1) Initial jobless claims totaled 221k, 4k less than expected and down from 230k last week (revised up by 1k). This brings the 4 week average to 225k, up 1k because a 217k print falls out of the average. Continuing claims, delayed by a week, fell by 27k after rising by 19k last week.
2) The March Philly manufacturing index rose to 13.7 after going negative in February at -4.1. The estimate was +4.8. However, the internals were mixed for the current situation components and the 6 month outlook deteriorated by almost 10 pts to the lowest level since February 2016. The outlook for new orders also fell about 10 pts. Of specific note, capital spending plans dropped by 12.2 pts to the lowest level since November 2016, the month of the election.
3) Reflecting likely contract signings in the September thru December time frame (not many are signed in December because of the holidays), existing home sales in February measuring closings totaled 5.51mm, 400k more than expected and is a rebound from the 4.93mm seen in January. Smoothing this out puts the 3 month average at 5.15mm vs the 6 month average at 5.18mm and the 12 month average of 5.29mm. Fortunately home prices moderated to a 3.6% y/o/y increase as the market needs to entice more first time buyers. First time buyers made up 32% of purchases vs 29% in January and 32% in December. Months’ supply shrunk to just 3.5 from 3.9 in the month prior. The NAR said “A powerful combination of lower mortgage rates, more inventory, rising income and higher consumer confidence is driving the sales rebound.”
4) UK retail sales ex fuel oil in February surprised to the upside as they grew by .2% m/o/m vs the estimate of a drop of .4%. The ONS attributed some of the strength to unusually warm weather as outdoor goods sold well but the UK citizen is also experiencing the best wage growth in 10 years at the same time inflation is moderating.
5) The UK February headline CPI rose 1.9%, one tenth more than expected and up one tenth from January. The core rate did the reverse, falling by one tenth to a 1.8% gain. While both around the 2% target of the BoE, REAL rates are still firmly negative.
6) There were 222k jobs created for the 3 months ended January in the UK, almost double the estimate. The unemployment rate now has a 3 handle at 3.9%, the least since 1975. This helped to lift wages ex bonus’ by 3.4% y/o/y as expected, the same pace as in December and comfortably above inflation.
7) The March ZEW German investor sentiment index of their economy improved to -3.6 from -13.4 and that was better than the forecast of -11. It’s also the least negative since March 2018. The Current Situation though did fall 4 pts to 11.1, 2 pts less than expected and that’s the lowest since January 2014. The ZEW said this: “The significant increase in the ZEW Indicator of Economic Sentiment shows that major economic risks are considered to be less dramatic than before. The possible delay in the Brexit process as well as the renewed hope for a deal on the UK’s withdrawal from the EU seem to have given rise to more optimism among financial market experts. Progress made in the negotiations between China and the US to end the trade war between the two nations may also have contributed. Nevertheless, the ZEW Indicator of Economic Sentiment for Germany points to relatively weak growth in the first half of 2019.”
8) Fred Smith, the CEO of FedEx, did note “seeing a few green sprouts now as we go into the spring” but that only seemed to be with business over the “last few days.” He said “we are seeing some pick up across the Pacific. Our package business in Europe is now growing again. So, we’re feeling a little better about things.” As to whether this can continue, the COO said “Whether I’m going to sit here and project what’s going to happen for the rest of quarter four, I cannot do that at this point. There’s too much uncertainty in the market.”
1) Seeing the further drop in interest rates globally, the rising level of negative yielding securities and disappearing yield curves is alarming. With regards to the world’s central banks, get used to saying ‘pushing on a string.’
2) The Fed gets even more dovish, leading to further flattening of the US yield curve and sending bank stocks down sharply. Lesson should be learned here that flattening the yield curve is a bad idea. Therefore the Fed should be taking QE OFF the table as a policy tool if its stated purpose is to lower long term interest rates after short rates get back to zero (which would also be a mistake) at some point. The BKX bank stock index is down 9% since Monday as of this writing.
3) While I support the goals of a China/US trade deal and what it’s trying to achieve, I’m not happy with the comment this week that tariffs will stay on China until they comply with the deal. We’ll see soon if the case or just another negotiating tactic.
4) The average 30 yr mortgage rate fell to 4.55%, down a large 9 bps w/o/w. That’s the lowest since February 2018 but it has done nothing to generate a higher level of interest in buying a home. Purchase applications rose just .3% w/o/w and are up only .7% y/o/y, essentially no change. Refi’s did rise 3.5% w/o/w and are up by 3.5% y/o/y too but this index is still sitting not far from 18 year lows.
5) The CEO Economic Outlook from the Business Roundtable for Q1 fell 9.2 pts from Q4 to the lowest level since Q3 2017. Internally, hiring plans fell 11.3 pts, ‘plans for capital investment’ dropped by 6.9 pts and ‘expectations for sales’ were lower by 9.6 pts.
6) The monthly Cass Freight Index for February said this as their shipments figure fell 2.1% y/o/y, “The continued decay in the Cass Freight Shipments Index is beginning to give us cause for concern. When the December 2018 Shipments Index was negative for the first time in 24 months, we dismissed the -0.8% year-over-year decline as reflective of a tough comparison “because December 2017 was an all-time high for the month” and also because of “the stabilizing patterns we see in almost all of the underlying freight flows.” When January 2019 was also negative (down a mere -0.3%), we again pointed out that January 2018 was also an all-time high for the month and saw no reason to be alarmed about the overall economy. While we are still not ready to turn completely negative in our outlook, we do think it is prudent to become more alert to each additional incoming data point on freight flow volume and are more cautious today than we have been since we began predicting the recovery of the U.S. industrial economy and the rebirth of the U.S. consumer economy in the third quarter of 2016.”
7) The NAHB home builder index for March held at 62. The estimate was 63. It’s multi year low was 56 in December and was 68 back in October. The components were mixed. Both Present Conditions and Future Expectations rose m/o/m but Prospective Buyers Traffic fell 4 pts and gave back its 4 pt gain in February. Prospective Buyers Traffic is now only 1 pt from matching the weakest since February 2016. The area of the market most in demand are for homes priced less than $300k but delivering them profitability isn’t easy. According to the NAHB, “The skilled worker shortage, lack of buildable lots and stiff zoning restrictions in many major metro markets are among the challenges builders face as they strive to construct homes that can sell at affordable price points.”
8) The Markit US manufacturing and services composite index for March fell to 54.3 from 55.5 with both components falling m/o/m. That’s a 6 month low. Manufacturing weakened to 52.5 from 53 in February. That’s the lowest since June 2017. Services fell to 54.8 from 56 but was up by 1.8 pts last month. With manufacturing, Markit said “softer rises in output, new orders and employment” were the main culprits for the weakness and “A number of manufacturers commented on a cyclical slowdown in client demand. Reflecting this, new orders increased at the weakest rate for just under two years in March.” Prices pressures moderated. On the services side, “Mirroring the trend for business activity, March data indicated a softer rise in new work received by service providers. The latest survey also pointed to the smallest increase in employment numbers since May 2017.” Price pressures here also slowed. Manufacturing is clearly doing worse than the service side of the US economy “But the worry is that manufacturing woes are spreading to service providers, via reduced demand for services such as transport and storage as well as deteriorating business optimism about the outlook, which fell to the lowest for nearly 3 years in March, and a cooling of the labor market” according to Markit.
9) After finishing 2018 with only $1.6b of net foreign buying of US Treasury notes and bonds, foreigners sold $12b in January. It was back in 2011 and 2012 when foreigners bought more than $400b each of those years. China and Japan continued with their selling of notes and bonds but the pace of T-bill buying offset this which brought total holdings higher.
10) The Swiss National Bank reiterates its desire for a -.75% benchmark rate as they remain deathly afraid of a Swiss Franc rally. Stuck.
11) Taiwan reported that exports in February fell 10.9%, about double the expected decline of 5.6%. That’s the 4th month in a row of declines and the weakness was across the board both product wise and regionally. Specifically, exports fell by 5.5% to the US, 14.3% to Hong Kong and the Mainland and 19% to Europe.
12) South Korea said in the first 20 days of March its exports fell 4.9% y/o/y. While that is an improvement from the 12% drop in February and almost 15% fall in January, it does mark the first time we’ve seen 3 months in a row of declines since 2016 when a soft patch hit the global economy.
13) Japan said its February exports fell by 1.2% y/o/y and that was a bit more than the forecast of a .6% decline. This marks 3 months in a row of declines and was weighed down by auto’s and semi’s. Imports fell almost 7% y/o/y. On a volume basis exports did rise by 4.1% y/o/y to the US and 4.7% to the EU but fell by 1.3% to Asia.
14) Japan’s manufacturing PMI held at 48.9 and remaining below 50 for the 2nd month, the first time since mid 2016. Markit said “Further struggles for Japanese manufacturers were apparent at the end of Q1, with the latest flash PMI data showing a sustained downturn. Slack demand from domestic and international markets prompted the sharpest cutback in output volumes for almost 3 years…concern of weaker growth in China and prolonged global trade frictions kept business confidence well below its historical average in March.”
15) Australia’s manufacturing PMI fell to 52 from 52.9 and that’s the lowest print since July 2016. Services bounced 1.1 pts but is still below 50 at 49.8. Markit said simply, “Softer economic conditions experienced over the 2nd half of 2018 have continued into the first quarter of 2019.”
16) Australia’s February jobs data revealed that employment rose just 4.6k, less than the estimate of up 15k but because the participation rate slipped by a tenth, their unemployment rate did fall also by a tenth to 4.9%, a 10 yr low. Full time jobs went negative, offset by a rise in part time.
17) The Eurozone manufacturing PMI fell to 47.6 from 49.3. That was below the estimate of a slight uptick to 49.5 and is at a 6 year low. Germany’s manufacturing index fell all the way down to just 44.7 while France’s dipped below 50 at 49.8. Services though held steady, falling just .1 pts to 52.7 as expected. Taking the two together puts the composite index to 51.3 which is the 3rd lowest since November 2014. Markit said “A rebound in February from one off factors such as the yellow vest protests in France appears to have already lost momentum. Most worrying is the plight of the manufacturing sector, which is now in its deepest downturn since 2013 as trade flows contracted at the sharpest rate since the debt crisis ridden days of 2012…Forward looking indicators such as business optimism and backlogs of work suggest that growth could be even weaker in the 2nd quarter. Worryingly, with order book backlogs shrinking at the steepest rate since late 2014, more and more companies are pulling back on hiring, and likely reviewing their investment spending.”
18) The UK CBI March industrial orders index fell to just 1 from 6. The estimate was 5. The CBI said “The manufacturing sector has slowed again this month and is now barely growing. Brexit uncertainty is one of the biggest threats to growth in the UK manufacturing sector, both current and future, as firms prioritize stockpiling goods over investing in the future of their business…Manufacturers are in despair at the unacceptable failure of politicians to end the Brexit impasse.”
19) The UK February jobless claims number rose by 27k, the most since April 2018.
20) This also from the FedEx conference call of note: “We see solid economic growth in the US but somewhat below last year’s pace. Internationally, performance is mixed across regions as overall growth moderates. The Eurozone and Japan still appear sluggish, while emerging market growth eases at a gradual pace. A recurring theme in global surveys on economic activity is a negative impact from global trade frictions and heightened uncertainty. World trade is slowing and leading indicators point to a positive but ongoing deceleration in trade growth in the near term. Since our last earnings call, we have seen the overall China economy slow down further and this has impacted other Asian economies.”