1)The Fed took another step in trying to address the manufacturing and trade driven economic moderation with its 25 bps rate cut.
2)Initial jobless totaled 208k, 5k less than expected and vs 206k last week. This brings the 4 week to 212k from 213k last week and vs 217k the week prior.
3)Existing home sales in August totaled 5.49mm, about 100k more than expected and up from 5.42mm in July. Because the number of homes for sale fell, months’ supply is down to 4.1 from 4.2. The median home price was up by 4.7% but fell in the Northeast (SALT impact?). Disappointingly, first time buyers made up just 31% of purchases while the number of investors ticked up.
4)Housing starts in August surprised to the upside with a print of 1.364mm vs the estimate of 1.25mm and July was revised up by 24k. Again, most of the increase was seen in the multi family sector where starts grew by 110k m/o/m to a 3 month high. Single family starts were up by 39k to the most since January. As for the forward looking permits, single family was up by 37k m/o/m while multi family was higher by 65k to match the highest since 2015. The combined level of 1.42mm was better than the estimate of 1.3mm.
5)The September NAHB home builder index rose to 68 from 67 in August (revised from 66) and that was 2 pts better than expected. All of the gain was in the Present Conditions component as the Expectations component fell 1 pt and Prospective Buyers Traffic was unchanged at the breakeven level of 50. Pricing issue remains the biggest problem as the NAHB said builders “continue to grapple with ongoing supply side challenges that hinder housing affordability, including a shortage of lots and labor.” Also, from a supply perspective “builders are expressing growing concerns regarding uncertainty stemming from the trade dispute with China. NAHB’s Home Building Geography Index indicates that the slowdown in the manufacturing sector is holding back home construction in some parts of the nation, although there is growth in rural and exurban areas.”
6)The September Philly manufacturing index fell to 12 from 16.8 but that was 1.5 pts above expectations.
7)Industrial production surprised to the upside in August, rising by .6% m/o/m vs the forecast of up .2%. The key manufacturing component rose by .5% m/o/m but after falling by .4% in July. Capacity utilization was 77.9% vs 77.5% in July and which compares with the average seen this year of 78.1%.
8)In Japan August CPI ex food rose .5% y/o/y and ex food and energy saw a gain of .6% y/o/y. Both were about as expected and little changed from July.
9)Singapore’s non oil exports in August did surprise to the upside with a 6.7% m/o/m increase, above the estimate of 1.6%. Versus last year though they still fell by 8.9% which is the 7th month in the past 8 with declines.
10)Brazil and Indonesia cut rates as they have plenty of room with positive real rates.
11)Norway raised rates to 1.5% because they don’t believe in NIPR and ZIRP.
12)The SNB did nothing and exempted more bank deposits from its negative rate tax.
13)The BoJ did nothing and acknowledged the need to steepen its yield curve.
14)UK retail sales ex fuel oil in August was as expected.
15)Investor expectations of the German economy in September was less bad. The ZEW index rose to -22.5 from -44.1 and that was better than the estimate of -38. While still firmly negative, hopes for the clearing of the clouds is what drove the gain. The ZEW said “The rise of the ZEW Indicator of Economic Sentiment is by no means an all clear concerning the developments of the German economy in the next 6 months. The outlook remains negative. However, the rather strong fears that financial experts had in the previous month regarding a further intensification of the trade conflict between the USA and China did not come true. And there is still hope that a no deal Brexit can be avoided. In addition, the ECB is attempting to reduce the economic risks in the eurozone by further easing its monetary policy.”
16)The Indian government gets some supply side religion with its plan to dramatically cut its corporate income tax.
1)I’ll take a quote from Eric Rosengren in that the Fed’s rate cut “risks further inflating the prices of risky assets and encouraging households and firms to take on too much leverage” and I’ll add it will do little to help economic growth since rates are already so low.
3)The 6 month business outlook in the Philly manufacturing index was the soft spot, falling to 20.8 from 32.6 and that is below the 6 month average of 25.3 and near the lowest level in 8 years. Capital spending plans rose by 3.3 pts but only after falling by 14.3 pts last month.
4)The NY manufacturing index fell to +2 from +4.8. The estimate was +4. This is the 2nd lowest print going back to late 2016. The notable weakness in the data was the 6 month outlook which fell to 13.7 from 25.7 and that’s the 2nd lowest level since early 2016. Plans for capital spending on equipment and technology both dropped sharply with the former down to 4.6 from 23.2 and the latter at 6.5 from 17.4.
5)It’s hard not to include this FDX quote where they touch so many areas of global trade, “Our performance continues to be negatively impacted by a weakening global macro environment driven by increasing trade tensions and policy uncertainty” said CEO Fred Smith.
6)The Business Roundtable Q3 survey fell 10.3 pts to 79.2 and while still well above the 50 breakeven, each of the 3 main components fell, plans for hiring, capital spending plans and expectations for sales. The CEO of the Roundtable said businesses “have their foot poised above the brake, and they’re tapping the brake periodically.” We certainly all know why.
7)The Duke University quarterly survey of CFO’s fell to a 3 year low. This optimism index claims a high correlation to future GDP growth and hiring said 55% have become “more pessimistic” vs the 12% that is more upbeat. “Business optimism has not been this low since September 2016, a time when the unemployment rate was 5%” said the director of the survey. He went on to say that “Optimism is low in all regions of the world, which exacerbates any slowdown occurring in the US.” What is the biggest worry of these CFO’s? It is now “economic uncertainty” which has surpassed “difficulty in hiring.”
8)The Cass Freight late last Friday reported its August shipping data and the index fell y/o/y for the 9th straight month, by 3%. Cass Freight said “weakness in demand is being seen across most modes of transportation, both domestically and internationally, with many experiencing increases in the rates of decline…we see a growing risk that GDP will go negative by year’s end.”
9)The ECB saw European banks pay back 32b euros of loans in their long term financing operations and only roll into 3.4b euros of 3 yr new ones.
10)The BoE did nothing as expected and remains trapped underneath Brexit.
11)Within the September German ZEW, the current situation softened further to -19.9 from -13.5 and which compares with the estimate of -15.
12)The August Chinese data this week was this: Industrial production weakened to a pace of 4.4% y/o/y, down from 4.8% in July and below the estimate of 5.2%. That’s the slowest since 2002. Retail sales grew by 7.5% y/o/y, down one tenth from July and 4 tenths less than expected. Lastly, fixed asset investment ytd y/o/y was up by 5.5% vs 5.7% in the month prior and where no change was expected.
13)For many years there was always this ‘what if’ scenario with regards to Saudi Arabia and what if their oil installations would get disrupted and we’d have an oil spike in response. Luckily oil remains in its trading range seen this year.
14)As a music fan it was sad to lose Ric Ocasek this week and Eddie Money last week. Ric: “If the illusion is real, Let them give you a ride. If they got thunder appeal, Let them be on your side.” Eddie: “I’m gonna take you on a trip so far from here, I’ve got two tickets in my pocket, now baby, we’re gonna disappear.”