1)The US services PMI for January rose .4 pts m/o/m to 53.2, the best since March 2019. “The expansion in new orders moderated slightly.” but, employment rose and “Service sector firms signaled an improvement in business expectations, as the degree of optimism reached a 7 month high. However, business confidence remained well below the series trend.” With respect to inflation, it “quickened to the sharpest since last July, despite being historically muted.”
2)Initial jobless claims totaled 211k, 3k less than expected but up from 205k last week (revised up by 1k). This drops the 4 week average to 213k from 217k and that is the least since late September. Continuing claims, delayed by a week and a few weeks removed from the highest level since April 2018, fell by 37k.
3)Existing home sales in December totaled 5.54mm annualized, above the estimate of 5.43mm and up from 5.35mm in November. That’s the most since February 2018 when mortgage rates were 60 basis points higher. Combining this sales pace and the sharp reduction in the number of homes for sale led to a drop in the months’ supply to just 3 from 3.7 in November. This drove a 7.8% y/o/y increase in the median home price. That is why these first time buyers made up only 31% of purchases. Investors continue to lift the pace of their buying as they search for yield, totaling 17% of purchases vs 16% in November, 14% in October and 13% one year ago. The NAR’s chief economist said “I view 2019 as a neutral year for housing in terms of sales. Home sellers are positioned well, but prospective buyers aren’t as fortunate. Low inventory remains a problem, with first time buyers affected the most. Price appreciation has rapidly accelerated, and areas that are relatively unaffordable or declining in affordability are starting to experience slower job growth. The hope is for price appreciation to slow in line with wage growth, which is about 3%.”
4)The January KC regional manufacturing index rose 7 pts but to a still below zero -1. It’s the 7th straight month in contraction.
5)The size of the Fed’s balance sheet seems to be topping out, for now, at just below the $4.2 Trillion level. Year to date it is down $20 Billion after falling by $30b for the week ended Wednesday.
6)The UK January manufacturing and services index rose to 52.4 from 49.3 and that was better than the estimate of 50.7 with both components rising. “Intensifying political and economic uncertainty ahead of the general election has started to ease, encouraging more spending and helping push business expectations of future growth to its highest since mid 2015.”
7)The UK CBI said business optimism in the UK rebounded sharply in January with its index spiking to +23 from -44. The estimate was -20. That’s the highest level since 2014. Actual order growth was still punk with this component at -22 from -28 but CBI said “it’s clear manufacturers are entering the new year with a spring in their step. Firms are now planning to invest more in plants and machinery, which will ultimately help increase capacity and output. However, this boost to sentiment belies poor trading conditions over the past quarter, with output and orders still declining. If we are to build on this rebound in optimism among UK manufacturers, it is crucial for the UK and EU to establish a trade deal that supports growth in this sector.”
8)For the 3 months ended November 208k jobs were created in the UK, well more than the estimate of 110k. The unemployment rate held at just 3.8%, the lowest since 1975. Wage growth was also pretty good, rising 3.4% y/o/y ex bonus’ as expected. As for the December jobless claims figure, they totaled 14.9k, the same pace seen in November.
9)Germany’s ZEW January investor confidence index on the German economy improved to 26.7 from 10.7 and that was much better than the estimate of 15. Current conditions rose 10 pts m/o/m to -9.5, 4 pts better than forecasted. ZEW said the “recent settlement of the trade dispute between the USA and China” was the main reason for the confidence lift as “This gives rise to the hope that the trade dispute’s negative effects on the German economy will be less pronounced than previously thought.” That hope better be realized this year. The main caveat, “Although the outlook has improved, growth is still expected to remain below average.”
10)Japan’s economy got better in January according to the Markit PMI data. Manufacturing remained below 50 but rose .9 pts to 49.3 while services led the way with a 2.7 pt m/o/m rise to back above 50 at 52.1. Taking the two together has the composite index at 51.1 from 48.6. This comes after what will likely be a down quarter in Q4.
11)South Korea’s economy performed better than expected in Q4 with a growth rate of 2.2% y/o/y vs the estimate of up 1.9%. It got a help from a lift in government spending. For 2019, economic growth was 2%, the slowest in 10 years and with government spending making up 3/4 of it. The Finance Minister said “Government finance should play a complementary role when the private sector is in trouble.”
12)South Korea said its exports in the first 20 days of January fell just .2%. That’s the least negative since December 2018 and its comp was a nearly 15% decline in January 2019. Semi exports were still very soft, falling by 17% y/o/y but not as bad as the 20%+ we’ve seen for months on end.
1)Now we have to deal with another mass virus.
2)The Markit manufacturing PMI in January slipped to 51.7 from 52.4, the lowest since October as “new business growth was only marginal as both domestic and foreign client demand softened.” Employment was above 50 but at a 4 month low and “The softer rise in employment coincided with signs of easing capacity pressures, with January seeing the first fall in backlogs for 4 months.” Price pressures fell.
3)With post holiday schedules for many getting back to normal, the MBA said purchase applications fell 2% w/o/w but are still up 8.1% y/o/y. Refi’s were down by 1.8% w/o/w but higher by 116% y/o/y. An average 30 yr mortgage rate of 3.87% is of course the help here as that is the lowest since September 2019.
4)The 3 month/10 yr Treasury yield spread has narrowed to just 15 bps from 27 bps one week ago and 32 bps one month ago.
5)The Eurozone composite index unchanged in January from December at 50.9 but that was a touch below the estimate of 51.2. Manufacturing, while still below 50, improved to 47.8 from 46.3 but was offset by a decline m/o/m in services to 52.2 from 52.8. Germany saw a gain in both components while the French composite index softened because of a drop in services offsetting a lift in manufacturing. Outside of Germany and France, “weakness was evident…with new orders unchanged and growth and business activity slowing to near stagnation.” Markit also said “While the year may have changed, the performance of the eurozone economy was a familiar one in January. Output growth was unchanged from the modest pace seen in December, signaling that the economy failed again to record a pick up in growth momentum.”
6)The French business confidence index in January fell to 104 from 105 and that is the weakest since February 2019. While manufacturing bounced off a multi year low, retail and employment weakness offset it. The services component was unchanged.
7)The December CPI ex food and energy in Japan rose .9% y/o/y as expected which happens to be the quickest rise since February 2016, helped by the VAT hike in October without which it would have been up .6%.
8)Japan’s exports in December fell 6.3% y/o/y, more than the forecast of a 4.3% decline. This is the 13th straight month that is down y/o/y. There was a green shoot and that was a pick up in semi equipment shipments, mostly to China. Weakness was seen in auto exports as they fell by 12% y/o/y and auto parts were down by 11%. Imports also were weaker than expected y/o/y.
9)The BoJ met this week and Kuroda just won’t throw in the towel on his 2% inflation obsession.
10)Australia’s economy weakened in January with its composite index falling 1 pt m/o/m to 48.6 and thus remaining in contraction with both manufacturing and services lower vs December. The brushfires certainly were an impact on business confidence.