Positives
1)The final January UoM consumer confidence index did rise by .7 pts to 99.8 which was better than the initial print of 99.1 and up .5 pt from December. The components though were mixed as Current Conditions fell 1.1 pts while Expectations were higher by 1.6 pts. Inflation expectations out one year were 2.5% vs 2.3% in December and 2.5% in November. Disappointingly, the Net Income component did soften to match the lowest since January 2018 but “Consumers continued to favorably assess recent changes in their personal finances.” To this, employment expectations are the best since November 2018. Spending intentions were mixed. The level of bullishness on the stock market is at the highest level since January 2018 as respondents said there is a 65.6% chance of higher stock prices in the next year. That is the 2nd highest print since this question was first asked in 2002.
2)The January Conference Board consumer confidence index rose 3.4 pts m/o/m to 131.6 vs the estimate of 128. This is the best since August when it printed 135.8. Both the Present Situation and the Expectations components rose m/o/m. One year inflation expectations rose one tenth to 4.5% which is slightly below the 5 year average of 4.8%. The key to the rise in confidence was the answers to the labor market questions. Those that said jobs were Plentiful rose 2.5 pts to a 5 month high. Those that said jobs were Hard to Get fell to a 3 month low. Also, those expecting ‘More Jobs’ rose to a 4 month high.
3)With another leg lower in mortgage rates, mortgage apps responded positively. Purchases rose 5.3% w/o/w and are now up 16.6% y/o/y (an easy comp as we know what the state of the world was one year ago after the Q4 2018 selloff) while refi’s rose 7.5% w/o/w and 146% y/o/y.
4)The January Richmond manufacturing index printed 20, well better than the estimate of -3 and up from -5 in December. That’s the best read since September 2018.
5)The Dallas manufacturing index for January rose 3 pts to a still negative -.2, albeit modestly.
6)The Employment Cost Index said private sector wages and salaries rose 3% y/o/y, about the same pace as seen in the past few years.
7)US Q4 GDP came in at 2.1% q/o/q annualized, one tenth better than expected but the internals were very mixed. Final sales to private domestic purchases rose just 1.4%, the weakest since Q4 2015. Consumer spending rose 1.8%, two tenths less than expected. A lower price deflator added 4 tenths to the REAL figure relative expectations. Non residential fixed investment saw a decline for the 3rd straight quarter. The Inventory drag took off 100 bps from GDP (a lot driven by GM). A huge 8.7% decline in imports mathematically contributed to the trade component of GDP. Spending on intellectual property was solid as it was for residential investment.
8)China’s services PMI in January rose to 54.1 from 53.5.
9)Japan’s labor market remained tight in December as the jobless rate held at just 2.2% and the jobs to applicant ratio at 1.57.
10)Japan saw IP in December exceed expectations.
11)Hong Kong said its exports in December rose 3.3% y/o/y, a bit better than the estimate of up 2.7%. That breaks a 13 month losing streak and does follow an easy comparison as exports fell 5.8% y/o/y in December 2018. Exports in particular to China jumped by almost 16%. Imports were lower by 1.9% y/o/y as expected.
12)On easy comps and maybe some stabilization, South Korean industrial production in December rose 3.5% m/o/m, well better than the estimate of up .7%.
13)CPI in the Eurozone in January rose 1.4% headline as expected but the core rate slipped to 1.1% from 1.3% and that was one tenth less than expected.
14)The Euro area Economic Confidence index for January rose 1.5 pts m/o/m to 102.8 and that was 1 pt better than expected (cycle peak was 114.6). Finally the improvement was led by a less worse manufacturing sector and another lift in construction which is getting helped by microscopic interest rates. Consumer confidence on the other hand held at the weakest level since September 2016.
15)In Germany, the unemployment rate remained at the lowest level since reunification 30 years ago at 5% in January. The number of unemployed fell by 2k instead of rising by 5k as expected. A spokesperson at the German Labor Agency said “The economy’s weak phase continues to leave its mark, but overall the labor market proved itself robust at the start of the year.”
16)Germany’s consumer confidence index rose .2 pts to 9.9. This peaked in February 2018 at 10.8 but this is still a high level.
17)French consumer confidence rose 2 pts m/o/m to just below the highest since early 2018.
18)For the entire Eurozone, the unemployment rate fell to 7.4% in December from 7.5% in November. That is now just one tenth from the pre recession level back in 2007. It makes current monetary policy in Europe even more mind boggling.
19)The Bank of England did not cut interest rates from an already low level of .75% as they took some comfort in the recent lift in confidence figures both from business and households.
Negatives
1)The Wuhan virus just continues to spread and further shuts down parts of the global economy.
2)The Fed did nothing with respect to rates and the statement as expected but Jay Powell believes that the expansion of their balance sheet is somehow happening in a vacuum and any relationship to asset prices (which he acknowledged were high with respect to stocks) is essentially coincidental. The Fed’s balance sheet though has stopped expanding for now (as repo’s roll off as do MBS, offset by T-bill purchases).
3)The January Chicago manufacturing index was the worst of the regional surveys coming in at 42.9, 6 pts less than expected and the weakest since December 2015. This brings the 3 month average to 45.9 vs the 50 breakeven level. New orders fell 6.1 pts to 41.5 while production fell to the lowest since July 2019. Backlogs, the precursor to orders and production, fell to a 4 yr low at just 34.6. Inventories fell to the least since May 2016 at 40.2, below 50 for 6 straight months. Employment stayed below 50 at 47.
4)Pending home sales in December fell 4.9% m/o/m, below the estimate of up .5%. All 4 regions saw declines ranging from 3.6% to 5.5%. This takes the seasonally adjusted index to 103.2, the lowest since February 2019. The shortage of homes and resulting persistent rise in home prices are mitigating the obvious benefit of low mortgage rates. The NAR said “Due to the shortage of affordable homes, home sales growth will only rise by around 3%…The state of housing in 2020 will depend on whether home builders bring more affordable homes to the market. Home prices and even rents are increasing too rapidly, and more inventory would help correct the problem and slow price gains.”
5)New home sales in December totaled 694k, 34k less than expected and November was revised down by 22k to 697k. We can’t blame supply as it picked up to the most since July and months’ supply rose to 5.7 from 5.5, also the most since July. Notwithstanding the miss relative to expectations, the 6 month average at 698k compares with the 2019 average of 682k and the 2018 average of 615k with the sharp drop in mortgage rates the obvious help
6)Core durable goods orders in December fell .9% m/o/m, worse than the estimate of up .2% and November was revised down by one tenth. This important measure of capital spending has basically flat lined ever since the trade battle and tariff fight with China ramped up in mid 2018.
7)The flawed PCE inflation gauge that is directing monetary policy saw a 1.6% y/o/y headline and core increase in December.
8)China’s January manufacturing PMI, surveyed before the impact of the virus was initally felt, was just 50.
9)Helped by the hike in the VAT, CPI in Tokyo ex food and energy in January rose .9% y/o/y, holding at the highest level since 2015.
10)On the heels of the October hike in the VAT, Japanese retail sales in December fell 2.6% y/o/y, more than the estimate of down 1.8%.
11)Japanese consumer confidence in January was unchanged at 39.1, a touch below the estimate of 39.5. While this is the highest since May, it remains well below the peak in this cycle of 44.6 back in November 2017. The Income Growth component fell .3 pts and this peaked in early 2018.
12)The Eurozone economy grew 1% in Q4 y/o/y, one tenth less than expected and another repeat of that is expected in 2020. The French and Italian economies contracted.
13)The January German IFO business confidence index unexpectedly fell to 95.9 from 96.3 and that was below the estimate of 97. It printed 95.1 in November and 94.7 in October. The components though were mixed as while Expectations fell 1 pt m/o/m, the Current Assessment was up a touch by .3 pts. The IFO said “The German economy is starting the year in a cautious mood.”
14)Money supply growth in December in the Eurozone slowed to a 5% growth rate down from 5.6% in November and that was below the forecast of 5.5%. Loan growth to companies slowed to just 3.2% y/o/y, a 2 year low and down from 3.4%. You can bring a horse to water but… Loans to households though rose 3.7% y/o/y from 3.5% and that is the best in 11 years, helped by mortgages.
15)The UK CBI January retail sales index was zero for the 2nd straight month which happens to be the highest since April but the estimate was +5. CBI said “Both official data and business surveys are painting a picture of subdued activity for retailers. A challenging Christmas has extended into the New Year, with little expectation of any improvement soon.”
16)Love what you do, //www.youtube.com/watch?v=kMZEBDIXudE
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.