The Boock Report

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“It seldom turns out the way it does in a song” / Jobless Claims, more…

United States

Initial jobless claims totaled 234k, 4k less than expected and up a touch from 232k last week. This brings the 4 week average down to 238k from 241k, the lowest since mid May. Continuing claims, delayed by a week, were unchanged. Bottom line remains the same bottom line as the pace of firing’s remain modest as the supply of qualified labor keeps shrinking.

 

Europe

He’s only just one member and doesn’t speak for Mario Draghi but ECB Governor Ardo Hansson late yesterday didn’t express any concern with the stronger euro and also doesn’t seem interested in changing the current capital key and issuer limits with their asset purchases. On the euro he said “It’s not surprising that markets might react and say, on balance, we’re more upbeat about Europe than we were a while ago, which will cause the currency to be a bit stronger.” On the current criteria with QE, “Some things may be more binding than others but to me, issue and issuer limit are more important than other things we set as constraints in the past.”

As stated yesterday, at the current pace of buying the ECB will have reached its limit on German bunds in 6 months and why a further tapering in 2018 is inevitable for this reason alone. The euro got back above $1.18 on his comments but has since pulled back a bit. European bonds today are quiet. While Mario Draghi yesterday said QE has made its financial system more ‘resilient’ (along with regulation), I’m not sure there is anything stable about the European bond market. For example, European high yield bonds are trading at a 10 bps spread to US Treasuries. I reiterate my short on European debt. If you don’t want to short futures, there are international bond ETF’s out there that have heavy weightings to Europe.

Here’s my last point on this, we know central bankers use the FX market to weaken their currency in order to generate higher inflation. How’s that working for Japan? Over the past 5 years during Abenomics the yen is down by 28% vs the US dollar and core/core CPI has gone from -.5% y/o/y to just .1% expected for July and released tonight. Here’s a chart overlaying that CPI data with the yen. Keep in mind that the 2014 jump in CPI was mostly due to the VAT hike. “It seldom turns out the way it does in a song.”

YEN in WHITE, CORE/CORE CPI in ORANGE

image002(13)

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Reflecting the strain on UK consumer balance sheets thanks in part to BoE monetary policy that has stomped on the pound, the CBI sales index for August fell from +22 to -10. Yes, a 32 pt decline and the estimate was +14. This is the weakest print since July 2016. The CBI said “Despite the warmer weather at the start of the month, retail sales have cooled as higher inflation continues to squeeze consumers’ pockets. Meanwhile, deteriorating sentiment regarding the business situation has combined with falling headcount among retailers. Looking ahead, firms to expect sales growth to recover, but the pressures on household budgets are set to persist, given little sign of wages picking up.” Notwithstanding the disappointing number, the pound is up against the dollar that still can’t get out of its own way and I still don’t like it. The pound vs the euro is also up slightly but off an 8 yr low.

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Thanks to Emmanuel Macron, French business confidence continues its slow creep higher. The August index was up 1 pt to 109, the highest level since early 2011 and that was 1 pt better than expected. The manufacturing component is just 2 pts from the best level since 2001. Business as expected has taken a real liking to Macron as they should but the French worker has not as they fear losing some of the comforts of the welfare state. A poll I saw a few weeks ago had Macron’s approval rating at just 36% and disapproval rating of 49% even though it’s been just 3 months since he was elected. Patience people.

 

Asia

Hong Kong exports in July were up 7.3% y/o/y but that was below the estimate of up 9.2% and imports also missed forecasts with a 5.5% gain instead of rising by 10% as expected. This follows Chinese trade data that also rose less than expected. Exports to the US fell but remained strong to the rest of Asia and Germany too. I’m not going to draw any conclusions to the trade moderation but it doesn’t follow weak June exports out of Germany that was announced a few weeks ago. We’ll see. The Hang Seng reopened after the typhoon with a .4% gain.