1) Both sides are showing some signs of bending on the trade negotiations with a combination of economic and political pressures building.
2) The preliminary September UoM consumer confidence index ticked up a touch to 92 from 89.8 and that was 1.2 pts above the forecast and which follows the 8.6 pt drop in August. Both current conditions and expectations were higher but UoM said “the early September rebound was not widespread across age and income subgroups.” One year inflation expectations rose one tenth to 2.8%, the most in 4 months and the UoM said that was due to the tariffs. Long run inflation expectations on the other hand fell to match a low. Income expectations fell but unemployment was little changed. Spending intentions were mixed with auto’s rising while home buying and household appliances fell. With respect to the impact of tariffs, the UoM said “Concerns about the impact of tariffs on the domestic economy also rose in early September, with 38% of all consumers making spontaneous references to the negative impact of tariffs, the highest percentage since March 2018. Those who negatively mentioned tariffs also held more negative views on the overall outlook for the economy as well as anticipated higher inflation and unemployment in the year ahead.” Respondents don’t expect a recession but “neither is a resurgence in personal consumption” expected.
3) Another drop in mortgage rates for the week ended September 6th (and thus not capturing the sharp rise over the past week) to 3.82% on average led by a 4.5% w/o/w rise in applications to purchase a home and is up 8.8% y/o/y. Refi’s were little changed w/o/w but are still up an astonishing 169% y/o/y.
4) This could have gone into either the positive column or negative, depending on the intentions of the borrower. Was it to sustain ones buying or a sign of confidence? In July, revolving credit card outstanding, mostly credit card debt, rose $10b m/o/m, an 11.2% annualized rate and the biggest one month gain since November 2017. I’m sure Amazon’s 2 day Prime sale helped goosed the number but I have no idea by how much.
5) The ECB finally decides to shield some bank deposits from their tax and along with the rise in interest rates, notwithstanding the ECB’s attempt to further suppress them, has the Euro STOXX bank stock index up about 7% this week.
6) The UK unemployment rate fell by one tenth to 3.8% for the 3 months ended July, the lowest since the 1970’s and this led to a 3.8% y/o/y rise in wages ex bonus’, the 2nd best since 2008.
7) German trade data for July was pretty mixed. Exports did surprise to the upside with a .7% y/o/y increase, above the estimate of an expected .5% y/o/y decline but imports were soft, falling by 1.5% vs the forecast of a .3% drop.
8) The UK industrial production data out of the UK for July surprised to the upside. The key manufacturing component was up by .3% m/o/m, well better than the estimate of down .3%.
9) The BoJ is expressing worries about the drop in long term rates and with that comes a rise in rates and the Japanese Topix bank stock index rallies 8.7% this week. It’s now only down 90% from its peak in 1989.
10) Japanese core machinery orders in July were less bad than expected. They fell 6.6% m/o/m rather than the 8% forecasted but off the tough comp of a 13.9% rise in June.
11) The level of Chinese bank lending was about as expected at 1.21 Trillion yuan in August helped by household mortgages but the non bank side surprised to the upside by about 350b yuan. This was driven by a jump in corporate bond issuance and another rise in local government bond sales, used to goose infrastructure growth. Total lending was 1.98 Trillion yuan, up 2% y/o/y. Overall money supply growth was as forecasted at up 8.2%.
12) The Chinese are getting rid of the quota’s they had in place on foreign buying of mainland bonds and stocks. There was a $300b limit and that now goes away. At least right now though it shouldn’t matter much since only about 1/3 of it has been used.
13) Taiwan’s exports did improve by 2.6% y/o/y in August, better than the estimate of up .9% and after 8 declines in the prior 9 months. Imports though, many times an input to eventual exports, fell 2.7% y/o/y, worse than the forecast of up 1.2% and the 3rd decline in the past 4.
1) Retail sales in August at the core level was as expected up .3% m/o/m but July was revised down by one tenth to a .9% gain. Taking out auto’s and gasoline had sales up by .1% m/o/m, one tenth less than forecasted. The internals were mixed with respect to the diffusion of the sales.
2) Headline CPI in August rose .1% m/o/m and 1.7% y/o/y as expected but the core rate surprised to the upside with a .3% m/o/m increase for the 3rd straight month. That brings the y/o/y increase to 2.4% and is the quickest pace of core inflation since September 2008, an 11 year high. Again, services inflation led the way as ex energy it rose .3% m/o/m for the 3rd straight month and up 2.9% y/o/y with medical costs leading the way. Goods prices are now also rising, albeit modestly.
3) The August producer price index surprised to the upside with a headline gain of .1% and a core rate increase of .3%, both one tenth more than expected. The headline rate is now up 1.8% y/o/y and 2.3% at the core. The last time the core rate printed below 2% was in July 2017.
4) The August NFIB small business optimism index weakened by 1.6 pts to 103.1, the lowest since March. The internals were pretty mixed. “In spite of the success we continue to see on Main Street, the manic predictions of recession are having a psychological effect and creating uncertainty for small business owners throughout the country,” said NFIB President and CEO Juanita D. Duggan.
5) Nonrevolving credit, which is mostly student debt and car loans, rose by $13.3b in July to a new record high of $3.04 Trillion. The combined increase in household debt outstanding not including mortgages in July was the 2nd most since August 2016.
6) The number of job openings in July fell to 7.22mm, down from 7.25mm in June and the least since February. Positively, hiring’s and the number of quitters did rise nicely.
7) Mario Draghi has pushed the ECB deeper into the monetary abyss where unwinding this all will be impossible without an epic loss for those holding fixed income. Fortunately he’s gone soon but we’ll have to see if Christine Lagarde is more suspect of the perceived omnipotence of modern day central bankers.
8) The Eurozone July industrial production figure saw a .4% m/o/m decline, 3 tenths more than expected but mostly offset by a 2 tenths increase in the June revision to a drop of 1.4%. Versus last year, IP has fallen for 9 straight months.
9) UK employment for the 3 months ended July rose by 31k vs the estimate of 55k. August jobless claims rose by another 28.2k.
10) Chinese CPI was up 2.8% y/o/y in August, the same pace seen in July. The estimate was 2.7%. Food prices again spiked, this time by 10% y/o/y, mostly pork prices (up by almost 50% y/o/y) while prices ex food and energy were tame, up by 1.5%. As for PPI, which correlates well with industrial profits, and coincident with the drop in commodity prices, fell .8% m/o/m, one tenth less than expected.
11) Chinese exports in August fell by 1% y/o/y in dollar terms, below the estimate of an increase of 2.2% but because of the drop in the yuan, they were able to translate this into a 2.6% increase in yuan terms. Dollar shipments to the US declined by 16% y/o/y and is evidence that there was no front loading of exports ahead of the September 1st tariff hike and that is likely because those prices and contracts for those goods impacted were already signed. Imports fell by 5.6% y/o/y and the weaker yuan cut that decline to 2.6%.
12) Sam Darnold has mono. It really sucks to be a Jet fan.