1)The Fed, BoE, SNB, and central banks in Brazil and Taiwan all raise interest rates in an attempt to not just cool inflation but to regain their credibility (Brazil at least has one with their aggressive response to inflation). The ECB temporarily calms down the yield widening between German, France and the others. This as they are still doing QE for a few more weeks.
2)Even as mortgage rates took another leg higher to 5.65% for the week ended June 10th, purchase apps rebounded by 8.1% w/o/w after last week’s 7.1% drop. They are still down almost 16% y/o/y. Refi’s rose for just the 2nd week since early March and by 3.7%. They are still down 76% y/o/y.
3)Headline PPI in May rose .8% m/o/m as estimated but April was revised down by one tenth to an increase of .4%. The core rate was higher by .5% m/o/m, one tenth less than the forecast and April was revised down by two tenths. On a y/o/y basis, headline inflation rose 10.8% vs 10.9% last month while the core rate was higher by 8.3% vs 8.6% in April. Food prices were flat m/o/m but only after rising substantially in the months before. They are up by 13% y/o/y. Energy prices jumped 5% in May from April and are up by 45% y/o/y. The core rate of goods price increases was .7% m/o/m and 9.7% y/o/y. Service prices grew by .4% m/o/m and 7.6% y/o/y.
4)Import prices in May were about as expected m/o/m when we include the upward revision to April. Ex petro though it was below the forecast. Ex food and fuels, prices fell .3% m/o/m but still up 5.5% y/o/y. Trying to distill out the influence of the dollar and the Chinese shutdowns is tough to do.
5)Cass Freight said its shipments index was up 5.4% m/o/m in May after being down 2.6% in April. On a tough comp it was down though 2.7% y/o/y. The caveat to the m/o/m gain, Cass Freight said, “After a nearly two yr cycle of surging freight volumes, two key drivers of growth for the freight cycle – goods consumption and inventory restocking – are faltering.” With respect to rates, the inferred rate in May was down 9.5% m/o/m, though still up 31% y/o/y. And with the continued rise in diesel, the fall in pricing “is not straightforward…2022 has featured a big improvement in driver availability, and a flattening of freight demand. This is a deflationary combination, though it will take several months to filter from the spot market into contract rates” said Cass Freight.
6)Quantifying the damage done to the Chinese economy in response to covid, retail sales in May fell 6.7% y/o/y but a touch better than the estimate of a 7.1% drop. It comes after an 11.1% y/o/y fall in April. Year to date, retail sales are lower by 1.5% y/o/y. IP saw a surprising gain of .7% vs the estimate of down .9% but many factories were kept open with employees sleeping on site. Fixed asset investment, where the infrastructure money is going, saw a ytd rise of 6.2% y/o/y.
7) The very weak yen was all over the Japanese May trade data as exports rose by 15.8% y/o/y, about as expected while the higher cost of energy imports goosed imports by 49% y/o/y which is the negative side of this.
8)Japanese machinery orders in April jumped 10.8% m/o/m, well better than the estimate of down 1.3%.
9)Singapore’s May non oil exports rose 12.4% y/o/y, above the estimate of up 7.5% and up 3.2% m/o/m. Electronics led the way.
10)Australia said employment jumped by 60.6k in May, well better than the estimate of up 25k. The unemployment rate held at 3.9% and the participation rate was higher than estimated.
11)UK job growth was better than expected as 177k jobs were added for the 3 months ended April vs the estimate of 106k. Part of this though is the covid reopening. May jobless claims did fall by another 20k after a 65.5k decline in April.
12)Last night at Met Life, another cool guest, //www.youtube.com/watch?v=F5lZnNsNPIA
1)Governor Kuroda and the BoJ have decided to continue on with their game of chicken with the JGB market, its currency, and its economy.
2)With high sensitivity to the cost of capital, an aggressive Fed tightening cycle takes us a step closer to a recession and deeper into a bear market. The Fed’s economic forecasts for GDP and unemployment released this week look wildly hopeful.
3)While it’s just one forecast, the Atlanta Fed’s GDPNow Q2 estimate fell to zero from +.9%.
4)The NY Fed said their May median one yr inflation expectation survey saw an increase to 6.6%, up 3 tenths from April. There was no change in expectations for the coming 3 yrs at 3.9% though. With expected earnings growth running below these figures, “Perceptions about households’ current financial situations deteriorated noticeably in May with more respondents reporting they are financially worse off today than a year ago. Year ahead expectations about households’ financial situations also deteriorated in May, with more respondents expecting to be worse off a year from now than they are today.”
5)Initial jobless claims was 229k vs 232k last week (revised up by 3k). The estimate was 217k and the 4 week average goes to 219k from 216k. That is the highest since late January. Continuing claims were little changed w/o/w, up by 3k to 1.312mm, just off a 50+ yr low.
6)Core retail sales in May saw no change m/o/m instead of rising by 3 tenths as expected. Also, April’s print was revised down by 5 tenths to a 5 tenths increase. This as spending more money at gasoline stations and for food and beverages takes away from discretionary spending. Spending on gasoline was up 4% m/o/m and 44% y/o/y. On food/beverages, spending rose 1.2% m/o/m and 7.1% y/o/y.
7)Housing starts in May totaled 1.549mm which was about 140k less than expected, partly offset by an upward revision of 86k to last month. Single family starts fell by 106k m/o/m to 1.051mm and that is the least since August 2020. Multi family starts, which tend to be volatile month to month, fell to 498k from 653k and vs 525k in the month before. Permits were no better with single family declining by 61k and multi family by 67k. But again, with the latter, it is jumps around a lot each month.
8)The May NAHB home builder sentiment survey saw a 2 pt drop to 67 as forecasted to the lowest level since June 2020. Both present conditions and the future outlook declined. And most noteworthy, Prospective Buyers Traffic fell 5 pts to under the breakeven level of 50 at 48. As the 1st time buyer is the one suffering the most in the current housing market, the NAHB said “The entry level market has been particularly affected by declines for housing affordability and builders are adopting a more cautious stance as demand softens with higher mortgage rates.” With respect to delivering homes, while lumber prices are down, “Residential construction material costs are up 19% y/o/y with cost increases for a variety of building inputs” outside of lumber. The demand side is obvious too, “the increase for mortgage rates for the 1st half of 2022 has priced out a significant number of prospective home buyers, as reflected by the decline for the traffic measure.”
9)What Redfin said of note in their memo to employees this week, “With May demand 17% below expectations, we don’t have enough work for our agents and support staff, and fewer sales leaves us with less money for headquarters projects…A layoff is always an awful shock, especially when I’ve said that we’d go through heck to avoid one, and that we raised hundreds of millions of dollars so we wouldn’t have to shed people after just a few months of uncertainty. But mortgage rates increased faster than at any point of history. We could be facing years, not months, of fewer home sales, and Redfin still plans to thrive.”
10)The June Philly manufacturing index fell to -3.3, the first time below zero since May 2020. The estimate was 5.0. New orders plummeted to -12.4 from +22.1 and backlogs went negative too. Notably, the 6 month business outlook fell to -6.8 from +2.5 and that is the weakest since February 2008. Capital spending rose 3 pts but only after falling by 10 pts last month.
11)The June NY manufacturing index was -1.2, a 10.4 improvement from May but below zero for the 3rd month in the past 4 and under the estimate of +2.3. Importantly, the 6 month outlook for NY manufacturing fell by 4 pts to 14 and that is the weakest since April 2020. Capital spending rose a touch but after falling sharply in May. Expectations for prices paid rose and fell for prices received and declined for delivery times.
12)The May NFIB small business optimism index was 93.1, basically unchanged with the 93.2 print seen for April but that is the lowest since April 2020. Those that Expect a Better Economy fell to another record low, down 4 pts to -54%. On pricing, those seeing Higher Selling Prices rose 2 pts to 72 and that is back to a record high dating back to 1974. The NFIB’s bottom line says it all but factors we’re all well aware of, “Small business owners are struggling to deal with inflation pressures. The labor supply is not responding strongly to small businesses’ high wage offers and the impact of inflation has significantly disrupted business operations.”
13)Also from Cass Freight this week, “Growing evidence of weaker goods consumption, rising services substitution, and rebuilt inventories, with some categories now overstocked, was perhaps the most impactful news in freight this month.”
14)After sharp buying in the prior 5 months, foreigners halted their net purchases of US notes and bonds in April, selling a modest $1.1b.
15)Natural gas prices in Europe jump 46% this week in response to less shipped supply from Russia and a further expected delay in exports to the end of the year from the US Freeport LNG facility hit by fire.
16)Germany’s June ZEW investor expectations in their economy improved by 6.3 pts to -28 but -26.8 was the estimate. Current Situations rose by 9 pts to a better than expected -27.6. ZEW said “Financial market experts are less pessimistic about the economy. However, the economy is still exposed to numerous risks, such as the effects of the sanctions against Russia, the unclear pandemic situation in China and the gradual change of course in monetary policy. So although expectations have improved, they are still deep in negative territory.”
17)The UK is seeing notable negative real wage growth as weekly earnings ex bonuses in April was up by 4.2% y/o/y which compares with CPI that is about 8%.
18)Because of the sharp slowdown in covid testing and tracing, the UK economy contracted in April from March by .3%. The estimate was up .1%.