1)Initial jobless claims totaled 290k, 7k less than expected and compares with 296k last week (revised up by 3k). This brings the 4 week average down to 320k from 335k last week and vs 345k the week before. Delayed by a week, continuing claims fell by another 122k after dropping by 124k last week. It’s now down by 339k over the past 4 weeks to 2.48mm. It was 1.77mm right before we shut down in mid March 2020.
2)The Markit US October manufacturing and services PMI rose to 57.3 from 55 and it was all due to the gain in services as it went to 58.2 from 54.9. Manufacturing slipped by 1.5 pts to a still high 59.2. According to Markit, “while the economy looks set for stronger growth in the fourth quarter, the upward rise in inflationary pressures also shows no signs of abating.”
3)The October NAHB home builder sentiment index rose 4 pts m/o/m to 80 and that was 5 pts better than expected. The six month average is 79 and year to date at 81. Present Conditions rose 5 pts to 87 while the Future Outlook was higher by 3 pts. Prospective Buyers Traffic was up by 4 pts m/o/m and at 65 compares with the six month average of 66. While demand is still there, at current price points not so much. The NAR said “Builders are getting increasingly concerned about affordability hurdles ahead for most buyers.” As for the supply side, more of the same as “builders continue to grapple with ongoing supply chain disruptions and labor shortages that are delaying completion times and putting upward pressure on building material and home prices.”
4)Existing home sales in September totaled 6.29mm, above the estimate of 6.10mm and up from 5.88mm. This is always somewhat of a dated stat because it includes contract signings during the spring and summer. Inventories remained so lean with months’ supply at just 2.4. On growing tougher comps, the median home price rose at a still very high 13.3% but down from 15.2% in August and 17.6% in July. These crazy gains are why the 1st time buyer made up only 28% of purchases, the least I’ve ever seen.
5)According to the August US TIC data, foreigners bought a net $30.7b of notes and bonds. This brings the year to date purchases to $12.4b which is a pittance but comes after selling $540b in 2020 most of which took place last March and April in a scramble for dollars. In 2019 there was net selling of $133.3b. Either way, foreigners are no longer big players in the US Treasury market relative to the amount of US marketable securities outstanding. Their holdings make up about 1/3 of marketable Treasuries after getting as high as 50% in 2011 and 2012. Japan remains the biggest holder and after selling $49b of notes and bonds in the 4 months thru July, they added back $7.3b in August. China bought a net $2.8b.
6)Australia’s composite survey went back above 50 at 52 from 46 mostly led by a rebound in services as the Covid restrictions were relaxed. Echoing what we’re hearing now seemingly every day Markit said “Supply issues contributed to the rise in backlogged work as well with panelists across both manufacturing and service sectors reporting shortages of inputs and labor constraints.”
7)In Japan, its composite index rose to 50.7 from 47.9 with both manufacturing and services moving up. Easier Covid restrictions specifically helped the services component rise back above 50. On the cost and supply constraints, “firms continued to highlight sustained supply chain pressures and material shortages. As a result, input prices rose at the fastest rate in over 13 years. This contributed to the sharpest rise in output charges since July 2018.”
8)Japan’s exports in September rose 13% y/o/y, above the estimate of 10.5% but this includes a 40% plunge in the exports of autos because of the lack of cars. A pick up in semi and steel exports were an offset. Because of higher oil and coal prices, imports jumped 39% y/o/y vs the estimate of up 35%.
9)Selling what they can in semi’s and cars and in the face of what is going on with China and its rolling power shutdowns, South Korea said its exports rose 36% y/o/y in the 1st 20 days of October. That follows a 23% gain in September for the same time frame. Imports grew by 48%.
10)The UK October PMI rose to 56.8 from 54.9 mostly led by service “as the UK has seen more people’s lives and livelihoods return closer to normal.” With inflation, “Higher wages and worsening supply shortages resulted in a rapid pace of input cost inflation during October. The latest increase in average cost burdens was the fastest since the index began in January 1998. Survey respondents often cited rising fuel, transport and energy bills, alongside steep price increases for items in short supply around the world. Output charges at UK private sector firms increased in response to escalating input costs, with the latest rise the steepest since the index began more than two decades ago.”
11)After the upside surprise in August, UK CPI in September was one tenth less than expected with a 3.1% y/o/y increase and 2.9% core rate. The retail price index though, which their inflation protected bonds are priced off, jumped 4.9% y/o/y which was 2 tenths more than forecasted. PPI was up by .4% m/o/m and 11.4% which was less than expected while output charges were as estimated, up .5% m/o/m and 6.7% y/o/y.
12)The business confidence index in France for October rose 2 pts m/o/m to 113 and that was 3 pts above expectations. The improvement was led by services, employment and retail confidence while manufacturing held steady.
13)Evergrande made an interest payment to offshore dollar bond holders but this could just be rearranging the deck chairs on the Titanic.
1)Inflation expectations are spiking globally and many central bankers are driving blind.
2)The Atlanta Fed’s GDPNow Q3 estimate is now down to .5%. It was 6% two months ago.
3)For those thinking that inflation is isolated to used car prices, Manheim said wholesale prices rose 8.3% in the first 15 days of October compared with September. They are up 37% y/o/y.
4)With another rise in the 30 yr mortgage rate to 3.23%, the highest since early April, the MBA said mortgage apps fell 6.3% w/o/w. Purchases were down by 4.9% w/o/w and 12.4% y/o/y to a 6 week low. Refi’s fell by 7.1% w/o/w and are down 22% y/o/y.
5)Housing starts in September totaled 1.55mm, below the estimate of 1.615mm and vs 1.58mm in August. Single family starts were unchanged with August at 1.08mm but that is the lowest since April. This compares with the 6 month average of 1.099mm. Multi family starts, always volatile month to month, fell to 475k from 500k in August and vs 450k in July. The 6 month average is 478k. Permits also missed expectations as they fell to 1.589mm from 1.72mm. That was about 90k less than expected. Single family permits fell by 10k m/o/m to 1.04mm and that is the least since July 2020. Multi family permits fell to 548k from 671k but August was a jump from 582k in July and 528k in June.
6)The October Philly mfr’g index fell to 23.8 from 30.7 and that was just below the estimate of 25. Looking out 6 months has the outlook at 24.2 vs 20 in September but well below the 6 month average of 41.4. Cap ex plans rose from September but are still below the half year average.
7)US industrial production in September fell by 1.3% m/o/m, well worse than the estimate of up .1% and August was revised down by 5 tenths. Weakness in utility output and motor vehicles/parts were the main reasons. Reflecting the problems with producing auto’s and the factory shutdowns as a result, capacity utilization in this key area fell to just 62.8% vs 67.7% in August and 69.9% in July. This dragged down overall capacity utilization to 75.2% from 76.2% in August and that is the lowest since April.
8)There was some moderation in the Eurozone October PMI as the composite fell to 54.3 from 56.2. Services fell by 1.7 pts to 54.7 while manufacturing was little changed at 58.5. Markit highlighted the supply challenges with manufacturing and blamed an uptick in virus cases in Germany for its drop in services. I’m not a fan of blaming Covid anymore with respect to mobility if there aren’t imposed restrictions. On pricing, “Average selling prices for goods and services are rising at a rate unprecedented in over two decades, which will inevitably feed through to higher consumer prices in the coming months.”
9)In the UK, the CBI industrial orders index for October fell to 9 from 22. The factors in the decline are quite well known at this point. CBI said “From higher material costs to labor shortages, manufacturers continue to face a number of serious global supply challenges hampering their ability to meet strong demand. Manufacturers are using key levers, such as hiring new workers and planning further investment in plant & machinery and training, to expand production. But with orders and costs growth expected to climb over the next quarter, we’re not out of the woods yet.”
10)In the week that Jens Weidmann, the head of the Bundesbank, threw up the white flag and resigned, Germany said PPI in September rose 2.3% m/o/m and that was double the estimate. They are up now 14.2% y/o/y. Go back to 1974 the last time you saw something so high with spiking energy prices leading the way.
11)Japan said its September CPI continues to be suppressed by lower mobile phone fees. Taking that out and inflation has quickened to a pace of about 1.4% led by higher energy prices.
12)The National Bureau of Statistics in China said home prices fell .8% m/o/m in September, while still growing 3.3% y/o/y. The biggest price declines were seen in the tier 3 cities where Evergrande and others have their big presence. Prices also fell in the tier 1 cities of Beijing, Shanghai, Shenzhen and Guangzhou. This is likely the beginning of a period of declines with the extent the big question. For new homes, prices rose in 27 cities of 70 surveyed vs 46 in August, 51 in July, 55 in June and 62 in May. They fell in 36 vs 20 in August, 16 in July, 12 in June and 5 in May. For existing homes, prices rose in 17 cities vs 27 in August, 41 in July, 48 in June, and 50 in May. They fell in 52 cities vs 17 back in May.
13)China, for reasons we all know by now, said its economy grew just 4.9% y/o/y in Q3, a touch below the estimate of 5% and outside of the Covid slowdown in 2020, that is the slowest in decades. After a sharp slowdown in August, retail sales did surprise to the upside but offset by slowing in industrial production and fixed asset investment.
14)Helping to trigger the bond selloff and rise in inflation expectations this week, along with the Andrew Bailey comments last Sunday, New Zealand reported that inflation rose 4.9% y/o/y in Q3 and 2.2% q/o/q, both well above the estimate of up 4.2% and 1.5% respectively.