Positives
1)Non defense durable goods orders ex aircraft in August rose 1.8% m/o/m, above the estimate of 1% and July was revised up by 6 tenths to a 2.5% rise. There was a headline miss relative to expectations but due to volatile aircraft orders and we know full well the situation there.
2)New home sales in August totaled 1.011mm, 120k more than expected and up from 965k in July which was revised up by 64k. The increase to the highest level since 2006 was solely led by the South region as sales were little changed in the Northeast m/o/m and were down in the Midwest and West (although remain elevated). Inventory remains lean as months’ supply fell to just 3.3 from 3.6 and that is the least since at least 1963 that I have data on. All of the demand increase for homes in August came from the below $500k price point, particularly those priced below $300k where demand is the greatest.
3)With an average 30 yr mortgage rate of just 3.10%, purchases rose 3.4% w/o/w and are up 26% y/o/y. Refi’s grew by 8.8% w/o/w and 86% y/o/y.
4)Existing home sales in August totaled 6mm at an annualized rate and that was spot on with the estimate and up from 5.86mm in July. Figure many of these closings reflect contract signings AFTER people came out of lockdown in May, June and July. Home inventories remained lean and reflected in months’ supply at just 3.0, matching the lowest since at least 1999 that I have data on. This helped to drive the median home price rise to a record high of $310,600, also helped by mix. This is up a large 11.4% y/o/y. The rise in prices is also likely why the 1st time buyer saw its pace of buying fall to 33% of the total from 34% in the month prior. Those paying all cash totaled 18% of purchases, the most since March. The NAR said “Housing demand is robust but supply is not, and this imbalance will inevitably harm affordability and hinder ownership opportunities. To assure broad gains in homeownership, more new homes need to be constructed.”
5)The September Richmond manufacturing index rose 3 pts m/o/m to 21 and that was 9 pts better than expected.
6)The US Cass Freight Index in August continued to get less worse as shipments fell 7.6% y/o/y after a 13.1% y/o/y decline in July. Cass Freight said “Further recovery in the freight economy was shown…This supports what we have heard from public carriers across all modes, and we believe the trend of ‘better’ has continued here in September. Expect the Cass Index to move back closer to year ago levels in the coming months, although we think it will stay in negative territory until 2021…all signs point to an improving economy, and goods movement is getting better every month.”
7)In the newest round of TLTRO loans from the ECB where they ECB is paying banks to take the money, banks ‘borrowed’ 175b euros, the upper end of expectations. The hope is that the banks lend out to small and medium sized businesses but many banks have also used this money to buy sovereign bonds.
8)In August, the ECB said loans to businesses rose 7.1% y/o/y, the same pace seen in July. Household loans were up just 3% y/o/y, also the same pace seen in July. Money supply growth was 9.5%, below the estimate of up 10.1%.
9)The UK CBI retail sales index for September surprisingly went positive to 11 from -6 in August and well better than the estimate of -10. Stating the reality of the Covid world, CBI said the now obvious to this, “The data highlights that there have been clear winners and losers within the retail sector as spending habits have changed.”
10)Sentiment on the Italian economy got better in September with the index rising to 91.1 from 81.4. It was 98.8 in February, bottomed at 53.8 in May. Most of the contribution to the increase was from the services sector but manufacturing, construction and retail rose as well.
11)The August industrial production print out of Singapore rose 13.9% m/o/m, well better than the estimate of up just 1.7%. Semi’s led the way with a 57% y/o/y gain.
12)Export orders from Hong Kong in August fell y/o/y for the 20th month in the past 22, this time by 2.3%. That though was less than the estimate of down 3%. This time period of course covers the tariffs, the protests and the pandemic. Exports specifically to China fell by 1.4% y/o/y after a string of gains. They fell 15% to the US, 19% to Japan and 24% to Germany to name a few others. Imports fell by 5.7%, more than the forecast of down 3.9%.
13)Australia said its manufacturing and services composite PMI rose back above 50 to 50.5 from just below at 49.4 with both components higher and particular strength seen in manufacturing.
14)The trade data for the 1st 20 days of September for South Korea continues to improve. Exports went positive with a 3.6% y/o/y increase after a 7% decline in August. It’s the 1st positive print since March with cars and semi’s helping along with the reopening of China (exports to them up almost 9%). The caveat though was this measure had 2 more working days compared with the same time period last year (a holiday last yr that comes later this year). Imports fell 6.8% y/o/y but about half the 12.8% drop in August and the lowest decline since a rise was seen in March.
15) //www.rollingstone.com/music/music-features/live-concerts-return-covid-pandemic-1065663/, “Let there be songs to fill the air.”
Negatives
1)Virus counts are flaring up again in Europe, leading to selective closings/curfews.
2)Initial jobless claims were little changed w/o/w at 870k vs 866k last week but that was 30k more than expected. The 4 week average moderated to 878k from 914k as a print of 1.01mm fell out. Continuing claims, delayed by a week, fell to 12.58mm from 12.75mm but that was more than the forecast of 12.28mm. Those receiving PUA, not seasonally adjusted, fell to 630k from 675k. Combining continuing claims and continuing PUA totals to 24mm as the latter fell to 11.5mm (as of 9/4) from 14.5mm in the week prior.
3)The preliminary September Markit manufacturing and services composite index for the US fell slightly m/o/m to 54.4 from 54.6. Manufacturing improved to 53.5 from 53.1 but was offset by a .4 pt drop in services to 54.6. With respect to services Markit said “Firms noted that increased business activity stemmed from the resumption of client operations following lockdowns.” New orders picked up from August but backlogs, employment and export orders moderated as did business expectations “amid election and Covid uncertainty.” On the inflation story I keep harping on, “service providers increased their selling prices steeply in September alongside a sharp rise in cost burdens. Firms reportedly sought to pass on higher input prices to clients, especially the costs of PPE.” On the manufacturing side, new orders were little changed with August with “the resumption of operations at clients helping drive growth.” Backlogs and export orders moderated as did business expectations where “Firms often linked the moderation in optimism to operational difficulties and the ongoing Covid pandemic.” On the inflation front, “output charges rose at the fastest rate since January 2019, as firms partially passed higher costs on to clients following sustained growth in demand.”
4)Redfin said this week in a BN story: “Rapidly rising house prices are effectively canceling out the increased purchasing power that buyers are getting from lower interest rates.”
5)The Architecture Billings Index was unchanged at 40 in August. The AIA chief economist said “Unfortunately, since the start of the Covid pandemic, many architecture firms are finding fewer inquiries that convert to billable projects. While fewer firms reported declining billings in August than during the early months of the Covid pandemic, the fact that the score has been unchanged for the last three months shows that the recovery from this downturn is not progressing at the pace we had hoped to see.”
6)With swap lines outstanding already substantially reduced, the Fed’s balance sheet is back over $7 Trillion and should now be steadily growing again with its $120b of monthly purchases in addition to other asset buys, including corporate bonds. KRE, the US regional bank stock index, is on track to close at the lowest level since mid May.
7)The September KC manufacturing PMI fell to 11 from 14.
8)Germany’s September IFO business confidence index rose to 93.4 from 92.5 but that was a touch below the estimate of 93.8 with both Expectations and the Current Assessment up slightly from August. The IFO said succinctly, “The German economy is stabilizing despite rising infection numbers.”
9)The October German consumer confidence index was little changed at -1.6 vs -1.7 but below expectations of -.8. It was at +10 pre Covid.
10)For the Eurozone, the September manufacturing and services PMI did fall to 50.1 from 51.9 and less than the estimate of no change. Manufacturing did further improve by 2 pts to 53.7 led by strength in Germany but services slipped back below 50 at 47.6 from 50.5 with both Germany and France also falling below 50. This weakness in services is coinciding with a flare up in Covid spread. Markit said “A two speed economy is evident, with factories reporting that production growth was buoyed by rising demand, notably from export markets and the reopening of retail in many countries, but the larger service sector has sunk back into decline as face to face consumer businesses in particular have been hit by intensifying virus concerns.”
11)In the UK its composite index for September fell to 55.7 from 59.1 and that was slightly below the forecast of 56.1. Both components were down m/o/m. Markit said “The UK economy lost some of its bounce in September, as the initial rebound from Covid lockdowns showed signs of fading.” Weighing on services was the end of the Eat Out to Help Out program but also “demand for other consumer facing services also stalled as companies struggled amid new measures introduced to fight rising infection rates and consumers often remained reluctant to spend.”
12)The September UK CBI industrial orders index weakened to -48 from -44 and that was 8 pts worse than expected. The weakness was driven by motor vehicles and transport equipment. The breadth though was better as volumes dropped in 10 of 17 sub sectors vs 16 in August. CBI said “While it’s good to see that output volumes once again fell at a slower pace this month compared to August, it is disappointing to see the modest improvements in order books stall, with demand at a still weak level.”
13)The Euro STOXX 600 bank stock index trades at a record low. Most lending in Europe takes place via bank loans and not the capital markets, where only the big companies have access to.
14)Japan’s composite PMI remained well below 50 at 45.5 in September vs 45.2 in August. Manufacturing was 47.3 from 47.2 while services came in at 45.6 vs 45. While there doesn’t seem to be much improvement in the Japanese economy in Q3, Markit did say “Firstly, employment moved closer to stabilization, with only a marginal drop in workforce numbers that was the weakest in the current sequence of job shedding. Secondly, business sentiment improved to the strongest since the start of the year, with manufacturing firms particularly optimistic about the year ahead outlook.”
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.