1)While still adding to their balance sheet, while not getting around to raising interest rates, which is the most direct tool in containing inflation, until maybe March at the earliest, the Fed has finally woken up to the high inflation that they have contributed to and now preside over.
2)This week we saw rate hikes from the Bank of England, Norges Bank in Norway, Banxico in Mexico, the Russian central bank and the central banks in Hungary and Chile. The ECB confirmed that their PEPP is ending in March, though they will expand its other purchase program to mitigate the impact. Even the BoJ said come April they will slow down the pace of purchases for commercial paper and corporate bonds.
3)Initial jobless claims totaled 206k, 6k more than expected and up from 188k last week (revised up by 4k). These though are the lowest readings since before Covid and the 4 week average fell to 204k from 220k. Delayed by a week, continuing claims declined by 154k and now totals 1.845mm, also the lowest since mid March 2020.
4)Housing starts in November were 1.679mm annualized, 110k more than expected. Single family starts were up by 119k m/o/m to 1.173mm, the most since March. Multi family starts were higher by 58k to 506k and that is the highest since February 2020. With respect to permits, for single family they rose by 29k m/o/m and by 21k for multi family.
5)The December NAHB home builder survey rose 1 pt from November to 84 as expected. The present outlook went to 90 (out of 100) from 89 while the outlook was unchanged at 84. Prospective Buyers Traffic rose 1 pt to 70 and that is the highest since June. The NAHB said “Building has increased but the industry faces constraints, namely cost/availability of materials, labor and lots.”
6)With no change in the average 30 yr mortgage rate, purchase apps were little changed too, up .7% w/o/w but still down 9.4% y/o/y.
7)The December NY manufacturing index rose 1 pt m/o/m to 31.9 and that was 7 pts above the estimate. Looking ahead, the 6 month outlook was 36.4 vs 43.3 while prices paid is at its 6 month average and those received are 6 pts above. Capital spending at 38 compares with 31.2.
8)The November NFIB small business optimism index rose a touch to 98.4 from 98.2. Current and future compensation plans held at record highs dating back to 1984. In turn, plans for Higher Prices rose to 59, up 6 pts m/o/m and that is the most since 1979. Plans to Hire fell 1 pt to 25 while Job Openings were down by 1 pt too to 48. It peaked at 51 in September. Capital spending plans fell 4 pts after rising by 3 last month. Plans to raise inventories rose 2 pts. Discouragingly, those that Expect a Better Economy declined another 1 pt to match the weakest level on record dating back to 1974 smack in the middle of that recession. Those that Expect Higher Sales rose 2 pts after falling by a like amount last month. There was no change in those who said it’s a Good Time to Expand which held at the lowest since February. Lastly, earnings trends was unchanged at the lowest since August 2020. The chief economist of the NFIB said “As the end of the year nears, the outlook for business conditions is not encouraging to small business owners as lawmakers propose additional mandates and tax increases. Owners are also pessimistic as many continue managing challenges like rampant inflation and supply chain disruptions that are impacting their businesses right now.”
9)When including the revisions, US industrial production in November was about as expected with some slight upside in manufacturing because of a rise in auto production in particular. Capacity utilization ticked higher by 3 tenths to 76.8%.
10)The November Cass Freight Index saw shipments rise by 4.5% y/o/y and 2.6% m/o/m. They said this, “Freight volumes remain capacity constrained, as shown by declining rail volumes and the ongoing backlog of containerships outside of US ports. Although little progress has been made on the ocean as of yet, the pickup in our shipments index shows progress as the freight industry works to de-bottleneck.” Implied freight rates were 38% higher y/o/y and 5.5% m/o/m and “higher fuel surcharges are part of the increases, as are modal mix, accessorial fees, and significantly longer lengths of haul due to intermodal service issues.” Truck continues to take share from rail as “the chassis fleet remains far from what is needed to address rail network congestion, so imports continue onto truckload, particularly off the West Coast.”
11)The UK said for the 3 months ended October employment rose by 149k but that was less than the estimate of up 225k but payrolls specifically in November jumped by 257k, a record number, as the end of the jobs furlough in September led to a lot more hiring, although October’s figure was revised down by 86k to 74k. Their unemployment rate did tick down by one tenth to 4.2% in October as forecasted and wage growth ex bonus’ rose 4.3% y/o/y, better than expectations of up 4%.
12)Retail sales in November in the UK ex auto fuel was better than expected with a 1.1% m/o/m increase, 3 tenths more than expected and October was revised up by 4 tenths.
13)Australia reported a big upside surprise in their November jobs report. Their economy added 366k workers, well more than the estimate of 200k and the unemployment rate fell to 4.6% from 5.2%. The estimate was 5%.
1)The Fed is still adding billions to their balance sheet (which is now at $8.75 Trillion, up $92b on the week), still buying MBS in particular and won’t hike rates until maybe March and more likely May and thus feel more QE and zero rates is still appropriate for the next 3-5 months.
2)Because the other developed central banks like the BoE, ECB, BoJ, BoC and RBA have gone so deep with easing, real rates are going to stay very negative for a while to come. The central banks in Taiwan, the Philippines and Switzerland all kept rates unchanged as expected.
3)Turkey’s central bank cut rates another 100 bps to 14% in the face of 21% inflation. The Lira plunges another 15% this week and is down 52% over the past 12 months vs the US dollar. While gold doesn’t get any love in US dollars, it’s up 110% in Turkish lira terms this year.
4)The November PPI rose .8% m/o/m, 3 tenths more than forecasted with a core rate higher by .7% m/o/m, also 3 tenths above the estimate. Versus last year producer prices are now higher by 9.6% with a core increase of 7.7%. Energy added 2.6% m/o/m and food prices by 1.2%. Core goods prices were up .8% m/o/m and service prices by .7%.
5)Import prices in November were up .7% m/o/m and 11.7% y/o/y and taking out petro saw a similar m/o/m increase and a 7% y/o/y gain. That’s a 10 yr high in headline import prices. Under the headline, again industrial supply prices are leading the way higher with a 1.8% m/o/m jump and prices that are up 44% y/o/y. Import prices too from China are picking up again with a .3% m/o/m and 4.5% rise. We’re exporting inflation too as export prices rose 1% m/o/m and 18.2% y/o/y. Take out fuels and food, export prices rose .5% m/o/m and 8.5% y/o/y.
6)In the NY Fed’s Consumer Expectations survey for November, one year inflation expectations rose to 6% from 5.7%. That is now double the 3% read in January 2021. The median 3 year ahead inflation expectations component fell to 4% from 4.2%. It was also at 3% in January. And, the NY Fed said “the decline in medium term expectations was driven by respondents without a college degree.” The NY Fed’s bottom line, “Perceptions about households’ current financial situations compared to a year ago deteriorated in November, with more respondents reporting being financially worse off than they were a year ago. Respondents were also more pessimistic about their household’s financial situation in the year ahead, with fewer respondents expecting their financial situation to improve a year from now.”
7)The US December PMI manufacturing and services composite index fell a touch to 56.9 from 57.2 with both components lower m/o/m. For perspective, this index has averaged 57 over the past six months.
8)The December Philly manufacturing index fell to 15.4 from 39 and that was half the estimate. Also disappointing was the overall 6 month outlook which fell to 19 from 28.5 and compares with the half yr average of 29. Capital spending plans in particular at 20 is 10 pts below the 6 month average. Price pressures did ease somewhat.
9)Core retail sales unexpectedly fell by .1% m/o/m in November and that was well below the estimate of a gain of .7%. it was only partially offset by a 2 tenths upward revision to October to a 1.8% gain. Since March, REAL retail sales are down.
10)With 50 the breakeven, the November Architecture Billings Index fell to 51 from 54.3 with the biggest decline in commercial/industrial, followed by multifamily residential. The chief economist of AIA said “The period of elevated billing scores nationally, and across the major regions and construction sectors seems to be winding down for this cycle. Ongoing external challenges like labor shortages, supply chain disruptions, spiking inflation, and prospects for rising interest rates will likely continue to slow the growth in firm billings in the coming months.”
11)In contrast to purchases, the MBA said refi’s fell 6.4% w/o/w and are down 41% y/o/y.
12)The German December IFO business confidence index fell to 92.6 from 94.2 with both components lower. That is the lowest since January. The IFO was succinct with its conclusion, “The German economy isn’t getting any presents this year.” Manufacturing outperformed services. With the former, “order books grew substantially. However, companies’ assessments of the current situation was somewhat worse. Supply bottlenecks for intermediate products and raw materials intensified once more.” It was in services that was more broadly weaker as “the business climate nosedived.” Trade and construction also softened.
13)Germany reported its PPI for November and it was up .8% m/o/m after a 3.8% spike in October. While that was 6 tenths less than expected, it was still up 19.2% y/o/y after an 18.4% rise in October. Germany also saw November wholesale prices jump 1.3% m/o/m and 16.6% y/o/y.
14)French business confidence for December fell 3 pts to 110 where the estimate was for no change. That’s the lowest since May because of a drop in services, retail and employment likely due to Covid worries. Manufacturing rose 1 pt.
15)The November UK CPI print was up 5.1% y/o/y, 3 tenths more than expected. That’s the fastest since September 2011. The core rate accelerated to a 4% y/o/y increase, also 3 tenths higher than forecasted with higher used car prices and clothing leading the way. As for the retail price index which drives inflation breakevens, it was up by 7.1% y/o/y. Wholesale prices too came in more than anticipated for both input prices and output charges.
16)The Eurozone December PMI fell 2 pts to 53.4. The estimate was 54.4 with most of the decline driven by services with the variant outbreak. The German services PMI in particular fell below 50 because of the spread. Manufacturing though continues to hold up and Markit said “the strain on supply chains is showing some signs of easing, in turn helping to revive factory production. Most notably auto production has risen for the 1st time since August.”
17)The UK PMI fell to 53.2 from 57.6 and well below the forecast of 56.3 with also most of the weakness in services because of you know what. Manufacturing was only down slightly. Also, “Private sector growth expectations for the next 12 months are now the lowest since October 2020 and considerably weaker than seen during the early stages of the vaccine rollout.”
18)The Japanese manufacturing Tankan index for Q4 was unchanged with Q3 at 18. The estimate was 19. The outlook slipped 1 pt as we know Japanese industries are facing the same supply challenges as everyone is. For small manufacturers, the index improved q/o/q but were still below zero for both the quarter and the outlook. Improvements were seen for service companies, both big and small as restrictions were eased as the vaccination rate jumped. Capital spending plans remained elevated at 9.3% but down from 10.1% in Q3 and just below the estimate of 9.8%.
19)Japan’s manufacturing and services composite index declined to 51.8 from 53.3 with most of the m/o/m decline in services while manufacturing was down just slightly. Also, “Business confidence towards the year ahead weakened across both manufacturing and service sectors as concerns over supply chains, rising costs and the unpredictable nature of the pandemic pushed overall optimism to the lowest in four months.”
20)Australia’s composite index fell to 54.9 from 55.7 with both components lower. Markit said “Supply issues meanwhile persisted, with lead times continuing to lengthen and reports of shortages persisting. This led to a surge in price pressures for private sector firms and affected business confidence alongside lingering Covid concerns for private sector firms.”
21)Retail sales were up 3.9% y/o/y in China in November, below the estimate of up 4.7%. For perspective, in the 5 years leading into Covid, this averaged a 9.7% annual rate of gain. Industrial production was higher by 3.8% y/o/y, one tenth more than estimated and this sector has been thrown around with power shutdowns, pollution dictated production halts, and supply problems. Fixed asset investment grew by 5.2% year to date, just below the forecast of up 5.4%.
22)As for residential real estate, new home prices in China fell by .33% m/o/m and is now the 3rd straight month of declines. Of the 70 cities surveyed, prices fell in 59 of them m/o/m, although only 16 saw a drop y/o/y. For existing homes, 24 saw declines y/o/y and 63 m/o/m. New construction starts are now down 9% year to date from last year.