Positives
1)As the world is quite the different place today versus a year ago, the Fed did the right thing I believe by not extending a Covid related emergency waiver for the banks.
2)Pandemic unemployment assistance fell to 282k from 479k. Continuing claims, delayed by a week, fell by 18k to 4.12mm, a fresh one yr low. Delayed by two weeks, continuing claims for PUA declined by 773k after jumping by 1.06mm in the week prior. Pandemic emergency assistance continuing claims dropped by 641k after rising by 988k last week.
3)The Philly manufacturing index for March jumped to 51.8 from 23.1 and that was well above the estimate of 23.3. New orders more than doubled as did prices received. Prices paid rose to the highest since 1980. The overall six month outlook rose to 61.6 from 39.5 along with higher price pressures. Capital spending plans rose by 10.7 pts.
4)The March NY manufacturing index rose to 17.4 from 12.1 and that was a bit above the estimate of 15. The internals were more mixed though. Prices paid rose to a 10 yr high while those received did as well. The business activity 6 month outlook rose 1.5 pts m/o/m to 36.4, 2 pts above the 6 month average. Expectations for prices continue to rise for both paid and received. Capital spending moderated a touch but after a jump in February. The outlook for hiring almost doubled.
5)While the average 30 yr mortgage rate rose another 2 bps on the week to 3.28%, up 40 bps over the past two months, purchases did rise 1.8% w/o/w and 5.2% y/o/y as some fence sitters get off to lock in still historically low rates.
6)The BoJ is pivoting, albeit modestly, by widening the allowed band around YCC and by also slowing down their pace of ETF purchases. The Topix bank stock index closed at the highest level since December 2018 but still remains down 89% from its 1989 peak.
7)Japan’s February CPI ex food and energy prices was higher by .2% y/o/y as expected vs .1% in January.
8)Japan said its January machinery orders fell by 4.5% m/o/m, not as much as the estimate of down 5.5%.
9)Australia’s job growth in February was much stronger than expected, adding 88.7k jobs vs the estimate of up 30k. Their unemployment rate fell to 5.8% from 6.3% helped by higher commodity prices, a rebound in China and barely any Covid cases.
10)Singapore said its non oil exports in February jumped 8.2% y/o/y, well more than the estimate of down .7%. Taking out China, exports still rose 6.7% y/o/y if you look at January and February combined. Electronics and petrochemicals were the key exports.
11)Combining the January and February numbers to smooth out the impact of the New Yr holiday, China said retail sales ytd rose 33.8% y/o/y, a touch above the estimate of 32% and obviously off easy comps. Industrial production grew by 35.1% ytd y/o/y, also above the forecast of up 32.2%. Fixed asset investment ytd y/o/y was higher by 35%, below expectations of up 40.9%.
12)The central bank of Brazil has started the process of rate normalization. Turkey too hiked rates to regain control over inflation. The Norges bank laid the groundwork for policy normalization.
13)The Eurozone February inflation stats were left unrevised with a headline gain of .9% y/o/y and a core rate higher by 1.1%.
14) The March ZEW investor confidence index of the German economy rose to 76.6 from 71.2 and that was just above the estimate of 74. The Current Situation also rose, by 6.2 pts to -61. The estimate was -62. ZEW said “Experts expect a broad based recovery of the German economy. They anticipate that at least 70% of the German population will be offered a vaccine against Covid by autumn. However, a large majority also expects inflation to continue to grow, as well as higher long term interest rates.”
15)Opening day is only a few weeks away, //www.youtube.com/watch?v=i6cqMIzsPiU
Negatives
1)With respect to the SLR issue, as Treasuries are risk free, I’m not sure why they are included anyway in determining the amount of money banks should set aside in capital. Also, we’ll see if this means less Treasury buying on the part of banks just as the flood of issuance is only getting larger. And, will banks now limit the amount of deposits they are willing to take on.
2)The Fed is still driving 200 MPH just as the speed zones get slower. The US Treasury market wants no part of that and is adjusting interest rates without the Fed. As of this writing the 10 yr yield is up another 10 bps on the week and by 30 bps over the past 3 weeks.
3)On the inflation debate, MMM said this week its logistics, materials and labor costs are running at 2x expectations. Southwest, United and American Airlines all say higher airfares are coming but that should not be surprising to anyone.
4)Import prices in February ex petro rose .5% m/o/m after a .9% rise in January. The headline rate was up by 1.3% m/o/m after rising by 1.4% in the month prior. Y/o/y import prices are now up 3% headline and 2.9% ex petrol (highest since December 2011). Keep in mind, these are BEFORE the easy comps kick in. Petroleum prices rose 5.5% y/o/y and at the core the 11% jump in industrial supplies prices was a key driver in higher prices.
5)Initial jobless claims totaled 770k, 70k more than expected and up from 725k last week revised from 712k. The 4 week average though fell to 746k from 762k as a print of 834k dropped out.
6)With another rise in rates, refi’s fell 4.2% w/o/w and are down for the 5th week in 6 to the lowest level since early October. As comps are really tough, they are down 39% y/o/y.
7)After the big upside seen in January retail sales that was well above expectations, they fell back in February much more than expected. HOWEVER, January was revised to such an extent higher that it just about offset this miss. Core retail sales fell 3.5% m/o/m vs the estimate of a decline of just .6% after the 8.7% jump in January, revised from up 6%.
8)Housing starts in February totaled 1.42mm, about 140k less than expected and down from 1.58mm in January. This is the lowest level of starts since August with both single family and multi family lower m/o/m. Looking forward, single family permits fell to 1.14mm vs 1.27mm in January and that is a 3 month low. Multi family starts fell to 539k from 616k but that remains high as it was 481k two months ago.
9)The March NAHB home builder survey fell 2 pts to 82 where the estimate was for no change. Present Conditions came off the boil of 90 to 87 though Future Expectations rose 3 pts to 83 after falling by 3 pts last month. Prospective Buyers Traffic remained unchanged at 72, remaining pretty solid with the dearth of inventory with existing homes and which have sharply rising prices and notwithstanding the recent rise in rates but the supply side remains challenged. The NAHB said “While single family home building should grow this year, the elevated price of lumber is adding approximately $24,000 to the price of a new home. And mortgage interest rates, while historically low, have increased about 30 bps over the last month.” Other rising material costs, like copper and increasing delivery times, “particularly for softwood lumber, have depressed builder sentiment this month.”
10)The shortage of semiconductors and its impact on auto production showed up big time in February within the US industrial production data. Auto/parts production fell 8.3% m/o/m and is down 8.6% y/o/y. There was also a decline in the production of computer/electronics where there was likely an influence here as well. Machinery production fell 2.3% m/o/m after rising by 2.6% in the month prior. Mining production fell back by 5.4% m/o/m after a 3 month run higher. They are down still by 15% y/o/y but we can blame the Texas weather for the decline here as taking its impact out saw mining production up by .5%. The Fed said “Most notably, some petro refineries, petrochemical facilities, and plastic resin plants suffered damage from the deep freeze and were offline for the rest of the month.”
11)In a time when the US Treasury needs as many buyers as possible for its paper, foreign holders in January sold a net $49b of US notes and bonds. This follows net selling of $540b in 2020 (with most of that in March and April as they scrambled for dollars and which triggered QE5) and $133.3b in 2019. Their holdings as a percent of US marketable securities are down to about 30%. They however have been persistent buyers of agency MBS for a slight yield pick up along with the US government guarantee. Japan and China, the two biggest foreign holders of US Treasuries did however increase their holdings, by $25b with the former to $1.28 Trillion and $23b with the latter to $1.1 Trillion.
12)Japan said its exports in February fell 4.5% y/o/y, more than the forecast of down 2% but with the Chinese new yr distorting the data. Imports up 11.8% y/o/y were as expected.
13)Germany said its February PPI jumped 1.9% y/o/y from .9% in January but that was about as forecasted. The rise in commodity prices was reflected in Germany’s February wholesale price index which rose 1.4% m/o/m and 2.3% y/o/y vs 2.1% and no change in January respectively.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.