Positives
- Core retail sales in April (taking out auto’s, gasoline and building materials) rose .4% m/o/m as expected while March was revised up by one tenth. Sales just ex autos and gasoline were as expected including a March revision. The y/o/y growth rate of core sales was 3.9%, a bit above the 5 yr average of 3.5% but still below the 5% gains in the two previous expansions.
- The NY manufacturing index for May surprised to the upside at 20.1 from 15.8 in April and vs the estimate of 15. It basically gets back much of what it lost last month as the March print was 22.5. After plunging to 18.3 from 44.1, the 6 month business outlook improved to 31.1 but is still below the 6 month average of 39.8. Capital spending plans rose but are just in line with the 6 month average.
- The Philly manufacturing for May jumped to 34.4 from 23.2 and that was well above the estimate of 21. There were many mixed internals though as the 6 month outlook softened to the lowest level since June 2017. New orders jumped after the April drop. Capital spending plans fell to the lowest level since November 2016. Prices paid moderated but those received rose to the most since 1989.
- The NAHB builder survey for May rose to 70 from a revised 68 (initially at 69). That was one point more than expected and compares with 70 in March and 71 in February. They said “that builders are buoyed by growing consumer demand for single family homes. However, the record high cost of lumber is hurting builders’ bottom lines and making it more difficult to produce competitively priced houses for newcomers to the market.” They forgot to mention too the growing cost of labor.
- US industrial production in April was a bit better than expected with its .7% m/o/m gain vs the estimate of up .6%. Also, March was revised up two tenths. The manufacturing component though was as forecasted so the upside gain came from higher utility output and mining (oil and gas helped). Auto production fell after the sharp rise in the two prior months. Capacity utilization moved up to 78% from 77.6% but that still remains below the long term average of 80%.
- Thankfully for the Japanese citizenry, inflation remains far from the BoJ’s 2% goal. April CPI ex food (their version of core) was up .7% y/o/y, one tenth less than expected and down from .9% in March. The core/core rate which also takes out energy saw CPI up by .4% y/o/y as expected vs up .5% in March. Quite the distance from the arbitrary desire for 2%.
- China’s industrial production figure for April surprised with a 7% y/o/y increase vs the forecast of up 6.4% and vs 6% in March.
- Trump seems to be pulling us back from the potentially very damaging punishment of ZTE, a major Chinese telecom equipment company that buys many parts from US suppliers.
- The UK unemployment rate at 4.2% for the 3 months ended March held at the lowest level since 1975 and that helped to lift wage growth ex bonus’ to a 2.9% y/o/y gain, the best in 3 years. The UK economy created 197k jobs for those 3 months ended March and that was well above the forecast of up 125k and that happens to be the best job performance since November 2015. The fly in the news today was the April jobless claims number which jumped by 31.2k and that’s the biggest one month rise in a year. Also, Q1 productivity fell by .5% q/o/q.
- France said that Q1 wage growth rose .7% q/o/q which happens to be the fastest pace of gain since Q1 2013 when we saw the same rate of growth. Go back to Q1 2012 to see something faster. France also reported its final print of April CPI and it was up 1.8% y/o/y, the most since October 2012.
- I like what I heard from the new Fed Vice Chair Richard Clarida. He agreed with QE1 but after that “the benefits of QE diminished as more and more rounds were added.” He also believes their balance sheet should only hold US Treasuries.
Negatives
- Initial jobless claims totaled 222k, 7k more than expected and up from 211k last week. As a 233k print falls out of the 4 week average, it fell to 213k from 216k, the lowest since 1969. Continuing claims, delayed by a week, dropped to a fresh 45 year low.
- Housing starts in April totaled 1.287mm, 23k less than expected but that was mostly offset by an upward revision of 17k to the March figure to 1.336mm. Single family starts were little changed in April and really have been pretty flat over the past 4 months at around 890-900k. Thus, multi family has been the main driver of the month to month volatility and they’ve certainly been volatile. In December multi family starts totaled 363k then went to 448k in January, back down to 390k in February, up to 443k in March and down to 393k in April. Overall permits were about in line with expectations, rising slightly for single family and multi family giving back some of the March spike.
- The MBA said mortgage applications to buy a home fell for the 3rd straight week and was flat in the week before that. Thus, it was April 13th the last time we saw an increase. It fell 2.1% w/o/w to a 5 week low but is still up about 4% y/o/y. Refi’s fell for a 4th week by 3.8% and are down by 17%. The refi index is at the lowest level in 10 years.
- On the inflation front, the Case Freight Index report this week was titled “Volume Strong, Pricing Even Stronger – Capacity Still Tight but Less Tight.” On the latter though, “demand is still exceeding capacity in most modes by a significant amount. In turn, pricing power has erupted in those modes to levels that spark overall inflationary concerns in the broader economy.” This was an interview this week with the CFO of Melton Truck Lines, //www.cnbc.com/video/2018/05/16/more-than-50000-truck-drivers-needed-now.html?play=1.
- The price of gasoline rose every day this week and the average per gallon price according to AAA is now $2.91, up 24% y/o/y and is at the highest level since November 2014. I paid $3.13 today.
- The NY Fed’s April Survey of Consumer Expectations said median inflation expectations at 3% for both one year and 3 yr time horizons. “Both measures have been trending upwards since August of last year. The last time both measures reached this level was during the temporary uptick in inflation expectations in early 2017.”
- In March, foreigners were net sellers of US notes and bonds totaling $4.9b but are still buyers year to date of $46.7b after a lean 3 years where they were net sellers of more than $330b. China, the largest holder, did add to their Treasury holdings but it was all due to an increase in bills as they were sellers of notes and bonds. Japan’s holdings, the 2nd largest, fell for the 7th month in the past 8.
- The 10 yr US yield breaks out to a 7 year high.
- Italy might be on the cusp of a new government but markets were not enamored with it. The 2 yr and 10 yr yields both spiked about 35 bps with the former back above zero for the first time in 13 months. Not helping were comments from ECB Council member Villeroy who sounded a bit hawkish in a speech.
- German PPI in April was up by 2% y/o/y, two tenths more than expected and up one tenth from the pace seen in March. Inflation expectations as measured by the 10 yr breakeven is unchanged at 1.41% but that is holding at the highest level in 4 years.
- The German ZEW May economic expectations index remained at -8.2 as expected but matches the weakest level since 2013. This is what the ZEW said, “The effects of the relatively positive values for German exports and production in March 2018 have been overshadowed in the most recent survey by uncertainty motivated by recent political events. The US decision to back out of the nuclear treaty with Iran and fears of a further escalation of the international trade conflict with the US, as well as a further rise of crude oil prices, have had an overall negative impact on economic expectations in Germany.”
- The Eurozone March industrial production figure rose .5% m/o/m which was 2 tenths below the forecast and February was revised down a tenth. Also, the initial Q1 GDP growth rate of 2.5% y/o/y was confirmed and left unchanged. Germany’s economy in particular slowed to 2.3% y/o/y growth from 2.9% in Q4 and 2.7% in Q3.
- The Japanese economy contracted in Q1 by .6% q/o/q annualized. That was worse than the estimate of down .1% and Q4 was revised downwards. Business spending went negative and personal spending did not grow.
- Japanese machinery orders for March fell 3.9% m/o/m, more than the estimate of a decline of 3%.
- Japan’s PPI in April rose 2% y/o/y as expected and is the 13th straight month of a 2%+ print.
- Chinese retail sales were up 9.4% y/o/y, below the estimate of up 10% and that matches the slowest rate of growth since 2004. Fixed asset investment grew by 7% ytd y/o/y. The expectation was for a gain of 7.4% and this is the slowest rate of increase since 2000 and mostly led by a slowdown in the public sector.
- The April Australian jobs report was about as expected but March was revised lower. Their unemployment rate did tick up by one tenth to 5.6%.