While the comments from the Saudi Energy Minister yesterday telling speculators who are betting against the price of oil to “watch out” and “I keep advising them that they will be ouching” helped to rally prices, it is not just the Saudi’s that are keeping a lid on supply. If you didn’t see on Friday, the US crude oil rig count fell to the lowest since last June. We remain bullish and long.
US Oil Rig Count
While the speculation from one individual in China speaking at a conference saying he’s expecting 65mm per week of Covid infections in another wave, if we’ve learned any lessons whatsoever over the past 3 years is that any wave will come and it will go away, quickly . Yesterday the Macau stocks got hit and for a 2nd day the European luxury goods stocks are. I expect the selloff to reverse in coming weeks.
Here’s an update on freight after we saw another below 50 print in US manufacturing from S&P Global and there has been no improvement. Yesterday the American Trucking Association’s said its For Hire Truck Tonnage index fell 1.7% in April after dropping by 2.8% in March and they said “While the broader economy continues to surprise and thus far stave off an expected recession, the freight economy is starkly different. The goods-portion of the economy is soft and as a result, even contract truck freight is now falling, albeit not nearly as much as the spot market. The tonnage index hit the lowest level since September 2021 in April and has now fallen on a y/o/y basis for two straight months.”
JB Hunt yesterday at a Wolfe Research Global Transportation & Industrials conference said “When we came into the year, we were certainly optimistic about an improving environment in the 2nd of the year. As the year has gone on, it’s probably been a little bit of concern around what will happen ultimately over the rest of the year. I don’t have any green shoots for you this morning.”
Landstar System released an 8k last night ahead of their presentation at the Wolfe Research Global conference today and it said that the CEO and CFO “intend to state during their remarks at the conference that based on overall market conditions and trends in the number of loads and revenue per load on loads hauled via truck through the first 7 weeks of the Company’s 2023 2nd quarter, the Company anticipates both revenue and diluted earnings per share to be below the low end of the Company’s prior guidance issued on April 26, 2023. The updated guidance reflects truck load volume currently trending below the 2022 2nd quarter by 16-18%, and revenue per load on loads hauled via truck trending below the 2022 2nd quarter by 15-16%.”
The April US Architecture Billings Index fell to 48.5 vs 50.4 in March. Particular weakness was seen in ‘multifamily residential’ whose component fell to 41.5 from 44.2 and thus well below 50. As stated here many times, while there is a lot of multi family supply currently being finished, there is almost NO new supply getting started as deals have been canceled. AIA chief economist said “The ongoing weakness in design activity at architecture firms reflects clients’ concerns regarding the economic outlook. High construction costs, extended project schedules, elevated interest rates, and growing difficulty in obtaining financing are all weighing on the construction market.”
While the average 30 yr mortgage rate is now back above 7% according to Bankrate, Toll Brothers CEO in their earnings release last night said “As mortgage rates have stabilized and buyer confidence has improved, the increase in demand that began in January has continued through our 2nd fiscal quarter and into the start of our 3rd quarter.”
The MBA said the purchase applications for the week ended May 19th fell 4.3% w/o/w and by 30% y/o/y. This component is now at the lowest since early March and near the lowest going back to 1995. So yes there is a lot of excitement for the US home builders but for those using a mortgage to buy a home, the pace of transactions is near the lowest point in almost 30 years. Refi’s fell 5.4% w/o/w and are down by 44% y/o/y.
MBA Purchase Apps
DICKS Sporting Goods in their earnings call said people are still spending on athletic stuff. “We had really strong transaction growth…We had ticket growth. We have more athletes purchasing from us, purchasing more frequently, and spending more per trip. And I think very importantly, you have to look at each of our income demographics and we saw growth across every single income demographic from a lower income consumer to an upper income consumer. We did not see trade down from best to better or better to good. Overall, we really feel very good about how our consumer is holding up.” They reaffirmed guidance.
Gilts are selling off after April UK CPI rose 8.7% y/o/y. While down from the 10.1% pace seen in March it still was 5 tenths more than expected and the core rate accelerated further to 6.8% from 6.2%. The estimate was for no change. PPI moderated more than expected but the market is all focused on CPI today. The 10 yr inflation breakeven is up 4 bps to a one month high. The 2 yr gilt yield is up by a sharp 22 bps to 4.36%, the highest since last October. The 10 yr yield is up by 7 bps and by 40 bps over the past 6 trading days. The BoE is really stuck.
2 yr Gilt Yield
The May German IFO business confidence index softened to 91.7 from 93.4 and that was below the forecast of 93. Most of the decline came from the Expectations component but the Current Assessment was down too m/o/m. The IFO said “Managers are somewhat less satisfied with their current situation. German companies are skeptical about the upcoming summer.” Outside of the drop in the DAX of 1.7%, but which is following the US market yesterday and its European peers today, along with those in Asia, bund yields are only slightly lower and the euro is little changed.
Finally the Reserve Bank of New Zealand raised rates by 25 bps to 5.50% and signaled that that is likely the last one, though expect higher for longer. They said “All of the committee were comfortable with the forward path that had interest rates holding around 5.5%…The committee is confident that with interest rates remaining at a restrictive level for some time, consumer price inflation will return to within its target range of 1-3% per annum.” The Kiwi is down by almost 2% in response and the 2 yr yield is lower by 29 bps.