1) The PCE inflation data for August was about as expected with a one tenth rise m/o/m at the headline level and no change at the core. The core rate was one tenth less than expected but because of rounding the y/o/y print of 2% was as forecasted. The headline gain was 2.2%. Again, the inflation story is rising prices in the service sector and falling ones for goods.
2) The Federal Reserve continued on their rate hike path and finally 10 years into this economic expansion has finally gotten the fed funds rate to the same level of inflation, resulting in a zero real rate. Thus, they are still accommodative, not even taking into account their still $4T+ balance sheet.
3) With the average 30 yr mortgage rate jumping by 9 bps w/o/w, a rather large one week move to 4.97%, the highest since 2011, it actually stimulated activity as people rushed to lock in while they can. Applications to purchase a home rose 2.6% w/o/w and are up 4% y/o/y. Refi’s rose 3.2% w/o/w but still remain down 35% y/o/y.
4) The September Conference Board consumer confidence index was 138.4, well above the estimate of 132.1 and up from 134.7 last month. This level of confidence is the highest since September 2000 and was mostly driven by a rise in the Expectations component as Present Situation was little changed. Contributing to the enthusiasm was the 3.4 pt increase in the Jobs are Plentiful component to the highest since January 2001. Notwithstanding the18 year high in confidence, spending intentions were more mixed. One year inflation expectations held at 4.7%. Similar to what the UoM said, age wise, the jump in consumer confidence was pretty much all dominated by those under the age of 35 as it jumped by 12 pts. Those aged 35-54 saw only a .2 pt increase and those aged over 55 saw just a 1.6 pt increase in confidence.
5) The Richmond region saw a manufacturing upside surprise at 29 vs 24 in August and above the estimate of 20. New orders, backlogs, cap ex and inventories all rose. The negative was the employment component which fell 9 pts to a 5 month low. Of note, Wages rose 6 pts to the most since 1996 and is the 2nd highest print in this survey dating back to 1996. Prices paid and received both jumped with the former just off a 6 year high and the latter is also just below a 6 year high. The 6 month outlook in a variety of components was more mixed.
6) Good for interested home buyers, home price growth moderated in July according to S&P CoreLogic. The y/o/y price gain of 5.9% was the slowest since last August. Expect this to continue.
7) Wholesale inventories jumped by .8% m/o/m, well more than the estimate of up .3%. Expect this to continue ahead of the expected hike in the tariff rate in 3 months.
8) The BoJ will most likely continue their stealth taper in October after saying their range of purchases of bonds maturing more than 25 yrs from now will be 10b yen to 100b yen vs 50-150b in September.
9) Japan reported that its unemployment rate fell one tenth to 2.4% and the jobs to applicant ratio remained at 1.63, the highest since 1974.
10) Hong Kong exports jumped by 13.1% y/o/y, well more than the estimate of up 8.3%. They rose by 13.6% to China, 17.9% to the US but fell to Germany, to name a few trading partners. Imports were higher by 16.4% vs the forecast of up 10%. A government spokesman said “While the impacts of the US-Mainland trade conflicts on Hong Kong’s exports were seemingly limited thus far, they are likely to turn visible in the period ahead. If the trade conflicts are to escalate further, the global economy and Hong Kong’s exports would face more notable downward pressures.”
11) German reported a better than expected jobs figure as its unemployment rate fell one tenth to 5.1%, the lowest since reunification. The number of unemployed fell by 23k, more than the estimate of down 9k.
12) Germany’s IFO business confidence figure for September fell to 103.7 from 103.9 but that was better than the expectation of a drop to 103.2. Both the Current Assessment and Expectation components were slightly lower m/o/m but better than forecasted. August was the only month this year that has seen a m/o/m increase in this figure. The IFO said simply, “Despite growing uncertainty, the German economy remains robust.” Estimates though for German growth this year have fallen below 2%.
13) The UK CBI retail sales index for September did slip 6 pts m/o/m to 23 but that was 4 pts above the forecast. CBI said “As we head into Autumn, retailers have seen the run of decent sales figures continue. But underlying conditions are clearly tougher, with the sector facing significant challenges, from squeezed household incomes, changing consumer habits to digital disruption.”
14) The French business confidence index in September did rise 1 pt m/o/m off the lowest level since April 2017 but the internals were mixed. Manufacturing confidence fell 3 pts to the weakest since March 2017 and retail was down 2 pts to the lowest since August 2017. Offsetting this was a 1 pt rise in services and employment.
1) Initial jobless claims totaled 214k, 4k more than expected and up from 202k last week. The 4 week average of 206k was unchanged at the lowest since 1969.
2) The final September UoM consumer confidence index moderated to 100.1 from the first print of 100.8 but that is still up almost 4 pts from August and is the 2nd best in this cycle. Demographically, the UoM said “Most of the September gain was among households with incomes in the bottom third” while “households with incomes in the top third lost a total of 81.% during the past 7 months since reaching cyclical peak of 111.9 in February 2018.” On tariff worries the UoM said “The single issue that was cited as having a potential negative impact on the economy was tariffs…cited by nearly one third of all consumers in September.”
3) The September Chicago manufacturing PMI fell to 60.4 from 63.6 and which is below the estimate of 62. It’s also a 5 month low. MNI said “moderations in both output and new orders, alongside weaker hiring sentiment, were accountable for the Barometer’s decline, offsetting slightly longer delivery times and a higher count of unfinished orders.” MNI said “Firms continued to add to their stock levels, building on August’s marked rise. The scare availability of inputs continued to encourage stockpiling while forecasts of higher future demand also contributed to the rise in inventories.” As previously stated, with the new tariff rate about to go up to 25% in three months, expect a lot more inventory building in coming months.
4) The September Dallas manufacturing index fell almost 3 pts m/o/m to 28.1. The estimate was for no change. While the headline move lower was modest, the internals reflected more moderation. The business activity outlook 6 months hence did improve to 3.3 pts to the best since February but the internals here were also mixed.
5) August income growth was up .3% m/o/m, one tenth less than expected but importantly, private sector wage and salary growth jumped by .5%, the biggest gain since January and the y/o/y gain was 5.3%, the 6th straight month above 5%. Spending was up by .3% as estimated led by non durable goods (likely helped by gasoline) and services. Durable goods spending fell .1% m/o/m. The savings rate held at 6.6% which is the lowest since December.
6) All three US Treasury auctions were poor this week, continuing a trend of very mediocre demand. This is just one factor in the rise in market interest rates this year.
7) Pending home sales in August fell 1.8% m/o/m, more than the forecast of a drop of .5%. The y/o/y decline was 2.5%. All 4 regions saw declines with the biggest out West “where prices have shot up significantly, which clearly indicates that affordability is hindering buyers and those affordability issues come from lack of inventory, particularly in moderate price points” according to the NAR. The index is now at the lowest level since October 2014. The NAR also said “Just a couple of years ago about 55% of consumers indicated it was a good time to sell; that figure has climbed close to 77% today.”
8) New home sales in August were as expected at 629k annualized but July was revised down by 19k to 608k, the lowest since August last year. The number of homes for sale did rise to the most since February 2009 and at 318k is above the 15 and 25 year averages. Months’ supply was 6.1 months, just off the highest in 7 years. The median price did rise 1.9% y/o/y while the average price was up by 5.2% y/o/y. The 3 month average has slowed to 618k from the 6 month average of 636k and the 12 month average of 643k.
9) Core durable goods orders unexpectedly fell by .5% m/o/m, well below the forecast of up .4% and July was revised down by one tenth but to a still good 1.5%. Also, the shipments of core goods rose just .1% m/o/m, less than the forecast of up .5% and only partially offset by a one tenth rise in July.
10) The US saw a wider than expected August goods trade deficit which totaled $75.8b, $5b more than expected. It is a hair from a record high print. Exports fell by 1.6% m/o/m to the lowest since February while imports were higher by .7%. Part of the reason for the fall in exports is due to the trade battle as the ‘food and beverage’ category fell 9.5% as soybean exports drop sharply.
11) Italian markets revolted to the proposed 2.4% 2019 budget deficit plan. In itself it is not that high but markets are worried about what happens to it in the next downturn as there will be less of a cushion and what will the rating agencies do with mid BBB rating’s currently. Junk status would really complicate things for the 4th largest bond market and the ECB reinvestment program next year.
12) Economic sentiment in Italy in September did slip a touch to 103.7 from 103.9. That is the lowest since January 2017 but 3 of the 4 components did rise m/o/m.
13) Eurozone inflation in September rose 2.1% y/o/y as expected and that matches the most since December 2012 but much attributed to energy, food, alcohol and tobacco. The core rate was up .9%, down from 1% in August and two tenths below estimates.
14) The European Economic Confidence index for September fell by .7 pts to 110.9 and that was slightly below the forecast of 111.2, down for the 9th straight month and sits at the lowest level since June 2017. The components though were mixed as manufacturing and consumer confidence (both at the lowest since May 2017 and inflation expectations picked up) were softer but services, retail and construction rose.
15) The ECB said M3 rose 3.5% in August y/o/y vs 4% in July and below the estimate of up 3.9%. There was though a 4.2% y/o/y increase in loans to business, the best since May 2009 and 3.1% gain to households, also the most since then.
16) French consumer confidence for September fell to match the lowest level since August 2015. The internals were lower across the board.
17) The September CBI UK industrial orders figure fell to -1 from +7. The estimate was +4. The CBI said “While manufacturing order books remain strong and output is still growing, Brexit uncertainty continues to cloud the outlook. Heightened fears of a ‘no deal’ Brexit scenario have prompted some firms to move publicly from contingency planning to action.”
18) With interest rates still below zero, Sweden reported PPI for August and it rose 9.3% y/o/y. I had to go back to 1995 the last time I saw a faster rate of wholesale inflation.
19) Spain reported a 5.2% jump in PPI and I guess this helps to contribute to the “relatively vigorous” pace of underlying inflation according to Mario Draghi.
20) Japan reported an upside surprise in the September Tokyo CPI figure (reported separate from the one month lag for the entire country). Ex food and energy CPI was up .7% y/o/y, one tenth more than expected and up from .6% in August. That happens to be the quickest pace of gain since April 2016.
21) China cancels its trip to the US to negotiate on trade most likely kicking any resolution on to 2019.