The Boock Report

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Succinct Summation of the Week’s Events – 5/11

Positives
  1. The first two this week are positive only because they didn’t exceed expectations. Consumer prices rose .2% m/o/m in April at the headline level and .1% ex food and energy. Both were one tenth below the forecast. Due to rounding the y/o/y rise of 2.5% was as expected vs 2.4% in March. The core rate was higher by 2.1%, the same as in March. Again, we’ve seen services inflation more than offsetting goods deflation. On the latter, rising transportation costs will lead to higher consumer goods costs in coming months. This is what Tyson Foods said this week after estimating that rising freight expenses will add $250mm in costs in the current fiscal year, “Nobody breaks out party hats when we come in with a price increase but going forward, product prices must reflect the true cost because we cannot subsidize the increased freight.” The CEO of Stanley Black & Decker said this on whether they can pass on higher costs, “When we get big slugs of inflation like we’ve got this year, those conversations aren’t easy, but they are successful. We’re in business to make money, and in order to do that, we have to achieve price increases to offset some of that inflation.”
  2. Headline PPI in April rose .1% m/o/m vs a .3% gain in March. That was one tenth less than expected but the core rate was in line with its .2% m/o/m rise. The y/o/y headline increase slowed to 2.6% from 3% and the core rate was higher by 2.3% vs 2.7% in March. Of note, goods prices ex food and energy rose .3% m/o/m for the 5th month in the past 7. Services inflation was up .1% m/o/m but only after two 3 tenths prints and a 5 tenth gain in January. There was a .6% m/o/m increase in Transportation/Warehousing. That comes after a 6 tenths gain in March and a 9 tenths spike in February. Wholesale inflation in the pipeline was very evident with processed goods prices ex food and energy rose .3% m/o/m for the 2nd straight month after a 7 tenths and 5 tenths print in the two months prior. For core unprocessed goods, prices rose 7 tenths m/o/m after a 1.5% jump in March. Intermediate demand for services is running at more than a 4% annualized increase over the past 3 months.
  3. Initial jobless claims totaled 211k, 8k less than expected and unchanged from the week prior. This brings the 4 week average down to 216k from 222k, a level last seen in December 1969.
  4. In March there was a record number of job openings totaling 6.55mm (survey dates back to 2000). That was up from 6.08mm in February and about 400k above the estimate. That’s the good news. The problem is the difficulty in filling them as hiring’s fell for a 2nd straight month. The quit rate at 2.3% matches the most since April 2001.
  5. The NFIB small business optimism index in April was basically unchanged at 104.8 from March’s read of 104.7. The difficulty in finding workers was front and center along with the rising cost of capital. Positive Earnings Trends did improve by 3 pts to the best level since this question was first asked in 1973.
  6. In March, Japanese regular base pay rose 1.3% y/o/y, a 21 yr high. With the added boost from overtime pay and bonus’, overall cash earnings grew by 2.1% y/o/y vs the estimate of up 1%. Hooray for the Japanese worker and the Labor Ministry attributed the gain in part due to the hiring of more full time workers who get more pay than part time ones.
  7. The Chinese inflation data for April was pretty much as expected. The CPI was up by 1.8% y/o/y vs 2.1% in March and one tenth less than expected. Inflation ex food and energy was up by 2% y/o/y, the same print as in March. PPI was up by 3.4% y/o/y as expected, up from 3.1% in March and that is still off a tough comp as last April was up by 6.4%.
  8. Exports rose 12.9% y/o/y, above the estimate of up 8%. Imports also grew more than expected, rising by 21.5% y/o/y vs the forecast of up 16%. The trade surplus with the US jumped 44% m/o/m to $22.2b. Smoothing out the early year noise with the New Year, the trade surplus year to date is up by 13%. Exports to the US was up by 10% in April vs about 15% in Q1 while imports jumped by 20.3% in April, the best in 3 months.
  9. After a string of economic data misses, Germany reports industrial production and export figures that were as expected.
  10. Italy and Spain reported upside surprises to their industrial production figures for March. Greece even saw a gain of 1.1% y/o/y.

Negatives

  1. In the 9th year of the expansion, with the unemployment rate at the lowest level since 1975 and inflation running at 2.5%, recently down from 3%, the Bank of England could not find the will to raise interest rates 25 bps from the current level of .50%. Instead they cowered behind some recent softening in the economic data which was partly driven by a tough winter. They are repeating the mistakes of the BoJ and run the risk of having no tools to deal with any future downturn.
  2. The NY Fed’s Underlying Inflation Gauge rose to 3.20% in April from 3.15% in March. It has not risen for the 11th straight month and stood at 2.54% one year ago. The “prices only” index rose to 2.29% from 2.23% and that was 2.15% last April. It has been above 2% for 17 straight months.
  3. In the quarterly Fed Senior Loan Officer survey, the demand for loans was reported down in C&I, commercial real estate, residential housing, auto’s and credit cards. This of course begs the question over whether we are seeing the early signs of a change in behavior because of higher interest rates.
  4. Reflecting a continued hangover from the consumer spending binge in Q4, revolving credit outstanding fell for a 2nd month in March, by an annualized rate of 3%. The explosion higher in nonrevolving debt continued apace however, rising another $14.2b, a 6% annualized rate to a fresh record high outstanding of $2.85 Trillion, about half of which is student debt and another Trillion of auto loans with some maturities extending out 8 years according to Experian.
  5. With the average 30 yr mortgage rate falling by 2 bps w/o/w to 4.78% off last weeks 7 year high, mortgage applications were little changed. Purchase apps fell .2% after last week’s 1.6% drop. The y/o/y gain has slowed to 3.2% from 5.1% last week and 11.3% in the week before that. Refi’s fell for a 3rd straight week, down by .6% and lower by 18% y/o/y. This index is is at the lowest level in 9 1/2 years.
  6. The Markit Eurozone Retail PMI for April that fell below 50 at 48.6 from 50.1 in March. This is the first time below 50 since March 2017. Markit said there was particular weakness in Italy. For the Euro area, “Forward looking indicators add to the dull picture, with falls in purchasing activity and stocks of goods suggesting retailers are taking an increasingly cautious approach to their business operations.”
  7. Sentix has a monthly investor confidence figure for Europe and their May number fell to 19.2 from 19.6. That’s a 15 month low and Sentix said “Are they coming or not, the US punitive tariffs? The decision has not yet been made and it is therefore not surprising that the Sentix economic indices hardly change in May. Nevertheless, the Sentix economic index for the eurozone fell slightly for the 4th month in succession.”
  8. The UK reported IP that was a touch below expectations.
  9. French industrial production in March fell .4% m/o/m instead of rising by .4% as forecasted. The main reason was an 8 tenths miss in manufacturing relative to the estimate.
  10. German factory orders fell .9% m/o/m in March vs the estimate of up .5% and February was revised down by 5 tenths.
  11. The Swedish Riksbank continues to play with monetary fire as CPI prints 1.9% y/o/y vs the repo rate of -.50%. The Krona luckily did bounce off a 9 year low vs the euro. Try to make sense of these comments from the Governor of the Riksbank and tell me if there is an sense of clarity on things: “Krona weakness not an ideal way of raising inflation…Weak Krona was good help when we were desperate…But in the long run weak Krona is not a good strategy…We forecast that the Krona will eventually strengthen but Krona mustn’t strengthen too fast.”
  12. China’s credit growth ramped up in April with aggregate loan growth of 1.56T yuan, about 200b above the estimate. Almost half of the upside was on the bank side with the balance on the so called shadow side but the Chinese government has been successful in shrinking the shadow side as a percent of total loans. Total loan growth year to date is down 14% y/o/y but that’s because of the crackdown on non bank lending. Bank loans are still up 13% y/o/y. We’ll see in coming months what that recent RRR cut will have.
  13. The Argentina peso continued its plunge, falling another 4% as of Thursday.