Positives
1) It does seem like the US and China are wrapping up the final details of a trade deal that has real substance to it. Question remains though, what happens with the tariffs currently in place.
2) The US economy grew by 2.6% q/o/q annualized in Q4 and that was 4 tenths more than expected. On a y/o/y basis, growth was up by 3.1%. The gain was led by consumer spending and capital expenditures.
3) The December (and thus dated) PCE headline inflation figure was up .1% m/o/m vs the estimate of no change but November was revised down a tenth so call it a push. The core rate rose .2% m/o/m as expected but November was revised up a tenth so call it a touch above the estimate. Versus last year, headline PCE was up 1.7% and the core rate was higher by 1.9% for a 2nd month.
4) While mortgage rates were little changed w/o/w, mortgage applications did bounce. Purchases rose 6.1% w/o/w and are now up 2.7% y/o/y. Refi’s grew by 5.8% from last week and are now flat with last year (easy comparison).
5) Pending home sales for January surprised to the upside with a 4.6% m/o/m increase, well above the estimate of up 1%. This follows 6 months in a row of declines and sales y/o/y were still down by 3.2%. The NAR cited the lower mortgage rate environment and government reopening as helping the tone of contract signings.
6) The Conference Board Conference confidence index rose to 131.4 from 121.7. The Present Situation was up about 3 pts while Expectations jumped by 14 pts. Before the late 2018 stock market decline, this index was 137.9 in October. One year inflation expectations fell one tenth to 4.3%, the lowest since 2004. Notwithstanding the headline jump in confidence particularly about the coming 6 months, spending intentions were disappointing. Those that plan on buy a car/truck fell almost 1 pt to the lowest level since July. Those that plan to buy a home fell by 1.7 pts to the least since also July. Lastly, those that plan on buying a major appliance fell almost 3 pts to the lowest since January 2015.
7) The pace of home prices in December did moderate to an increase of 4.2% y/o/y, the slowest since 2012. If affordability is a problem for the housing industry, a slower pace of price gains should help.
8) The private sector weighted China Caixin manufacturing PMI did improve to 49.9 from 48.3 and that was 1.4 pts above the estimate. Caixin is mostly attributing the improvement to government help. “Overall, with the early issuances of local governments’ special purpose bonds and targeted adjustments to monetary policy, the situation in the manufacturing sector recovered markedly in February due to the effect of increased infrastructure investment.”
9) Hong Kong exports in January fell .4% y/o/y vs the estimate of down 2.8% and follows an almost 6% drop in December. Imports though were weak, falling 6% y/o/y vs the forecast of down 2.2%. They fell by 7% in December. The caveat with the data is what happens with China in January with the timing of the Lunar Holiday.
10) India’s manufacturing PMI did rise by .4 pts to 54.3 while Indonesia’s hovers around the flat line, rising to 50.1 from 49.9.
11) The February German unemployment rate held at 5%, the lowest since reunification and the number of unemployed fell by 21k, well more than the estimate of down 5k. That’s the most since September.
12) January German retail sales rebounded after the December weakness by 3.3% after a drop of 3.1% in that holiday month. The estimate for January was up 2% and December was revised up.
13) French consumer spending was up by 1.2% m/o/m in January, a tenth above expectations.
14) For the Eurozone as a whole, the January unemployment rate was 7.8% for a 2nd month, holding at the lowest since September 2008. It bottomed at 7.3% in October 2007.
15) February Eurozone CPI rose 1.5% y/o/y as expected, up one tenth from January while the core rate was 1%, down one tenth.
16) UK consumer confidence for February was little changed at -13 vs -14 last month but was 2 pts better than feared.
17) Germany’s GFK consumer confidence index for March was unchanged as expected, matching the highest level since April.
18) Consumer confidence in France improved by 3 pts to 95 and that was also 3 pts better than expected.
Negatives
1) The Atlanta Fed GDP Q1 GDP estimate is just .3%. The NY Fed’s Nowcast estimate is for growth of .9%.
2) The February ISM manufacturing index fell to 54.2 from 56.6 and that was below the estimate of 55.8. That is also the lowest print since November 2016. New orders and employment are also both at the lowest level since then. Exports did rise 1 pt off the weakest print since November 2016. Notwithstanding the headline drop in activity, 16 of the 18 industries surveyed saw growth vs 14 in January but the pace of that growth has moderated.
3) Markit said this about its US manufacturing index in February which fell to the weakest since August 2017, “suggests that factory production and orders growth rates are close to stalling mid way through the first quarter, albeit in part representing some pay back after a strong January. Export markets remained the principal drag on order books…Worries regarding the impact of tariffs and trade wars, alongside wider political uncertainty, undermined business confidence, with expectations of future growth running at one of the most subdued levels seen for over two years and suggesting downside risks prevail from coming months.”
4) The final February UoM consumer confidence index was 93.8, below the first look earlier in the month of 95.5 and below the estimate of 95.9. It’s up from 91.2 in January but down from 98.3 in December. The internals were mixed as the Current Conditions component fell to the lowest since November 2016, again that month. Expectations rose from January at 84.4 but was 87 in December and 86.2 in early February. One year inflation expectations came in at 2.6% from 2.7% in January. Bottom line according to the UoM, “the bounce back from the end of the Federal shutdown faded in late February…Consumers continued to react to the Fed’s pause in raising interest rates, balancing the favorable impact on borrowing costs against the negative message that the economy at present could not withstand another rate hike.” Finally, “nearly equal numbers expected the economy to improve as to worsen, and nearly equal numbers anticipated an uninterrupted expansion as an economy wide downturn in the next 5 years. For consumers, this meant that the national unemployment rate was more likely to increase than to decline in the year ahead, remaining in the past 3 months at the least favorable level since Trump was elected.”
5) The January income figure fell .1% m/o/m instead of rising by .3% as forecasted but December income growth jumped 1%, 6 tenths more than estimated. The component I watch the most closely is the private sector wage and salary figure and that was up 4.4% y/o/y, down from 4.8% growth in the two prior months and vs 5% in the one before that.
6) Initial jobless claims totaled 225k, 5k more than expected and up from the holiday influenced print of 217k last week. The 4 week average did fall to 229k from 236k as a print of 253k fell out and which was distorted by the timing of the MLK weekend.
7) December housing starts totaled 1.078mm, well less than the estimate of 1.256mm. That’s the least amount of starts since September 2016 as both single family and multi family starts were down. Single family in particular fell to the least since that month in 2016. Permits for single family also fell by almost 20k m/o/m to a 4 month low while multi family permits were up by 23k to the most since April 2018.
8) December core durable goods orders was confirmed to have fallen by 1% m/o/m, the 4th month in the past 5 that has seen declines. Shipments follow orders which means the Q4 capital spending strength will reverse in Q1.
9) From a purely contrarian standpoint, the AAII reported that its index of individual investors has Bears down to 20, the lowest since early 2018 while Bulls are at 41.6, the highest since early October.
10) China’s February state sector weighted manufacturing and service PMI’s both fell m/o/m. Manufacturing fell further below 50 at 49.2 from 49.5 while services clocked in at 54.3 vs 54.7 in January. Taking both together puts the composite index at 52.4, the lowest in a few years.
11) South Korea said its February exports fell 11.1% y/o/y, more than the forecast of down 9.5%. It’s the 3rd month in a row of y/o/y declines. South Korea’s January IP was up just .1% m/o/m, below the estimate of up 1.2% and December was revised down by 9 tenths.
12) Manufacturing PMI’s in Japan (48.9 vs 50.3), Malaysia (47.6 vs 47.9), Thailand (49.9 vs 50.2), Philippines (51.9 vs 52.3) and in Vietnam (51.2 vs 51.9) all fell m/o/m.
13) Japan’s labor market remained pretty tight with the January jobs to applicant ratio holding at 1.63, the highest since 1974 but the unemployment rate did unexpectedly tick higher by a tenth to 2.5% as the number of unemployed rose and jobs were lost for a 2nd straight month.
14) The February Tokyo CPI did rise by .6% y/o/y, two tenths more than expected because of an increase in energy prices. Excluding both food and energy saw prices go up by .7% which matches the most since April 2016.
15) Japan’s January IP fell 3.7% m/o/m, more than the forecasted decline of 2.5%. Japanese retail sales and housing starts also rose less than expected.
16) Japan’s February consumer confidence index fell to 41.5 from 41.9. That’s the lowest since November 2016.
17) Hong Kong said its economy grew just 1.3% y/o/y in Q4, well below the estimate of growth of 2.2%. That’s the slowest pace of growth since Q1 2016.
18) The Eurozone manufacturing PMI for February was revised up by .1 but is still below 50 at 49.3, the lowest in almost 6 years. Markit said this comes with “forward looking indicators suggesting risks are tilted further to the downside as we move into spring. Most worrying is the downward trend in new orders. Orders are falling at a faster rate than output to a degree not seen for 7 years.” Due to slowing growth, price pressures have eased. Not surprisingly Markit is saying “In addition to widespread trade war worries, often linked to US tariffs, and concerns regarding the outlook for the global economy, companies report that heightened political uncertainty, including Brexit, is hitting demand and driving increased risk aversion.”
19) The Economic Confidence index for February in the Eurozone fell to 106.1 from 106.3 and that was about as expected. That print is the least since November 2016. Manufacturing went negative but services got back almost all of what it lost in January. Consumer confidence improved a touch as did retail. Construction fell to the lowest since August.
20) Bank loans slowed in the Eurozone in January. Lending to businesses moderated to a 3.3% y/o/y pace, a drop from the 3.9% y/o/y growth rate in December and the 4.3% rate in September that was the best in this recovery. Loans to households remained unchanged at growth of 3.2%. The money supply increase was 3.8% y/o/y, down from 4.1% in January and remains well off the 5% pace seen in 2015 thru 2017.
21) The Lloyds business survey index for the UK fell to 4 from 19 and is now below the June 2016 UK vote print and the weakest since 2011.
22) The UK manufacturing PMI for February fell to 52 from 52.6 as expected but that’s the lowest since October.
23) A deal with North Korea was not consummated.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.