Positives
1) In November, the US trade deficit fell to $49.3b from $55.7b in October. That’s well below the estimate of $54b but was mostly due to a 2.9% drop in imports to the lowest since June as exports fell .6%. While this will boost Q4 GDP, it’s not for the right reasons and instead is just the math. Reflecting the slowdown in key economies and regions overseas, merchandise exports to Europe fell 4.5% m/o/m and to China by 5.1%. Exports to all of the Pacific Rim were lower by 4.4% m/o/m. In part due to the lower deficit, the Atlanta Fed GDPNow forecast rose this week to 2.7% from 2.5% for Q4.
2) French industrial production in December was about as expected when we include the November revision. The manufacturing component rose 1% m/o/m after falling by 1.5% in the month prior.
3) Germany finally saw an upside surprise to its economic data with exports rising by 1.5% m/o/m, above the estimate of up .4%. On a y/o/y basis, exports though were up by just 1.3%, the 2nd smallest print since the summer of 2016. Exports within the Eurozone grew by 4.5% y/o/y and were higher by 1.9% outside of the EU.
4) Japan’s services PMI for January rose to 51.6 from 51.0 in December and vs 52.3 in November. Markit said “The improved expansion was supported by healthy inflows of new business from domestic clients, as a renewed decline in export orders was observed.” Combining manufacturing services has the composite index at the lowest level since September 2016, “indicating the downside momentum in Japan’s underlying growth trajectory.”
5) Coming from a Jet fan, respect for the Pats. This was my favorite from Super Bowl week, //twitter.com/Steve_Perrault/status/1087723821677887489
Negatives
1) The dollar amount of negative yielding bonds rose to $8.9 Trillion on the week, the most since December 2017 when combined global QE was running more than $100b per month.
2) The Fed’s quarter senior loan officer survey reflected some issues that bears watching. “Regarding loans to businesses, respondents to the January survey indicated that, on balance, banks tightened standards for commercial real estate (CRE) loans, while standards and most terms on commercial and industrial (C&I) loans remained basically unchanged. Meanwhile, demand for loans to businesses reportedly weakened. For loans to households, banks reported that their lending standards for most categories of consumer loans and residential real estate loans remained basically unchanged on balance. Credit cards were the one exception, with standards reportedly tightening over the fourth quarter. Meanwhile, banks reported weaker demand for all categories of loans to households.” For 2019, “Banks reported expecting to tighten standards for all categories of business loans as well as credit card loans and jumbo mortgages. Demand for most loan types is expected to weaken, on net, with the one exception being credit card loans, for which demand is expected to remain unchanged.”
3) After the holiday distorted initial claims data over the past few weeks and the private sector impact of the partial government closure where smoothing it out averaged 227k, claims for the week ended Feb 2nd was 234k, 13k more than expected. The 4 week average has now risen to 225k from 220k and that is the most since early December. Continuing claims, delayed by a week, fell by 42k off the highest level since April.
4) Even though the average 30 yr mortgage rate fell 7 bps w/o/w to 4.69%, the lowest since April, mortgage applications to buy a home fell 4.9% w/o/w, down for a 3rd week and lower by 1.8% y/o/y. Refi’s were basically flat w/o/w but still down 19% y/o/y.
5) The January ISM services index fell to 56.7 from a revised 58 last month (from 57.6). The estimate was 57.1 and this level does match the lowest since December 2017. New orders dropped 5 pts to the least also since December 2017. Of the 18 industries surveyed, only 11 saw growth and that is down from 16 in December. 7 industries saw an outright contraction vs one in December.
6) From the November factory orders figure, non defense capital goods orders ex aircraft, aka core capital spending, fell .6% m/o/m in November, the 3rd monthly decline in the prior 4.
7) The WSJ survey of small businesses index fell to the lowest level since the presidential election. “Just 14% of firms expect the economy to improve this year, while 36% expect it to get worse.” The lone caveat was that this survey was done right before the government reopened but I don’t think businesses expected the closure to last that long anyway. Reflecting the conflicting signals, one CEO said “I’d rather play it safe at this point. I’m divided right down the middle. Half of me is very positive. Half of me is very nervous.”
8) The Markit Hong Kong January PMI was 48.2, little changed from 48 in December. It marks the 10th straight month below 50. Markit equates this level with just 1.5% GDP growth. They said “Given flagging Chinese demand, the outlook for Hong Kong’s private sector continues to darken. Business sentiment remained negative, as signalled by the Future Output Index. Firms trimmed staff numbers further and cut back on purchasing activity.”
9) The January PMI in Singapore has fallen to no growth at 50.1 from 52.7 in December. That’s the lowest since September and Markit said “The underlying trajectory of Singapore’s economy took a turn for the worse during January, as PMI data revealed a further loss of growth momentum. Output stagnated amid a weaker rise in new business. Export orders declined at a faster rate, with panelists blaming neighboring Southeast Asian countries for the drop in foreign demand…Against an already challenging global economic development, signs of a waning domestic market suggest difficulties lie ahead for Singapore.”
10) The growth of regular base pay in Japan (which takes out influence of bonus’ and overtime) in December moderated from the recent pace with a .9% y/o/y increase after a 1.3% rise in November which was the most since 1997. Including bonus’ and overtime did see a 1.8% y/o/y increase in cash earnings which is the best since June.
11) Household spending in December in Japan was up just .1% y/o/y, well less than the estimate of up .8% and follows a .6% drop in November.
12) The EU cut its 2019 growth forecast to 1.3%, a sharp reduction from the 1.9% they estimated only back in November. The EU said “Much of the euro area’s loss of growth momentum can be attributed to fading support from the external environment, including slower global trade growth and high uncertainty regarding trade policies. However, there have also been a number of domestic factors at play.”
13) The Bank of England did nothing as expected but are downgrading their economic forecast. Their 2019 GDP estimate is down to 1.2% from 1.7% previously. They said “The world economy has continued to slow over recent months, with a broad based softening across all regions…UK economic growth slowed in late 2018 and appears to have weakened further in early 2019. This slowdown mainly reflects softer activity abroad and the greater effects from Brexit uncertainties at home.”
14) Germany said its December industrial production figure fell .4% m/o/m, below the estimate of up .8% but partially offset by a 6 tenths upward revision to November. The German Economy Ministry said “In light of receding orders and soft sentiment indicators, momentum in industry should continue to be muted.”
15) German factory orders fell 1.6% m/o/m, well worse than the estimate of up .3% but that was partially offset by an 8 tenth upward revision to November. Nine of the 12 months in 2018 saw a m/o/m decline in this figure. Versus last year, factory orders fell by 7%. The weakness was mostly with non Eurozone economies with weakness in China likely a factor while Eurozone orders were up. Domestically, orders fell slightly. The German Economic Ministry said “The decline in orders in December indicates that the industry’s phase of weakness is continuing for the time being.”
16) Italian IP was weak in December, falling by .8% instead of rising by .4% as forecasted.
17) Spanish IP fell 1.4% m/o/m in December, well worse than the estimate of up .4%.
18) The revised January services PMI for the Eurozone was lifted to 51.2 from the first print of 50.8 and that puts it unchanged with December. That though is a 49 month low with France and Italy “the primary sources of weakness, with both countries registering declines in activity during January.” Business improved in both Germany and Spain. The combined manufacturing and services index is at 51, the weakest in years. Markit said “The Eurozone has started 2019 on a flat note, with growth close to stagnation amid falling demand for goods and services.” They forecast this level as equating to growth of just .1% q/o/q which would be the slowest since 2013. They summed up the report by saying “The survey indicates that political uncertainty, both global and local, is increasingly taking a toll on growth, dampening demand and driving increased risk aversion. Add in rising global trade tensions, Brexit uncertainty, the ‘yellow vest’ protests in France and a spluttering auto sector, it’s clear that the business environment is at its most challenging since the height of the region’s debt crisis.”
19) The UK economy saw its services index fell to 50.1 from 51.2 and the composite index with manufacturing is down to 50.3. New orders fell to the lowest since April 2009 “as customers tightened their belts” and “service sector employment fell for the first time in the past 6 years in a sign that the slowdown is feeding through to the labor market…Such worries were in turn most commonly linked to heightened Brexit anxiety, though wider global political and economic factors were also seen to have been taking their toll on demand.”
20) The slowdown in Europe was reflected in the Sentix investor confidence index in the Eurozone. It fell to -3.7 from -1.5 and that’s the lowest since November 2014. Sentix said “Even in February, the bad news for the economy in Euroland is not abating.”
21) The Reserve Bank of India surprised with a rate cut of 25 bps to 6.25%. This would have gone into the positive side since inflation is low but it reeks of being politically motivated ahead of the election this year.
22) The RBA with a benchmark rate at the lowest level ever at 1.5% and managing the unwind of a massive housing and debt bubble said policy can go either way from here, implicitly revealing that they are getting stuck.
23) The AAII sentiment index saw Bears fall to the lowest level since June.
24) After what’s been seen in Europe and Japan, this line of thought in the US alarms the s**t out of me, //www.frbsf.org/economic-research/publications/economic-letter/2019/february/how-much-could-negative-rates-have-helped-recovery/
25) RIP Frank Robinson. Did you know that he’s the only baseball player in the history of the game to win the MVP award in both the American and National Leagues.
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.