The Boock Report

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Succinct Summation of the Week’s Events – 1/19

Positives

  1. Initial jobless claims totaled 220k, well less than the estimate of 249k and down 41k w/o/w. While this is a great number, the seasonal adjustments around the holidays are not always reliable and 7 states had to estimate their claims which is unusual. Smoothing this out, the 4 week average was 245k vs 251k last week and 242k the week before. Continuing claims was higher by 76k after 2 weeks of declines.
  2. Permits for single family homes rose up to 881k from 865k and that is the most since August 2007. Thus, maybe the December start number miss was just a timing shift. Multi family permits fell 17k m/o/m but tend to be very volatile.
  3. A 10 bps w/o/w jump in mortgage rates to 4.33% on average (the highest since the end of March 2017) got people off the fence to either buy or refinance. That and also the end of the holidays as mortgage apps typically rise in mid January. Purchases were up 2.7% w/o/w and 7.4% y/o/y. Refi’s were up by 4.4% w/o/w and 4% y/o/y.
  4. The NAHB home builder survey fell 2 pts m/o/m to 72 but was as expected and is at a very high confidence level. The NAHB said “Our members are excited about the year ahead, even as they continue to face building material price increases and shortages of labor and lots.” Lumber prices in particular are just below the highest level in 21 years.
  5. US industrial production jumped by 9 tenths in December vs the estimate of up .5% but that was mostly offset by a 3 tenths downward revision to November. Also, manufacturing production missed expectations. The headline gain was driven by utility output with the frigid weather.
  6. The November TIC data reveals that foreigners were net sellers of US notes and bonds of $18.8b after selling $22.3b in October. This brings the year to date purchases to a modest $35.9b. This follows net selling of $326b in 2016 and $20.3b in 2015. In 2014 they bought $165b and back in 2011 and 2012, annual purchases exceeded $400b in each year. China sold $10.5b of notes and bonds taking its holdings to the lowest since July and Japan was a net seller of $10b leaving its holdings at the least since June 2013.
  7. While it’s not in CPI, the ECB is getting inflation in other places. The European Union’s statistics agency reported that thru Q3 2017, home prices rose 1.7% q/o/q and 4.1% y/o/y, gains last seen in Q2 2007.
  8. The final look at December CPI in the eurozone was in line with the original, up 1.4% y/o/y headline and .9% core.
  9. Notwithstanding the rally in the euro, the Eurozone trade surplus rose to an 8 month high in December which is a key reason why the euro keeps rallying.
  10. The Chinese economy grew 6.8% y/o/y in Q4, the same pace seen in Q3 but that was one tenth more than expected. Industrial production was up by 6.2%, a tenth above the forecast.
  11. Property prices in 70 Chinese cities surveyed in December for both new and existing apartments rose in more of those cities than in both the month prior and vs last year.
  12. The China proxy that is Australia reported a much better than expected job gain in December.
  13. It’s always a volatile figure but Japanese machinery orders in November were solid with a 5.7% m/o/m gain, well more than the estimate of down 1.4% and follows a 5% rise in October.
  14. The Bank of Canada raised rates by 25 bps to 1.25% as expected.

 

Negatives

  1. The preliminary January UoM consumer confidence index fell to 94.4 from 95.9 in December and that was below the estimate of 97. This is the lowest print since July and below the 2017 average of 96.8. There was a 4.6 pt drop in Current Conditions while Expectations rose .5 pt after the 4.6 pt drop in December. One year inflation expectations rose one tenth to 2.8%, a level last seen in April 2016 and matches the highest since March 2015. A key reason is there was a 4 month high in those expecting higher gasoline prices. After a 7 pt jump in December, those expecting Higher Income fell by 4 pts while those expecting Lower Income was up by 3 pts. Also, those expecting higher income above their cost of living fell 4 pts to the lowest level in at least 6 months. The employment component was little changed. Those who said it’s a good time to buy a house fell 5 pts to the lowest since December 2008 (matching the same level in August 2011). Those that said it’s a good time to buy a vehicle fell 7 pts to a 4 month low. Those that said it’s a good time to buy a major household item fell 10 pts to match the lowest since October 2016. Lastly, there was a fresh record high in those surveyed who think the stock market will be higher over the coming year. At 66.1% it exceeds the previous peak of 64.5% in October 2017. The peak in the summer of 2007 was 62.2% and this question started to get asked in 2002.
  2. Are higher inflation expectations broadly growing? Demand for 10 yr TIPS at auction this week was robust. Inflation expectations Thursday closed at the highest level in almost 3 ½ years.
  3. On US inflation, the NY Fed’s Underlying Inflation Gauge for December was up a touch to 2.98% from 2.96%. The ‘prices only’ component was down a hair to 2.18% from 2.22%. “The UIG measures currently estimate trend CPI inflation to be approximately in the 2.2-3% range, with the prices only measure close to the actual 12 month change in the CPI.”
  4. Housing starts in December totaled 1.192mm, well less than the forecast of 1.275mm and it’s the lowest print since September. The sole culprit in the drop was the 12% m/o/m drop in single family starts to 836k, a 3 month low. Multi family starts held steady at 356k vs 351k in November.
  5. The Philly manufacturing January manufacturing index fell to 22.2 from 27.9, below the estimate of 25 and it’s the lowest level since August. Of particular note, new orders fell 18 pts to just 10.1, the weakest level since September 2016. Also, backlogs went negative to -1.8 from +12.8 and that’s the first time below zero since September 2016. Price pressures did increase in January and in particular, Prices Received jumped to 25.1 from 12.6. That is the 2nd highest level since 2008. Prices paid was up too. Employment fell while the workweek was up. Noteworthy too was the 6 month business activity index which fell 10.5 pts to the lowest level since July. Capital spending plans, notwithstanding the passage of the tax bill, fell 2.3 pts to the lowest since June 2017.
  6. The January NY manufacturing index was 17.7, 1.3 pts below the estimate and down from 19.6 in December. It’s at the lowest level since July. New orders fell to 11.9 from 19 but backlogs rebounded to 4.3 off the deeply negative print of -8.7 last month. Employment fell all the way down to 3.8 from 22.9 while the workweek is barely above zero at .8 from 9.3 in December. Looking out 6 months, the business activity outlook rose 2.3 pts as the inventory outlook component rose to a record high. As for capital spending plans, they improved a touch to 34.8 from 34.1 while tech spending plans rose by 5 pts.
  7. The CPI in the UK kept its 3 handle with exactly a 3% y/o/y gain as expected vs 3.1% in November. The core rate gain slowed to 2.5% from 2.7% and that was one tenth less than expected. The retail price index which doesn’t include housing accelerated to a gain of 4.1% y/o/y from 3.9% and that was 2 tenths more than expected. PPI moderated to a 4.9% y/o/y increase from 7.3% but output charges came in higher than expected, up 3.3% y/o/y.
  8. UK sales ex fuel fell 1.6% m/o/m vs the estimate of a decline of 1%. The y/o/y gain slowed to just 1.3% from 1.5% in November. For Q4, sales were up just 1% y/o/y. An official at the Office for National Statistics summed it up correctly by saying, “The longer term picture is one of slowing growth with increased prices squeezing people’s spending.”
  9. The producer price index in Germany rose .2% m/o/m and 2.3% y/o/y as expected. This marks the 12th month in a row of 2%+ PPI prints.
  10. Chinese retail sales in December slowed to 9.4% growth, well below the estimate of 10.2%, down from 10.2% in November and is the slowest pace of growth since 2006. Fixed asset investment held at 7.2% ytd y/o/y but that is the slowest pace seen since at least 1999.
  11. While the BoJ is not getting the consumer price inflation they want, they certainly are at the wholesale level. PPI in December rose 3.1% y/o/y. While one tenth less than expected, November was revised up by one tenth to a rise of 3.6% which was the most since September 2014.