1)Within the PMI’s today in the US, Europe and Asia, price pressures are moderating.
2)The ECB ended negative interest rate policy, finally.
3)Putin turned back on Nord Stream 1, although natural gas prices were unchanged on the week.
4)Multi family starts in June totaled 577k vs 523k in May, 632k in April and 525k in March. Multi family permits, also in clear contrast to single family rose to 718k from 644k and is the 3rd month in the past 4 above 700k.
5)Foreigners bought a net $88.9b of US notes and bonds in May, the biggest monthly amount since March 2021 and brings the year to date buying to a large $297.2b. The source and changing ownership though are key to watch. It was the Cayman Islands where most of the buying came from, totaling $75.8b. In other words, hedge funds and insurance companies were the big buyers. Japan and China, the two largest foreign holders, continue to pare down their holdings. Japan shed another $1.6b of notes and bonds, the 4th straight month of sales and takes their holdings to $1.21T. China sold $15b worth and now holds under $1 Trillion at $981T, the least since 2010. For Asia on the whole, they sold $25.4b of notes and bonds. Europe bought a net $40.4b with the UK making up most of this but any foreign participant could have gone thru a UK bank to account for this.
6)The UK economy held in better than its European peers as its July PMI fell just .9 pts m/o/m to 52.8 with manufacturing at 52.2 and services at 53.3. Markit said “Although not yet in decline, with pent up demand for vehicles and consumer oriented services such as travel and tourism helping to sustain growth in July, the PMI is now at a level consistent with just .2% GDP growth. Forward looking indicators suggest worse is to come. Manufacturing order books are now deteriorating for the first time in one and a half years as inflows of new work are insufficient to keep workforces busy, which is usually a precursor to output and jobs being cut in coming months.”
7)The UK reported a better than expected job gain for the 3 months ended May of 296k. The estimate was 170k. The unemployment rate held at a still low 3.8%, close to the lowest since the mid 1970’s. Wage growth ex bonuses rose 4.3% y/o/y as expected but its half the pace of CPI. The more timely June jobless claims figure saw a drop of 20k.
8)Japan said its exports rose more than expected in June, by 19.4%, certainly helped by the weak yen.
9)South Korea said its exports for the first 20 days of July were higher by 14.5% while imports jumped by 25.4% led by higher energy prices.
10)Singapore’s June non oil exports rose 9% y/o/y which was above the forecast of up 6.1%. There was an increase in exports to China as they reopened again (for now). Exports to the US rose 21.5%.
1)The US July Markit PMI is now reflecting recession/contraction because of the 5.7 pt m/o/m decline in services to 47 while manufacturing was down a touch to 52.3. The composite index stands at 47.5 from 52.3 in June and that’s the first time it’s below 50 since June 2020. Markit said, “Manufacturing has stalled and the service sector’s rebound from the pandemic has gone into reverse, as the tailwind of pent-up demand has been overcome by the rising cost of living, higher interest rates and growing gloom about the economic outlook.”
2)Initial jobless claims rose to 251k from 244k and that was 11k more than expected. That’s also the first time above 250k since last November. The 4 week average rose to 241k from 236k. Continuing claims rose 51k to 1.384mm, the highest in 3 months.
3)The July Philly manufacturing index fell to -12.3 from -3.3 and that was well worse than the estimate of +.8. It’s the 2nd month in a row with a negative print for the first time since the 2020 shutdowns. The 6 month business outlook fell sharply to -18.6 from -6.8 and that is the weakest since 1979. Expectations for prices eased too. Expectations for capital spending fell to 4.4 from 11.7.
4)With the average 30 yr mortgage rate ticking back up to 5.82% from 5.74%, mortgage apps fell again. Purchases declined for a 3rd straight week, by 7.3% and are lower by 19% y/o/y. Refi’s dropped by 4.3% w/o/w and by 80% y/o/y.
5)Housing starts totaled 1.56mm, 20k below the estimate but May was revised up by 40k to 1.59mm and vs 1.81mm in April and 1.72mm in March. Most importantly, single family starts fell to 982k vs 1.07mm in May, 1.17mm in April and 1.19mm in March. That’s the least since June 2020. As for permits, those for single family fell to 967k, the lowest since June 2020.
6)Existing home sales in June fell to 5.12mm annualized, about 200k below expectations, down from 5.41mm in May and the least since June 2020. Home supply increased but always does in the spring and early summer. Months’ supply at 3 is still half what is the long term average. The median home price rose 13.4% to a new record high of $416,000 but which is the slowest pace of increase since December 2020 which is definitely welcome with unaffordability a big issue. First time buyers made up 30% of sales, up from 27% in May and vs 31% one year ago which investors/all cash buyers held their pace with existing home owners slowing their pace (they probably don’t want to lose their 3% mortgage). Amazingly still, ‘days on the market’ was only 14 days vs 16 in May and 17 in April but the NAR said “homes priced too high are deterring prospective buyers.”
7)The July NAHB builder confidence index was 55 vs 67 in June, 10 pts below the estimate and the weakest since May 2020. The Present situation declined by 12 pts to 64 while the Future outlook was down by 11 pts to exactly 50 and 50 being the breakeven between expansion and contraction. Prospective Buyers Traffic was down by 11 pts to just 37, also the lowest since May 2020 when no one was going anywhere. Inhibiting the supply side, the NAR said “Production bottlenecks, rising home building costs and high inflation are causing many builders to halt construction because the cost of land, construction and financing exceeds the market value of the home. In another sign of a softening market, 13% of builders in the survey reported reducing home prices in the past month to bolster sales and/or cancellations.” With respect to the demand for homes, something we are now well aware of, “Affordability is the greatest challenge facing the housing market. Significant segments of the home buying population are priced out of the market.”
8)The Eurozone PMI has fallen into contraction with its composite index at 49.4 vs 52 in June. Manufacturing fell to 49.6 from 52.1 and services declined by 2.4 pts to 50.6. Germany saw below 50 reads for both components. French manufacturing is also below 50 but services hung in above at 52.1. The bottom line is that a recession is here in Europe and according to Markit’s opinion, “forward looking indicators hint at worse to come in the months ahead…Of greatest concern is the plight of manufacturing, where producers are reporting that weaker than expected sales have led to an unprecedented rise in unsold stock…In services, the boost to demand from the reopening of the economy has faded and growth is now at a near-standstill, with customers often deterred by the increased cost of living and concerns about the outlook…Business expectations for the year ahead have meanwhile fallen to a level rarely seen over the past decade as concerns growth about the economic outlook, fueled in part by rising worries over energy supply and inflation but also reflecting tighter financial conditions.”
9)UK CPI in June was up 9.4% y/o/y, one tenth more than anticipated and a fresh 40 yr high with a core rate of up 5.8% as expected. The retail price index, which is used to price inflation linkers, was up 11.8% y/o/y. PPI input prices jumped 24% and output charges grew by 16.5%, both just above expectations.
10)German June PPI was up 32.7% y/o/y, though a touch below the estimate of up 33.7%. Prices were still up 15.5% y/o/y ex energy.
11)Australia’s July manufacturing and services composite index fell 2 pts m/o/m to just above 50 at 50.6 with the former outperforming the latter.
12)Japan’s PMI fell to the same level of 50.6 with both components lower. As for the outlook, “Positive sentiment was the weakest for three months amid concerns regarding inflationary pressures amid sustained material shortages, we well as the prolonged impact of the Russia-Ukraine war.”
13)Japan reported June CPI up 2.4% headline, 2.2% ex food and 1% ex food and energy. All about as expected but that core/core rate of 1% is the highest since 2015 after the VAT tax was introduced. Take that away and it’s the quickest since 2008.
14)The BoJ did nothing, again.
15)With CPI at 8.6%, the ECB has its deposit rate at zero. And how in the heck are they going to manage raising interest rates while threatening the market with more QE. How are they going to contain the widening of credit spreads with specific criteria having to be met but it will be the violation of that same criteria which will be the reason for the credit widening?
16)July French business confidence which fell 1 pt to 103 as expected but that is the weakest since April 2021. Manufacturing confidence was down by 2 pts, services, retail and construction by 1 pt while employment rose by 2 pts but after dropping by 3 in June.