Positives
- At least positive for GDP in Q3, US wholesale inventories rose .6% m/o/m in July, two tenths more than expected and up by .6% for the 3rd straight month. But, because sales fell by .1%, the inventory to sales ratio rose to the highest level since November 2016.
- After 3 straight weeks of declines that took the purchase component of the weekly MBA mortgage data to the weakest level since February, they rose a slight 1.4% w/o/w while the y/o/y gain has moderated to 4.7% from 7% last month. With the leg lower in mortgage rates to the lowest level since mid November, refi applications rose by 5.1% w/o/w but remain down by 39% y/o/y.
- We can hold off for a few months from wasting our time talking about the debt ceiling which has NEVER disciplined the US government from borrowing money anyway and has gotten raised each and every time.
- Core durable goods orders in July were revised up to a 1% m/o/m gain vs the first print of up .4%.
- Eurozone GDP for Q2 was revised to 2.3% y/o/y from the previous print of 2.2%. Go back to Q1 2011 to see something higher.
- Eurozone retail sales in July fell .3% m/o/m but that was as expected and the y/o/y gain was still 2.6%, the 6th month in a row of 2.5%+ increases. It was 2015 the last time that happened.
- While the index fell m/o/m, within the Markit German construction PMI, helped by cheap rates, it said they saw the “fastest rise in new business since survey began in September 1999.” Employment rose to a 1 ½ yr high and “inflation of subcontractor rates remained close to June’s record high, while prices for construction inputs increased at the sharpest rate in nearly 5 ½ years.”
- UK IP met expectations in July with slight upside on the manufacturing side led by a bounce back in auto production.
- China’s FX reserves rose for a 7th straight month to $3.092T which is the highest total since last October but was slightly below the estimate of $3.095T. Keep in mind however that much of the rise is due to valuation changes higher in the value of China’s non US currencies and recent strength in the yuan rather than outright inflows back into China. We of course have also seen an institutional crackdown on outflows.
- The Chinese private sector weighted Caixin services PMI for August rose to 52.7 from 51.5 and which is back above the year to date average of 52.3. Caixin said “The latest increase in new work was the fastest seen in 3 months and solid overall, with a number of companies linking growth to improving market conditions and new marketing strategies.” Also, payroll growth was the best in 4 months.
- PMI’s rose m/o/m in Singapore, Indonesia, India, and Malaysia in August.
- The Brazilian central bank cut its Selic rate by 100 bps to 8.25%. It now sits at the lowest level since July 2013 as a sharp drop in inflation has given them a lot of flexibility. This rate peaked at 14.25% in 2015.
- The Bank of Canada surprised the market with another rate hike and now fully takes back the two emergency rate cuts after the oil collapse in 2014. Prudent banking. Emergency over, take back the emergency action. Their benchmark rate is back to 1%. This was followed today by better than expected job growth in August and an unemployment rate that fell to the lowest level since September 2008 at 6.2%.
Negatives
- More hurricanes and the devastation it brings.
- While the ECB will be tapering in coming months, they keep drowning markets in monetary booze and seem to think that by extending the party with a bit less to drink that somehow everyone will drive home safe. Zero chance. Their monetary policy is madness with the region growing at the fastest pace in 10 yrs, headline inflation at 1.5%, not far from their target and core inflation is rising at the fastest pace in 3 yrs, however modest. Here is a stat for the ECB who tells us their sole mandate is price stability. Since 1999 when the euro came into existence, core CPI has averaged 1.2% y/o/y. The last print for July was 1.2%. Mr. Draghi in answer to a question said he doesn’t see any negative consequences to his policy except maybe a bit from NIRP. What will he then think when European interest rates adjust to tapering? Lastly, he tried to jawbone the FX market and failed but if there is one lesson that every central banker should have learned, don’t fight the FX markets. You will eventually lose unless you want to go down the Weimar route and then you will lose everything.
- We heard from some central bankers this week (Draghi, Brainard to name a few) that seem mystified why their policies aren’t causing higher inflation. Not once in this cycle have I heard any active ones maybe think about the possibility that so many years of easy money has created excess capacity in a variety of industries as business activity was pulled forward and helps to explain why capacity utilization is still so low. Thus, their policy itself maybe has caused the disinflation they fear so much.
- Due to the obvious impact of the hurricane, initial jobless claims jumped to 298k from 236k. The only mystery was why the estimate was only 245k. The unadjusted claims spike from Texas was 52k. Continuing claims, delayed by a week and thus pre hurricane, fell by 5k.
- The August US ISM services index rose to 55.3 from 53.9 in July but that was a touch below the forecast of 55.6. The average year to date is 56.3 and the October, pre election, print was 54.6. Notwithstanding the m/o/m increase, there were still 15 of 18 industries surveyed that saw growth as seen in July. The ISM summed up the report by simply saying “The non manufacturing sector has rebounded from the prior month’s cooling off period. The majority of respondents are optimistic about business conditions going forward.”
- After touching its highest level since December 2014, US exports in July fell by .3% m/o/m which was pretty much matched by a .2% fall in imports which led to little change in the trade deficit.
- Chinese exports in August rose by 5.5% y/o/y in US dollars, just slightly below the 6% rise and that is the slowest rate of gain since February. Imports though did beat as they jumped by 13.3% vs the estimate of up 10%. As for their demand for commodities, they held steady in copper vs July but are down almost 13% y/o/y and the price of copper is down 2% in response off a 3 yr high. Coal, steel, refined oil products and iron ore all rose from July. Soybean imports fell m/o/m after July’s jump but are still up 16% y/o/y and remain robust.
- Japan’s initially robust 4% Q2 GDP performance was moderated in the revision to 2.5% annualized as capital spending was revised down.
- Japan’s August services PMI fell by .4 pts to 51.6 and that is a 6 month low. On inflation, “Latest survey data showed that service sector input prices continued to increase, maintaining a trend that stretches back to November 2012. Labor costs were cited as a primary inflationary source by those panelists that recorded a rise in average operating expenses in August. Service sector companies sought to protect margins by passing on their higher costs to clients, as highlighted by the strongest increase in average output charges since March.”
- Hong Kong’s August PMI fell back below 50 at 49.7 from 51.3.
- The August eurozone services PMI was revised slightly lower to 54.7 from 54.9. The estimate was for no change. It is also now at a 7 month low as downward revisions were seen in France, Spain and Italy. Germany’s though was up a touch.
- German exports were up just .2% m/o/m in July, well below the forecast of up 1.3%. Imports also missed the estimates.
- German July IP was unchanged after a 1.1% drop in June. The estimate was up .4%. The Economic Ministry said “In the summer, manufacturing couldn’t keep pace with the performance in the previous months. Indicators still suggest a continuation of the positive trend in manufacturing. But in light of orders, the pace of expansion will probably slow compared with the second half.”
- German factory orders in July disappointed with a .7% m/o/m drop instead of rising by .2% as forecasted. The weakness was driven by domestic and eurozone activity so we can’t blame the stronger euro. Orders to non eurozone countries grew by .6% m/o/m.
- French IP met expectations in July but the manufacturing component missed with a .3% m/o/m gain, half the estimate.
Spain’s IP July data was below the consensus with an unexpected .3% m/o/m decline vs the estimate of up .2%.17)The August UK services PMI was lower at 53.2 from 53.8 and below the estimate of 53.5. That is the weakest since September. Employment though did improve and price pressures intensified to the most since February as “higher staff costs, fuel bills and prices for imported items contributed to another solid increase in average prices charged by service providers in August.”