Positives
1)Finally, the Federal Reserve raised rates by 25 bps to .25-.50% only days after CPI printed 7.9%.
2)Initial jobless claims fell to 214k from 229k last week and that was 6k less than expected. As a print of 249k dropped out of the calculation, the 4 week average declined to 223k from 232k. Delayed by a week in reporting, those still receiving continuing claims fell to just 1.42mm, a new low going back to 1970.
3)The Philly manufacturing survey surprised with a print of 27.4 from 16 in February and that is well above the estimate of 14.5. Prices paid in fact rose to the highest level since 1979. With the 6 month business outlook, it fell to 22.7 from 28.1 and that compares with the 6 month average of 25.2. There was a big jump in expectations for inventories and we’ll see if that soon leads to a fall off in new ordrs.
4)Housing starts in February totaled 1.77mm, above the estimate of 1.7mm and January was revised up by 19k. Both single family and multi family starts were up m/o/m. With respect to permits, they moderated from January for both categories.
5)Pre war information, the February PPI rose .8% m/o/m after a 1% increase in January. That though was one tenth less than expected. The core rate was higher by .2% m/o/m following an .8% gain last month and that was 4 tenths below expectations. Versus last year, headline PPI is up 10% and the core rate by 8.4%.
6)After the omicron filled month of January, Cass Freight said its February shipments index rose 8.6% m/o/m and 3.6% y/o/y. As omicron though spilled into February, they expect a bigger lift in March. Also, “War related effects on freight volume are likely to be small in the near term, but higher energy prices will have an increasingly negative effect over time.”
7)We can only hope that this continues post war/Russian sanctions as foreigners bought a net $74.4b of US notes and bonds in January. This follows buying of $81.2b in all of 2021 after six years of large net selling on balance. A lot of that money though might have come out of US stocks as the stock market selloff in January resulted in foreign net selling of US stocks of $50.1b. Japan and China, the two largest holders of US Treasuries added to their holdings. Europe in the aggregate too was a net buyer.
8)The Bank of England raised its bank rate to .75% as expected and inexplicably one member didn’t want to hike even as inflation heads to 8%.
9)Taiwan unexpectedly hiked interest rates by 25 bps to 1.375%. That is the 1st time they’ve raised rates since 2011 and the 1st time it’s been by 25 bps since 2007.
10)Japan said its February exports rose 19.1% y/o/y, which was close to the estimate of up 20.6%. Imports jumped by 34%, well more than the forecast of up 26.4% and we can blame the ever more expensive energy imports they need at the same time the yen is weak.
Negatives
1)We know the Fed is late to the game here but now we have voting members Bullard and Waller that want to go cold turkey not fully understanding the tight interrelationship between monetary policy, the economy and the markets. We know the Fed needs to tighten via rates and the balance sheet but even I acknowledge it has to be a pace that is not jolting. It is not 1994 all over again. That said, how will both hiking rates and shrinking the balance sheet at the same time not be jolting?
2)Consumer inflation expectations in the NY Fed February survey saw median one yr ahead inflation expectations up to 6% from 5.8% and that matches the high seen in November. The NY Fed said “The increase was widespread across age, education, and income groups, but largest for the respondents without a high school degree.” The 3 yr ahead mean inflation expectations view rose 3 tenths to 3.8% but it did get as high as 4.2% last year.
3)The average 30 yr mortgage rate jumped to 4.27% according to the Mortgage Bankers Association, up from 4.09% last week and 4.15% in the week prior. Refi’s fell 2.8% w/o/w and are down 49% y/o/y in response. Purchases though hung in there as they were up a touch, by .7%, though are still down 8.4% y/o/y.
4)The March NAHB home builder index fell to 79 from 81 and that was 2 pts below expectations. That’s the lowest since September but most notable was the 10 pt fall in the Future Outlook. Present Conditions were down a more modest 3 pts. Prospective Buyers Traffic did rise 2 pts but after falling by 4 last month. Also of importance, the Northeast saw a 16 pt m/o/m drop. The NAHB said “Builders are reporting growing concerns (up 20% over the last 12 months) and expected higher interest rates connected to tightening monetary policy will price prospective home buyers out of the market. The impact of elevated inflation and expected higher interest rates suggests caution for the 2nd half of 2022.”
5)Existing home sale closings in February were 80k less than expected and down from 6.49mm in January. There remains a dearth of inventory as supply was just 1.7 months of sales vs 1.6 in January, 1.7 in December, 2.1 in November and vs the long term average around 6 months. In turn, the median home price rose 15% y/o/y. And these aggressive price increases is a main factor in why 1st time buyers made up 29% of purchases vs 31% one year ago, while up from 27% last month. The NAR in the press release said “Housing affordability continues to be a major challenge, as buyers are getting a double whammy: rising mortgage rates and sustained price increases. Some who had previously qualified at a 3% mortgage rate are no longer able to buy at the 4% rate. Monthly payments have risen by 28% from one year ago.”
6)If you want to go rent a single family home instead, you’ll have to pay up by 12.6% y/o/y in January according to CoreLogic’s Single Family Rent Index which was out yesterday. Rent growth in Orlando was 20% and in Phoenix prices jumped by 19%.
7)Core retail sales in February, measured here in nominal terms, fell 1.2% m/o/m, worse than the estimate of up .3% BUT January was revised up by 190 bps and December was revised down by 40 bps, so net-net the core pace of retail sales was as expected.
8)The March NY manufacturing index fell into contraction at -11.8 from +3.1 and that is well less than the estimate of +6.4. It’s the first time below zero since last June. While the headline number fell sharply, the 6 month business outlook did improve by 8 pts to a 4 month high with a lift in new orders, backlogs, inventories and employment. Supply worries though picked up as expectations for Delivery Times doubled and prices paid and received both rose. There was moderation in expectations for capital spending.
9)Within the Cass Freight February data, their implied freight rate calculation saw a 37% y/o/y increase in February after a 35% y/o/y rise in January. It’s up by 1.6% m/o/m to another record in February. We can blame the disruptions from omicron and the good news is, “However, in early March there are signs of lower spot rates despite the large increase in fuel prices.” On this, Cass Freight said “Though Class 8 tractor capacity remains tight and is at increased risk if the Russia/Ukraine war worsens the chip shortage, we are seeing tangible signs of improvement in driver availability, which could begin to slow the trend in freight rates.”
10)Import prices in February ex petro rose .7% m/o/m after a 1.3% rise in January. That was one tenth less than expected but still up 7.6% y/o/y so a tenth here, a tenth there is irrelevant. Import price gains were again led by industrial supplies and food/beverages outside of energy. Import prices ex food and energy were higher by .6% m/o/m and 6.5% y/o/y. Prices again are jumping for things we import from Canada, by 2.7% m/o/m and 25% y/o/y. As for things we export, prices rose .8% m/o/m and 7.9% y/o/y ex food and fuels.
11)China’s residential real estate excesses continue to unwind as apartment sales in 31 Chinese provincial areas fell by 22% y/o/y in the January/February time frame.
12)Governor Kuroda of the BoJ is still not thinking about thinking about tightening monetary policy “just because others are doing it.” And even though inflation will print 2% soon.
13)The German ZEW March investor expectations index of the Germany economy plunged to -39.3 from +54.3. The estimate was +5. That’s the lowest since March 2020 during you know what. It’s the biggest one month drop since this survey was created in 1991. The Current Situation component cratered to -21.4 from -8.1 but that was about as expected. Blame stagflation fears for both components. The ZEW said “A recession is becoming more and more likely. The war in Ukraine and the sanctions against Russia are significantly dampening the economic outlook for Germany. The collapsing economic expectations are accompanied by an extreme rise in inflation expectations. The experts therefore expect a stagflation in the coming months. The worsened outlook affects practically all sectors of the German economy, but especially the energy intensive sectors and the financial sector.”
14)I will include this quote again from the book Putin’s World written by Angela Stent and published in 2019 to better understand Putin’s big picture frame of mind, however diabolical and criminal. She wrote “The idea of permanently giving up lands Russia once controlled has been anathema to tsars, general secretaries, and post Soviet presidents. Almost immediately after the USSR collapsed, some in the new Russian leadership – although not Boris Yeltsin himself – began thinking about how to regain their lost territories. There is no precedent in Russian history for accepting the loss of territory, only for the expansion of it.”
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.