1) Core durable goods orders rose 1% m/o/m in April, above the estimate but was offset by a downward revision to March. Shipments were better than expected which should modestly lift Q2 GDP forecasts.
2) Thanks to the service sector, the US Markit service and manufacturing composite index rose to 55.7 in May from 54.9. The service component was up 1.1 pts m/o/m to 55.7 while manufacturing was little changed at 56.6 vs 56.5 in April. On services Markit said “May data signaled a slight slowdown in new business growth from the 3 yr peak recorded in April. Backlogs rose to the best since March 2015. Of note and to my consistent theme, “Service providers signaled a robust and accelerated increase in their average cost burdens in May. The rate of input price inflation was the steepest for 3 months, which firms linked to higher oil related costs and rising commodity prices.” With manufacturing, new orders, production and backlogs all rose as did payrolls. Importantly, “business optimism regarding the year ahead outlook was the highest since February 2015.” As part of this, inventory restocking rose to the highest since January. On inflation, “latest data signaled intense pressure on supply chains, with average lead times lengthening to the greatest extent since the survey began in May 2007. Manufacturers widely commented on stretched supplier capacity and logistics delays. Robust demand for raw materials and rising commodity prices resulted in another steep increase in input costs across the manufacturing sector. The overall rate of input price inflation eased slightly since April, but was still among the fastest seen over the past 7 years. Moreover, prices charged by manufacturing companies continued to rise at the strongest rate since June 2011.”
3) The April Richmond manufacturing index rose to +16 from -3 and that was 6 pts better than expected. The wage component rose to the highest level since 1997.
4) Thankfully for the British household April CPI slowed to a 2.4% y/o/y increase from 2.5% in March. That was one tenth less than expected. The core rate moderated to 2.1% from 2.3%. Producer price pressures remain though as PPI was up 5.3% y/o/y, up from March but was below the estimate. Output charges grew by 2.7% which was above.
5) The German IFO business confidence index for May was unchanged m/o/m at 102.2 and was about in line with the estimate of 102. This is though a one year low and follows 5 straight months of declines. The IFO said “The German economy is performing well in a difficult international situation.”
6) The BoJ keeps getting further away from its inflation goal. May CPI in Tokyo (a precursor to CPI for the whole country) rose .5% ex food vs .6% in April and one tenth less than expected. CPI ex both food and energy was higher by .2%, also one tenth below the forecast and down from .3% last month. BoJ Governor Kuroda speaking to Parliament this week reiterated that “it is appropriate for the Bank to pursue the current powerful monetary easing with persistence in order to achieve a price stability target at the earliest possible time” because “there is still a long way to go to achieve the price stability target of 2%.” If at first or 2nd or 3rd or 4th… you don’t succeed try, try, try… again.
7) After a tough winter, UK retail sales ex auto fuel rose 1.3% m/o/m vs the forecast of up .5% and follows a .5% drop in March.
8) Treasury Secretary Mnuchin called a time out on the ‘trade war’ with China.
9) After announcing a cut in auto tariffs to 15% from 25%, China plans to lower import taxes on a variety of other consumer goods.
10) China might finally scrap all restrictions on the number of babies couples can have.
1)At least in Italy, 4 years of central bank monetary repression has come unwound in two weeks. As of this writing, the 2 yr Italian GBT yield is up by 34 bps TODAY, higher by 52 bps this week and by 87 bps in two weeks.
2) Hopefully it’s just a rain check on the Trump/Un meeting.
3) Tariffs on auto imports?
4) Initial jobless claims totaled 234k, up 11k w/o/w and was 14k more than expected. The 4 week average rose to 220k from 214k which was the lowest since 1969. Continuing claims, delayed by a week, rose 29k after falling in the week prior by 82k to the lowest since 1973.
5) In April, new home sales totaled 662k, 18k less than expected. Also, March was revised down by 22k to 672k.
6) Existing home sales in April totaled 5.46mm annualized, about 100k less than expected and down from 5.6mm in March. As this measures closings, assume contracts were signed in the January thru March time frame. The average 30 yr mortgage rate started the year at 4.22% and ended March at 4.69%. The median home price rose 5.3% y/o/y and is approaching the record high seen last year. While inventory has been a problem, the number of homes for sale did rise to the most since September and months’ supply was up to 4.0 from 3.5 and that is the highest also since September. Positively, there was an increase in the percent of first time buyers to 33% of all purchases from 30% last month but vs 34% one year ago.
7) Thanks to an almost 10 bps w/o/w jump in the average 30 yr mortgage rate to 4.86% in the US, the highest level in 7 years, mortgage applications fell again. Purchase applications to buy a home fell for a 4th straight week by 2% and its y/o/y gain is down to 2.7%. The index sits at the lowest level in 6 weeks. Refi’s, highly sensitive to rate changes, fell by 3.7% w/o/w and are down by 27.4%.
8) The final May UoM consumer confidence index was 98 vs the initial print of 98.8 and down from 98.8 in April. The components were mixed as Current Conditions fell by 3.1 pts while Expectations were up by .7 pts. One year inflation expectations were 2.8% vs 2.7% in April and that matches the highest since March 2015. Those expecting higher income rose 2 pts m/o/m but those expecting less unemployment fell by 2 pts with this component at the lowest since July 2017. Business expectations improved m/o/m. The spending decisions were soft. Those that said it’s a good time to buy a car/truck fell 15 pts m/o/m to the least since November 2013. Those that said it’s a good time to buy a major household item fell 5 pts. Those that said it’s a good time to buy a home fell 4 pts while those that said it’s a good time to sell a house rose 8 pts.
9) While the central bank of Turkey tried to stem the plunge in the lira with a 300 bps rate hike, it did no good as the lira is at a fresh record low vs the US dollar. Months’ supply rose a tick to 5.4 from 5.3. All of the sales decline m/o/m was out West. The median home price was $312,400, down m/o/m BUT the average home price rose to $407,300 and that is a record high.
10) French business confidence in May unexpectedly fell m/o/m by 2 pts to 106. The estimate was for no change and it is now at the lowest level since last June. A decline in the services component was the main reason as manufacturing confidence was unchanged m/o/m.
11) The Eurozone manufacturing and services PMI for May fell 1 pt m/o/m to 54.1 and no change was expected. This is now at the lowest level since November 2016 and is only a few months removed from the highest in years. The data still contains some caveats according to Markit, “While prior months have seen various factors such as extreme weather, strikes, illness, and the timing of Easter dampen growth, May saw reports of business being adversely affected by an unusually high number of public holidays.”
12) The UK CBI industrial orders index for May fell to -3 from +4. The estimate was +2. That matches the weakest figure since October 2016, just a few months after the Brexit vote. The CBI said “UK manufacturing has lost some steam since the start of the year, on the back of a softening in both domestic and global growth” but export order books do remain “well above historical average.” The selling price trend was little changed at 19 vs 18 in the two prior months.
13) Japan’s manufacturing PMI for May softened to 52.5 from 53.8 and that is a 9 month low. Price pressures in the US and in Europe due to capacity issues is also apparent in Japan. Markit said “there was further evidence that supply side constraints may be impacting output potential, as material shortages contributed to the greatest lengthening of delivery times in 7 years. Consequently, input prices soared at the fastest pace in 52 months.” Employment, backlogs and new orders all fell. The lone bright spot was higher export sales likely due to the recent weakening of the yen.
14) Japanese exports were up by 7.8% y/o/y vs the estimate of up 8.7%. The gains were led by semi’s and autos. Imports grew by 5.9% vs the forecast of up 9.8%.