Positives
- The MBA said mortgage applications to buy a home spiked by 10% w/o/w which comes after 3 straight weeks of declines. The y/o/y increase is 5.5%. Lower interest rates likely helped as the average 30 yr mortgage rate fell 3 tenths to 4.14%, the lowest since mid November. This also helped refi’s which rose by 3.4% but they still remain 34% below the pace of one year ago.
- In April, job openings totaled 6.04mm, almost 300k more than expected and that is a record high (not adjusted for population). While that is up by 259k from March, the supply of labor is just not there as hiring’s fell by 253k and the hiring rate was down by one tenth to 3.5%, matching the lowest since April 2014. We saw a decline in the number of quitters, giving back the rise in March and the quit rate fell one tenth to 2.1% and remains in a tight range of 2-2.2%.
- Productivity in Q1 was revised up to no change q/o/q annualized vs the initial print of -.6% and compared with the estimate of -.1%. It still is only averaging up .5% y/o/y over the past four quarters. Unit labor costs were revised lower coincident with the productivity revision.
- Consumer credit growth moderated to a gain of $8.2b in April vs the estimate of up $15b (partially offset by a $3b upward revision to March). Nonrevolving credit growth slowed and this is where the epic increases have been taking place driven by student and auto loans. Revolving credit outstanding, mostly credit cards, was higher by $1.5b m/o/m and is just $10b from reaching its April 2008 nominal peak.
- The European services and manufacturing composite index for May was left unrevised at 56.8, a 6 year high and “Optimism about the one year outlook for output rose to its highest level since data for this series were first collected in July 2012.”
- German exports in April did grow by .9% m/o/m, triple the estimate and imports also were better than expected and grew faster than exports and thus led to a decline in its trade surplus.
- Germany industrial production in April beat estimates with an .8% m/o/m gain vs the forecast of up .5% and March was revised up by 3 tenths.
- Q1 GDP in the eurozone was revised up to a gain of 1.9% y/o/y vs the first print of up 1.7% and where the estimate was for no change.
- Chinese exports in dollar terms were up by 8.7% y/o/y vs the estimate of 7.2%. Exports to the US were higher by 11.7% y/o/y, up by 9.7% to the EU and were mixed to the rest of Asia. Imports were where the biggest beat came as it was higher by 14.8%, well above the forecast of up 8.3% implying that domestic demand is still pretty good.
- The private sector weighted Caixin Chinese services index for May rose to 52.8 from 51.5. and brings the manufacturing and services composite index to 51.5 from 51.2 and vs 52.1 in March. This is the 2nd lowest read since September 2016. Caixin said this, “The improvement in the services sector bolstered the Chinese economy in May. However, the rapid deterioration in the manufacturing industry is worrying.”
- Chinese FX reserves in May rose to $3.053T from $3.030T and which is about $7b above expectations. The $24b m/o/m increase is the most since April 2014 and it’s the 4th straight month of increases after dipping below $3T in January. Helping the rise was the weakness in the US dollar which boosted the value of China’s other currency holdings.
- Japan’s services PMI from Markit rose to 53 from 52.2 and that’s the best since August 2015 and brings their composite index to 53.4 from 52.6 and that is the highest level in more than 3 years. The jobs component within was a particular bright spot. Markit said “manufacturing employment rose at a solid pace” and “was the best recorded since November 2007. Service sector jobs were created not only in response to increased volumes of incoming new business, but also in line with positive projections for activity in the coming 12 months.”
- “BoJ is said to mull how to communicate eventual stimulus exit” according to BN. I’ll believe it when I see it.
- The services PMI in India rose 2 pts to 52.2, lifting its combined index to 52.5 which is the best since October.
Negatives
- A new political cloud in the UK is here.
- Mario Draghi’s uber dovishness is filled with contradictions. He said lower oil prices is hurting his ability to get to 2% inflation but thinks lower oil prices are good for the consumer. He wants faster wage growth but admitted much of the modest gains are due to structural issues. He said core inflation has been steady which is the definition of price stability but wants to push it closer to 2%. He acknowledged the improved economic situation in the eurozone and the limited downside risks but threatened even more QE if needed. For at least 3 years running his policies have failed in his stated goal to achieve his sustainable 2% inflation target but threatens even more QE if needed because maybe more and more will eventually get him his wanted result. Mr. Kuroda, please talk to Mr. Draghi and good luck to them both in getting out of this.
- The Federal Reserve’s flow of funds statement reveals household net worth as a percent of disposable income in Q1 2017 rose to 662% from 652% in Q4 and which compares with 649% in Q4 2006 and Q1 2007 and 611% in Q1 2000. QE and years of ZIRP have created another monster.
- Initial jobless claims totaled 245k, 5k more than expected while last week was revised up by 7k to 255k. The original estimate for last week was 238k. The 4 week average rose for a 2nd week to 242k from 240k last week and off the lowest level since 1973 in the week prior. Continuing claims, delayed by a week, fell by 2k.
- The May ISM services index fell to 56.9 from 57.5 and that was a hair below the estimate of 57.1. This level is about in line with the average year to date of 56.7 and remains above the 2016 average of 54.9. Notwithstanding the headline m/o/m drop, 17 industries of 18 surveyed saw growth vs 16 in April. The ISM summed up the report by saying “Although the non manufacturing sector’s growth rate dipped in May, the sector continues to reflect strength, buoyed by the strong rate of growth in the Employment index. The majority of respondents’ comments continue to indicate optimism about business conditions and the overall economy.”
- After a Q1 drag from a large inventory draw, that continued into Q2 after April wholesale inventories fell .5% m/o/m, more than the estimate of down .3%. Sales were very weak, falling by .4% instead of rising by two tenths as expected and March was revised down by two tenths. The inventory to sales ratio did hold at 1.28 for a 4th straight month.
- Industrial production in the UK in April was up by .2% m/o/m but that was well below the estimate of up .7%. Manufacturing was the key factor as it was also higher by .2% vs the .8% expected gain driven by a large drop in pharma. For the 3 months ended April, industrial production is lower by 1.2%.
- The UK services PMI for May fell 2 pts to 53.8 and that was below the estimate of 55. As for the outlook, “Optimism about the year ahead is running below the long run average, weighed down principally by concerns over Brexit, political uncertainty and weaker spending by households.” Fortunately for the average UK citizen, “input cost pressures have eased, suggesting consumer price inflation may likewise cool later this year, alleviating some of the squeeze on household budgets from higher prices.”
- German factory orders fell 2.1% m/o/m, well worse than the estimate of down .3%. Most of the weakness was from overseas and in the capital goods space where weakness was seen in chemical, metal production, computers/electronics, engineering and autos/parts. The German Economic Ministry said “Slight upward momentum in output and sales as well as a stellar business climate send strong signals for a continuation of the moderate upswing in manufacturing.”
- French industrial production was well below expectations in April as it fell .5% m/o/m vs the estimate of up .2% and was driven too by a sharper than expected drop in manufacturing led by a 6.3% plunge in auto’s.
- Spanish industrial production was up by .1% m/o/m in April, below the estimate of up .4% with a slight one tenth upward revision in March. Capital goods were particularly weak.
- Eurozone retail sales in April rose .1% m/o/m, a hair below the estimate of up .2% and March was revised down one tenth.
- Reflecting the reverse of the recent base effects, Chinese wholesale inflation moderated to a 5.5% y/o/y gain in May vs 6.4% in April and that was one tenth less than expected. This of course also coincides with the recent moderation in industrial material prices. CPI was up 1.5% y/o/y as expected with core CPI up 2.1% for a 2nd straight month.
- There was a meager .4% y/o/y increase in base pay in Japan in April after a .1% drop in March, a .2% rise in February and a .6% jump in January. It seems to be part time work that is instead getting rewarded as there was a 2.7% increase in the hourly pay for part timers. There was also a 5.7% y/o/y spike in bonus’ pay which is great to see but is so volatile month to month that how can an employee rely on that.