Peter Boockvar's Succinct Summation of a Very Busy Week
Positives
1) Direct Iranian attacks on Israeli soil for the very first time and the Israeli response could have been worse.
2) Initial jobless claims totaled 212k, 3k less than expected and unchanged with the week before. The 4 week average of 215k was also flat with last week.
3) Core retail sales rose 1.1% m/o/m in March, well better than the estimate of up .4% and February was revised up by 3 tenths to a .3% gain. Notwithstanding the seemingly strong figure, the internals were VERY mixed.
4) The April Philly index bounced to +15.5 from +3.2 and that was well above the estimate of +2.0. The internals though were hugely volatile and much more mixed. As for the 6 month business outlook, after jumping to the highest since the summer of 2021 last month, it receded slightly.
5) In the fresh TIC data for February (thus still somewhat dated), foreigners bought a net $88.8b of US Treasuries, a needed bid even as they sold off. Japan added $16.4b to their holdings and remains the largest foreign holder at $1.17 trillion, though off about $150b from its late 2021 peak. China shed $22.7b and their holdings have shrunk to $755b, just off the smallest amount since 2009.
6) Even with another rise in mortgage rates, purchase applications did rebound by 5% w/o/w after falling by 4.7% in the week before. Refi's were little changed.
7) The April NAHB home builder index held at 51 as expected and the 2nd month in a row above 50 for the first time since last summer. However, the pool of buyers as measured by Prospective Buyers Traffic remained well below 50 at 35 vs 34 in March. The NAHB said “April’s flat reading suggests potential for demand growth is there, but buyers are hesitating until they can better gauge where interest rates are headed.” And the NAHB is calling on policymakers to reduce “inefficient regulatory rules that raise housing costs and limit supply.”
8) US March industrial production was higher by .4% m/o/m as expected but February was revised up by 3 tenths and the bounce was led by manufacturing. Capacity utilization ticked up to 78.4% from 78.2%.
9) Container shipping rates continued to cool, down for a 12th straight week, though still about double the level it started the year.
10) From JPM: "Consumers remain financially healthy, supported by a resilient labor market. While cash buffers have largely normalized, balances are still above pre-pandemic levels and wages are keeping pace with inflation. When looking at a stable cohort of customers, overall spend is in line with the prior year."
11) From Wells Fargo: "Credit trends remain generally consistent, consumer delinquencies continue to perform as we forecasted and y/o/y growth in consumer spend remains consistent with prior quarters."
12) From Ally Financial: The 2022 auto loan vintage "is producing losses above price expectations" but "As we move throughout the year, portfolio losses will be increasingly driven by more recent vintages which continue to show favorable loss and delinquency trends relative to the 2022 vintage...After 15 months on the book, the '23 vintage delinquency rate is now 28 bps below where the '22 vintage was at the same point in time."
13) From DR Horton: "Homebuyer demand during the spring selling season thus far has been good despite continued affordability challenges...Our average construction cycle times are back to normal and our housing inventory turns are improving."
14) From PPG: "Looking ahead, while global industrial production remains at low absolute levels, we believe that demand in China for our products will deliver solid organic growth. In Europe, demand is expected to stabilize as we progress through 2024, despite unevenness by country. In the US, economic conditions have remained subdued in several end-use markets, but we expect overall improvement as the year progresses. In Mexico, we forecast strong momentum to continue."
15) From United: "The demand environment remained strong with a double digit percentage increase in business demand q/o/q, as compared to pre-pandemic."
16) ABB said this on its China business, "The good thing with China is that we start seeing momentum there. Units are signaling there is more activity in the market, growth is to come - that's the first time we see this indication this year."
17) Japan said March CPI moderated a touch m/o/m. The headline pace rose 2.7% vs 2.8% in the month before and that was one tenth less than estimated. The core/core rate was higher by 2.9% vs 3.2% in February and also one tenth below expectations.
18) Helped by a weaker yen, Japanese exports in March rose 7.3% y/o/y, helped by a 12.6% rise to China, but that was about as expected. Hurt by a weaker yen, imports fell 4.9% y/o/y but also as forecasted.
19) Japan reported a much stronger than expected February machinery orders figure with a 7.7% m/o/m gain vs the estimate of up .8%.
20) China's economy in Q1 exceeded expectations with a 5.3% y/o/y increase, well above the estimate of 4.8% but looking at some of the March stats, it seems that January-February carried the quarter. Retail sales in March rose 3.1% y/o/y vs the forecast of up 4.8%. Industrial production grew by 4.5% in March y/o/y but that was less than the expected gain of 6%.
21) Hopes for improvement in the German economy was seen by investors in the April ZEW report. This index rose to 42.9 from 31.7 and better than the estimate of 35.5. That was the lone bright spot though as the Current Situation remained deeply negative at -79.2 vs -80.5 in the prior month. For this export dependent economy, the weaker euro is helping the mood as are expectations for ECB rate cuts.
22) The bright spot in the UK jobs data was continued strength in wage growth which rose 6% ex bonuses, finally exceeding the pace of inflation.
Negatives
1) Continuing claims were little changed but holding above 1.8mm at 1.812mm, near the highest since November 2021.
2) Another tariff battle with China is on our doorstep.
3) Rising FX volatility leads to more yen verbal intervention that was also seen in South Korea and Malaysia and outright currency intervention from the Bank of Indonesia.
4) In contrast to the GDP figures and the estimates for Q1, the Fed’s Beige Book said “Overall economic activity expanded slightly, on balance, since late February.” As for the biggest component of the US economy, “Consumer spending barely increased overall, but reports were quite mixed across Districts and spending categories. Several reports mentioned weakness in discretionary spending, as consumers’ price sensitivity remained elevated. Auto spending was buoyed notably in some Districts by improved inventories and dealer incentives, but sales remained sluggish in other Districts.”
5) The NY manufacturing index was in contraction again at -14.3 vs the estimate of -5.2. The 6 month business outlook fell 5 pts to a 4 month low with declines in capital spending plans. The 6 month outlook for prices paid rose to the highest since February 2023.
6) Existing home sales in March (thus capturing contract signings in the fall and early winter) totaled 4.19mm, a touch below expectations and remaining near the lowest pace since the mid 1990’s. The median price was up 4.8% y/o/y and months’ supply remained low but less so at 3.2 vs the 3 month average of 3.0. First time buyers, challenged by affordability, totaled 32% of purchases vs 26% in February and 28% in January.
7) Housing starts in March missed expectations by about a rather large 160k, only partly offset by an upward revision to February of 28k. Multi family starts which totaled just 299k, down from 382k in February and which touched 506k in December. Not including Covid, that’s the least amount since August 2017. Single family starts totaled 1.022mm down 145k m/o/m but after rising by 149k in February. As for permits, builders still want to build multi family as permits held steady at 485k vs 491k in February but we’ll see what equity and debt can be raised and how many project eventually gets started. Single family permits slowed by 59k m/o/m.
8) With respect to C&I loans outstanding for the week ended 4/3, they were little changed after bouncing in the week before off the smallest since September 2022.
9) From Taiwan Semi: "Looking at the full year 2024, macroeconomic and geopolitical uncertainty persists, potentially further weighing on consumer sentiment and end market demand. We thus expect the overall semiconductor market excluding memory to experience a more mild and gradual recovery in 2024. We lower our forecast for the 2024 overall semiconductor market excluding memory to increase by approximately 10% y/o/y, while foundry industry growth is now forecast to be mid to high teens percent, both are coming off the steep inventory correction and low base of 2023."
10) From Prologis: "as we evaluate the market, persistent inflation and high interest rates have kept more customers focused on controlling costs...Accordingly, we've opted to adjust our guidance early, getting ahead of what looks like a period of occupancy below our forecast in the near term, and its effect on same store in a number of our higher rent markets. This is punctuated, of course, by a more pronounced period of correction still underway in Southern California."
11) From JPM: "Loans were flat q/o/q. C&I loans were down 1% reflecting muted demand for new loans as clients remain cautious, and CRE loans were flat as higher rates continue to have an impact on originations and payoff activity.”
12) From Bank of America: "Average loans in the first quarter of $1.048 trillion were flat compared to the 4th quarter, and they improved 1% y/o/y as solid credit card growth was partially offset by declines in securities based lending. Commercial loans grew modestly y/o/y…Net charge-offs of $1.5 billion increased $306 million from the 4th quarter, driven by continued credit card seasoning and commercial real estate office exposures, as swift revaluations from current appraisals and resolutions drove higher charge-offs. The net charge-off ratio was 58 bps, a 13 bps increase from the 4th quarter."
13) From PNC Financial: Also seeing no loan growth. "Compared to the 4th quarter, average loan balances decreased 1%, primarily driven by lower commercial loan balances...driven by lower utilization as well as soft loan demand...Consumer loans declined approximately $600 million, driven by lower credit card and home equity balances."
14) From Wells Fargo: On the economic situation, "When you look at what we're hearing from clients in the commercial bank or some of the clients in the corporate investment bank, they're being cautious, still saying okay, I'm not going to build inventories as much as I might in a different environment. They're being thoughtful about the cost of credit and how that impacts investments they're making or the timing and the pacing of that. And so on the commercial side, it really is a demand issue at this point."
15) From Discover Financial: With respect to Discover card sales which fell 1% y/o/y, "Sales slowed across categories with the largest decline occurring in the everyday category, which includes supermarket, gas and wholesale clubs. While we continue to add new accounts, in general, we are seeing card members spend less, particularly among lower income households, which are most impacted by the cumulative effects of inflation. Based on trends in the period, we expect sales to be flat to slightly negative this year."
16) From Manpower: “Last quarter, we stated that though the economy remains resilient in many markets, uncertainty around the outlook persists, leading employers to be cautious in their hiring, pausing non-critical spend and deferring projects until more clarity emerges. One quarter in we see a continuation of this trend. Labor markets are cooling in North America and in Europe yet remain strong. In our most recent Manpower Group Employment Outlook Survey, employers reported increased caution in their hiring due to economic uncertainty. At the same time, as they look beyond the current period of economic uncertainty, business leaders feel optimistic about the future, and they are clear that skilled talent is the cornerstone to success and are holding on to their existing workforces today."
17) From JB Hunt: "the market continues to be challenging...We continue to view the market as out of balance and customers have been and are taking advantage. We've been surprised by the competitiveness in the bid season thus far...there's an oversupply of capacity and that's not exiting quick enough."
18) From KNX: "The full truckload industry continues to be challenging and oversupplied with capacity. The weather disruption in January had a greater impact than initially estimated, as the subsequent recovery was not sufficient to offset the negative impact to volumes and operating costs for the quarter. The early part of the bid season led to greater than expected pressure on freight rates as some shippers are still trying to push rates down further. In some cases, we have lost contractual volumes because we were not willing to commit to further concessions on what we view as unsustainable contractual rates...The softer volume and pricing headwinds also impacted our Logistics volumes and margins."
19) From LVMH on the US consumer, "The American consumer is a bit negative, but not that negative...The aspirational customer has to adapt to the new normal...It's just going to take time." The 'new normal' the CFO was referring to was higher prices for its goods.
20) March retail sales in the UK ex auto fuel were soft, falling 3 tenths m/o/m instead of rising by .3% as forecasted. The ONS said "Hardware stores, furniture shops, petrol stations and clothing stores all reported a rise in sales. However, these gains were offset by falling food sales and in department stores where retailers say higher prices hit trading."
21) In the UK, March CPI did moderate to a y/o/y gain of 3.2% from 3.4% but that was one tenth more than anticipated. The core rate of 4.2%, slowed from 4.5% in February but also one tenth above expectations. Wholesale prices, both input and output costs, were about as forecasted.
22) The UK jobs data was softer than expected as for the 3 months ended February saw their unemployment rate rise to 4.2%, the highest since last summer, from 4% and the number of employed fall by 156k vs the estimate of a gain of 74k. Also, in March, the number of jobless claims rose again.
23) Australia reported a softer than expected jobs figure.
24) Singapore reported a big 21% y/o/y drop in non-oil exports but most of it was a sharp drop in pharma exports, lower by 70% y/o/y though exports of electronics products were down by 9.4% y/o/y too.
BY Doug Kass · Apr 19, 2024, 3:25 PM EDT
