Positives
1) New home sales in April totaled 673k, about in line with the estimate of 675k and March was revised up by 31k to 723k. Smoothing out this volatile data point puts the 3 month average at 688k vs the 6 month average of 648k and the 12 month average of 628k. Months’ supply rose to 5.9 from 5.6 and the median home price jumped by 8.8% y/o/y but that was due to mix as fewer lower priced homes were sold while more priced over $500k were sold.
2) Initial jobless claims were little changed w/o/w at 211k vs 212k last week and that was 4k less than expected. The 4 week average fell to 220k from 225k last week and vs 220k in the week prior. Continuing claims, delayed by the week, rose by 12k after falling by 22k last week.
3) The drop in mortgage rates led to a refi jump of 8.3% w/o/w and a gain of 31% y/o/y.
4) UK April retail sales figure ex auto fuel fell .2% m/o/m but that wasn’t as much as the .5% decline expected and March was revised up by 2 tenths. Clothing and online sales helped.
5) Let’s hope the resignation of PM Theresa May can bring in a fresh approach that can get Brexit over the finish line.
6) French business confidence in May saw no change m/o/m and the manufacturing component did improve by 3 pts from April. This was offset by a drop in services, retail trade and employment.
7) Japan’s April machinery orders rose 3.8% m/o/m, better than the forecast of flat.
8) While it’s old news, the Q1 data for Japan was revised sharply higher. Growth was 2.1% q/o/q annualized instead of the initial release of down .2% partially offset by a slight downgrade to Q4 growth. The big caveat though was that the main reason was a sharp decline in imports which leads to a higher contribution from trade due to the math around it. Consumer consumption, capital spending and exports all fell.
9) Mostly led by its services index, the May Australian manufacturing and services PMI did improve by 2.2 pts from the breakeven of 50.
10) Narendra Modi’s victory for a term of another 5 years in India is official and he got the majority that markets thought he wouldn’t get but always hoped he would.
Negatives
1) The news that the US Commerce Department is considering what’s called countervailing financial penalties on products exported from those countries that are accused of manipulating their currencies lower and thus considered a subsidization is one of the most hypocritical policies I’ve heard in a while. Considering the Federal Reserve is an arm of the US government, what’s the Commerce Department going to do the next time the Fed has rates back at zero (mistakenly) and QE is back on (also mistakenly)? Refund the penalties?
2) We’re about a week away from many ships with Chinese goods hitting our ports that will be subject to 25% tariffs, up from 10% without any signs of reconciliation.
3) The Markit US manufacturing and services composite index fell to 50.9 from 53. This is a 3 year low. Manufacturing dropped to 50.6 from 52.6 and services fell to 50.9 from 53. Markit’s bottom line was this: “Growth of business activity slowed sharply in May as trade war worries and increased uncertainty dealt a further blow to order book growth and business confidence…Worse may be to come, as inflows of new business showed the smallest rise seen this side of the global financial crisis. Business confidence has meanwhile slumped to its lowest since at least 2012, causing firms to tighten their belts, notably in respect to hiring.” Finally of note, “The slowdown has been led by manufacturing, but shows increasing signs of spreading to services.”
4) The May KC manufacturing index fell 1 pt m/o/m to 4. The estimate was 6. The KC Fed said “Regional factory growth was sluggish again in May. Several firms noted that new tariffs were disrupting activity.”
5) US core durable goods orders for April fell .9% m/o/m vs the estimate of down .3% and what makes it even weaker is that March was revised down by 9 tenths to a gain of just .3%. Aircraft orders, not included in the core figure, fell 54% y/o/y. The inventory to shipments ratio fell to 1.67 which matches the most since November 2016. As for the direct GDP impact on Q1, shipments of core goods was revised down by .6% in March which means Q1 GDP will get trimmed.
6) A rather sharp 7 bps w/o/w decline in mortgage rates to 4.33%, the lowest since January 2018 did nothing to help the purchase component of weekly mortgage applications. They fell 2% w/o/w and are now down 4 of the past 5 weeks to the lowest level since mid March in this key selling season. The positive though is that they are still up almost 7% y/o/y.
7) I’m glad Jay Powell is acknowledging the excessive leverage on many corporate balance sheets but it’s too late to worry now as it’s already been taken on. Lesson should be learned again that when credit is so cheap and accessible, households and businesses take advantage and always overdue it. Government’s too.
8) The May CBI retail sales index plunged to -27 from +13 and that was well below the estimate of +6. It’s at the worst level since a sharp drop in October 2017. The actual volume of sales for a May read was the lowest since March 2009. Also of note from CBI, “Conditions for retailers have further deteriorated with investment intentions for the year ahead reaching their lowest in survey history (since 1983).” The employment component fell by the fastest pace since August 2009. CBI bottom lined it by saying “This month’s survey paints a dismal picture of business conditions for retailers, who face a grim combination of tough trading conditions, Brexit uncertainty and a burdensome outdated business rates regime, which have collectively pushed investment intentions to a record low.”
9) The UK CBI industrial orders index for May fell to -10 from -5 and that is below the estimate of no m/o/m change. That’s the weakest print since October 2016. The export component fell to the least since July 2016. CBI said “These results provide further evidence that manufacturers have been stockpiling at a rapid pace as part of their Brexit contingency plans. When combined with a sharp decline in order books, it’s clear why manufacturing firms are so keen to see a swift end to the current Brexit impasse.” So looking past the stock piling (where 35% of manufacturers say they have more than enough, the most in 10 yrs), “business surveys suggest that underlying conditions remain more subdued, as Brexit uncertainty and slower global growth bite further on activity.”
10) UK headline CPI rose 2.1% y/o/y in April, up from 1.9% in March but that was one tenth less than expected. The core rate was higher by 1.8%, the same increase as March but also one tenth below the estimate. The retail price index however jumped 3% y/o/y from 2.4% in March and that was two tenths more than expected and which is the quickest pace of growth since November. On the wholesale side, input prices continue to outpace output charges and thus the margin squeeze continues.
11) The May German IFO business confidence index weakened to 97.9 from 99.2. The estimate was 99.1. The index is now at the lowest level since November 2014. All of the m/o/m decline was due to the Current Conditions component as Expectations saw no change. IFO said simply, “The German economy is still lacking in momentum.”
12) The May Eurozone manufacturing PMI fell further below 50 at 47.7 from 47.9 while services softened to 52.5 from 52.8. German manufacturing is down to 44.3 while in France it’s slightly above 50 at 50.6. Markit said “The eurozone economy remained becalmed in the doldrums in May, adding to signs that only modest growth will be achieved in the second quarter.” They forecast a .2% q/o/q rise in Q2 GDP. They cite the known litany of issues, “Worries reflected concerns over lower economic growth forecasts, signs of weaker sales and rising geopolitical uncertainty, with escalating trade wars and auto sector woes.”
13) The Japanese CPI core rate (just ex food) rose .9% y/o/y as expected vs up .8% in March. Also taking out energy saw a price gain of .6% y/o/y from .4% in March and also in line with the estimate. That .6% rise by the way is the quickest since June 2016.
14) Japan’s May manufacturing index fell back below 50 at 49.6 from 50.2. Markit said “The re-escalation of US-China trade frictions has heightened concern among Japanese goods producers. Underlying growth weakness across much of Asia led to struggling exports, which fell at the sharpest rate in four months.”
15) Japan said its April exports fell 2.4% y/o/y, a bit more than the expected drop of 1.6% and this is now the 5th month in a row of y/o/y declines. Exports to China fell 6.3% y/o/y. Shipments of semi equipment plunged by 41%. The positive within the trade data was the 6.4% rise in imports which was better than expected.
16) The Japanese government lowered its assessment of its economy. They said “Japan’s economy is recovering at a moderate pace, while weakness in exports and industrial production continues…Export growth is moderating due to China’s slowdown, which is keeping output weak, but consumption and capital expenditure continue to grow as a trend. The fundamentals supporting domestic demand remain firm.”
17) From an already record low level of rates at 1.5% the Governor of the RBA laid the groundwork for a rate hike soon by saying “A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target. Given this assessment, at our meeting in two weeks’ time, we will consider the case for lower interest rates.” Is this really going to help? It will only encourage more debt and will get harder to then eventually raise rates in a painless fashion.
18) South Korean exports for the first 20 days of the May fell by 11.7% y/o/y and which marks the 5th straight month of declines. Semi’s make up approximately 20% of South Korea’s exports and they fell by 33%.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.