With the churn in the stock market now reaching 5 weeks, Investors Intelligence said some of the extreme bullishness cooled a bit. Bulls fell to 54.5 from 57.3 and which was the highest since January 22nd. Bears broke a 13 week losing streak, rising by 1.4 pts to 19.8. The spread of 34.7 is still wide but off the 38.9 seen last week and also was last seen in January. Bottom line, excessive bullishness over the past month plus coincided with a short term rest in the markets and it’s likely that in coming weeks earnings season will take over as the main story, along with virus counts.
Mortgage apps fell for a 2nd week with purchases down 1.3% w/o/w and refi’s lower by 2.2% w/o/w. As for purchases, it’s still been a good run as the gain y/o/y is still 15.2%. Refi’s are up 74% y/o/y. The average 30 yr mortgage rate of 3.29% at record lows is certainly a help.
While I’ve credited the Swedish Riksbank for getting out of negative interest rates, I can’t agree with their news today of adding even more to QE and saying they are going to buy corporate bonds. More of the same as central banks further their presence in private markets when all we need are effective therapeutics and a vaccine to cure what mostly ails the global economy. What’s become apparent globally is that all the QE is just meant to finance the growing government debts and deficits everywhere.
Today is a data dump day with a bunch of June figures coming out. With the whole world basically experiencing the same thing with fighting the virus and all the collateral economic damage associated with that, the bottom line’s are all pretty much the same with the variances being related to how much one’s economy has reopened. China’s private sector weighted Caixin June PMI rose .5 pt to 51.2. The estimate was 50.5. Caixin said this increase was “as most of the country had the epidemic under control and the economy continued to recover.”
South Korea’s mfr’g PMI 43.4 vs 41.3, Japan’s 40.1 vs 38.4, Australia, 51.2 vs 44, Taiwan 46.2 vs 41.9, India 47.2 vs 30.8, Thailand 43.5 vs 41.6, Indonesia 39.1 vs 28.6, Malaysia 51 vs 45.6, Vietnam 51.1 vs 42.7, and Philippines 49.7 vs 40.1. I believe we can tie the improvements in varying degree to the help of China and its reopening and recovery.
Also out, South Korea’s exports in June fell 10.9% y/o/y vs the estimate of down 9.1%. This though follows a 23.6% fall in May but with weakness in auto’s, chemicals and a flat read with semi’s. Computer exports spiked by almost 100%. Exports increased to China but was offset by declines to the US, EU and Southeast Asia. Imports were lower by 11.4% vs the forecast of down 10.1%. South Korea remains a great economic bellwether to watch. The Kospi was little changed overnight.
Japan reported its quarterly Tankan report for Q2 and it was weak as expected for both manufacturing and services and for both big and small companies. Capital spending plans were up a bit more than expected. As I’ve been saying, because of years of conservatism, Japanese companies have the best balance sheets out there so the current period of weakness can be weathered by many.
I pointed out the more than 1 yr high in the 40 yr JGB yield and today it continues to jump. It’s higher by 4.3 bps to .67% and reflects an area of their curve where the BoJ is neglecting. Maybe reflecting what can happen when a central bank doesn’t sit on the neck of rates.
40 yr JGB yield
The Eurozone June manufacturing PMI was revised to 47.4 from 46.9 initially and that is up 8 pts m/o/m to the highest since January as factories reopen. Markit said “Expectations for the year ahead have also rebounded sharply as hopes grow that the economy will continue to find its feet again in the coming months. However, even with these gains, production and sentiment remain below pre-pandemic peaks, and persistent weak demand combined with ongoing social distancing measures are likely to act as a drag on the recovery.” Nothing we don’t already know. Both bonds and stocks are soft in Europe as is the euro.
The UK manufacturing PMI was left unrevised at 50.1 but that is up 9.4 pts from May. So the reopening optimism is here. Now what matters most is the pace of the improvement. UK stocks and bonds are weak too but the pound is unchanged.
Finally, German unemployment in June rose by 69k people but that wasn’t nearly as bad as feared with the estimate up 120k. The unemployment rate, thanks to the payment program of keeping employees on the payroll, rose just one tenth to 6.4% from 6.3%. This labor subsidy support has really contained the level of unemployment and has been adopted in other European countries. It’s all about buying time to get past this virus.