Jobless Claims, Philly, BoJ, UK

Initial jobless claims totaled 262k, 3k less than expected and down 4k from last week. As a print of 252k comes out of the 4 week average, the new average rose to 265k, the most in 6 weeks from 263k but it’s still very low. Continuing claims, delayed by a week, rose 15k after a 19k increase last week. It’s quietly at the highest level since late March. Something to monitor. Bottom line, the pace of firing’s remain modest (I seem to say that every week) but we may have seen the bottom in this cycle.

After seeing contraction in the NY manufacturing index a few days ago, the August Philly print was 2.0, exactly in line with the estimate and up from -2.9 in July. This index has basically flat lined this year as the average year to date is +.8 vs only 3.6 in 2015 and 18.3 in 2014. While the headline number went positive, the very important internals were very weak. New orders fell 19 pts to -7.2. That’s the worst level since December. Backlogs fell by 17 pts to -15.0, the weakest also since December. Employment plunged by 18.5 pts to -20, the lowest since July 2009. The average workweek fell 8 pts to -11.5. Inventories were negative for the 14^th straight month. Prices paid rose 10 pts while those received was up by 7. Looking forward, the 6 month outlook was where there was a nice rebound of 12 pts to the best level since January 2015. The multi year bottom was in February when markets bottomed.

Bottom line, under the headline hood the key components were very weak and prices jumped. But, expectations are for things to improve in coming quarters. On the price side, there was a special question within the survey where “firms were asked to forecast the changes in the prices of their own products and general inflation over the next 4 quarters. The median forecast was for an increase in their own prices of 1% (vs 2% when last asked in May). Firms expect their employee compensation costs to rise at a much higher pace of 3% over the next 4 quarters (unchanged with May).” This spells further profit margin compression. “When asked about the average rate of inflation for consumers over the next 10 years, the firms’ median forecast was 2.5% (unchanged with May).”

The trade data out of Japan for July was pretty poor. Exports fell 14% y/o/y, a touch more than expectations of a 13.7% drop and the biggest fall since ‘09. While some of this was certainly soft global trade, much of this was due to the stronger yen however as actual volumes were down by 2.5%. The stronger yen though didn’t help imports as they plunged by 24.7% y/o/y vs the estimate of down 20%. Lower oil prices were a key factor. Import volumes though were down by 4%.

With the BoJ having lost control of the yen, Vice Finance Minister for International Affairs in Japan said overnight “We will keep ourselves on high alert all the time and watch the markets closely and, if we see such movements, we will firmly take necessary measures.” He said this after meeting with BoJ officials and other government regulators and DJ is reporting that this meeting “was emergency in nature, different from a series of regular gatherings in recent weeks, according to the finance ministry’s public relations office.” This get together comes after the yen rallied again over 100 but the talk of the meeting has it back above. Will they intervene soon? Japan doesn’t have a good history of being successful in getting what they want via intervention.

Also helping to reverse the rally in the yen overnight to back to unchanged was some very aggressive comments from an Abe advisor. The WSJ had an interview with Etsuro Honda who said “Monetary policy hasn’t been eased enough.” Really? He went on to say that there was a “50% possibility of bold monetary easing measures” next month as he doesn’t think owning 1/3 of the JGB market is enough and doing more will somehow get them a different result. Honda specifically wants a 25% increase in QE but should not go deeper into NIRP because of the damage being done to the banking system. In the most insane comment of them all from Honda was this according to the WSJ, “Effects of QE may be diminishing compared with a few years ago, but ‘what we should say is, Effects are diminishing so let’s do more.’ This is the spirit of Abenomics.” The ruling class has truly gone mad!

The comments were not enough to salvage the Nikkei as it closed down 1.6%. There is real question over how many more JGB’s banks have left to sell as they have to keep a certain amount from a regulatory standpoint. Here is an article overnight touching upon that from BN, //www.bloomberg.com/news/articles/2016-08-17/boj-cornered-as-japanese-banks-seen-running-out-of-bonds-to-sell

Japan had a 5 yr note auction overnight that went pretty well. I guess the -.165% yield was so much more compelling than the -.365% one in the previous 5 yr auction in July. The 10 yr yield closed down 1 bp to -.08% but remember this was -.29% three weeks ago.

Chinese apartment price changes in 70 cities, both new and existing units, in July were little changed both m/o/m and y/o/y. Price increases in the major cities are still out of control. Prices in Shenzhen were up 41% y/o/y but a moderation from the almost 47% y/o/y increase in June. Prices in Shanghai were up 27.3% y/o/y and 20.7% in Beijing. With prices in the aggregate up 6.1% y/o/y for the average new home vs 5.5% in June, the Shanghai property stock index rallied .9% overnight to the highest level since January. Copper is up 1% and aluminum is at a 13 month high. I’ll repeat again my belief that commodity prices have bottomed.

 Australia reported a much better than expected job’s report for July with a 26.2k increase in employment (est was up 10k) but it was all due to a 71.6k jump in part time workers as full time employment fell by 45.4k (biggest since October ’13). Many of these part timers were hired for the national election and census count. Their unemployment rate ticked down by one tenth to 5.7% to match the lowest level since 2013. The ASX fell .5% overnight but the Aussie$ was up.

UK consumers were seemingly not bothered by the vote to Leave as July retail sales ex auto fuel jumped 1.5% m/o/m and 5.4% y/o/y, well above the estimate of up .3% m/o/m and 3.9% y/o/y. It is likely that some of this improvement were from foreigners that saw the UK on sale with the plunge in the pound. The question from here for UK citizens is how much inflation they may face in coming quarters with the spike in import prices. Mark Carney just damaged the purchasing power of their money because he believe rates weren’t low enough and more leverage was needed. The pound is strong on the data with it at $1.315 vs the dollar.