According to Investors Intelligence, the Bull/Bear spread widened to the highest level since March 1st when it touched 46.6 as Bulls got to a 30 year high. This week the spread was 41.4 as Bulls rose a touch to 58.7% from 58.5% while Bears hit a 7 week low at 17.3% from 17.9%. Those expecting a Correction got the balance of 24 from last week’s two month low of 23.6%. II continued to refer to a Bull level above 55 as being in “the danger zone” that historically marks short term tops. Well, at least for now that has been the case in that the SPX is really no higher than it was 10 weeks ago. I do have to say though when I hear “danger zone” I think more about that awful Kenny Loggins song from Top Gun. I liked the movie but that song, ugh and I won’t be providing a youtube link so I can spare you.
The MBA said mortgage applications to buy a home rose 1.7% w/o/w and 6.5% y/o/y as we are deep into the spring transaction season. I like to see these numbers. “The lack of inventory, the lack of inventory” is all we hear in the industry but should we start blaming the private equity firms for taking off the market all the inventory over the past 7 years? Just sayin’. Refi’s were higher by 3.3% but are still down 32% y/o/y because the y/o/y increase in mortgage rates.
I’ll only say this on the James Comey firing and what it means for markets, the circus never sleeps in Washington, DC.
We saw inflation data from China last night where April CPI rose 1.2% y/o/y which was one tenth more than expected and up from .9% in March. The reason for the muted levels over the past 3 months has been the sharp decline in food prices. Consumer inflation ex food and energy clocked in at 2.1% y/o/y which is pretty much on trend. Producer prices were up 6.4% y/o/y, 3 tenths below the estimate and down from 7.6% in March. Comparisons remain easy even though commodity price gains have of course moderated recently. On the consumer goods side, PPI was up just .7% y/o/y because of modest price gains in food, clothing and ‘daily use items’ and a continued decline in consumer durables.
These figures are rarely market moving but China’s markets had another hissy fit overnight. Interbank rates were little changed but the 10 yr yield was up by another 7 bps to 3.70%. The 1 yr yield was up by 6 bps to 3.48%. These both match the highest level since December 2014. See chart on the 1 yr. The spread between the two is about the lowest in 4 years. The Shanghai composite was down by .9% and closed at the lowest level since October 14th. Interestingly, or maybe strangely, the H share index in Hong Kong did the exact opposite and rallied 1%. Maybe the deleveraging crackdown on the mainland is just resulting in a swap out of A shares into H shares. Bloomberg News had a headline today expressing the differential: “China stocks still adored abroad as losses mount for locals.” With respect to the continued weakness in Chinese markets and the complete apathy elsewhere outside of the commodity markets, I’ll quote from the Broadway show Dear Evan Hansen which I saw last night and thought it was great. I highly recommend it. “When you’re falling in a forest and there’s nobody around, do you ever really crash, or even make a sound…It’s like I never made a sound. Will I ever make a sound?”
CHINESE 1 yr YIELD
While dated, industrial production in France in March saw a nice beat relative to expectations all due to manufacturing. Manufacturing production grew by 2.5% m/o/m and 3.5% y/o/y vs the estimate of up .9% and 1.2% respectively. Even so, manufacturing production is just back to where it was in November and with the index at 103.9, it remains well below the pre recession peak of 119. Can Macron MFGA? The potential is there. We also saw a slightly better than expected print in Italian IP for March.
Mario Draghi is speaking to the Dutch Parliament and is patting himself on the back again (“ECB measures have been very effective”). I’ll include this quote of interest both for the ignorance and the acknowledgement of his surroundings: “We do not currently see compelling evidence of overstretched asset valuations at the euro area level, but we do see that real estate dynamics or high household debt levels in some countries signal the risk of increasing imbalances.” The ignorance of course is the European bond market is quite possibly in the biggest bubble ever and he’s acknowledging that easy money leads to frothy real estate prices and excessive leverage. The euro is little changed and sovereign yields are lower along with lower yields in the US as on one hand Draghi said there is continued evidence of a ‘firming and broadening’ recovery but on the other that they still need to maintain ‘very substantial’ accommodation.