The Boock Report

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Succinct Summation of the Week’s Events – 3/31

Positives
  1. The March Chicago manufacturing index rose a touch to 57.7 from 57.4 in February. That was a bit above the estimate of 56.9 and is the best since January 2015. This puts the 3 month average at 55.1 vs the 6 month average of 54.7 and the 12 month average of 53.8. The 10 months of 2016 leading into the election saw an average of 52.6.
  2. The Richmond manufacturing index rose 5 pts to 22, the highest since April 2010.
  3. Private sector wages/salaries were higher by .5% m/o/m and 6% y/o/y in February. That 6% figure matches a multi year high. The savings rate rose two tenths as a result to 5.6%, the most since September.
  4. With the 13 bps w/o/w drop in mortgage rates, purchase mortgage applications did rise by 1.2% but after falling by 2.1% last week. They are still up by 4.3% y/o/y.
  5. Pending home sales in February jumped 5.5% m/o/m vs the estimate of up 2.5%. They are though down 2.4% y/o/y. The NAR gave its opinion on sales, “The stock market’s continued rise and steady hiring in most markets is spurring significant interest in buying, as well as the expectation from some households that delaying their home search may mean paying higher interest rates later this year. Last month being the warmest February in decades also played a role in kick-starting prospective buyers’ house hunt.”
  6. The March Conference Board Consumer Confidence index jumped to 125.6 from 116.1 and that was well above the estimate of 114. This is the best level since December 2000 (during that time it peaked at 144.7 in January ’00 and was 61 in March ’03). The cutoff for this survey was March 16th. Most positive within the report were the answers to the labor market questions where those that said jobs are Plentiful jumped 4.8 pts to the best level since August ’01 (got as high as 55.8 in July ’00). Those that said jobs were Hard to Get fell .4 pts to the lowest since July ’07. Spending decisions though were mixed. One year inflation expectations fell two tenths to 4.6% which is near the lowest in 5 years.
  7. While old news, Q4 US GDP was revised up by 2 tenths to 2.1%, one tenth more than expected. Consumption was revised up (mostly due to non durable spending such as food and healthcare costs were revised up) while trade and government spending was lowered. Gross investment was revised a hair higher as was inventories but capital spending was lowered.
  8. If you already own a home, the S&P CoreLogic C/S 20 city home price index is at a fresh record high and thus above the bubble peak. Sorry though if you want to buy and don’t have much for a down payment.
  9. The first look at February wholesale inventories saw a gain of .4% m/o/m, twice the estimate of up .2% while January was revised down by one tenth.
  10. China’s state sector weighted manufacturing PMI rose a touch to 51.8 from 51.6 which was a tenth above the estimate and the best since April 2012. New orders, export orders, output and employment all were higher while price pressures moderated. The services index, which does include construction, was up by .9 pt to 55.1 and that was the highest since May 2014. The components here were much more mixed with new orders and backlogs up but employment and export orders down. Both input and selling prices fell m/o/m.
  11. The Japanese unemployment rate fell to the microscopic level of 2.8% in February from 3% in January and was two tenths less than expected. One has to go back to 1994 to last see that rate. The job to applicant rate held at 1.43, the highest since 1991.
  12. To the delight of Japanese consumers, February core/core prices rose just .1% y/o/y as expected and down from .2% in January. Headline inflation rose .3% y/o/y and prices ex food were up by .2% (considered core). The forward looking March CPI in Tokyo saw price declines across all 3 components. Sorry BoJ, sorry Japanese banks (whose stocks are down 11 of the past 14 days) that will continue to suffer from negative rates and yield curve control as a result. The Nikkei is the only major stock market now down on the year as the Topix bank index is down by 5% ytd.
  13. Hong Kong exports jumped 18.2% y/o/y, above the estimate of 15.7% in February.
  14. To the delight of the European wage earner but to the dismay of the ECB, headline CPI for the eurozone in March was up 1.5% instead of the 1.8% that was expected and down from 2% in February. Core inflation was higher by .7% y/o/y vs .9% last month and one tenth less than expected. Some are blaming the timing of Easter as it was in March last year and April this year. I can’t quantify the influence.
  15. The number of unemployed in Germany in November fell by 30k (the most since 2011), well more than the estimate of -10k and the unemployment rate fell to a new post reunification low of 5.8%. A spokesman for the labor agency said “The job market continues to develop favorably. With the onset of spring activity, the number of unemployed people has declined, employment growth is continuing unabatedly, and demand for new employees continues to be high.” Imagine where German interest rates would be if monetary policy was run by the Bundesbank and they still had the Deutsche Mark.
  16. The German IFO business confidence index in March rose to 112.3 from 111.1 last month. The estimate was for no change and it’s the best level since July 2011. IFO said “The upswing in the German economy is gaining impetus.”
  17. Economic Sentiment index in Italy which rose to 105.1 from 104.3 and that is the highest level since December 2015 as manufacturing surprised to the upside. Consumer confidence also improved.
  18. Baseball is upon us and the best day of the year is tomorrow, my baseball fantasy draft. My 27th year and I’ve never won, But this is my year!

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Negatives
  1. Initial jobless claims totaled 258k, 11k more than expected and compares with 261k last week which was also a surprise vs the estimate of 240k. This brings the 4 week average up to 254k from 247k last week and that is the most since December. Continuing claims, delayed by a week, rose by 65k and almost gets back all of the 72k person drop in the two prior weeks.
  2. The final UoM consumer confidence index was 96.9, down from the preliminary print of 97.6, vs the estimate also of 97.6 and compares with 96.3 in February and 98.5 seen in January. This remains well above the 87.2 seen in October and 91.2 back in September. It’s impossible to know if there was any impact but this does capture last Friday’s healthcare news. After the 5 pt jump in the Net Income component in the first read, the final print was up just 1 pt. Those expecting lower unemployment was up 2 pts vs February vs the first print of up 6. Spending intentions remain mediocre and are not following the headline advances in confidence. Those that said it’s a good time to buy a large household item was up 1 pt to 162 but was 164 last June and 166 last January. Those that said it’s a good time to buy a house fell 1 pt to 150. It was 157 in August and 158 last January. Those that plan on buying a car/truck was up 2 pts to 147 but peaked at 152 last year. One year inflation expectations were 2.4% vs 2.5% in February which compares with the 5 year average of 2.7%. A main driver of this (no pun intended) was “long term gas price expectations fell to their lowest level in more than a decade.”
  3. Headline PCE inflation grew by 2.1% y/o/y and 1.8% at the core level with .1% and .2% gains m/o/m respectively in February. The headline rate is above 2% for the first time since 2012 and the core gain matches the quickest since October 2012. Persistent services inflation continues to offset the drop in the pricing of durable goods. Energy of course was a key influence on the headline but that soon will start to wane.
  4. Nominal spending in February was up by just .1% m/o/m vs the estimate of up .2% and real spending declined for a 2nd straight month.
  5. Even with the sharp 13 bps w/o/w drop in the average 30 yr mortgage rate to 4.33%, refi applications still fell 2.9% w/o/w and down for a 2nd week. They are lower by 26% y/o/y.
  6. The Dallas manufacturing index in March fell to 16.9 from 24.5 and that was below the estimate of 22.0.
  7. The trade balance on goods only saw a deficit of $64.8b in February which was $1.6b less than expected and January was revised down slightly. While good for the GDP calculation, the fall in the deficit was not for the right reasons as exports fell by .1% m/o/m and imports were down by 2.1%.
  8. With respect to retail inventories, they grew by .4% after a .9% rise in January. Of note has been the sharp rise in inventories sitting on car dealer lots. Inventories at motor vehicle/parts dealers in February was higher by 1.5% m/o/m after a 2% gain in January. The increase versus February last year was 9.5%. This helps to explain the 10% y/o/y increase in auto maker incentives in February needed to move these cars off the lots.
  9. In an interview with Japanese media, Tadashi Yanai, the chairman of Fast Retailing and the home of the hugely popular Uniqlo retail store said if the border adjustment tax is implemented, “I would withdraw from the United States…We would not be able to make really good products in the US at costs that are beneficial to customers. It would become meaningless to do business in the US market.” We of course anxiously still await what the Administration wants with taxes.
  10. The uneven recovery in Japan continues after retail sales in February rose .2% m/o/m, one tenth less than expected and off a lower than expected base as January was revised down by 3 tenths. Sales y/o/y were up just .1% vs the estimate of up .7%. Sales at department stores/supermarkets fell for the 7th straight month.
  11. Industrial production in South Korea in February fell 3.4% m/o/m, much worse than the estimate of down .3%. IP was still up 6.6% y/o/y.
  12. For the ytd January-February time frame Hong Kong retail sales were down 3.1% y/o/y. This also was the 24th month in a row of y/o/y declines in sales. I have to blame predominantly the mainland Chinese tourist. The Hong Kong government said “Looking ahead, the performance of retail sales will depend on the recovery pace of inbound tourism as well as whether consumer sentiment will be affected by the various external uncertainties.”
  13. The Eurozone economic confidence index was essentially flat in March at 107.9 vs 108 in February. The estimate was for a slight rise to 108.3. It still though is holding near the best level since 2011 before Greece started to fall apart.
  14. German import prices rose .7% m/o/m, almost double the estimate of up .4%. This brings the y/o/y rise to 7.4%, the highest since a 7.6% print back in April 2011. It was only back in October when this figuring was printing minus signs. Yes, energy prices were a key factor but taking them out still saw a .2% m/o/m rise and a 4.5% y/o/y gain.
  15. For the first time since 2015, nationwide home prices fell m/o/m in the UK. They were still up 3.5% y/o/y but that is the slowest pace of gain since August 2015.
  16. The ECB said M3 money supply growth was up by 4.7% in February vs the estimate of up 4.9% and lending to companies were up just 2% vs 2.3% in January. Household loans were higher by 2.3% vs 2.2% in January. Damaged bank profitability because of negative interest rates and flat curves is typically not conducive to a healthy lending environment.