
Positives
1)However subtle, Jay Powell opened the door to the beginning of a trimming of the Fed’s asset purchases at some point which we assume to be in the next quarter or two. St. Louis Fed president Jim Bullard furthered the commentary on CNBC by saying the tapering discussion is now wide open and that inflation is now rebounding more than he expected. He also acknowledged the housing froth and then questioned why they are still buying MBS which is something I’ve been asking for months.
2)Notwithstanding the 1st w/o/w rise in claims in almost two months, the 4 week average fell to 395k from 403k and that is the least since last March as a print of 444k dropped out. Delayed by two weeks, those still receiving emergency assistance fell 75k to a 7 week low at 5.16mm and the number still getting PUA declined by 254k, the lowest since January at 6.12mm.
3)The June Philly mfr’g index was little changed at 30.7 vs 31.5 in May and vs the estimate of 31. Prices paid and received continued to power higher with the former at 80.7, the highest since 1979 vs the 6 month average of 67 and those received rose 9 pts to 49.7, 14 pts above its 6 month average and the most since 1980. The 6 month business outlook rose to 69.2 from 52.7 with new orders, backlogs, delivery times, price pressures, employment, and capital spending all higher while inventory expectations got cut almost in half.
4)The MBA said that purchase apps rose 1.6% w/o/w but are down now by 17% y/o/y. Refi’s rebounded by 5.5% after 3 straight months of declines that saw a one yr low but they are also down by 22% y/o/y. The average 30 yr mortgage rate fell by 4 bps to 3.11% coincident with the drop in the 10 yr Treasury yield.
5)Core retail sales fell .7% m/o/m in May, two tenths more than expected but more than offset by a 110 bps higher revision to April. Online sales moderated while they jumped for restaurant and bars.
6)Japan said its May CPI fell .2% y/o/y ex food and energy with lower cell phone charges a key reason. The gain ex food was up .1% with the help of higher gas prices. Also keeping a lid on prices are the continued selective Covid restrictions that is impacting people’s social lives. Both were one tenth more than estimated.
7)Japan reported robust trade data in May but again on easy comps and helped by the world’s desperate need for autos. Exports were up by 50% y/o/y about as forecasted and after a 38% rise in April. Exports to the US were up by 88% and by 70% to the EU. To China, by almost 24%. I’m sure the weakness in the yen over the last few months also helped to goose exports. Imports were higher by 28% vs the estimate of up 26.6%.
8)In May, Australia added 115.2k jobs, well more than the estimate of up 30k and the unemployment rate fell to 5.1% from 5.5%. Australia has more people employed than pre Covid.
9)The reopening (temporarily stunted by the new push out of a full reopen) and successful vaccine rollout in the UK drove a 93k person drop in May jobless claims while April was revised to a drop of 56k from the initial print of down 15k. That May decline is the most since 1996. As for the April jobs data, for the 3 months ended April employment rose by 113k vs 84k in the month prior but about 20k less than expected. The unemployment rate did tick down by one tenth to 4.7% and wage growth was faster than expected.
10)Brazil hiked rates by 75 bps to 4.25% as expected. Norway said they will begin hiking in September. Hungary and the Czech Republic also set the stage for rate hikes.
Negatives
1)I’m going to quote the WSJ’s editorial page on this one from yesterday. “Let’s try one of those multiple choice questions we all hated on SAT tests. Question: Which of the following doesn’t fit with the others? A)7% GDP growth in 2021. B)A 5% increase in the consumer price index from a year earlier, and 3.8% in core prices. C)A 4.5% unemployment rate by the end of this year, heading toward 3.8% next year. D)A federal funds interest rate of near zero for another two years. If you answered D), you aren’t a member of the FOMC, which on Wednesday reaffirmed its pedal to the metal monetary policy despite a booming economy and rising inflation that even the Fed anticipates will be 3% this year…In any previous era, those numbers would be flashing yellow signals that some modest monetary tightening is in order. But not under Chair Jerome Powell, as once again there were no dissenters from the policy that began at the height of the pandemic in spring 2020.”
2)The Fed’s balance sheet grew by $112b on the week, the largest one week increase since mid March 2021 and it is now over $8 Trillion.
3)As for rent growth, the biggest component of CPI, Zillow today said that rents rose 2.3% in May from April which rose 1.3% m/o/m from March which is similar to the Apartment List data. They said that was the “largest monthly appreciation since 2015.” As for the top 8 largest US metros, Boise, Phoenix, Spokane, Las Vegas, Riverside, Stockton, Fresno, and Albuquerque, saw “increases higher than 15%.”
4)Producer prices in May jumped .8% m/o/m after a .6% rise in April, 1% increase in March, a .5% gain in February after a 1.3% spike in January. These are m/o/m gains but against the easy comp, they are up 6.6% y/o/y. As for the core rate it was up .7%, two tenths more than expected and that is now the 3rd straight month with that increase. Thus, we’ve got to a 2% producer price annual rate in just 3 months. The core rate is up 4.8% y/o/y. The goods side increase of 1.1% m/o/m ex food and energy (food prices spiked 2.6% m/o/m by the way. Energy prices rose 2.2%) was driven by higher prices for non-ferrous metals like aluminum, copper, lead, nickel, tin, and zinc. The rise in services inflation was in part due to jumps in transportation costs. Processed goods prices ex food and energy rose 2.3% m/o/m in May after a 2.9% gain in April, 3.2% rise in March, 1.4% increase in February, 1.8% rise in January and 1.4% gain in December. Yes, m/o/m increases that used to be similar to y/o/y gains. As for unprocessed goods, prices exploded by 9.3% m/o/m at the core level. Multiple years of gains in one month.
5)US import prices rose 1.1% m/o/m headline in May, 3 tenths more than expected and ex petro were up by .9% m/o/m, almost double the estimate of up .5% and it is the biggest one month gain since 2008. Versus last year, import prices are up by 11.3% and by 6.3% ex petro. Higher industrial supply prices led the way with more finished goods prices more muted. Import prices from two of our largest trading partners rose smartly, especially from Canada. Canadian import prices jumped 4.5% m/o/m after a 1.8% increase in April, a 4.6% rise in March, 3.8% in February and a 5.4% gain in January. They are up 55% y/o/y. From China, import prices were up by .5% m/o/m and by 2.7% y/o/y. And if you are overseas buying US products, export prices jumped 2.2% m/o/m after a 1.1% rise in the month prior.
6)The NY Fed just said in its monthly Survey of Consumer Expectations that “Median one year ahead inflation expectations increased by .6 percentage points in May to 4.0%, the 7th consecutive monthly increase and a new series high. Median inflation expectations at the 3 yr horizon increased from 3.1% to 3.6%, the 2nd highest level in this series, behind only the reading from August 2013. The increase at both horizons is particularly pronounced among respondents age 60 and over and among those with a high school degree or less.
7)After 6 straight weeks of declines, initial jobless claims unexpectedly rose to 412k from 375k last week and that was well above the estimate of 360k. Also, the number of those filing for PUA jumped to 118k from 71k. Delayed by a week, continuing claims totaled 3.518mm vs the estimate of 3.425mm but little changed with last week’s reading.
8)May housing starts totaled 1.572mm, under the estimate of 1.63mm and April was revised down to 1.517mm from the 1st print of 1.569mm. Single family starts were 1.098mm of this, below the 6 month average of 1.155m. Multi family starts were up a touch m/o/m to 474k vs the 6 month average of 435k. Permits also came in less than expected with single family permits falling to 1.13mm, the lowest since September 2020. Multi family permits fell by 34k m/o/m after rising by 24k in the month prior.
9)The NAHB home builder index fell 2 pts m/o/m to a still high 81 but the lowest since last August as builders manage the big demand for affordable new homes at the same time they can’t deliver affordable new homes. They have become unaffordable because of “Higher costs and declining availability for softwood lumber and other building materials…These higher costs have moved some new homes beyond the budget of prospective buyers, which has slowed the strong pace of home building…Moreover, these supply constraints are resulting in insufficient appraisals and making it more difficult for builders to access construction loans” said the NAHB. All 3 internal components fell 2 pts m/o/m.
10)The June NY manufacturing index fell to 17.4 from 24.3 and that was below the estimate of 22.7. Prices paid and received both receded off record highs but remain well above its 6 month average while Delivery Times (supplier constraints) rose again. The overall 6 month business outlook rose 11.1 pts to 47.7, the highest since last June. Capital spending plans though disappointed, falling to 6 month lows.
11)When including the downward revision to April, US industrial production was weaker than expected led by manufacturing.
12)China reported some key May data and while it reflected the easy comps, the rate of gain moderated from April and the numbers were slightly below expectations. Retail sales increased by 12.4% y/o/y vs the estimate of up 14% and down from a gain of 17.7% in April. Industrial production grew by 8.8% vs 9.8% last month and 4 tenths less than the forecast. Both property investment and fixed asset investments year to date rose double digits y/o/y but also a touch less than expected.
13)Germany said its producer price index for May rose 1.5% m/o/m, more than double the estimate of up .7% and after an .8% increase in April, a .9% rise in March, a .7% gain in February, a 1.4% spike in January which came after an .8% rise in December. If you annualize these 6 months, we are talking about a 12.2% annualized rate of gain.
14)The UK said headline CPI rose 2.1% y/o/y in May, 3 tenths more than expected and up from 1.5% in April. The core rate was 5 tenths higher than forecasted with a 2% increase vs 1.3% in the month prior. Easy comps yes but the UK is feeling the same inflation pressures we all are. PPI input prices jumped 1.1% on the month following the 1.2% increase in April as supply problems, higher commodity prices and expensive shipping costs are global. Margins were squeezed as output charges rose ‘just’ .5% m/o/m.
15)After a big retail sales month in April, they cooled in May in the UK more than expected.
16)I’m guessing in response to more selective covid restrictions and for sure supply problems was why Singapore non oil exports rose 8.8% y/o/y, about half the forecast of up 16%. Shipments of electronic products and telecom equipment led the way.