The Boock Report

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Succinct Summation of the Week’s Events – 11/10/17

Positives

  1. The number of job openings totaled 6.093mm in September, slightly above the estimate of 6.075mm and little changed with August at 6.09mm. This is just off the record number of job openings seen in July 2017 at 6.14mm. The level of hiring’s (down by 147) and separations (down by 33) were certainly skewed by the storms. Those quitting rose after dropping in August.
  2. Retail sales in September for the eurozone was better than expected, up .7% m/o/m vs the estimate of up .6% and August was revised up by 4 tenths. The y/o/y gain of 3.7% was the best since July 2015.
  3. German exports saw a .4% m/o/m drop in September vs the forecast of down 1.3% but August was revised down to a 2% gain from the 1st print of 3.1%. So call it a push. Versus last year, exports were up 7.7% and thus not perturbed by the higher euro.
  4. German factory orders jumped by 1% m/o/m, well more than the forecast of down 1.1%. The German Economic Ministry said “order activity increased further from an already high level…Improved business confidence suggests that the upswing in manufacturing will continue.”
  5. French IP was better than expected but the manufacturing component grew by half the estimate.
  6. UK IP in September was above expectations, helped by oil/gas and mining but manufacturing was a bit better than forecasted too.
  7. Regular base pay in Japan in September jumped .7% y/o/y. It doesn’t sound like much but it does match the fastest pace since March 2000. There was also a sharp 11.6% y/o/y increase in bonus’ payments.
  8. The Japanese services PMI rose 2.4 pts to 53.4 and that was the best since August 2015. According to Markit, “This was supported by the sharpest rise in new orders since May 2013. In turn, firms accumulated further backlogs, while also adding to their payrolls for the 10th month running. On the price front, although cost pressures continued to build, output price inflation weakened to a mild pace.”
  9. Hong Kong’s economy grew at a pretty decent clip in Q3, by 3.6% y/o/y vs 3.9% in Q2 and 4.3% in Q1 and this is shaping up to be its best growth since 2011.
  10. China’s trade data was about in line with expectations for October. Exports in dollar terms rose 6.9% y/o/y vs the estimate of 7.1%. Imports grew by 17.2% y/o/y vs the forecast of up 17%. With the trade surplus year to date with the US at around $200b it is on track for a record high this year which I don’t view as a negative.

 

Negatives

  1. In the context of the global interest rate bubble, higher market inflation expectations increased globally this week. The Japanese 10 yr inflation breakeven rose 4 days in a row and at .50% is at the highest level in 5 months. The German inflation breakeven is up 5 bps this week to 1.27%, the highest in 9 months. The euro inflation 5 yr 5 yr swap is at the highest in 8 months. The US 10 yr inflation breakeven is up 3 bps this week to 1.90%, the highest in 6 months. Is this a lot to do with the rise in oil prices and other commodities with the CRB index at a 9 month high? Likely in part but see my other comments today on wages in Japan and brewing inflation in Europe.
  2. Initial jobless claims totaled 239k, 6k more than expected and up 10k w/o/w. Processing claims in Puerto Rico is still an issue but is getting better. The 4 week average fell by 1k to 231k which is the lowest since 1973. Continuing claims, delayed by a week, rose 17k after touching its lowest level since the early 1970’s in the week prior.
  3. Weekly mortgage applications were basically flat w/o/w. Purchases were up .5% after last week’s .8% drop but still are up 9% y/o/y. The sharp y/o/y gains in purchases end in coming weeks on tougher comps. Refi’s fell .5% w/o/w and are still down 37% y/o/y.
  4. If you are a homeowner you are enjoying this but if you are looking to buy, the Core Logic report this week said “Home prices nationally increased y/o/y by 7% from September 2016 to September 2017.” They also said “Nearly half of the nation’s largest 50 markets are overvalued.” I still hear Fed members whining about the mystery of low inflation.
  5. New stock market highs day after day and junk yields around 5% and the slightest hint of some market indigestion leads NRG to cancel a debt offering “in response to broader market conditions.” A sign of underlying fragility or just spoiled investors?
  6. We’ll get updated data later today but last Friday’s C&I figure from the Fed showed only 1% y/o/y loan growth in this key business category.
  7. The UoM consumer confidence index for November fell to 97.8 from 100.7 and that was 3 pts below the estimate but comes after a 5.6 jump in October that put it at the highest level since 2004. Both main components of Current Conditions and Expectations fell by an equal amount m/o/m. One year inflation expectations bounced back by two tenths to 2.6% after falling by 3 tenths last month. It’s slightly below the 5 yr average of 2.8%. Those expecting Higher Income fell 3 pts to the lowest since April. But, those expecting Lower Income fell 1 pt and “Improved finances were reported by 51% of all consumers in November, just below the 17 yr high of 53% in October.” There was improvement in the employment component which rose to the best level since April. Expectations for business improved m/o/m. With respect to spending intentions, those that plan to buy a home fell 7 pts (netting out good time to buy and bad time to buy) but after rising by 11 pts last month. Those that said it’s a good time to sell a house fell 4 pts but still remains near the highest level in 12 years. Those that plan to buy a car fell 8 pts but after jumping by 13 pts in October. There was little change in those that plan to spend on a major household item. After touching its highest level in this 15 yr old question last month, those expecting higher stock prices over the next 12 months fell 2.4 pts.
  8. At the same time the personal savings rate falls to a 10 year low, revolving credit (mostly credit card debt) outstanding rose above $1T in September, the highest since January 2009. The annual percentage change rose to 7.7%, almost twice the 5 year average. Non-revolving credit outstanding rose another $14.4b m/o/m to a fresh record high of $2.78T. That is 69% above the peak in 2008 as student debt held at the federal government hits another new high.
  9. Japanese machinery orders in September fell 8.1% m/o/m which was much worse than the estimate of down 2% and the biggest drop since May 2014. Versus last year, orders fell 3.5%.
  10. China reported faster than expected inflation for both CPI and PPI. October CPI rose by 1.9% y/o/y vs the estimate of up 1.8% and that is up from 1.6% in September. That’s the quickest pace since January and it was the 2.4% rise in non food and prices that drove it. Producer prices were up by 6.9% y/o/y, unchanged with September and above the forecast of up 6.6%.
  11. In China, its FX reserves in October rose a touch m/o/m to $3.109T but that was a hair below the forecast of $3.11T. It’s the 9th month in a row of gains but the smallest increase of the 9. A combination of factors such as the squashing of large overseas deals, the general weakness in the US dollar this year and decent economic data over the past few quarters are the main reasons.
  12. German industrial production missed expectations. It fell 1.6% m/o/m vs the estimate of down .9% but were still up 3.6% y/o/y. Also, for the 3rd quarter as a whole, production was up by .8%. The Economic Ministry said “Overall, industrial production should expand further in the coming months.”
  13. Italian September IP missed expectations.
  14. Remember this as we enter 2018 and the ECB ends QE and gets closer to reversing NIRP: Benoit Coeure, an ECB Executive Board member said “We don’t see at the euro zone level any financial bubble, there are little signals for concerns.” Mario Draghi this week said “There is little evidence that negative rates are undermining banking profitability.” This as the Euro STOXX bank index closed down 4 of 5 days this week and sits just above a 2 month low and 18% below its 2014 high.
  15. For those sanguine on the inflation outlook in Europe and with yields at microscopic levels, I reprint these inflation quotes from Markit this week: Services and Manufacturing composite index, “Inflationary pressures have meanwhile lifted higher, with price charges for goods and services rising at a rate not beaten for over 6 years. Some price rises merely reflect the pass thru of higher costs, but companies are also reporting stronger pricing power as demand conditions continue to improve, which suggests underlying inflationary pressures are becoming more engrained.” German construction, “intense supply chain constraints contribute to sharp rise in input costs…The incidence of delivery delays was one of the greatest seen for over a decade, while purchase price inflation was pushed to a 6 ½ year high.” Retail PMI, “Gross margins facing eurozone retailers continued to be squeezed at the start of the fourth quarter… Contributing to falling margins was another rise in average input prices. Moreover, the rate of inflation quickened to a 57 month high and remained substantially greater than the long run series average.”
  16. Eurozone PPI in September rose .6% y/o/y and 2.9% y/o/y. Both were two tenths more than expected and higher energy prices helped out as they were up by 1.5% m/o/m and 4.6% y/o/y. Ex energy we still saw a 2.2% y/o/y rise in producer prices.
  17. The eurozone services PMI was slightly adjusted for October to 55 from the first print of 54.9 but that is down from 55.8 in September. Germany, Spain and Italy all saw m/o/m declines while France improved again while Ireland saw the fastest pace of gains.
  18. Markit retail sales PMI in the eurozone fell 1.2 pts in October.
  19. Bullish sentiment got even more euphoric this past week according to the II survey. Bulls rose .9 pts to 64.4%. The high in 1987 was 65%. Bulls did get into the low 70’s in late 1972. With Bears remaining unchanged at 14.4%, the lowest in 30 months, the Bull/Bear spread is now 50 and is just .5 pt from matching the peak in early 1987.

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