1) The ISM services index was a better than expected 58.6, up from 56.8 in April and one point better than the estimate after a 2 pt drop in April. Supply constraints though apparent in the jump in new orders, supplier deliveries and prices paid. While the headline services PMI printed up m/o/m, the breadth weakened. Of 18 industries surveyed 14 saw growth vs 18 in April and that matches the smallest since January 2017. The ISM said “The majority of respondents are optimistic about business conditions and the overall economy. There continue to be concerns about the uncertainty surrounding tariffs, trade agreements and the impact on cost of goods sold.”
2) The number of job openings in April rose to a fresh record high at 6.7mm. This compares with the number of unemployed at 6.1mm and the pool of available workers (includes those unemployed and those not looking but would take a job) of 11.5mm.
3) The April trade deficit narrowed to $46.2b from $47.2b in March. That was about $3b less than expected and was partly driven by higher energy exports which took exports to a record high.
4) Thanks to a 9 bps w/o/w decline in the average 30 yr mortgage rate to 4.75%, the lowest since April 20th thanks to the US Treasury rally over the past week, mortgage applications bounced after a month of declines. Purchases grew by 4.2% w/o/w after a 7.5% drop over the previous 5 weeks. They are also up 9% y/o/y. Refi’s were up by 3.8% w/o/w but still down 17% y/o/y.
5) In yuan, Chinese exports in May rose 3.2% y/o/y, double the estimate and imports jumped by 15.6%, nearly twice the forecast. Because of the strength in the dollar, exports were up by almost 13% in dollar terms with the trade surplus with the US rising to $24.6b vs $22.2b in April.
6) The private sector weighted services PMI in China was unchanged in May with April at 52.9 as expected. The internals were somewhat mixed. Caixin said “The employment index continued to rise, while the new business index slipped slightly, indicating a positive change on the supply side and marginally weaker demand across the service sector. The changes led to a softer rise in prices charged, easing the upward pressure on service prices. However, input costs rose at a faster pace after slowing for 3 consecutive months, suggesting that the upward pressure on costs has not completely eased.”
7) In Japan, regular base pay rose 1.2% y/o/y for a 2nd straight month in April and that is the best rate of increase since 1997. Bonus pay did fall almost 10% but after jumping in the two prior months.
8) Singapore’s May PMI improved to 56.8 from 55.6 and that is the best in this survey’s history dating back to 2012. It did though come with rising inflationary pressures. “The strength of the upturn is pulling prices in general upwards. Overall input prices rose at a survey record rate, suggesting that wider inflationary pressures may intensify in coming months” according to Markit.
9) For the sake of some sort of normality, a few members of the ECB said they will give us more details next week on when and how QE will end.
10) The services PMI in the UK improved to 54 from 52.8 and 1 pt better than expected. The comments here were also mixed. “new business volumes continued to rise at a relatively subdued rate, with survey respondents noting that Brexit related uncertainty remained a key factor holding back decision making among clients. At the same time, tight labor market conditions placed upward pressure on staff wages and difficulties recruiting suitably skilled staff in May.”
11) The eurozone April PPI index rose 2% y/o/y, little changed with 2.1% in March but below the estimate of up 2.4%. PPI ex energy was up a more modest 1.3%.
12) Greece’s economy grew by 2.3% y/o/y in Q1 with the q/o/q gain of .8% vs the estimate of up .3%. The 2.3% growth rate from last year is the best since Q1 2008 as the country recovers from its own Great Depression.
1) Initial jobless claims totaled 222k, 2k more than expected and little changed with the 223k seen last week (revised up by 2k). The 4 week average did tick up to 226k from 223k because a 211k print 5 weeks ago dropped out of calculation. Continuing claims, delayed by a week, rose 21k after falling by 22k last week.
2) Mexico, Canada and the EU are now responding back with their own tariffs on us.
3) For European bonds, a few members of the ECB said they will give us more details next week on when and how QE will end.
4) Somewhat dated because we are 2/3 of the way done with Q2, Q1 productivity was revised down to a .4% q/o/q annualized gain from .6% initially. This lead to higher unit labor costs of 2.9% q/o/q annualized, the most since Q1 2017. Looking y/o/y, productivity was still up 1.3% y/o/y. Unit labor costs were also up 1.3% y/o/y.
5) In Germany in April IP fell 1% m/o/m vs the estimate of down .3%. This was though mostly offset by a 7 tenths revision higher to the March figure. Exports in April (probably the most important number to come out of Germany with 40% of its GDP being exports) fell .3% m/o/m as expected after a 1.8% rise in March. Notable is the 2% y/o/y rise which is the slowest since March 2017.
6) German factory orders in April disappointed again with a 2.5% m/o/m decline vs the estimated gain of .8%. The weakness was all within Europe and Germany itself as non eurozone orders were up. Orders have now fallen for the 4th straight month.
7) France reported a miss in its IP figure with the manufacturing component below expectations.
8) The Eurozone services PMI in May was 53.8 vs the initial print of 53.9, estimate of 53.9 and is the lowest level since January 2017. The high number of holidays in May was cited as a reason “but many other companies reported that demand has softened compared to earlier in the year.” Markit also said “Crisis torn Italy has meanwhile reported the weakest expansion of the four largest euro member states for the 4th month running.”
9) Worries about Italy had a sharp impact on the Sentix economic confidence index for June which surveys investors. It fell to 9.3 from 19.2 and that is the lowest read since October 2016. The expectations component fell to the weakest since August 2012 soon after “Whatever it takes” was said by Draghi. Sentix said “The new government in Italy is giving investors fears for the eurozone.” They also blamed the tariff fears. The component for Germany specifically fell to the lowest since July 2016.
10) Hong Kong’s PMI softened to 47.8 from 49.1 and that’s the weakest since July 2016. The report did not read well. “The weaker headline reading reflected a faster decline in inflows of new business. New work not only fell for a 2nd month running in May, but at the steepest rate since August 2016. Anecdotal evidence suggested that weak demand conditions, high competition and client losses were reasons for decreased sales. Furthermore, export orders from mainland China fell sharply in May after a 6 month period of growth.” Employment also fell. While input prices eased, “A range of reasons were cited for inflation, including higher prices of raw materials, suppliers’ price hikes, and salary adjustments.”
11) The services PMI in Japan weakened by 1.5 pts m/o/m to 51 and dropped below 50 in India. In Japan, Markit said “There were worrying signs of deteriorating demand conditions, with new sales increasing at the softest rate in 20 months.”