Positives
1)We’re reaching a point soon where these rate hikes will enter the negative category. The Fed, BoE, ECB, SNB, Norges Bank, and central banks in Taiwan, Mexico, Columbia and the Philippines all raised interest rates as anticipated. I’ll include another Duran Duran quote this week with respect to the Fed as they respond to their view on inflation with more monetary tightening, aka, the Reflex to higher prices. “And every little thing the reflex does leaves you answered with a question mark.” //www.youtube.com/watch?v=J5ebkj9x5Ko
2)Initial jobless claims fell by 20k w/o/w to 211k and that was 21k below expectations. Smoothing out the week to week puts the 4 week average at 227k vs 230k last week.
3)Headline CPI rose one tenth in November and the core by 2 tenths with the first being 2 tenths light relative to expectations and the core rate one tenth less. Versus last year, headline CPI rose 7.1% vs 7.7% in October. The core rate was up by 6%, one tenth less than anticipated and down from 6.3% in the month prior. Food prices were up .5% m/o/m and 10.6% y/o/y while energy prices pulled back by 1.6% m/o/m but are still higher by 13.1% y/o/y. Services inflation ex energy prices were up .4% m/o/m and 6.8% y/o/y and that is a fresh 40 yr high. On the core goods side, prices receded again by .5% m/o/m and the y/o/y increase is now down to 3.7%. This is the 8th month in the past 9 that has shown deceleration.
4)The November NY Fed’s consumer inflation expectations survey had the one yr inflation estimate fall 7 tenths to 5.2% comes after the 5 tenths increase in October. The 3 yr expected rate of 3% was down one tenth with both decreases “broad based across education and income groups.” Expectations for lower home prices, gasoline and food drove the response. There was little change in rent expectations, a slight increase for education and no change for medical care, with all three a key part of services inflation. There was improvement in expectations for employment and for income expectations but the latter “was driven by respondents with no more than a high school education.” Spending growth expectations fell one tenth and of note, “Perceptions of credit access compared to a year ago deteriorated in November, with the share of households reporting it is harder to obtain credit than one year ago increasing to a new series high.”
5)Easing supply chain price pressures were seen in both the US services and manufacturing PMI.
6)The 6 month business outlook improved for both the NY and Philly manufacturing surveys.
7)The NFIB November small business optimism index rose .6 pts m/o/m to 91.9. For perspective, the 49 yr average is 98. The internals were mixed though. The NFIB said “Going into the holiday season, small business owners are seeing a slight ease in inflation pressures, but prices remain high. The small business economy is recovering as owners manage an ongoing labor shortage, supply chain disruptions, and historic inflation.” Inflation remains the biggest small business challenge, “with 32% of owners reporting it as their single most important problem in operating their business, five points lower than July’s highest reading since the fourth quarter of 1979.”
8)There was little change in the average 30 yr mortgage rate at 6.42% but mortgage apps did rise by 3.2% w/o/w. Purchases rose 4% w/o/w, though remain 38% below its yr ago pace. Refi’s were up 2.8% w/o/w while still down 85% y/o/y.
9)Whoever they might be, buyers out of the Cayman Islands and via banks in the UK continue to buy a lot of US Treasuries according to the October TIC data while Japan continues to sell, with holdings down by $42b and China’s holdings lower by $24b. Foreign central banks in totality are net sellers. Net buying of US Treasuries totaled $62b.
10)Japan’s December composite index rebounded back to exactly 50 from 48.9 led by a rise in services that rose to 51.7 from 50.3 while manufacturing softened a touch and remains below 50. Tourism helped the service side while “manufacturing firms continued to struggle in the face of subdued demand conditions and severe inflationary pressures.” Inflation pressures though did ease.
11)Goosed by the weak yen, although less so over the past month with its rally, Japanese exports jumped 20% y/o/y, about as expected, and imports grew by 30% y/o/y vs the estimate of up 27%.
12)Australia, a great proxy on China and commodity prices, reported better than expected jobs data for November and an unchanged unemployment rate of 3.4%.
13)China announces more reopening steps and while the next month or two will be a healthcare challenge, it’s finally happening.
14)The Eurozone December PMI rose 1 pt to a still below 50 read of 48.8 with both components higher. Manufacturing improved slightly led by German “and linked to a combination of improving supply conditions and reduced fears of energy constraints.” With services, the “malaise has also calmed, in part driven by signs of reduced fears over the cost of living squeeze and, in the financial service sector, reduced concerns over the tightening of financial conditions.” On that last point, this was of course taken before yesterday’s ECB move and the subsequent jump in interest rates. Also helping, “the outlook for inflation is especially encouraging, with supply chains now improving for the first time since the pandemic began and firms’ costs growing at a sharply reduced rate, feeding through to lower rates of increase for prices charged for both goods and services.”
15)The UK PMI rose to 49 from 48.2 with services getting back to 50 offsetting a continued drop in manufacturing to 44.7. This is the 5th month in a row of below 50 composite prints. “Anecdotal evidence indicated that a weaker overall economic climate and a sustained squeeze on client budgets amid the cost of living crisis and tighter financial conditions had dampened output.”
16)The UK December consumer confidence improved slightly to a still deeply negative -42 vs -44 in November. The estimate was -43.
17)November UK CPI moderated to 10.7% from 11.1% and that was 2 tenths below expectations. The core rate was higher by 6.3% y/o/y vs 6.5% in October and also 2 tenths less than forecasted.
18)October UK GDP was a bit better than expected, rising .5% m/o/m after the .6% decline in September. The September data was depressed in part due to the Queen’s funeral and the days of mourning surrounding it. Manufacturing and production also helped to lift GDP.
19)Investor confidence in the German economy improved again in December with the ZEW index rising to -23.3 from -36.7 and that was about 3 pts better than estimated. The Current Situation rose too but not as much as forecasted. The ZEW said succinctly, “The economic outlook for Germany has thus become considerably more optimistic in the last two months.”
20)French business confidence in December was unchanged from November and 1 pt above the estimate. At 102, it has held this level for a 4th month.
Negatives
1)The monetary reality of higher rates for longer should be the new market and economic focus.
2)The S&P Global manufacturing and services PMI index fell to 44.6 from 46.4, that matches the weakest since April 2020 and is the 6th month in a row below 50.
3)Continuing claims remained at the highest level since February at 1.67mm.
4)Core retail sales in November missed estimates with a .2% fall m/o/m vs the expectations of up .1%. Also, October was revised down by 2 tenths. The breadth of sales was pretty weak as they fell for auto’s, furniture, electronics, building materials, clothing, sporting goods, department stores and even online retailing. The only areas seeing a gain from October was for bars/restaurants, health/personal care and food/beverages.
5)Both the NY and Philly December manufacturing indexes were in contraction and more than expected with mixed internals.
6)Cass Freight’s Transportation index for November saw shipments fall .4% y/o/y and lower by 1.9% m/o/m. They said “After some noise in recent months related to comparisons and other temporary factors like repositioning mistimed inventory, and consumers getting ahead of rising interest rates, freight volumes settled back to a flattish level in November vs a year ago. Still a very stable environment overall, but still one with many headwinds.” The implied freight rate continued to moderate with 5.1% y/o/y price growth vs 7.9% in October. “The supply/demand balance in US trucking markets has loosened significantly this year, and as a result freight rates are leveling off and set to soften further in the months to come.”
7)November US industrial production shrunk by .2% m/o/m. The estimate was flat and was driven by a 6 tenths fall in manufacturing production.
8)Australia’s PMI fell to 47.3 from 48 with manufacturing remaining above 50 but services falling further below.
9)Hopefully soon to be old covid shutdown data in China, retail sales fell 5.9% y/o/y vs the forecast of down 4%. IP was higher by just 2.2% y/o/y vs the estimate of up 3.5%. Fixed asset investment was also light relative to expectations.
10)Also now old news, China reported its November loan data which at 1.99T yuan was a touch below the estimate but M2 accelerated to 12.4% vs the forecast of 11.7%.
11)October PPI in Japan rose by 9.3% y/o/y, 5 tenths more than expected.
12)UK retail sales in November were below expectations when taken with the October revision.
13)While more jobs were created than expected in the UK in the 3 months ended October, the November jobless claims figure showed a jump in 30.5k, the most since February 2021 and points to upcoming jobs weakness. Wage growth did accelerate which is certainly a positive but at 6.1%, it still is about 400 bps below the rate of inflation.
14)Bond yields spike in Europe.