Positives
1) The final print of the July UoM confidence index came in at 93.4, a touch above the estimate of 93.2 and the first look at 93.1 but is down from 95.1 in June and is at the lowest level since October. All of the decline was attributed to the Expectations component as it fell by 3.4 pts, only slightly offset by a .2 pt rise in Current Conditions. Encouragingly there was a 5 pt m/o/m increase in those expecting Higher Income and a 2 pt drop in those expecting Lower Income. The net figure of 30 is the highest since May 2000. Underline mine. Are we on the cusp of that long waited for acceleration in wages? The employment component moderated by 6 pts though. One year inflation expectations were left at 2.6%. Spending decisions were mixed. Those that plan on buying a car/truck fell 4 pts while those that plan on buying a major household item was up by 2 pts. On housing, those that plan on buying a home was up by 3 pts to 146 (was 155 in April) while those that said it’s a good time to sell a house was up 1 pt to 144, just off a 12 yr high.
2) Refi applications rose 3.4% w/o/w as the average 30 yr mortgage rate fell 5 bps but refi’s are still down 41% y/o/y.
3) The July Conference Board Consumer Confidence index rose to 121.1 from a revised 117.3 in June. That was almost 5 pts above the estimate of 116.5. This is the 2nd best level post election with the 124.9 print in March being the best with both levels last seen in 2000. It was at 100.8 in October. Both main components contributed to the headline beat. The answers to the labor market questions improved further. After rising by 1.8 pts in June, those expecting Higher Income was down by .9 pts. Also there was a .7 pt increase in those expecting a Decrease to a multi month high. Business conditions for both the present and with the outlook improved. As for buying intentions, the answers were mixed. Those that plan on buying a car/truck within 6 months was basically unchanged. Those that plan on buying a home rose to the most since the election print in November. Those that plan on buying a major appliance however fell 6 pts to the lowest level since January 2015. Lastly, one year inflation expectations held at 4.6%.
4) Markit’s manufacturing and services composite index for July rose .3 pts to 54.2 led by a m/o/m gain of 1.2 pts in manufacturing. The services component was unchanged at 54.2. The composite index is at the best level of 2017 and just off the 54.9 print seen in both October and November. According to Markit, Q3 started out on a good note but they also said “the overall rate of expansion remains modest rather than impressive” and the current levels of their figures are still consistent with just 2% growth.
5) The July Richmond index rose to 14 from 11 (revised from 7) and that is above the estimate of 7. The key internals also saw gains m/o/m. The 6 month outlook also got better.
6) Hong Kong exports jumped 11.1% y/o/y in June, almost double the estimate of up 6.4%. The strength though was localized. Exports to China rose 12.2% y/o/y, to Japan by 13.4%, to India by 38% and Singapore by 18.6%. But, exports to the US were only up by .6% and fell 4.1% to Germany. Imports were up by 10.4% y/o/y, exactly twice the estimate of up 5.2%.
7) South Korea said its economy grew by .6% q/o/q and 2.7% y/o/y (vs 2.9% in Q1) as expected.
8) The Japanese labor market tightens further as their June unemployment rate fell 3 tenths to just 2.8%, matching the lowest level since 1993 while the Jobs To Applicant Ratio rose to 1.51, the highest since 1974.
9) Japanese CPI in June was unchanged y/o/y core/core. The estimate was down one tenth. Headline inflation was up by .4% y/o/y as expected. The forward looking July Tokyo core rate fell .1% y/o/y as forecasted. The BoJ is on a path to nowhere good because either they get the inflation they want which blows up their bond market and damages the purchasing power of a graying society or they don’t and end up owning all Japanese bonds and stocks because QE never ends.
10) Overall household spending grew faster than expected in Japan in June but it was all due to necessities like housing, medical care and education. See retail sales under Negative headline below.
11) The UK CBI retail sales index in July rose to 22 from 12. That was well above the estimate of 10 and up from 2 in May. The CBI said, “The warm summer has added a sizzle to our high streets as shoppers defied expectations, with sales growth in clothing shops and grocers driving overall performance. But while retailers expect a similar pace of growth next month, the factors underpinning their sales growth are more shaky. Although employment is strong, real incomes are falling in the wake of higher inflation, and that’s expected to feed slower consumer spending growth ahead.”
12) The UK CBI industrial business optimism index for July rose to 5 from 1. Total orders did fall but so did price pressures. Hiring rose to a 3 year high while output growth is at the best since the mid 1990’s.
13) The July German IFO business confidence index rose to 116, the highest on record dating back to 1991 from 115.2 in June. The estimate was for a slight drop to 114.9. Both the Current Assessment and Expectations were up m/o/m. The IFO said simply, “Sentiment among German businesses is euphoric…Germany’s economy is powering ahead.”
14) The French business confidence July index rose 1 pt to 108 and that was 2 pts higher than expected and up for a 3rd straight month. It’s at the best level since June 2011 and is continuing to creep to the previous cycle peak of 116 in June 2007.
15) French Q2 GDP grew by .5% q/o/q as expected with the y/o/y growth rate at 1.8%, the best since Q3 2011.
16)Eurozone Economic Confidence in July rose a hair to 111.2 from 111.1 and that was .3 pts above the estimate. It’s the best since August ’07.
17) Greece finally gets invited back to the capital markets and investors willingly accept a 3.2% coupon out to 2019 and 4.625% by 2022.
18) Brazil’s central bank slashed its Selic rate by 100 bps to 9.25%. They have the flexibility to do this because of falling inflation which is down to just 3%.
Negatives
1) The US economy grew by 2.6% in Q2, one tenth less than expected but off a slower than expected base as Q1 was revised down by two tenths to 1.2% (big drag from inventories). Of note was the miss in nominal GDP as a lower than expected deflator added 3 tenths. Nominal GDP was up just 3.6% after a 3.2% gain in Q1. The estimate was 4% for Q2. Personal spending was the biggest contributor of growth accounting for 190 bps of it. Equipment spending added 4 tenths while tech spending only added about one tenth. Spending on nonresidential structures added one tenth while residential was a drag of 3 tenths. There was no change from inventories. Exports added 20 bps and thanks to higher spending on national defense, the government added one tenth. Headline PCE was up by 1.6% y/o/y with a core rate of 1.5%.
2) The Employment Cost Index for Q2 was up by .5% q/o/q, one tenth less than expected and was higher by 2.4% y/o/y. Looking straight at private sector wages/salaries saw them up 2.4% vs 2.6% in Q1 and 2.3% in Q4. What did pick up in pace was the 2.2% increase in Benefits which is the most since Q1 2015.
3) Core US durable goods orders in June fell .1% m/o/m instead of rising by .3% as expected BUT that was basically offset by a 5 tenths upward revision to May so we’ll call it a push. On a y/o/y basis, core orders are up by 4.5% but core cap ex in absolute dollars remain well below not just the peak in 2014 but is less than pre recession levels.
4) Jobless claims rose by 10k w/o/w to 244k and that was 4k more than expected. The 4 week average though remained unchanged at 244k. Delayed by a week, continuing claims was down by 13k off the highest level since April.
5) New home sales in June came in at 610k annualized, about in line with the estimate of 615k vs 605k in May which was revised down by 5k. For comparison, the 3 month average is now at 603k vs the 6 month run rate of 607k and vs 561k in 2016. Supply continues to improve as the number of homes for sale rose to the most since July 2009 and the months’ supply ticked up by one tenth to 5.4. The measure of median home prices jumps around a lot, unlike in the existing home sales data, and it fell 3.4% y/o/y.
6) The MBA said mortgage applications to buy a home fell 2.2% w/o/w to a two month low but are still up 8% y/o/y.
7) Existing home sales in June totaled 5.52mm annualized, 50k less than expected and down 100k from May. This is a 4 month low. The inventory to sales ratio rose to 4.3 from 4.2 and that is the most since October. Prices were up 6.5% y/o/y, the same persistence seen and why first time buyers slipped for a 2nd month back to 32% of all sales and back to the lower end of the range. There were sharp declines in the number of homes that ‘all cash’ and ‘investors’ purchased as a percentage of total sales. Maybe this is also in response to record high prices. ‘All cash’ buyers are at the lowest level since June 2009. Individual investors make up many of these cash sales. The NAR continues to cite low inventory and coincident high prices “that’s straining” the budget of buyers. Importantly, they are still seeing “strong” demand but on the other hand they also say “the severe housing shortages inflicting many markets are keeping a large segment of would be buyers on the sidelines.” The median home price at $263,800 is at a record high.
8) Money supply growth in the eurozone was up by 5% y/o/y in June as expected and the same level as seen in May. Loan growth did slow however. Loans to non financial companies moderated to a 2.1% y/o/y growth rate from 2.5% in May. The ECB tried to explain it away by saying the decline “reflects to a significant extent intragroup transactions.” Loans given to households were up by 2.6%, the same pace in May and the best level since March 2009.
9) German CPI grew by 1.5% y/o/y (EU harmonized) in July, the same level as June and one tenth more than expected. The m/o/m jump was .4%. Big number next week is eurozone CPI for July. French CPI was up by .7% y/o/y in July while Spain’s was higher by 1.5%.
10) Maybe coincident with the sharp drop in approval ratings for French President Macron, French consumer confidence for July unexpectedly fell 4 pts m/o/m to 104. The estimate was for no change. The context though is that it jumped by 6 pts in June.
11) French consumer spending fell by .8% m/o/m, worse than the estimate of down .4%.
12) The UK economy grew by .3% q/o/q and 1.7% y/o/y as expected in Q2 after a .2% and 2% gain in Q1. As for the 1st half the year, the Office for National Statistics said the economy saw a “notable slowdown in the first half of this year” because the quarterly average last year was up .5%.
13) A moderation in manufacturing in the Eurozone (from 57.4 to 56.8) according to Markit drove lower the manufacturing and services composite index for July to 55.8 from 56.3. That is the lowest of 2017 but the services side was at least unchanged m/o/m. Markit still sounded pretty optimistic for the region, “Forward looking indicators such as new order inflows remain elevated, suggesting robust growth will be sustained in coming months. Job creation is consequently booming as companies seek to expand capacity in line with growing demand.” Backlogs are near 6 yr highs and “manufacturing suppliers’ lead times also lengthened to the greatest extent for over 6 years as demand exceeded supply for many inputs. These are symptoms of a booming rather than an ailing economy.” On the pricing front, “input costs continued to rise, though the rate of inflation cooled further from the 5 ½ yr high seen at the start of the year, driven lower by slower growth of manufacturing costs. The overall rise in input costs was the lowest since last November.”
14) Markit’s manufacturing PMI for Japan in July fell .2 pts to 52.2. That is quietly the lowest level since November.
15) The real soft spot in the Japanese economy remains consumer spending. Retail sales in June rose .2% m/o/m, half the estimate.
Bottom Line
This market commentary is not meant to be put under either Positives or Negatives but more about the wild week. In one week we saw the VIX fall to a record low, the price to sales ratio in the S&P 500 reach an all time record high (outside of a few weeks in March 2000) major indices touch all time highs intraweek, the transportation index had its worst day in about a year and is at a level seen 7 months ago, the Washington DC agenda is again completely up in the air and the Fed is explicitly telling us that QT is coming “relatively soon.”
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.