Positives
1)The Fed’s balance sheet shrunk for the 4th week and is back below $7 Trillion. The main reason has been a reduction in swap lines (as they get paid back) and their repo facility usage has basically gone to zero. But, they keep on buying US Treasuries even with yields so low.
2)Initial jobless claims came in at a still high 1.31mm but that was below the estimate of 1.38mm. This compares with 1.41mm last week which was revised down slightly. Continuing claims, delayed by a week, totaled 18.06mm vs 18.76mm in the week prior. That is about 750k below the forecast and the least since mid April but compares with just 1.7mm in February.
3)The June ISM services index jumped to 57.1 from 45.4 and that was well better than the estimate of 50.2 and again measuring the direction of this part of the economy as businesses reopen. Of the 18 industries surveyed, 14 saw growth vs 4 in May. The laggard component though remains Employment where only 3 industries saw growth here vs none in the prior two. 15 of 18 industries saw growth in new orders. ISM summed up the report by saying “Respondents remain concerned about the coronavirus and the more civil unrest; however, they are cautiously optimistic about business conditions and the economy as businesses are beginning to reopen.”
4)After a two week lull, purchase applications picked up by 5.3% w/o/w and which brings the y/o/y gain to 33%. Refi’s were little changed but remain up by 111% y/o/y.
5)After shrinking sharply in March and April, the number of job openings increased in May as things reopened. At 5.4mm openings, that compares with 7mm back in February.
6)US PPI went negative m/o/m in June with a .2% headline drop and .3% core decline. Taking out trade too though saw prices rise .3% as trade prices fell 1.8% m/o/m. Food prices also fell sharply, by 5.2% m/o/m but after a 6% jump in May. They are up .8% y/o/y while energy prices are down 17% y/o/y. The BLS said 80% of the drop in final demand services was due to a 7.3% fall in margins for machinery and vehicle wholesaling. As we got back in the car again as things reopened, “a major factor in the increase in prices for final demand goods was the gasoline index, which rose 26.3%.”
7)Aggregate financing in June in China totaled 3.43 Trillion yuan, above the estimate of 3.05 Trillion with bank loans making up 1.81 Trillion of that. Money supply growth as measured by M2 rose 11.1% y/o/y as expected and that’s the same pace as seen in May which matches the highest level since December 2016. For perspective, aggregate loan growth is up an astonishing 42% year to date y/o/y.
8)The China Association of Automobile Manufacturers said sales rose 11.6% y/o/y in June.
9)With China’s reopening, the June Hong Kong PMI got close to 50 at 49.6 from 43.9 in May. Markit still expressed caveats, “survey data indicated that external demand, particularly from mainland China, is still weak. Firms also remained concerned about the long term impact of the Covid pandemic on economic activity. As such, the potential of a robust recovery in the Hong Kong economy relies on the strength of the upturn in the global economy in the coming months.”
10)The UK construction index jumped to 55.3 from 28.9 in June “as more sites began to reopen and the supply chain kicked into gear. House building led the way with the fastest rise in activity for nearly 5 years, while commercial and civil engineering also joined in the recovery from the low point seen in April.”
11)French and Italian industrial production bounced more than expected in May after the April weakness as things reopened.
Negatives
1)The virus spread continues to increase mostly because some are not diligent in wearing a mask. The civil liberty argument ends when one threatens the health and safety of others. Reopenings are being stunted and air travel is slowing as a result. Delta CEO said this week to its employees: “The continued growth of the virus through the Sun Belt, coupled with quarantine restrictions being implemented in large markets in the northern part of the country, give us renewed caution about further schedule additions at this time.” Yes, the direction of the virus is driving things here but we have some control of our economic destiny if we just behave better.
2)Taiwan exports fell 3.8% y/o/y in June, as expected. As China was open, exports to them grew and also did to the US but fell to the rest of Asia and Europe. Imports fell by 8.6% y/o/y, a bit more than the forecast of down 6.8%.
3)In Germany, the Markit index was up only slightly to 41.3 from 40.1. “Surveyed businesses have reported that clients are more reluctant to place new business due to the current uncertain climate. As such, constructors remain cautious about the outlook for activity, and towards work on commercial projects such as retail outlets, office space and manufacturing plants in particular.”
4)It’s not just adults that are frustrated with the shut downs, //twitter.com/Ngu_Spesh/status/1281259100450566146. This though will put a smile on your face.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.