1) The February NAHB home builder index surprised to the upside with a print of 62, 3 pts better and up 4 pts from January. The 6 pt combined gain in January and February follows the 12 pt drop in November and December. The Present Situation rose 3 pts m/o/m and is back to where it was in November at 67. Expectations jumped by 5 pts to 68 and is 3 pts above November but still 7 pts less than October. Prospective Buyers Traffic rose 4 pts but still remains below 50 at 48. It’s 6 month average is 47. The NAHB attributed the improvement to the “Ongoing reduction in mortgage rates in recent weeks coupled with continued strength in the job market…In the aftermath of the fall slowdown, many builders are reporting positive expectations for the spring selling season.” Other caveats though remain, “affordability remains a critical issue. Rising costs stemming from excessive regulations, a dearth of buildable lots, a persistent labor shortage and tariffs on lumber and other key building materials continue to make it increasingly difficult to produce housing at affordable price points.”
2) Initial jobless claims fell from 239k to 216k and that was 12k less than expected. The Presidents Day holiday though distorted the number. The 4 week average did rise to 236k from 232k as a 215k print fell out.
3) The Markit US services index for February improved by 2 pts m/o/m to 56.2. That’s the best since June. Markit said the gain was “supported by solid improvements in business and consumer spending.”
4) With the average mortgage rate little changed at just off the lowest level since March 2018, purchase applications rose 1.7% w/o/w but after 4 straight weeks of declines and vs the almost 10% drop last week. They are up 2.5% y/o/y. Refi’s bounced by 6.4% after last week’s 3.2% drop.
5) For the 3 months ended December the UK economy continued to spit out jobs at a good pace. Employment rose by 167k during this time frame, above the forecast of 151k and the unemployment rate held at 4%, the lowest since the 1970’s. Wage growth also was good, rising 3.4% y/o/y for a 2nd month, the best since October 2008.
6) The Eurozone February services PMI rose 1.1 pts m/o/m to 52.3 and that was 1 pt better than expected. The number though averaged 54.5 last year. Markit said “Solid domestic demand in many countries, notably Germany, continued to help support service sector growth and offset the downturn of the manufacturing sector. However, the overall rate of service sector growth remained relatively moribund compared to that seen throughout much of last year.”
7) The Eurozone January inflation revision was left unchanged as expected with headline CPI up 1.4% y/o/y and the core rate higher by 1.1%.
8) Off the lowest level since November 2016 French business confidence in February did rise 1 pt to 103.
9) Japan said its consumer price inflation rate in January was up by .4% ex food and energy y/o/y. That is up one tenth from December and is as expected. If we just take out energy which is what the BoJ does, prices rose .8% y/o/y as forecasted. With wage growth modest and bond yields microscopic, low inflation is a good thing.
10) Japan finished 2018 with a one tenth decline in core machinery orders but that was better than the estimated drop of 1%. For the quarter though, orders fell 4.2% from Q3 and mostly due to a drop in orders from overseas.
11) Australian job growth was better than expected in January with a gain of 39.1k, well above the forecast of 15k. The unemployment rate held at 5% as estimated.
Negatives
1) Late Friday we saw that there was a large amount of net selling of US notes and bonds in December by foreigners, particularly from the Chinese. The total amount of liquidation came to $77.4b, the largest one month draw down ever. This takes the full year 2018 net purchases to just $1.6b. While China’s holdings rose by $2.1b in December, it was only the purchases of T-bills that did it as they were net sellers of notes and bonds totaling $16b. Of these maturities past a year, the Japanese sold a net $1.3b.
2) The Philly manufacturing index for February plunged to -4 from +17 and that was well below the estimate of +14. That’s the weakest since May 2016. New orders and shipments also went negative. Prices paid fell but those received were higher. Employment got back some of what it lost last month. The 6 month business activity outlook was unchanged but expectations for new orders, employment and the workweek fell to the lowest since early last year. Capital spending plans were little changed, near a 4 month low.
3) The Markit US manufacturing February index fell to 53.7 from 54.9 and that is the weakest since September 2017. Markit said “Businesses that experienced a soft patch for production cited a range of factors holding back growth, including adverse weather, worries about the global economic outlook and ongoing international supply chain uncertainty.”
4) The December (so somewhat dated) non defense capital goods orders ex aircraft fell .7% m/o/m, below the estimate of up .2% and November was revised down by 4 tenths. This is the 4th month in the past 5 that has seen a m/o/m decline in core capital investment.
5) Existing home sales in January totaled 4.94mm annualized, below the estimate of 5mm and down from 5mm in December. This is the least since November 2015 with the average price slowing to a gain of 2.8% y/o/y (which is a good thing from an affordability standpoint). Months’ supply rose to 3.9 from 3.7 and from 4.0 in the month prior. The 1st time buyer totaled only 29% of purchases, matching the least since July 2015. With the drop in mortgage rates, the NAR is hopeful that things rebound.
6) The February Eurozone manufacturing PMI fell below 50 at 49.2 from 50.5 in January. The estimate was 50.3 and it’s the weakest since mid 2013. The German component fell to 47.6.
7) The German IFO business confidence index for February fell to 98.5 from 99.3. That was slightly below the estimate of 98.9 and both the Current Assessment and Expectations components were lower m/o/m. This leaves the index at the lowest level since December 2014. The IFO said simply “The economic situation in Germany remains weak.”
8) The February German ZEW survey of investor expectations of their economy rose by 1.6 pts but to a still negative 13.4, about as expected. Current conditions were particularly weak falling to 15.6 from 27.6 and vs the estimate of 20. That’s the weakest since December 2014. ZEW said “At the moment, we do not expect a rapid recovery of the slowing German economy. The economic situation in Germany has been weak, especially in the manufacturing sector. The figures for industrial production have once again seen a decrease, incoming orders are stagnant and foreign trade currently provides no fresh impulses.”
9) German PPI for January did surprise to the upside with a 2.6% y/o/y print, above the forecast of up 2.2%. It was led by the rebound in energy prices.
10) The UK CBI retail sales index was zero for a 2nd straight month. The estimate was +5. CBI said “The High Street has seen a slow start to the year, with y/o/y sales volume unchanged again this month. Although real earnings growth is higher, consumer confidence has been ebbing away, keeping a lid on demand…Until politicians can agree to a deal that commands a majority in parliament, is acceptable to the EU and protects our economy, business despair will deepen.”
11) The fly in the UK jobs data came from the January jobless claims data where claimants rose by another 14.2k after a 4 month stretch of above 20k.
12) Italian industrial orders in December slumped by 7.3% y/o/y.
13) Japan’s exports in January fell 8.4% y/o/y vs the estimate of down 5.7%. That’s the biggest one month decline since October 2016. Specifically, exports to China plunged by 17%.
14) Japan’s February manufacturing PMI fell to 48.5 from 50.3. Markit saw “output expectations turning negative for the first time in over 6 years, which comes as no surprise given the international headwinds Japanese manufacturers are facing such as a China slowdown and the global trade cycle losing further steam.”
15) Thailand exports fell 5.7% in January, more than double the estimate of a decline of 2.1%. That’s the 3rd month in a row of y/o/y declines.
16) The Australian manufacturing and services composite index fell below 50 in February at 49.7 from 51.3. This index began in May 2016 and this is the lowest print since.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.