 2020 and September 2019 before then. After rising to 753k in July, multi family permits fell to 618k and is very volatile month to month.
4)In the National Association of Manufacturers Q3 Outlook Survey, the CEO of the organization said “Three out of four manufacturers still have a positive outlook for their businesses, but optimism has certainly declined. The majority of respondents are expecting a recession this year or next, and it’s clear the challenging environment is taking its toll. Manufacturers have shown incredible resilience through multiple crisis, but the challenges of inflation, supply chain strains and the workforce shortage are taking a toll.” Also, “78.3% of manufacturing leaders listed supply chain disruptions as a primary business challenge with only 10.8% believing improvement will occur by the end of the year” said the NAM.
5)The September NAHB home builder sentiment survey saw its index fall another 3 pts m/o/m to 46 after dropping by 6 pts in August, 12 in July and in the 6 months prior. The estimate was 47. Present conditions fell 3 pts to 54 while the Future outlook was down by 1. Of note too, Prospective Buyers Traffic dropped by 1 pt to just 31 with the reminder that 50 is the breakeven point between up and down.
6)The Japanese Finance Minister will not succeed in halting the sell off in the yen if the BoJ doesn’t alter its policy.
7)The Turkish central bank continues to be a hostage of President Erdogan and his backwards economic theories as they cut rates by 100 bps to 12% even as inflation is running at 80%.
8)Headline CPI in Japan rose 3% y/o/y in August vs 2.6% in July and that is one tenth more than expected. The core/core rate was higher by 1.6%, one tenth more than estimate and up from 1.2% in July. Outside of the influence of VAT hikes, that is the fastest core/core rate of inflation since 1993.
9)The September Eurozone composite PMI index fell to 48.2 from 48.9 as expected with both manufacturing and services declining. They said this about the contraction, “Although only modest, the rate of decline accelerated to a pace which, barring pandemic lockdowns, was the steepest since 2013. Forward looking indictors, such as new order inflows, backlogs of work and future output expectations, point to the decline gathering further momentum in coming months…Soaring energy prices meanwhile added further to companies’ cost burdens, and also limited production in some cases, pushing survey price gauges higher to indicate a renewed acceleration of inflationary pressures.”
10)The UK manufacturing and services PMI for September was 48.4 from 49.6 last month. That is under the estimate of 49. S&P Global said “Companies report that the rising cost of living, linked to the energy crisis, and growing concerns about the outlook are subduing demand and hitting output levels to an extent not seen since 2009, barring the pandemic lockdowns and initial 2016 Brexit referendum shock. Forward looking indicators meanwhile deteriorated further in September. Both the new orders and future expectations gauges have descended to levels which have rarely been weaker in the past, and are consistent with a deepening downturn as we head into the fourth quarter. Inflationary pressures continue to run higher than at any time in over two decades of survey history prior to the pandemic.”
11)The UK consumer confidence index from GFK for September fell to -49 from -44. This is another record low dating back to the 1970’s. “Consumers are buckling under the pressure of the UK’s growing cost of living crisis driven by rapidly rising food prices, domestic fuel bills and mortgage payments.”
12)French business confidence in September fell 2 pts m/o/m to 102 as expected. Confidence declined in manufacturing, services, retail and wholesale trade. The employment component rose while construction was unchanged. Overall confidence is at the lowest since April 2021.
13)German PPI in August spiked by 7.9% m/o/m and 46% y/o/y.