Initial jobless claims totaled 234k, 11k below expectations and essentially flat with the 235k seen last week but with both at very low levels. This helped to drop the 4 week average to 247k from 250k last week and vs 255k in the week prior. The low in this cycle was 240k at the end of February which was the lowest since the late 1970’s. Continuing claims, delayed by a week, fell by 7k to a 3 week low. Bottom line, as not much changed w/o/w I’ll use the same line I used last week, “Until proven otherwise, I think the landscape remains the same in that employers are hopeful for faster growth and are thus keeping their employees at the same time its getting tougher to add more qualified workers.”
Ahead of tomorrow’s CPI which the market cares much more about, today’s PPI for March was down .1% m/o/m vs the estimate of no change and after a .3% rise in February while the core rate was flat vs the forecast of up .2% and also up against a .3% rise in the month prior. Taking out food, energy and trade saw wholesale prices up .1% m/o/m, one tenth less than expected. Looking at the headline vs last year has it up 2.3% vs 2.2% in February. That’s the most in 5 years. The core rate was higher by 1.6% y/o/y vs 1.5% in the month prior and the highest since January ’15. Services inflation fell driven by a 4.1% drop in loan services (reflecting the drop in refi’s or other loan categories?). Goods prices also fell led by a m/o/m fall in energy (led by gasoline) but was higher by .4% ex food and fuel.
Bottom line, uneventful is the best way of describing the PPI figure. We are only a few months away from recycling out the sharp y/o/y gains in energy prices which will thus cap headline gains going forward. The question therefore is what happens to the core rate and I think we’ll continue to see sticky services inflation but benign price trends for goods. That said on goods prices, and as for industrial commodities generally, the JOC index is just 3 pts from a 2 ½ yr high and are still up sharply y/o/y. After yesterday’s dollar comment driven move, inflation breakevens are up slightly this morning.
Overseas, the Chinese trade data surprised to the upside for both exports and imports. On a dollar basis, exports in March jumped 16.4% y/o/y, well more than the forecast of up 4.3%. The gains were broad based geographically and helps to confirm the belief that global trade has bottomed out after a challenging few years. That said, a spokesman for the General Administration of Customs said trade should slow down in Q2 from the pace in Q1. Imports were higher by 20.3% y/o/y vs the forecast of up 15.5%. With respect to China’s insatiable appetite for commodities, there were double digit y/o/y percentage increases in imports of coal, crude oil (to an all time record high), fuel oil, iron ore, steel and soybeans. Copper imports though fell 20% y/o/y but improved in March from the levels seen in January and February. There was basically no stock market response to the upside surprise as both the Shanghai comp and H share index were unchanged. The yuan is back to unchanged after the post Trump comment surge overnight. I remain generally positive on commodities more due to supply side responses but they now may get a lift from a weaker dollar IF it follows from here.
The China economic proxy that is Australia reported a big upside jobs surprise in March but keep in mind the large monthly volatility in its measure. Employment grew by 61k, triple the estimate while the unemployment rate held at 5.9% as the participation rate rose by 2 tenths. Full time job growth was the most in almost 30 years. Not only has the Australian economy survived the commodity crash and now benefiting from its stability, the Reserve Bank of Australia is now dealing with an easy money driven debt and housing bubble problem. What will the RBA do in response with rates at just 1.5% which is at a record low for them? In its Financial Stability Review today which comes out twice a year they said “In Australia, vulnerabilities related to household debt and the housing market more generally have increased. Some riskier types of borrowing, such as interest only lending, remain prevalent.” We can same the same thing about Canadian households where Toronto and Vancouver are in the midst of an epic housing bubble. How many times do we have to see central bank easing credit bubbles occur before any lessons are learned? The Aussie$ is higher vs the US dollar while the ASX closed down .74%.