Positives
1) GDP in Q1 rose 3.2%, much better than the estimate of up 2.3%. The upside beat was helped by net trade (exports jumped while imports contracted sharply) and inventories which combined contributed almost 170 bps of the rise. Personal spending though, the biggest component was up just 1.2%, two tenths more than expected as an increase in spending on services and nondurable goods offset a decline in spending on durable goods. Spending on equipment was flat but where the strength continues to be is in spending on intellectual property (mostly software) which added 40 bps to GDP. Spending on residential real estate saw a contraction as did spending on non residential structures for a 3rd straight quarter. Government spending, because of a boost to state and local spending and thus offsetting the government shutdown, added 40 bps to GDP. Also helping the REAL beat was a lower than expected price deflator which rose .9% instead of the estimate of up 1.2%. The core PCE inflation rate was up 1.3% q/o/q annualized.
2) Core durable goods orders in March jumped 1.3% m/o/m, well better than the forecast of up .2% and February was revised up by 2 tenths. The upside was driven by a 2.2% rise in the computers/electronics component. Still, the core y/o/y gain of 2.7% still compares with the 12 month average of 5.5%.
3) The final UoM April consumer confidence index at 97.2 was slightly better than the initial print of 96.9 and the estimate of 97. It’s still down 1.2 pts though from March. From March, both current conditions and the expectations components were down m/o/m. One year inflation expectations did tick up by one tenth to 2.5% from the first April print but that’s the same as the March one. The Net Income component fell 5 pts from the first print and down 11 pts from March to match the weakest level since January 2018 but the UoM said “Income gains remained widespread and reports of increases in net household wealth rose among middle and upper income households.” Employment expectations were unchanged from March but improved from the first April print. Business expectations were mixed relative to March. Spending intentions were mixed again.
4) New home sales in March, measuring contract signings in the key Spring season, totaled 692k, 43k more than expected vs 662k in February (revised down by 5k). This is the best level of sales since November 2017 with gains in the Midwest, South and West. The Northeast region, most plagued by the SALT deduction cap, saw sales fall by 8k m/o/m to match the slowest pace since October 2018. As the number of homes for sale were little changed, months’ supply fell to 6.0 from 6.3 and that’s the least since May 2018. The median home price fell a rather sharp 9.7% y/o/y and marks 5 months in a row of y/o/y price declines but this is more a mix thing. Where the biggest demand for homes is are for those priced below $300k and that is where most of the upside came from with March sales and it also explains the median home price decline.
5) The Japanese labor market remains drum tight as the jobs to applicant ratio held at 1.63 for the 5th straight month at the highest since 1974.
6) Japanese retail sales in March were a touch better, rising .2% more than forecasted.
7) The UK CBI said its April sales index improved sharply to +13 from -18. The estimate was zero. They were “encouraged to see retailers with more of a spring in their step than in recent months” with the help of higher real wages but said “however, this month’s sales growth will have been distorted by the later timing of Easter, and falling sales in clothing and department stores underline how challenging underlying conditions remain.” They acknowledged that Brexit has been delayed but “uncertainty continues to drag on consumer confidence, and many retailers report an impact on their sales.”
Negatives
1) Within the Q1 GDP figure, real final sales to private domestic purchases (takes out trade, inventories and government spending) rose just 1.3%, the weakest print since Q2 2013.
2) After two weeks in row of below 200k initial jobless claims prints, they bounced back to a rise of 230k, well more than the estimate of 200k. The Good Friday holiday was the main likely influence. Smoothing out the noise has the 4 week average at 206k vs 202k last week and vs 207k in the week prior. Continuing claims, delayed by a week, was little changed w/o/w.
3) With the slight uptick of 2 bps in the average 30 yr mortgage rate to 4.46%, mortgage applications fell 7.3% w/o/w. Within this, refi’s fell for the 3rd straight week, down 11%, after strong gains at the end of March. They remain up though by 13% y/o/y. Purchase applications fell 4.1% w/o/w to a 4 week low and are higher by just 2.9% y/o/y.
4) The Richmond manufacturing index for April weakened to just 3 from 10. The estimate was for no change. This is the 2nd lowest print since April 2018.
5) The April KC manufacturing index fell to 5 from 10. The estimate was 8. That matches the 2nd weakest print since November 2016. The caveat according to the KC Fed was “About a third of firms noted that flooding and extreme weather had negatively affected their activity in recent months.”
6) Existing home sales in March totaled 5.21mm, 90k less than expected and February was revised down by 3k. With the number of homes for sale increasing to the most since November, months’ supply ticked back to 3.9 from 3.6 in February and vs 3.9 in January. The median home price rose 3.8% y/o/y but at $259,400 is the most expensive since last August. That said, the y/o/y price gain is below the 5 yr average of 5.4% and this home price slowdown is needed to encourage more younger people and first time buyers to enter the market. Maybe this, combined with lower mortgage rates, is why 33% of all purchases were from first time buyers which matches the most in years. Existing home sales in the Northeast fell to match the smallest amount since April 2015. The NAR said “The lower end market is hot while the upper end market is not. The expensive home market will experience challenges due to the curtailment of tax deductions of mortgage interest payments and property taxes.”
7) To the dismay of Tokyo citizens, the April Tokyo CPI ex food (their core figure) rose 1.3% y/o/y, two tenths more than expected and up from 1.1% in March. That’s the quickest pace since October 2008 if we take out the VAT hike influence in 2014 and 2015. The core/core rate which also takes out energy was higher by .9%, also two tenths above the estimate.
8) The Japanese unemployment rate rose two tenths to 2.5%, up two tenths and one tenth more than expected as the size of the labor force grew faster than the number of new jobs created.
9) In Japan, there was a .9% m/o/m decline in March industrial production which compares with no expected change. On a y/o/y basis we saw the worst print since May 2015, down 4.6%. Production has now declined by 2.6% in Q1 from Q4 and certainly raises the risk of an overall GDP contraction in the quarter.
10) Instead of throwing up the white flag, the Bank of Japan again basically said ‘just give us more time’ to achieve their inflation goal. They own 40% of the JGB market and 70% of the ETF market. I guess until they fully nationalize their capital markets, it won’t be enough.
11) The South Korean economy contracted unexpectedly in Q1 by .3% q/o/q instead of rising by .3% as expected. Since the great recession there has been only one other quarter that saw a q/o/q decline, in Q4 2017 and that was by .2%. Exports make up almost 50% of the South Korean economy and they dropped 2.6% q/o/q.
12) South Korea reported its exports fell 8.7% y/o/y in the first 20 days of April. That’s the 4th month in a row of declines. Of note, semi shipments plunged by 25% y/o/y (semi’s make up about 20% of South Korea exports).
13) In March, Taiwan’s industrial production figure fell 9.9% y/o/y, well worse than the forecast of a 2% drop and it was driven by a drop in electronic parts. It’s the biggest y/o/y decline since January 2012.
14) Taiwan said its March exports dropped by 9%, almost double the estimate of a decline of 5%. That’s the 5th month in a row of y/o/y drops. The fall in electronics and electrical products led the weakness.
15) Singapore’s industrial production figure for March fell 2.6% m/o/m vs the estimate of down 2%, partially offset by a 3 tenths upward revision to the decline in February.
16) The April German IFO business confidence index fell .5 pt to 99.2 which was below the estimate of 99.9. This is the 7th month in the past 8 with m/o/m declines. Both current conditions and expectations components fell m/o/m. The IFO said “Companies are less satisfied with their current business situation. March’s gentle optimism regarding the coming months has evaporated. The German economy continues to lose steam.”
17) French business confidence in April held at 105 which was 1 pt better than expected but the manufacturing component was softer and fell to match the lowest level since June 2015. There was no change in the services component while the retail sector improved. The employment component sagged to the lowest since January.
18) The UK CBI April industrial orders index fell to -5 from +1. The estimate was +2. It’s the lowest read since October and CBI said “UK manufacturing activity is just about holding up, but the unprecedented pace of stockpiling suggests that Brexit contingency planning stayed at the forefront of manufacturers’ minds…Across the economy as a whole, stockbuilding is likely to have supported economic growth in early 2019. However, business surveys suggest that underlying conditions remain more subdued, as Brexit uncertainty and slower global growth bite further on activity.”
19) Another central bank that is trapped below zero, the Swedish Riksbank, said that instead of finally getting its benchmark rate back to zero from -.25% and -.50% before that, they “will remain at this level for a somewhat longer period of time than was forecast in February.” Trapped.
20) The Euro STOXX bank index was down almost 4% on the week after ECB Executive Board member Benoit Coeure, a candidate to replace Draghi, said this morning with respect to NIRP that “At the current juncture, I do not see the monetary policy argument for tiering. Those who would profit from tiering are, above all, banks with high excess liquidity, of which many are located in France and Germany where bank lending is already running high. Thus there is no evidence so far that the negative deposit rate is bad for lending. On the contrary.”
21) Eurozone consumer confidence for April fell to match the 2nd lowest level since March 2017.
22) The Turkish lira and Argentinian peso are plunging yet again.
23) Did we really need to see an article on the markets titled “What if the Bull Market Just Never Ends?”
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.