1)I wish Christine Lagarde the best of luck and hope she can be politically influential in stressing and encouraging governments to emphasize more fiscal policy and rely less on monetary policy.
2)Of the new Trump picks for the Fed and if appointed, Judy Shelton will be a breath of fresh air in introducing a new frame of monetary thought. Chris Waller has written that he does not believe in negative interest rates. As you know, neither do I.
3)We are now in the longest economic expansion on record.
4)The lines of communication between the US and China are back on and we’ll see no new tariffs, for now.
5)Payrolls in June grew by 224k, well more than the estimate of 160k while the two prior months were revised down by 11k. The private sector added 191k vs the forecast of 150k and thus the government was a healthy contributor to job growth (adding the most amount of jobs since August 2018). The household survey saw a job gain of 247k and with the increase in the labor force of 335k, the unemployment rate did tick up by one tenth to 3.7% but for good reason. The all in rate was 7.2%, a one tenth uptick from a multi decade low in May. The participation rate did tick up by one tenth to 62.9% but the employment to population ratio was unchanged at 60.6%. There was a decline in the number of people not in the labor force and a pick up in the percentage of those considered ‘job leavers’ which is a good reflection of employee leverage and confidence in the ability to find other jobs. Hours worked held at 34.4 while average hourly earnings were as expected when we include the May upward revision. Versus last yr, wages were up 3.1%, unchanged with the pace seen in May. Average weekly earnings grew by 2.8%, also the same pace seen in the prior month. The average job growth over the past 3 months is now 171k vs the 6 month average of 172k and which compares to the 12 month average of 192k and the 2018 average of 223k.
6)The June ISM manufacturing index fell to 51.7, the lowest since October 2016 from 52.1 in May but that was slightly better than the estimate of 51. Of 18 industries surveyed, 12 saw growth vs 11 in May, 13 in April and 16 in March. Only 10 saw a gain in new orders from 12 in May and 14 in April while 6 saw an outright contraction vs 4 in May. ISM said “Comments from the panel reflect continued expanding business strength, but at soft levels.”
7)Vehicle sales in June were better than expected at a SAAR of 17.3mm vs the estimate of 17mm but again it’s fleet sales that are helping. Retail sales were down y/o/y and ytd y/o/y.
8)Purchase applications to buy a home rose 1.1% w/o/w and is higher by 9.8% y/o/y. The average 30 yr mortgage rate is now 4.06% vs 4.80% one year ago.
9)Japan’s services PMI for June was up slightly after 3 months of declines at 51.9 from 51.7.
10)Vietnam manufacturing PMI in June was a positive as it benefits from supply chain shifts as its rose .5 pt to 52.5.
11)Hong Kong’s June PMI remained below 50 again but the June print did rise by 1 pt from May to 47.9.
12)Japan’s household spending rate in May did rise 4% y/o/y, better than the forecast of up 1.5% but it was helped by the extended vaca given and possibly consumers getting ahead of the expected VAT hike in a few months.
13)Europe’s services PMI for June was revised up a touch to 53.6 from 53.4 initially and that’s up from 52.9 in May. The services side is certainly outperforming the manufacturing sector. Markit said “Higher overall services activity in the euro area was associated with a similar sized and stronger increase in new business volumes…Jobs were subsequently created at a faster rate across the euro area services economy.” The negative in the report was the business outlook, “business sentiment slumped to a 4 1/2 yr low during June. According to the latest data, German and French service providers were the least confident of a rise in activity from present levels in 12 months’ time.”
14)Money supply growth in the Eurozone in May rose 4.8% y/o/y, better than the estimate of 4.6% and up from 4.7% in April. Loans to households grew by 3.3%, vs 3.4% in April and to companies by 3.9%, unchanged with April.
1)If the Europeans think they are going to get a different economic result by following the same monetary policies of Mario Draghi with the new head of the ECB Christine Lagarde, they will be sadly mistaken. The negative rate hole will only get deeper and only more difficult to eventually get out of.
2)The further plunge in global bond yields and the wider wealth confiscation taking place with the growing pile of negative yielding securities is scary in my point of view in terms of what its saying about global growth and monetary policy.
3)While the US and China continue to communicate, we are stuck with the existing tariffs for a while longer.
4)ADP had a different opinion of the US labor market in June. ADP said 102k private sector jobs were created in June, 38k less than expected only partially offset by an upward revision of 14k to May to 41k. For a 2nd month, businesses with less than 20 employees shed workers. The 3 month private sector average gain is now 133k (vs 156k in the private sector part of the BLS data) vs the 6 month average of 173k (vs 161k from the BLS) and compared to the 12 month average of 192k (vs 183k from the BLS).
5)The June ISM services index fell to 55.1 from 56.9 and that was below the estimate of 56.0. That also matches the weakest print since October 2016 as it was also 55.1 in July 2017. Of the 18 industries surveyed, 16 saw growth which was no change from the prior month. ISM summed up the report by saying “Although the non manufacturing sector’s growth rate slipped in June, the sector continues to reflect strength. The comments from the respondents reflect mixed sentiment about business conditions and the overall economy. A degree of uncertainty exists due to trade and tariffs.” This is how Markit reflected its view of the US services sector after reporting a slight uplift off a 39 month low in its index: “A major change since the first quarter has been the broadening out of the slowdown beyond manufacturing, with the service sector growth now also reporting much weaker business activity and orders trends than earlier in the year.”
6)Initial jobless claims totaled 221k, 2k less than expected but the prior week was revised up by 2k to 229k. The 4 week average ticked up a touch to 222k which is a 7 week high. Continuing claims, delayed by a week, fell by 8k after rising by 28k in the week prior.
7)The US trade deficit in May widened to $55.5b from $51.2 in April. That’s the widest since December as imports grew faster than exports. How much of this was front loading ahead of more tariffs is so tough to tell.
8)Refi applications fell 1.2% w/o/w but are still up 93% y/o/y thanks to a 75 bps drop in the average 30 yr mortgage rate y/o/y.
9)US construction spending in May fell .8% m/o/m vs the forecast of flat, offset somewhat by the 4 tenths upward revision to April. Both private and public construction fell and for both residential and non residential components.
10)The JPM global manufacturing PMI has it below 50 for the 2nd month at 49.4. It has now fallen on a m/o/m basis in 17 of the last 18 months and is at the weakest level since October 2012.
11)The private sector Caixin manufacturing PMI fell into contraction at 49.4 from 50.2. Caixin said this: “Overall, China’s economy came under further pressure in June. Domestic demand shrank notably, foreign demand was still underpinned by front loading exports, and business confidence fell sharply.” China’s private sector Caixin services index for June fell to 52 from 52.7, below the estimate of 52.6 and its the weakest print since February.
12)China’s state sector weighted manufacturing PMI for June was unchanged m/o/m and remained below 50 at 49.4 as expected. The services PMI fell a touch to 54.2 from 54.3 and which is now a 6 month low.
13)India’s services PMI fell below 50 at 49.6 from 50.2.
14)Taiwan’s manufacturing PMI in June dropped almost 3 pts to deeper below 50 at 45.5. Malaysia’s fell 1 pt to 47.8. Japan’s final read was 49.3 from 49.5. Thailand’s was little changed at 50.6. South Korea’s fell further below the breakeven at 47.5 from 48.3. Indonesia’s was down 1 pt to 50.6.
15)Japan’s quarterly Tankan figures mostly weakened. The main Q2 index fell to 7 from 12. The estimate was 9. The outlook also fell. The large company service index was the only positive as it rose 2 pts q/o/q but the outlook weakened by 3 pts. The manufacturing indices for smaller companies fell to below zero and the service sector in this category softened as well.
16)South Korean exports in June plunged by 13.5% y/o/y but as expected. This marks the 7th straight month of y/o/y declines.
17)The Reserve Bank of Australia cut its benchmark rate to a new record low of 1% as expected and said they’ll be on hold for now to see how things play out from here. Trying to encourage an over levered economy to further leverage up is nonsensical and what’s the difference between a rate of 1.25% and 1% in doing so. It instead hurts banks, savers, creates more misallocations of money and leverage ratios only rise.
18)The UK services PMI in June fell to 50.2 from 51. The estimate was for no change. Markit believes that when combining services with manufacturing and construction it is likely “the economy has slipped into contraction for the first time since July 2016.” With services Markit said “Subdued activity was often attributed to sluggish domestic economic conditions and greater risk aversion among clients in response to ongoing Brexit uncertainty.”
19)Markit’s UK Construction index in June fell to 43.1 from 48.6, well below 50 and well less than the estimate of 49.2. Markit said “The latest survey reveals weakness across the board for the UK construction sector, with house building, commercial work and civil engineering activity all falling sharply in June. Delays to new projects in response to deepening political and economic uncertainty were the main reasons cited by construction companies for the fastest drop in total construction output since April 2009.”
20)The UK manufacturing June PMI fell to 48 from 49.4 and that is below the estimate of 49.5. It’s also the weakest print since February 2013. Markit said “The downturn in UK manufacturing deepened during June, as the impact of firms unwinding stockpiles built before the original Brexit data continued to reverberate through the sector and exacerbate weak demand. This led to solid decreases in both production and new orders…Demand from the domestic market weakened, while the additional constraint of slower global economic growth meant new export business fell at one of the fastest rates since late 2014.”
21)Eurozone retail sales in May fell .3% m/o/m instead of rising by .3% as expected. It though was partially offset by a 3 tenths upward revision to April.
22)The Eurozone June manufacturing PMI was revised lower to 47.6 from the initial print of 47.8 and is down by .1 from May. It’s the 5th straight month below 50. Markit said “Deteriorating inflows of new work meanwhile meant manufacturers increasingly focused on keeping costs down, notably by cutting staff numbers and warehouse stocks. The downturn is also increasingly feeding through to lower inflationary pressures, as producers and their suppliers compete on price to retain customers and generate sales.” As for any hopes for a turnaround in business? “The downturn is also showing no signs of any imminent end. The survey’s forward looking indicators remained worryingly subdued in June, adding to concerns about the economy in the 2nd half of the year.”
23)German factory orders in May fell 2.2% m/o/m, well worse than the estimate of down just .2%.