Positives
1)Initial jobless claims totaled 963k, 137k less than expected and down from 1.19mm (revised up by 5k) last week. Also positively, continuing claims, delayed by a week, continued to trend lower to 15.49mm vs 16.09mm in the week prior. The estimate was 15.8mm. Those collecting Pandemic Unemployment Assistance (non seasonally adjusted) fell to 489k from 656k last week and 909k in the week prior. There are now 10.7mm people collecting benefits in this category vs 12.9mm in the week before.
2)July core retail sales rose 1.4% m/o/m, above the estimate of up .8% and June was revised up by 4 tenths to a gain of 6%. This follows a 10.4% increase in May after the 12.4% drop in April as things were about fully shut.
3)Another leg lower in mortgage rates, that will be reversed with the uptick in Treasury yields this week, to 3.06% drove an almost 7% w/o/w increase in mortgage applications. Purchases rose 2% after two weeks of declines and remain up a solid 22% y/o/y. Refi’s were up by 9.1% w/o/w after last week’s 6.8% decline. The y/o/y increase though continues to slow and is up ‘just 47%’ y/o/y.
4)The preliminary August UoM consumer confidence index improved slightly to 72.8 from 72.5 in July and that was a touch above the estimate of 72 but still below the 78.1 print in June and the 101 seen in February. The components were mixed as Current conditions fell by .4 pts while Expectations rose by .6 pts. One year inflation expectations held at 3% which is just off the highest level since 2014 and is the 4th straight month with a 3 handle. The UoM said this, “In the past several months, it was not surprising that following the shutdown of the economy, most consumers would naturally anticipate that the economy would improve after the lockdown ended. That optimism has begun to fade. Two-thirds of all consumers expect the persistence of bad times for the economy during the year ahead, with half of all consumers anticipating repeated false starts in the economy during the next five years.”
5)Industrial production in July was as expected, rising by 3% m/o/m with a modest 3 tenths upward revision to June to a 5.7% increase. The manufacturing component in particular was up by 3.4% m/o/m vs the estimate of 3% and June was revised up by two tenths to a gain of 7.4% and led by the auto sector as plants reopened and ramped up. Also, with the increase in activity, capacity utilization improved to 70.6% from 68.5%.
6)While a June number, there were almost 5.9mm job openings vs 5.4mm in May.
7)In Germany, as measured by the ZEW for August, investors are expecting an improvement in the German economy but still remain suspect about the current situation. The Expectations index jumped to 71.5 from 59.3, well better than the expected decline to 55.8. The Current Situation fell slightly to -81.3 from -80.9. ZEW said simply, “Hopes for a speedy economic recovery have continued to grow, but the assessment of the situation is improving only slowly.”
8)The Eurozone Sentix Investor Confidence index for August rose to -13.4 from -18.2 and that was 2.5 pts better than expected. The balance in the internals is still leaning towards Expectations (+19.3) as the Current Situation is still tough (-41.3) although the latter did rise m/o/m. The Sentix bottom line is pretty succinct, “the recovery is progressing.”
9)Employment in Australia in July grew by 114.7k, well more than the estimate of 30k and June was revised up to 228.4k from 210.8k. Of the increase, 71.2k was from part time workers with the balance full time. The unemployment rate though was little changed at 7.5% vs 7.4% but the participation rate jumped to 64.7% from 64.1%.
10)More reflecting the improving Chinese economy relative to the prior months, aggregate loans totaled 1.69T yuan vs the estimate of 1.85T with bank loans making up 993b of this vs the forecast of 1.2T. Lending however is still up about 42% year to date y/o/y
Negatives
1)Fannie and Freddie just made it more expensive to refinance a mortgage as they’ve added a 50 bps fee of the loan amount which will be paid by the lender but of course passed onto the consumer. It’s only to help the profitability of FNM and FRE which remain government stewards.
2)The July consumer price index rose by .6% m/o/m both headline and core, well more than the estimate of up .3% and .2% respectively. Versus last year, headline CPI is up by 1% and the core rate is higher by 1.6% vs the forecast of up .7% and 1.1%. Services inflation ex energy jumped by .6% too after a .3% rise in June. This is up 2.3% y/o/y and continue to blame higher medical costs and rents. Medical costs rose .4% m/o/m and is now up either .4% or .5% for 5 straight months and higher by 5% y/o/y. Rent of Primary Residence was up by .2% m/o/m and 3.1% y/o/y. Owners equivalent rent has moderated but still up .2% m/o/m and 2.8% y/o/y. The goods side also contributed to the higher than expected prints. Core goods prices jumped by .7% m/o/m but still are little changed y/o/y.
3)July PPI jumped .6% m/o/m, double the estimate while the core was up by .5%, well more than the forecast of up .1%. The headline rise is the most since October 2018 with a 5.3% increase in energy prices leading the way. Services prices rose .5% m/o/m.
4)Import prices in July rose .7% m/o/m headline and .2% ex petroleum, both one tenth more than expected. Prices ex both energy and food was up by .3% m/o/m for a 2nd month.
5)The July NFIB small business optimism index did fall to 98.8 from 100.6. The internals were mixed. The NFIB chief economist said “This summer has been challenging for many small business owners who are working hard to keep their doors open and remain in business. Small business represents nearly half of the GDP and this month we saw a dip in optimism. There is still plenty of work to be done to get businesses back to pre crisis numbers.”
6)With respect to the hesitancy on the part of small and medium sized businesses, relative to better balance sheet placed big companies, in the current economic environment, the comments from the CEO of Cisco this week was informative. “As you move down the customer stack, things just get weaker and weaker as the customers get smaller and smaller because they just don’t have the financial wherewithal. This country is still driven by small and medium sized business for hiring and everything else. I’m concerned about what happens next.”
7)Retail sales in China in July unexpectedly fell by 1.1% y/o/y instead of rising by .1% as forecasted. Industrial production did rise by 4.8% as factories are all reopened but that was slightly below the estimate of a 5.2% gain. Fixed asset investment year to date and y/o/y fell by 1.6% as expected vs the drop of 3.1% in June, helped by a rise in property investment.
8)Further disrupting summer travel, the UK adds more countries to its quarantine list.
9)The labor market in the UK for the 3 months ended thru June was better than expected but still weak and we did see a jump in July jobless claims of 94.4k after falling by 68.5k in June.