The Boock Report

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Succinct Summation of the Week’s Events – 3/24

Positives:
  1. Core shipments within the durable goods report and which gets plugged into GDP, rose 1% m/o/m, above the estimate of up .2%. They are still down though 1.6% y/o/y. That estimate beat on shipments did lead to a one tenth increase in the Atlanta Fed GDPNow survey for Q1 to 1%.
  2. New home sales in February totaled 592k, 28k more than expected and up from 558k in January. This is the 2nd best print in the recovery but compares with the 25 yr average of 715k and the bubble peak of 1.389mm in 2005. Months’ supply fell to 5.4 from 5.6 which is about in line with the long term average. The median home price did fall 4.9% y/o/y to the lowest level since July but that compares with the average price which rose to an all time record high of $390,400, up 11.7% y/o/y due to mix.
  3. The KC manufacturing PMI rose 6 pts to 20 vs the estimate of no change. That’s the best level since March 2011.
  4. A week before ECB QE is trimmed by 25%, the ECB offered its last (for now) bout of free money to banks via the TLTRO-2 today. The cash grab that doesn’t have to be given back for four years totaled 233.5b euros, about double the median estimate of 110b euros and compares with the take of 62.2b in December, 45b in September and 399b back in June. //i2.cdn.turner.com/money/dam/assets/150309093707-mario-draghi-raining-euros-780×439.jpg
  5. Markit’s manufacturing and services composite index for Europe rose to 56.7 from 56 last month and that was 1 pt above the forecast. France was a particular standout as its index rose to 57.6 from 55.9 with included a 2 pt gain in services to the highest level in almost 6 years. Germany’s composite index also improved to a 70 month high. New orders and backlogs rose at the quickest pace since April 2011 and Markit said it was “broad based.” This also led to a rise in the key inflation components where “both service sector and manufacturing input costs and selling prices were found to have been rising at the steepest rates since the first half of 2011 during Q1.”
  6. UK retail sales ex auto fuel rose 1.3% m/o/m in February which was above the estimate of up .3%. Squeezed by lower real wages however has for the 3 months ended February sales down 1.1% y/o/y ex fuel, the biggest fall since 2010.
  7. The Brits finally pulled the Article 50 lever. Let’s get this going and over with already. It is what it is.
  8. UK CBI March industrial orders index was unchanged at +8 vs the estimate of +5 and thus holds at 2 yr high. Selling prices fell 3 pts off the highest level in 6 years.
  9. Japanese exports rose by 11.3% y/o/y in February vs the estimate of 10.1% and vs 1.3% in January. As they do big business in China, it’s best to merge the two months because of the Chinese holiday and thus exports were up 6.5% ytd y/o/y.

 

Negatives:
  1. The Markit manufacturing and services composite index for the US fell to 53.2 in March from 54.1 in February. That level is now the lowest since September and thus gives back all of the post election gain. For reference, it was 54.9 in October, the same level in November and got as high as 55.8 in January. Breaking down the components has manufacturing at 53.4, matching the level seen in October and services at 52.9 is barely above the 52.3 seen in September and below the 54.8 print in October. One of the factors in the weakness was: “the latest rise in payroll numbers was only marginal and the weakest for six months.” Also, “survey respondents noted that a softer increase in new business had acted as a brake on growth in March…Some firms commented on greater caution among clients, despite a supportive economic backdrop so far in 2017.” Cost pressures though eased both on the input side and the ‘prices charged’ side.
  2. Core durable goods orders in February fell .1% m/o/m, worse than the estimate of up .5% and only partially offset by a two tenths revision up in January. The y/o/y change is essentially zero with a .2% rise and the absolute level is no different than where it was in 2006.
  3. Initial jobless claims totaled 258k, well above the estimate of 240k and a jump from the 243k seen last week. Smoothing out the weekly volatility in the data puts the 4 week average to 240k from 239k last week and 240k in the week prior. Continuing claims, delayed by a week, fell by 39k after a 30k person drop in the week prior.
  4. Existing home sales in February, and thus capturing contract signings in the November thru January time frame, totaled 5.48mm. That was below the estimate of 5.55mm, down from 5.69mm in January and the slowest pace of sales in 5 months. Months’ supply rose to 3.8 vs 3.5 in January but is well below the historical average of around 6 months. That dearth of inventory led to a 7.7% y/o/y rise in the median home price and why first time buyers only totaled 32% of purchases.  The number of days on the market that a house sits fell to 45 from 50 and down from 59 last year as all cash buyers took 27% of sales, up from 23% in January, 21% in December and vs 25% the same month last year. Investors totaled 17% vs 15% in the month prior.
  5. With the average 30 yr mortgage rate holding at near a 3 year high, mortgage applications fell w/o/w after last week’s rise. Purchases fell 2.1% w/o/w but remain up 5.1% y/o/y. Refi’s were down by 3.3% after 3 weeks of gains and are down 26% y/o/y.
  6. For the week ended March 8th, C&I loans outstanding fell to the lowest level since mid September.
  7. The Hangover begins in autos, //vignette3.wikia.nocookie.net/thehangover/images/7/7d/Hang_1_01.jpg/revision/latest/scale-to-width-down/590?cb=20110517035652. Ally Financial cites the following auto market trends: “a)Higher interest rates and interest rate expectations, b)Consumer credit losses continue to migrate higher, particularly in lower credit tiers, c)Declining used vehicle prices, d)Increasing manufacturer incentive levels.” Ford cuts guidance.
  8. Boston Fed President Eric Rosengren said this week, “Commercial real estate capitalization rates are very low by historical standards.” Really? I wonder how that happened. “We must acknowledge that the commercial real estate sector has the potential to amplify whatever problems may emerge when we at some point face an economic downturn.”
  9. Markit’s Japanese manufacturing index for March fell to 52.6 from 53.3 which was the best level since 2014. Markit said “new order books remain in solid growth territory…However, this comes at a the cost of ongoing marked rises in purchase costs: input price inflation remained close to a 2 yr high in March.”
  10. February CPI in the UK jumped .7% m/o/m and 2.3% y/o/y and this was more than just energy as core CPI was higher by 2% y/o/y. The estimate for headline was 2.1% and 1.7% for the core rate. The core rate has a 2 handle for the first time since June 2014. The only respite in the data, but wasn’t much of one, was the 19.1% y/o/y increase in input prices instead of the 20.1% that was expected. Wholesale output prices were up just 2.4% y/o/y.
  11. If you’re looking to buy a home in the UK, home prices rose 6.2% y/o/y in January and has risen by 5%+ for more than 3 years now, well above the consumer rate of inflation. Sorry if you’re looking for a flat in London as prices there were up 7.3% y/o/y.
  12. After a .7% m/o/m rise in January, German PPI rose another .2% m/o/m in February but that was two tenths less than expected. However, the y/o/y gain was 3.1% vs 2.4% in January and the quickest rate of gain since December 2011. This was running negative less than a year ago.
  13. The March business confidence in France index was 104 as expected vs 105 last month and 104 back in January. This is 2 pts off the best level since 2011 but still remains well below the peak print of 115 back in 2007.