Positives
1) The Administration pulled back from its everything tariff threat on Mexico.
2) Core retail sales in May beat the estimate by one tenth with a .5% m/o/m rise but it was actually better than that as April was revised up by 4 tenths. The y/o/y gain of 3.4% compares with the 5 yr average of 3.7% and helped by online retailing and sales at restaurants and bars. Versus last year sales are down in electronics, building materials, clothing, sporting goods, department stores and for miscellaneous stores (like convenience stores).
3) Industrial production for May rose .4% m/o/m, two tenths more than expected but mostly due to a gain in utility output. Manufacturing production was as expected, up by .2% led by motor vehicle/parts and machinery. Mining was little changed from April but still up 10% from last year. Capacity utilization rose two tenths to 78.1%.
4) Both headline and core CPI for May were up by .1% m/o/m with the headline figure as expected while the core rate was one tenth less. Versus last year, headline CPI is up 1.8% and the core rate is higher by 2%. Again, we have services inflation and goods deflation. Services inflation ex energy rose 2.7% y/o/y vs 2.8% in April while goods prices ex food and energy fell by .2% y/o/y.
5) In May, headline PPI, core PPI and core PPI also ex trade all were in line with expectations. The core rate was up 2.3% y/o/y as was the core rate ex trade. The headline y/o/y increase was 1.8%.
6) Import prices in May ex petro fell again but about as expected. Versus last year, prices are down 1.4% ex petro driven by price declines in industrial supplies, capital goods, autos/parts, consumer goods and food and beverages. Thus, pretty much everything. Import prices in particular from China fell .1% m/o/m and 1.4% y/o/y.
7) With another plunge in the average 30 yr mortgage rate to 4.12%, the lowest since September 2017, mortgage apps jumped by 27%. Most of that was with refi’s which exploded by 47% higher w/o/w and are up almost 100% y/o/y. Purchase apps grew by 10% w/o/w and are also up 10% y/o/y.
8) The May NFIB small business optimism index rose 1.5 pts m/o/m to 105 and that is the best since October. The NFIB bottomed lined the report by saying “Optimism among small business owners has surged back to historically high levels, thanks to strong hiring, investment, and sales. The small business half of the economy is leading the way, taking advantage of lower taxes and fewer regulations, and reinvesting in their businesses, their employees, and the economy as a whole.” They said this about the Fed, The NFIB addressed this all by saying “Many observers are arguing that the economy needs another ‘artificial stimulus’ from the Federal Reserve. Not so. Interest rates are low enough to keep credit flowing. What is important is growth that is strong enough to make new investments look profitable.”
9) April job openings totaled 7.45mm, about in line with the forecast of just below 7.5mm and compares with 7.47mm in March. Hiring’s rose by 240k while layoffs totaled 59k. These internals tend to jump around month to month. The quit rate held at 2.3%, the highest since this cycle.
10) May retail sales in China was higher by 8.6% y/o/y, better than the estimate of 8.1% and up from a pace of 7.2% in the month prior. That was helped by a May Day holiday that went longer than last year.
11) Total financing in May in China totaled 1.4 Trillion (from 1.359 Trillion in April) which was just below the estimate of 1.45 Trillion with bank loans totaling 1.18 Trillion vs the estimate of 1.3 Trillion but up from 1.18 Trillion in the month prior. Money supply growth as measured by M2 was 8.5%, matching the April pace but still near the lowest on record dating back to 1996. Loans to both households (mostly mortgages) and businesses were up from April.
12) In China both CPI and PPI were as expected with the gains of 2.7% and .6% y/o/y respectively. That CPI gain is the biggest since February 2018 because of the 7.7% spike in food prices, especially pork in response to the swine flu. Non food prices rose at the benign pace of 1.6%.
13) Japan saw a welcome jump in machinery orders in April (and thus pre the May ramp up of trade tensions) with a 5.2% m/o/m gain, well better than the forecast of down .8%.
14) In Australia, net hiring totaled 42.3k vs the estimate of 16k and April was revised higher. The caveat though was almost all of it was due to part time hiring. Over the last two months there was a net decline in full time hiring. Many of the part timers were hired to help with the election.
15) Kudos to the Hong Kong citizenry who are protesting and speaking out in defense of their freedoms.
16) The jobs data in the UK for the 3 months ended April were better than expected. Versus an expectation of an increase of just 4k in jobs, 32k were created. The unemployment rate held at 3.8%, the same level seen in the 1970’s. Wage growth also was really good, rising 3.4% y/o/y, two tenths more than expected, up one tenth from the prior month and is one tenth from matching the biggest increase since 2008. The fly though continues to be the monthly rise in jobless claims which were up another 23.2k in May.
Negatives
1) The initial June UoM consumer confidence index fell to 97.9 from 100 and that was a hair below the forecast of 98. The main components were mixed as current conditions rose by 2.5 pts from May but offset by a 4.9 pt drop in expectations to a 4 month low. After rising by 4 tenths in May, one year inflation expectations fell 3 tenths to 2.6%. The long term trend estimate for inflation fell to 2.2%, the lowest on record and helping the move lower in inflation expectations was the expectation for gas prices over the coming 12 months which fell to the lowest level since at least 2005 that they have data on. Also interestingly, “the decline in inflation expectations was associated with fewer consumers expecting increases in interest rates.” Remember, interest rates are a price. UoM said too “Among consumers who negatively cited tariffs, they expected a significantly higher inflation rate during the year ahead, but voiced the same expected long term inflation rate.” Net income expectations fell 1 pt but off the highest level since March. Employment expectations dropped by 7 pts to a 4 month low. There was a notable decline in ‘Business Expectations Over the Last Few Months’ which dropped by 23 pts m/o/m. Likely thanks to the sharp drop in interest rates but also a pull forward of behavior, big ticket spending intentions did improve. Those that said it’s a Good Time to Buy a Vehicle rose 5 pts to the best since September. Those that said it’s a Good Time to Buy a Major Household Item jumped 10 pts. The caveat though according to UoM, “That improvement, however, was due to consumers favoring tariff induced buy in advance price rationales.” Those that said it’s a Good Time to Buy a House spiked by 17 pts to the most since October 2017. However, those that said it’s a Good Time to Sell a House rose to the most on record. I wonder how many of those live in the high property tax states. The UoM’s bottom line, “In early June, consumer sentiment reversed the May gain due to tariffs as well as slowing gains in employment. Some of the decline was due to expected tariffs on Mexican imports, which may be reversed in late June, but most of the concern was with the 25% tariffs on nearly half of all Chinese imports.” The underlines are mine.
2) Initial jobless claims totaled 222k, 7k more than expected and up from 219k last week. This shifts the 4 week average up to 218k from 215k. Continuing claims, delayed by a week, were little changed.
3) Business inventories rose .5% m/o/m in April as expected but because sales fell by 2.%, the inventory to sales ratio rose to match the highest level since December 2016.
4) The Business Roundtable economic outlook survey for Q2 saw a 5.7 pt decline from Q1. Hiring plans fell 5.2 pts, capital spending plans were lower by 2.9 pts and expectations for sales dropped by 8.9 pts. Notwithstanding this, the CEO GDP estimate for this year rose one tenth to 2.6%. The CEO of the Roundtable said “The 2nd quarter CEO survey was in the field during a turbulent few weeks for US trade relations with China and Mexico. Business leaders are ready and eager to invest and hire in the US. Yet, the uncertainty over trade policy is making it more difficult for companies to invest and operate confidently.”
5) Not that many care anymore, scarily, the US government announced a budget deficit of $208k in the month of May alone. That is a number never before seen in May.
6) Reconciling all the country IP figures, industrial production for the Euro area in April fell .5% m/o/m and if taken with the one tenth downward revision to March was as expected.
7) Chinese industrial production in May rose 5% y/o/y, below the estimate of 5.4% and down from 5.4% in April. That’s the slowest since 2002. Fixed asset investment was higher by 5.6% also less than the forecast of up 6.1%.
8) China’s exports in May surprised to the upside with a 1.1% y/o/y gain vs the estimate of down 3.9% but assume that as many products as possible were rushed out in the beginning of the month before the 25% tariff rate kicked in on May 10th (even though exports to the US still dropped). And it didn’t have to be exports directly to the US as we’re hearing more stories about China accelerating exports to other countries that then re export products to the US. Vietnam is saying they are seeing plenty of fake ‘Made in Vietnam’ labels on things that were actually made in China. Reflecting continued weakness though was the 8.5% drop in imports, of which many inputs end up in exports, vs the forecast of a 3.5% drop.
9) The ECB still thinks it’s a good idea to maybe go even deeper below zero with interest rates as Governing Council member Francois Villeroy and possible next head of the bank said “We will do everything within our mandate. If the economy slams on the brakes, we could do more.” The Euro STOXX bank index finished the week less than 1 pt from the lowest level since August 2016.
10) Kuroda also thinks the same and said in an interview that “If the momentum to our 2% inflation target is lost, then of course, the Bank of Japan will swiftly respond by changing our policy…Like Mario Draghi, I think we can do these things if necessary.” The Topix bank stock index closed just above a 3 yr low. It’s down 90% from its 1989 level.
11) I heard one of the most alarming comments from a central banker this week in this upside down world of negative rate monetary madness. From Swiss National Bank Governor Jordan, “It is not our task to make the financial sector happy.”
12) The EU Sentix Investor Confidence June index deteriorated to -3.3 from +5.3. Sentix is blaming our trade policies. “As soon as the hopeful data of the sentix economic index had been published in May, the US President made a mistake in investors’ calculations. At the latest since the US government prohibited US companies from doing business with the Chinese telecom supplier Huawei, it has become clear that a ‘cold’ trade war is threatening to become a ‘hot’ one. This development has pulled investors out of their upswing hopes and led to considerable setbacks in the sentix economic indices in all regions of the world.”
13) UK GDP in April fell .4% from March, well worse than the estimate of down .1%. Manufacturing production in particular plunged by 3.9% m/o/m, more than double the forecast of down 1.4%. That is the biggest monthly decline since 2002. GDP growth for the 3 months ended April was higher by .3% vs the estimate of up .5%.
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.