The Boock Report

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Succinct Summation of the Week’s Events – 1/12

Positives

  1. December retail sales ex auto’s, gasoline and building materials (the control group) was up by .3% m/o/m vs the estimate of up .4% but there was a sharp 6 tenths revision upward to November so we can call the holiday season according to this metric, better than estimated. There also had to have been a lift post the storms where spending in September thru November were reflected in a rebound in building materials and furniture. Core sales up 5.6% y/o/y is just off the best since July 2011.
  2. December PPI fell .1% m/o/m instead of rising by .2% as expected. The core rate also fell by .1% m/o/m vs the same estimate of up .2%. Both follow gains of .3-.4% in the month prior. The y/o/y rise slowed to 2.6% from 3.1% for the headline figure and the core rate went to 2.3% from 2.4%.
  3. Import prices rose less than expected in December with a one tenth decline m/o/m in prices ex energy and food. They were though up 1.4% y/o/y, benign but around the highest level since 2012. The headline print was up 3% vs the estimate of 3.1% driven by energy. For perspective, the 25 year average in import prices is up 1.2%.
  4. The recent rise in yields did help to improve demand for the bonds the US Treasury sold this week. Supply by them ramps up a lot this year.
  5. The MBA said mortgage applications to buy a home rose 5% w/o/w but is down by .6% y/o/y as comps get tougher. Refi applications jumped by 11.4% w/o/w and are now up 6.5% y/o/y as the comps are now easy. This data is noise around the holidays but should start to normalize next week which coincides with the recent jump in mortgage rates.
  6. While not a positive for bonds, is the BoJ on the cusp of a shift in its monetary policy after the slight cut back in the purchases of longer term securities this week? Their annual run rate of QE is now running at about 50T yen vs their target of 80T.
  7. The December inflation data out of China was basically in line with expectations. PPI was up by 4.9% y/o/y, one tenth more than expected but a slowdown from the 5.9% rise seen in November on a tough comparison. CPI rose 1.8% y/o/y, up one tenth m/o/m but one tenth below the estimate. Keeping a lid on CPI is a continued fall in food prices. Prices ex food and energy though rose 2.2%.
  8. In Japan, base pay in November rose .4% y/o/y, up from .3% in October. Of note though, overtime pay jumped 2.6% y/o/y and bonus’ jumped by 7.5% y/o/y. This put overall cash earnings up .9% y/o/y, above the estimate of up .6% and that matches the best print since July 2016.
  9. Taiwan, a great global trade proxy with heavy dependence on tech, saw December exports rise 14.8% y/o/y, higher than the estimate of up 10.9%.
  10. In terms of containing the global debt bubble, credit growth really slowed in China in December as maybe, just maybe the attempts of Chinese authorities are actually working in moderating the breakneck pace of debt accumulation. Total credit extended totaled 1.14T yuan, below the forecast of 1.5T with bank loans coming in about 400b yuan less than expected being the main reason. Also of note, money supply growth as defined by M2 slowed to 8.2% from 9.1% in November and that was well below the estimate of up 9.2%. In data going back to 1996, money supply growth in China has not been this slow.
  11. UK industrial production in November was a bit better than expected with manufacturing leading the upside.
  12. German exports were up by 4.1%, well more than the forecast of up 1.2%.
  13. The November unemployment rate for the euro area fell one tenth to 8.7%, the lowest since December 2008 and it gets ever closer to the pre recession low of 7.3%. It’s also well off the 2013 high of 12.1%.
  14. Eurozone industrial production rose by 1% m/o/m in November, above the estimate of up .8% and October was revised up by two tenths.
  15. Eurozone retail sales were up 1.5% m/o/m in November, better than the forecast of up 1.3%.
  16. The Economic Confidence index for the Eurozone was higher by 1.4 pts to 116. The estimate was 114.8. The components of manufacturing, services, consumer confidence, retail spending and construction all rose m/o/m.
  17. Individual investor sentiment as measured by AAII cooled with Bulls down by 11 pts to 48.7 after 7 straight weeks of gains. Most went into the Bear camp which was higher by 9.5 pts to 25.1.

Negatives

  1. For those that consume, the Journal of Commerce index
  2. Headline consumer price inflation in December rose .1% m/o/m after a .4% gain in November. That was expected and the y/o/y rise is 2.1%. The core rate was up by .3% m/o/m and that was one tenth above the estimate and the y/o/y gain increased to 1.8% from 1.7%. That core rate matches the highest level since April. Rents remain a key factor in the sticky inflation for services.
  3. Initial jobless claims totaled 261k, up 11k from last week and 16k more than expected. This lifts the 4 week average to 252k which quietly is the most since early October. That said, I don’t put much stake in this data around the holidays even though it is seasonally adjusted.
  4. Job openings in November totaled 5.88mm. That is below the estimate of just above 6mm and down from 5.93mm in October. Hiring’s fell by 104k but ‘separations’ did as well by 49k (of which 13k quit). There was little change in layoffs (the balance is in the ‘other’ category). The hiring’s rate therefore ticked down to 3.7% from 3.8% but is consistent with trend. The quit rate held at 2.2%.
  5. The December NFIB small business optimism index fell to 104.9 from November’s multi decade jump to 107.5. Plans to Hire fell 4 pts but after jumping by 6 pts in November. Notwithstanding the tax bill and the incentive to increase capital spending, those planning to Increase Capital Spending was up just 1 pt and back to where it was in October. And, those that plan to Increase Inventory fell 8 pts and went negative. Those that Expect a Better Economy fell 11 pts after rising by 16 pts in November. Those that Expect Higher Sales fell by 6 pts. Those that said it’s a Good Time to Expand was unchanged. With the labor force, Positions Not Able to Fill rose 1 pt after falling by 4 in the month prior. Current Compensation was unchanged but positively, future Compensation Plans jumped 6 pts to 23%, matching the highest since 1989. The possible profit margin crimp however was reflected in Positive Earnings Trends which fell 3 pts to -15%, the lowest since November 2016. Part of this, those planning on Higher Selling Prices fell 2 pts after rising by 2 pts in November.
  6. Within the US consumer credit data for November which comes in the context of the US savings rate which is at a 10 year low, revolving credit outstanding (mostly credit cards) jumped at an annual percentage change of 13.3%, the fastest rate since the same month last year and the 3rd quickest pace since 2007. This is what helped to drive a good holiday spending season. Nonrevolving debt outstanding continued its epic rise, up another $16.8b to a fresh record high of $2.8 Trillion.
  7. Strangely, commercial and industrial loans outstanding close the year up 1.6% y/o/y vs a gain of 7.1% in 2016 and 10.3% in 2015. Help figure out what’s going on here.
  8. Japan’s consumer confidence index fell to 44.7 from 44.9. The estimate was 45. The important Income Growth component was unchanged but holding at the best level since May 2007.
  9. German factory orders fell by .4% m/o/m in November but partially offset by a 2 tenths upward revision to October.
  10. The Bull/Bear spread in the weekly II data reached its highest level since 1986, surpassing the 1987 high by .4 pts. Bulls rose to 64.4 from 61.9 while Bears are down to just 13.5 from 15.2.