Peter: 6/24 – A Succinct Summation of the Weeks Events
- A majority of UK voters go for independence and decide to wring economic freedom from the grips of the power that is in the EU Parliament. The EU Parliament in addition to the individual governments of the EU get a massive wake up call that things must change. The ruling class basically just got slapped in the face. Economic liberalization is the only way out of the current malaise of excessive debt and sclerotic growth.
- The UK CBI industrial orders index for June rose 6 pts to -2, 8 pts better than expected and to the best level since August 2015. The chief economist of the CBI did acknowledge “the growing uncertainty in the run up to the EU referendum, combined with global risks elsewhere” which has “offset some of the benefits of a weaker currency at this time.
- The Markit US manufacturing PMI for June rose to 51.4 from 50.7 which was the lowest level in 6 ½ years.
- The KC manufacturing index rebounded to +2 from -5. It’s the first positive print since January 2015.
- Another fall in the average 30 yr mortgage rate to 3.76%, the lowest in 3 years, led to a 6.5% w/o/w rise in applications to refi. The y/o/y gain is 59%.
- The German IFO business confidence index rose to 108.7 from 107.8 in May. The estimate was 107.4 and most of the gain was in the expectations component. The IFO said “The German economy remains buoyant.”
- The German ZEW business confidence index rose to 19.2 from 6.4 in May and well above the estimate of 4.8. That is the best since August. The Current Situation component though was just up a touch to 54.5 from 53.1 in May but that was still the highest since January. The ZEW said “The improvement of economic sentiment indicates that the financial market experts have confidence in the resilience of the Germany economy. However, general economic conditions remain challenging. Apart from the weak global economic dynamics, it is mainly the EU referendum in Great Britain which causes uncertainty.”
- Congrats to Cleveland on their first major sports championship win in over 50 years.
- For UK voters that voted to Leave because of the populism of xenophobia and trade protectionism, that is a very dangerous game just played. The short term economic landscape is now much more unknown in terms of the lengthy trade negotiations that will now take place over a multi year time frame. Will a recession soon follow? What will be now of the EU and eurozone experiment? Will other countries follow in thru the out door or will they realize that taking on their own currency and ridding themselves of the euro will magnify their debt problems denominated in euros? Mario Draghi is a clear and present danger to the European banking system and insurance industry which adds to the high risks that already exist for the future of the region.
- Core US durable goods orders, defined as non defense capital goods ex aircraft, fell .7% m/o/m instead of rising by .4% as expected. This was only slightly offset by a two tenths upward revision to April but which still showed a .4% decline. Core orders are down 2.6% y/o/y and on an absolute basis are at the lowest level in 5 years and are no different than they were 10 years ago.
- New home sales in May totaled 551k, 9k less than expected and April was revised down by 33k to 586k (remember the initial reported spike to 618k which was up from 531k in March). As for inventories, months’ supply rose to 5.3 from 4.9. It still remains below the 5.6 seen in March. Off the record high seen in April, the median home price fell by $30k to $290k but that is still up 1% y/o/y after the 9.4% spike in April. Sales remain well below their 30 yr average of 700k.
- Existing home sales in May totaled 5.53mm annualized. That was a touch below the estimate of 5.55mm and April was revised down a hair to 5.43mm. This is though the highest sales total since February ’07 driven by single family homes. Months’ supply remained unchanged at 4.7 which matches the most since November but that is still well below the long term average of around 6 months. The median home price rose 4.7% y/o/y to $239,700 which is a new record high. The average price also rose to a record high of $281,700. The 1st time household which totaled 30% of sales vs 32% in April. KB Homes though this week gave some hope that they are returning.
- Notwithstanding another drop in mortgage rates, purchases applications fell 2.4% w/o/w but are still up 11.7% y/o/y.
- The final June UoM consumer confidence index fell to 93.5 from 94.3 initially and vs 94.7 in May. The estimate was 94.1 but it still is near the highest level of the year. Versus last month, current conditions rose about 1 pt while Expectations fell by 2.5 pts. One year inflation expectations rebounded by two tenths to 2.6% which puts it back near its one year average of 2.7%.
- The eurozone manufacturing and services composite index moderated to 52.8 in June from 53.1 last month and that was a touch below the estimate of 53.0. The components though were mixed as manufacturing rose about 1 pt while services fell by about 1 pt. The overall level is now at its lowest level since January 2015 with France being again a major drag. Rising political uncertainty appears to have caused the pace of expansion to weaken slightly and business confidence about the outlook to deteriorate.
- French business confidence in June fell 2 pts to 100 which was 3 pts below expectations. It matches the weakest level in almost one yr.
- The Japanese PMI manufacturing index for June at 47.8 was little changed and remained weak with May’s print of 47.7. Both production and new orders declined at marked rates, led by a sharp drop in international demand. The earthquakes that occurred back in April still seem to be having a detrimental effect on the goods producing sector, although uncertainty caused by negative interest rates could also be a factor.
- Japanese exports fell 11.3% y/o/y vs the estimate of a decline of 10% but most of it was strong yen related. Actual export volume was down a more benign 2.4% but lower for the 10th month in the past 11 on a y/o/y basis. Exports fell to the US, EU and throughout Asia. Imports fell by 13.8% y/o/y, in line with the estimate but rose by 3.6% on a volume basis.
- Raghuram Rajan will not stay (or was asked to leave) as the head of the Reserve Bank of India.