The Boock Report

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Succinct Summation of the Week’s Events – 5/12

Positives

  1. Initial jobless claims totaled 236k, 9k less than expected and compares with 238k last week. As a 234k print dropped out, the 4 week average was little changed at 244k. Continuing claims, delayed by a week, fell another 61k to the lowest level since 1988.
  2. Headline CPI for April was higher by .2% as expected and the core rate moved up by .1% which was one tenth less than expected. The y/o/y gains were 2.2% and 1.9% respectively. The headline was goosed by energy while food price gains were modest. While rent growth in some major cities is slowing, it didn’t show up in today’s hard data or maybe was offset elsewhere as Rent of Primary Residence rose another .3% m/o/m and was up 3.8% y/o/y. Owners’ Equivalent Rent, a faux measure of rent and I’ll refer to as soft data because it’s not measuring actual rent like the one I just mentioned, was up .2% m/o/m and slowed to 3.4% y/o/y. As this makes up 25% of CPI, it was a factor in the core miss. Services inflation ex energy continued to moderate with a .1% rise m/o/m and 2.7% y/o/y after a few years of 3%+ gains. Medical care also kept a lid on the core as prices here fell .2% m/o/m and slowed to a 3% rise y/o/y. As we know, used car prices were weak with a .5% m/o/m drop and now a 4.6% y/o/y fall.
  3. The MBA said mortgage applications to buy a home rose 1.7% w/o/w and 6.5% y/o/y as we are knee deep into the spring transaction season. Refi’s were higher by 3.3% but are still down 32% y/o/y because the y/o/y increase in mortgage rates.
  4. The number of job openings in March totaled 5.743mm, about in line with the estimate while February was revised down by 61k to 5.682mm. This is the most since July 2016 but has basically been in a range since mid 2015. The hiring rate held at 3.8% while the level of quitters rose by 80k after falling by 150k in February. The quit rate held at 2.1%. There is a shrinking of supply to meet this labor demand.
  5. The preliminary May consumer confidence index from the UoM rose a touch to 97.7 from 97 and vs the estimate of no change. The gain was all in the Expectations component which was up 1.1 pts while Current Conditions saw no change. One year inflation expectations rose one tenth to 2.6% while “Importantly, nearly the fewest consumers ever complained about inflation.” The internals were extremely mixed as Household Finances fell to the least since November as the Net Income component fell 2 pts to also the lowest since November but income gains of 2.1% were anticipated by all households, up from 1.6% last month and last May. There is optimism also that finances will improve from here. Business expectations though all cooled. Also disappointingly, those expecting more employment over the next 12 months fell 10 pts to the least since November. There were also notable declines in two key areas of consumer spending. Those saying it’s a good time to buy a vehicle fell 18 pts to the weakest level since August 2014 and confirms the weakness seen in the hard data. Those that think it’s a good time to buy a house fell 13 pts to the lowest level since August 2011. Have prices gotten to expensive? Yes, as those that said it’s a good time to sell rose to the highest level since 2005. On the other hand, those that said it’s a good time to buy a major household item was up by 3 pts to match the best since 2006. The political divide narrowed between the Elephants and the Donkeys.
  6. In China, April CPI rose 1.2% y/o/y which was one tenth more than expected and up from .9% in March. The reason for the muted levels over the past 3 months has been the sharp decline in food prices. Consumer inflation ex food and energy clocked in at 2.1% y/o/y which is pretty much on trend. Producer prices were up 6.4% y/o/y, 3 tenths below the estimate and down from 7.6% in March. It was mostly all commodities as on the consumer goods side, PPI was up just .7% y/o/y because of modest price gains in food, clothing and ‘daily use items’ and a continued decline in consumer durables.
  7. China said its FX reserves rose by $20b m/o/m in April to $3.0295T, about $9b more than expected as its currency has been relatively stable of late, its non dollar currencies have traded well against the US dollar and capital controls dissuade money from leaving.
  8. The Hong Kong economy had a good Q1 as it grew by .7% q/o/q and 4.3% y/o/y vs the estimate of up .2% and 3.7% respectively. Consumer spending and exports helped. The property market is also out of control and the Hong Kong Monetary Authority today cut the loan to value ratio that a lender can finance a project on and that new requirement starts on June 1st.
  9. Industrial production in France in March saw a nice beat relative to expectations all due to manufacturing. Manufacturing production grew by 2.5% m/o/m and 3.5% y/o/y vs the estimate of up .9% and 1.2% respectively.
  10. As a firm believer that central bankers should be scrutinized and held to a high standard like anybody else in the private sector, this was my highlight of the week and it was from Mario Draghi’s visit to the Dutch Parliament on Wednesday: “MP’s finished the session with a gift of a solar powered tulip, to remind Mr. Draghi of the country’s famous asset price bubble and financial crisis in the mid 17th century. ‘We want you to look at this tulip before your meetings,’ said Pieter Duisenberg, the head of the MP’s committee, and son of Wim Duisenberg, the ECB’s first president, ” according to the FT.
  11. The Sentix euro area confidence index for May rose to the best level since July 2007. They also commented on the ECB by saying, “This tension between the market and the ECB is likely to be decisive for the future bond market development.”
  12. German March factory orders were a touch above the forecast with a 1% m/o/m gain vs the estimate of up .7%. The German Economic Ministry said “Manufacturing orders continue to be vibrant. Economic conditions in manufacturing are favorable. This is also reflected by strongly improved business climate indicators.”
  13. German exports in March grew by 4.% m/o/m, twice the estimate and February was revised up by one tenth.
  14. The German economy in Q1 grew about as expected by .6% q/o/q and 2.9% y/o/y. Construction (property market pick up as German’s reach for any yield they can get) and equipment spending improved while consumer spending was up a touch. Exports were higher
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  16. Italian industrial production in March rose by .4% m/o/m, one tenth more than expected and the 2.8% y/o/y rise was the best in 3 months.

 

Negatives

  1. While lending standards eased in some cases (C&I and credit cards) and tightened in others (commercial real estate in particular), the most noteworthy thing in the new quarterly Senior Loan Office survey was the drop in demand for credit. The net % of large and medium sized firms that reported stronger demand for C&I loans fell to -6.9% from zero in Q1. That’s the weakest in a year. Demand from small firms fell to -8.7% from +1.5%, the weakest since Q1 2016. Demand for auto loans remained firmly negative at -13.3% vs -13.6% in Q1, the worst two prints in this expansion. The net number of banks reporting stronger demand for credit card loans was -10.2% from -8.3% in Q1 and that is the lowest since at least 2011 that I have data on. The net demand for commercial real estate loans fell to -7.9% from -3.9% in Q1.
  2. April retail sales at the core level taking out auto’s, gasoline and building materials were up .2% m/o/m which was .2% less than expected but March was revised up by two tenths so call it a two month push relative to forecasts. On a y/o/y basis, the level of core sales were up by 2.9% which is well below the 25 year average of 4.2% growth. Online retailing continues to be robust though as sales here grew by 1.4% m/o/m and 9.4% y/o/y. In the aggregate, there has been no pick up in spending coincident with the sharp rise in consumer confidence numbers. I guess any spending increase by the euphoric Republicans is being offset by the miserable Democrats.
  3. Producer prices rose more than expected at all levels. The headline gain was .5% m/o/m, more than double the estimate of up .2%. The core level was higher by .4%, twice the estimate and also taking out trade saw prices spike by .7% vs the .2% forecast. The y/o/y gains for all three was 2.5%, 1.9% and 2.1% respectively. It was mostly the services side of the equation that drove the upside as the BLS said it contributed to 2/3 of the rise. We are also working our way thru a sharp y/o/y rise in industrial material prices notwithstanding the recent modest pullback.
  4. I’m not yet sure what it means and not sure yet what it says but all three Treasury auctions this week were weak.
  5. Import prices ex petro rose .4% m/o/m, well ahead of expectations of up .1% and brings the y/o/y gain to 1.4%, the most since March 2012. How many times over the past few months have we seen mentions of rising cost pressures in overseas surveys, many.
  6. The April NFIB small business optimism fell a hair to 104.5 from 104.7 in March. It is at the lowest level since it printed 98.4 in November but is still near the best level since 2004. The NFIB is saying that this April read didn’t reflect the House passage of their healthcare bill and instead reflected the first failed attempt. “Whether expectations for better business conditions will recover in the May Optimism index remains to be seen” and the CEO of the NFIB said “The drop in expected business conditions should be a warning to Washington that health care reform, regulatory reform, and tax reform have implications far bigger than politics.” The NFIB “noted that taxes jumped to the top of the list of concerns among small business owners in the April survey.”
  7. While March business inventories were in line with an up .2% print, February was revised lower by one tenth to also a .2% gain. While sales were flat, the I/S ratio held at 1.35. On a y/o/y basis, inventories are higher by 2.6% with the most notable jump for auto dealers that saw a 7.8% y/o/y gain as noted before.
  8. While the BoE did mention the possibility of a rate hike, in a roundabout way, they are falling into a bad trap of focusing not on keeping inflation tame which is their sole mandate but are more worried about unemployment instead. I get the concern with the latter but it is succeeding in the former that limits the negative of the latter. They should call Arthur Burns and G. William Miller in the grave on advice on that.
  9. Within the UK industrial production figure, manufacturing was soft with it down by .6% m/o/m vs the estimate of down .2%. And February was revised down by 2 tenths. Benefit of weaker pound wearing off?
  10. German IP fell .4% m/o/m in March, not as much as the .7% drop predicted but more than offset by a downward revision to February and the y/o/y gain was 1.9% instead of the 2.5% estimate.
  11. Industrial production for March in the euro area was light as they fell .1% vs the estimate of up .3% but that was partially offset by a 2 tenths upward revision to February. It was driven by a drop in energy production. The other categories of consumer and capital goods were up m/o/m.
  12. The realization of higher wages in Japan failed again in March and in fact went backwards. Regular pay fell .1% y/o/y, the first decline since May 2016. The headline number was worse because of a deeper drop in overtime pay and bonus’.
  13. After rising to nearly a 4 yr high last month, April consumer confidence in Japan fell .7 pts to 43.2. The estimate was 43.5 and the key Income Growth component fell .8 pts to a 5 month low as did Overall Livelihood. Employment though was bright spot with the tight labor market as it rose to the best in 2 years.
  14. In dollar terms, Chinese exports were up by 8% y/o/y but that was below the forecast of up 11.3% and half the rate of March. Imports grew by 11.9% but well less than the estimate of up 18%. This resulted in a wider trade surplus of $38.1b. While the most in 3 months, it stood above that most of last year. With the backdrop of the recent fall in industrial commodity prices, volume imports of copper, steel, iron ore, crude, fuel oil and refined oil products all moderated from March but were still sharply higher y/o/y for crude, fuel oil, iron ore, and steel. Also, coal imports were up as were soybeans too both m/o/m and y/o/y. Copper imports fell 23% y/o/y.
  15. Chinese credit growth continued its sharp pace of gains in April. Aggregate financing grew by 1.39T yuan, 240b more than expected with bank loans making up 1.1T of that which was 285b yuan more than anticipated. This means that shadow lending did come in a bit below expectations but more than offset by straight lending from banks. Smoothing out the lumpiness of the monthly figures has credit growth up by 11% y/o/y in the first 4 months of the year which compares to nominal GDP growth in Q1 of around 11.5%. Money supply growth did however moderate to 10.5% growth y/o/y, the slowest since July 2016 and below the estimate of up 10.8%. As this makes up a lot of deposits where growth slowed, we have to assume the growth source of lending is from wholesale funding which is not as stable.
  16. Sorry NY Ranger fans.