The Boock Report

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Succinct Summation of the Week’s Events – 4/13/18

Positives

  1. Depending on one’s view this could also be seen as a negative: in the FOMC minutes they said “A number of participants indicated that the stronger outlook for economic activity, along with their increased confidence that inflation would return to 2 percent over the medium term, implied that the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected.”
  2. Out late last Friday, we did see an acceleration in bank loan growth as they rose 4.5% y/o/y vs 4.2% in the week prior and 4% the week before that with commercial and industrial loans in particular picking up. C&I loans rose 3.2% y/o/y vs 2.7% in the week prior and vs 2.2% in the week before that. This follows a string of 1%+ gains.
  3. There were 6.05mm job openings in February, slightly more than the estimate of 6.02mm but down from a revised 6.23mm in January. The hiring rate did tick down to 3.9% from 4% but is in line with the recent trend. The quit rate was unchanged at 2.2%.
  4. While much of what President Xi said in his speech Monday night was said before, I still take his comments to be measured and conciliatory where they didn’t have to be. I remain hopeful that this whole trade spat blows over with some new agreements.
  5. I have this as a positive because of the need for a slowdown in credit growth. China reported a big miss in the size of its loan growth in March. It totaled 1.33T yuan vs the estimate of 1.8T with bank loans making up 1.12T of it and the shadow side making up the modest balance. The total loan number compares with an average of 2.12T in the first two months of the year and is down from 2.1T in March ’17. Year to date, total loans are down 19% y/o/y. Money supply growth, as measured by M2, also slowed m/o/m with the March increase of 8.2% vs 8.8% in February and well below the estimate of 8.9%.
  6. In China, the March inflation data reported for CPI and PPI both missed expectations as prices moderated slightly. CPI was higher by 2.1% y/o/y vs the estimate of up 2.5% and is down a touch from the average of 2.2% in January/February (adjusted for the Lunar New Year). Prices ex food and energy were up by 2% vs an average of 2.2% in the two months before.
  7. Japan’s core machinery orders in February, which are always very volatile, was better than expected with a 2.1% m/o/m gain instead of falling by 2.5% as estimated. It follows an 8.2% jump in January which came after a 9.3% drop in December.

 

Negatives

  1. After the Good Friday influenced rise last week in initial jobless claims to 242k, they fell back to 233k this week, though 3k more than expected. The 4 week average did tick up to 230k from 228k. Continuing claims, delayed by a week, rose by 53k after dropping by 58k in the week prior.
  2. The March headline CPI fell .1% m/o/m vs the estimate of no change but the core rate was as expected, up .2% m/o/m. Due to rounding, the y/o/y headline gain of 2.4% was as forecasted as was the 2.1% core y/o/y increase. The headline increase is the most since February 2017 and the core rate gain is as well. Rent and medical care continue to drive the persistent rise in service inflation which was up .3% m/o/m and 2.9% ex energy. The drop in core goods prices I don’t expect to continue.
  3. The March PPI rose .3% headline m/o/m, more than the estimate of up .1%. The core rate was also up by .3%, one tenth more than expected. The y/o/y headline gain is 3% from 2.8% and the core rate increase was 2.7% vs 2.5% in February. The core rate gain is the most since November 2011. If we also take out trade, PPI was up by .4% m/o/m and 2.9% y/o/y.
  4. The NY Fed’s Underlying Inflation Gauge for March in its “full data set” increased to 3.14% from 3.07% in February. It’s the 10th straight month of an increase in the y/o/y gains. It’s also now above 3% for the 3rd straight month and running at the quickest pace since July 2006. The “prices only” measure was up to 2.23% in March from 2.21%. That’s the 16th month in a row above 2%. The “prices only” measure pretty much follows the BLS CPI while the NY Fed said the “full data set” is also getting a lift “principally by survey measures of manufacturing and non-manufacturing activity.”
  5. The Cleveland Fed’s CPI data where the median CPI for March was up 2.5% y/o/y, a one year high. The trimmed mean CPI (basically taking out everything that is volatile) was higher by 1.9% y/o/y, the most since June.
  6. In March import prices were flat m/o/m but still up 3.6% y/o/y. Ex petro, they rose .1% m/o/m and 2.1% y/o/y. These figures were one tenth less than expected but still a pick up from recent trends. Headline import prices are now rising at the quickest pace in a year. And notably, import prices ex petro is at the fastest pace since January 2012.
  7. Certainly bullish for aluminum makers but for those that use it, prices spiked 14% this week to a 6 year high after the new Russian sanctions, particularly on Rusal.
  8. We had another week of mediocre US Treasury auctions. Also, this will be the 31st straight week of an increase in 3 month LIBOR.
  9. The average 30 yr mortgage rate did fall 3 bps w/o/w off a 4 year high but mortgage applications to buy a home did fall 2% w/o/w and now is down .5% y/o/y. Refi apps fell too, by 1.7% w/o/w and almost 13% y/o/y.
  10. The NFIB small business optimism index in March fell to 104.7 from 107.6, a 5 month low. The biggest challenge is “labor quality…with 89% of those hiring or trying to hire reporting few or no qualified applicants.” On this point, Positions Not Able to Fill was up 1 pt to match the highest level since November 2000 and this led to current Net Compensation Plans to rise 2 pts to the highest level since May 2000. There was though some cooling in Net Compensation Plans in the future. The rise in labor costs and other inflation pressures (such as trucking), led to Higher Selling Prices which rose 3 pts to the most since September 2008. The NFIB said “Reports of compensation gains are running well ahead of reports of price increases, but the gap is narrowing.”
  11. Reported late last Friday, revolving credit outstanding, mostly credit cards, was up just $100mm m/o/m, the slowest pace of gain since we saw an outright decline in November 2013. The February take was the lowest since last April. This came after a big rise in credit card debt outstanding in Q4 as the savings rate fell to a 10 year low. Call it a bit of a hangover. There was also a moderation in nonrevolving credit outstanding which increasingly includes student debt. Consumers though still added another $10.4b in debt in this category vs $14.1 in January and is 73% above the 2008 peak.
  12. The preliminary April UoM consumer confidence index fell to 97.8 from 101.4 and that was below the estimate of 100.4. Most of the decline was led by the Current Conditions component which was lower by 6.2 pts m/o/m while Expectations were down by 2 pts. One year inflation expectations fell one tenth to 2.7% and is back to where it was December thru February. Income employment expectations fell as did business confidence. The UoM talked about a trade policy induced bifurcation.” Spontaneous references to trade policies were made by 29% of all consumers in early April, with nearly all the mentions negative…The Expectations Index was just 64.2 among those who made negative comments about trade policies, while among those who made no mention of trade policies, the Expectations Index was 93.9, a substantial difference…Negative economic developments were reported more frequently than positive economic changes for the first time since last July. Negative economic news was cited by 66% in early April, up from 55% last month and 45% in January. Most of the negative news involved references to government and trade policies.”
  13. China’s March exports unexpectedly fell 2.7% y/o/y vs the forecast of an 11.8% gain. This is blamed on seasonality and holiday timing. Imports were about as expected.
  14. The Euro area industrial production figure for February fell .8% m/o/m, worse than the estimate of up .1% but partially offset by a 4 tenths upward revision to January. The y/o/y gain of 2.9% is still good but the slowest in 4 months.
  15. Industrial production in the UK in February disappointed relative to expectations. It was up by .1% m/o/m vs the estimate of up .4%. Manufacturing output outright declined by .2% vs the forecast of up .2%.
  16. German exports fell 3.2% m/o/m in February, well worse than the forecast of a slight gain of .4%. Imports also unexpectedly fell. This follows a string of German data misses relative to expectations.
  17. The Euro area Sentix Investor Confidence index for April fell to 19.6 from 24 and that is the lowest print since December 2016. The expectations component went negative for the 1st time since July 2016. Sentix is citing the trade disputes as the main reason. With respect to Germany, “economic expectations are as low as they were last in October 2014.”