1)The US trade deficit in April narrowed to $87.1b from $107.7b in March which was a record high. Exports rose by 3.5% while imports fell by 3.4%.
2)After seeing a 1.3% increase in April from March, producer prices in Japan were unchanged m/o/m in May. That was below the estimate of up .6% but the y/o/y gain was still 9.1% vs 9.8% in the month before. The main reason for this miss was the subsidies the Japanese government has handed out to cushion the blow of inflation.
3)China did play covid catch up in May with a 17% y/o/y increase in exports, almost double the estimate of up 8%. Imports were higher by 4.1% y/o/y, just above the forecast of up 2.8%.
4)The RBA hiked rates overnight by 50 bps to .85%, the biggest move since 2000. Only a 25 bps rate hike was expected. Governor Lowe said “The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time” which means more rate hikes at the coming meetings. Yes, the RBA is dealing with global factors with respect to inflation “but domestic factors are playing a role too, with capacity constraints in some sectors and the tight labor market contributing to the upward pressure on prices. The floods earlier this year have also affected some prices.”
5)The Reserve Bank of India followed the RBA and hiked interest rates by 50 bps to 4.90%. A hike of 40 bps was expected. Governor Das said “Inflation has steeply increased much beyond the upper tolerance level” and said more rate hikes are to come as they raised its inflation forecast for this year.
6)Taiwan said its May exports jumped 12.5% y/o/y but that was just below the estimate of up 14.1%. Taiwan’s dominance in semi production drove the export gain but China’s shutdowns limited the shipments to them. Imports grew by almost 27% y/o/y, above the forecast of up 21.5%.
7)Hong Kong’s PMI improved further above 50 at 54.9 from 51.7 as they’ve been much more open relative to the Mainland. Markit defined this as the “unleashing of pent up demand with the easing of virus restrictions.” Also, “Overall sentiment in Hong Kong remained positive with the latest developments boding well for further improvements in business conditions.” Of course though, “new business from Mainland China continued to be affected by covid mobility restrictions.”
8)Paul McCartney is turning 80 next weekend but he can still bring it, along with his bandmate John Lennon. This week at Fenway Park, //www.youtube.com/watch?v=m4XCsQA4hyI
1)May headline CPI rose by 1% m/o/m, 3 tenths more than expected while the core rate was higher by .6% m/o/m which was one tenth more than anticipated. Versus last year, headline inflation is up 8.6%, a new cycle high and the core rate printed up 6%. Energy prices, 8% of CPI, was higher by 3.9% m/o/m and 35% y/o/y. Food/beverages (14% of CPI) was higher by 1.1% m/o/m and 9.7% y/o/y. Services inflation ex energy was higher by .6% m/o/m and 5.2% y/o/y with rent growth is STILL being very undercounted. Core goods prices, ex food and energy, was up .7% m/o/m and 8.5% y/o/y, which is the 3rd month in a row of moderation in the rate of change.
2)The UoM consumer confidence in May fell to 50.2 from 58.4. That is the weakest level on record with this survey back to 1978. Both the main Current Conditions and Expectations components were down again. One yr inflation expectations rose one tenth to 5.4%, matching the highest level since 1981. Inflation expectations longer term, 5-10 yrs out (which is quite a guess), rose to 3.3% form 3.0% and that’s the most since 2008. The mean % those expecting family income to exceed inflation in the coming 5 yrs fell to 30.8% from 33.3%. That is the lowest since 2012. Employment expectations weakened again to match the lowest since April 2020. There was further softness in spending intentions with m/o/m declines in plans to buy an automobile, home and major appliance. The bottom line is obvious, “46% of consumers attributed their negative views to inflation, up from 38% in May; this share has only been exceeded once since 1981,” said UoM. Higher gasoline prices are the daily ‘in your face’ inflation gauge and UoM said “Half of all consumers spontaneously mentioned gas during their interviews, compared with 30% in May and only 13% a year ago.”
3)Initial jobless claims rose to 229k from 202k last week and that was 13k more than expected. The 4 week average now stands at 215k vs 207k in the two prior weeks. Delayed by a week, continuing claims totaled 1.306mm, unchanged with the prior week but staying at a 50+ yr low.
4)The Logistics Managers Index for May fell to 67.1 from 69.7 in April. LMI said “The downward shift in the index continues to be driven by a loosening in the transportation market, as more capacity comes online and prices decrease…Warehousing and inventory continue to grow at a similar pace to the one we have observed over the last 18 months. Inventory levels are unseasonably high, packing warehouses to the gills and driving costs up for both inventory and warehousing.”
5)The MBA said purchases fell 7.1% w/o/w and are now down 21% y/o/y to the lowest level since April 2020. Refi’s declined by another 5.6% w/o/w and by 75% y/o/y. This is index is at a 22 yr low. The average 30 yr mortgage rate was 5.40% on the week.
6)Fannie Mae reported its May Home Purchase Sentiment Index and it was little changed from April, down a hair. But, the number of people that said it’s a ‘Good Time to Buy’ hit a new survey low, just 21%. What also stood out in the survey was this, “Consumers’ expectations that their personal financial situations will worsen over the next year reached an all time high in the May survey, and they expressed greater concern about job security,” said their chief economist. And this supports their “forecast that home sales will slow meaningfully through the rest of this year and into next.”
7)We saw another sharp rise in consumer credit outstanding for April. After a $47.3b increase in March, $25.6b of which was mostly credit cards, April saw another rise of $38.1b with $17.8 of this revolving credit (mostly credit cards). At $1.1 Trillion of revolving credit outstanding, that is a record high in absolute terms but not as a % of GDP.
8)Aggregate financing in May in China totaled 2.79T yuan, about 750b above the estimate and bank loans made up 1.89T of this. As the country’s major cities start to reopen again (and with some parts closing again thereafter for mass testing), officials want credit to flow. Money supply growth was 11.1% y/o/y, up from 10.5% in April and above the estimate of 10.3%. You can bring a horse to water but…
9)On the reopening process in China, however now partly stunted, its private sector Caixin services PMI for May rose to 41.4 from 36.2 but that is still well below 50 and well under the estimate of 46. Caixin said “companies continued to trim their staffing levels, while ongoing disruption to business operations drove a steeper increase in backlogs of work. Prices data showed that average input costs rose at a softer pace, while prices charged by services companies rose only slightly.” There is hope though as “Business expectations regarding the 12 month outlook for output improved in May, picking up to its highest for 3 months, with a number of firms hoping for a strong recovery once the virus is contained and restrictions are lifted.”
10)The ECB is still going to do QE for another 3 weeks and even with the rate hike of 25 bps in July will still have rates below zero.
11)The Bank of England and Ipsos released a survey on inflation expectations in the UK and it rose to 4.6% for the coming 12 months.
12)The BoJ continues to play a dangerous game by remaining so dovish and verbal FX intervention will not work.