Succinct Summation of the Week's Events

Succinct Summation of the Week's Events:

Positives,

1)Continuing claims, delayed by a week in its reporting relative to initial claims, fell to 1.757mm from 1.794k and below the forecast of 1.8mm.

2)The S&P Global US May services PMI rose to 54.9 from 53.6 and S&P Global highlighted particular strength, which we’re well aware of, in “travel, tourism, recreation and leisure.” The employment component was higher.

3)The Manheim wholesale used car index for May declined by 2.7% m/o/m and by 7.6% y/o/y. They said though that "the rate of decline might slow over the next several months as we encounter the lower prices seen at auction from May through November last year. Two consecutive readings in either measure do not a trend make, as used retail inventory is still below last year, and that tends to keep buyers at the auction, supporting prices."

4)The Caixin China May service sector index rose to 57.1 from 56.4. Also, "Service providers remained optimistic partly because the market environment improved in the post Covid era. However, the measure of their expectations for future activity declined for the 4th straight month, and slipped below the historical average."

5)China's May CPI rose .2% y/o/y as expected. Ex food and energy saw prices up by .6% y/o/y.

6)Base pay did improve in Japan in April, rising by 1.1% y/o/y, a 4 month best but still running well below the rate of inflation which is around 4%.

7)India remains a very exciting story and its May service PMI remained above 60 at 61.2 but down slightly from the 62 seen in April.

8)The UK services PMI was left little changed at 55.2 vs the initial read of 55.1. That compares with 55.9 in April but up from 52.9 in March. S&P Global said it was "fueled by resilient demand for consumer and technology services, combined with a post pandemic tailwind as households switched from spending on goods to services. Rising export sales were also reported in May, reflecting increased international visitor numbers and improving demand for business services from clients based in the US and Europe." Wage growth remained strong.

Negatives,

1)Initial jobless claims rose to 261k from 233k and that was well above the estimate of 235k. That’s the highest print since October 2021 and this brought the 4 week average up to 237k from 230k.

2)The May ISM services PMI unexpectedly fell to just above 50 at 50.3. That’s down from 51.9 in April and below the estimate of 52.4. New orders fell by 3.2 pts m/o/m to 52.9 and backlogs shrunk to just 40.9, down a large 8.8 pts m/o/m. Go back to May 2009 the last time we saw a weaker number. In contrast to the blow out establishment payroll report, the employment component fell back into contraction at 49.2 from 50.8 and that matches the lowest since June 2022. Only half of the 18 industries asked saw a rise in employment. Industry breadth deteriorated too as only 11 industries saw growth of the 18 surveyed. That compares with 14 in April. Seven saw a contraction vs 3 last month. ISM bottom lined the report by saying “There has been a pullback in the rate of growth for the services sector. This is due mostly to the decrease in employment and continued improvements in delivery times and capacity, which are in many ways a product of sluggish demand. The majority of respondents indicate that business conditions are currently stable; however, there are concerns relative to the slowing economy.”

3)Fannie Mae released its May Home Purchase Sentiment Index which fell by 1.2 pts to 65.6 where 4 of the 6 components dropped m/o/m. They said "As we near the end of the spring homebuying season, the latest HPSI results indicate that affordability hurdles, including high home prices and mortgage rates, remain top of mind for consumers, most of whom continue to tell us that it's a bad time to buy a home but a good time to sell one." There is also worry that getting a mortgage is getting tougher as "81% believe it would be difficult to get a mortgage today, matching a survey high."

4)There is one less auto lender unfortunately to the dealership community. Citizens Financial yesterday announced "that it will no longer originate indirect auto loans, effective July 1, 2023, as part of its strategy to optimize its balance sheet and emphasize relationship based lending. Citizens will retain and continue to service existing auto loans on its balance sheet." The credit crunch is here I'll say again.

5)The May Logistics Managers Index fell to 47.3 from 50.9 in April. This is the first time in the 6 1/2 yr history of this survey to slip below 50, aka "contraction territory." LMI said "The biggest factor behind this drop is the continued softening of the freight market." I'll add, if manufacturing is in a recession because less stuff is being made, there is in turn less need for stuff being shipped. "Transportation utilization was down 9.5 pts to 45.5, indicating contraction and signaling that shippers are using even less of the available space than they did a month ago." Prices are falling too in response to "the glut of available capacity." While inventories fell below 50 to 49.5 from 51 and the first time below 50 since February 2020, "there is little hope of a reprieve for carriers in the form of restocking inventories." Lastly of note from LMI, "We also see that contraction was sharper in late May than it was in the first half of the month, meaning that logistics activity declined more rapidly later in the month."

6)Mortgage applications fell again for the week ended June 2nd. Purchases were down by 1.7% w/o/w and by 27% y/o/y. That's the 4th week in a row of declines and the index is a stones throw from falling to the lowest level since 1995. Refi's fell by .7% w/o/w, also down for a 4th week, and lower by 42% y/o/y.

7)Black Knight had a story this week on residential real estate titled "Tightening Credit Availability Adds to Affordability Struggles as Rates Remain Elevated, Inventory Shortages Worsen and Home Prices Strengthen." Their data "showed home sales volumes fell in April, as a lack of both affordability and inventory continue to create major market headwinds." On inventory, "for-sale inventory is now at its lowest level since April 2022, with inventory deteriorating in 95% of major markets since the start of 2023." Home prices rose again in April as a result m/o/m, up for a 4th month but are now flat y/o/y which is the first time they haven't been higher "since the market began to recover in the wake of the GFC."

8)The US trade deficit in April did widen to the biggest spread since last October at $74.6b with exports down and imports up. 

9)After putting rate hikes in the positive side since they started around the world last year, the BoC and RBA rate increases are now under the negatives.

10)China's PPI was lower by 4.6% y/o/y, a bit more than the forecast of a 4.3% drop and vs the decline of 3.6% in April.

11)China exports fell 7.5% y/o/y in May, well worse than the estimate of down 1.8%. Exports of Chinese cars was one of the bright spots. Regionally, exports to the US fell 18.2%, to ASEAN lower by 16% to to the EU, down by 7%. Imports were lower by 4.5% y/o/y, not as bad as the expected drop of 8%.

12)Singapore's May PMI fell to 54.5 from 55.3 and vs 52.6 in March. S&P Global said "Underpinning the latest private sector expansion was a sustained improvement in new orders. Demand for Singaporean goods and services continued the streak of growth that began since the start of 2023, further rising at the fastest rate since last November on the back of better underlying demand and increased consumer spending." The caveat, "Business confidence across the private sector remained relatively subdued, however, reflecting historically sharp cost pressures."

13)Hong Kong's PMI fell to 50.6 from 52.4 and Indonesia's was right above 50 at 50.3 vs 52.7 in the month before.

14)The May Eurozone services PMI was revised down to 55.1 from its initial print of 55.9 and down from 56.2 in April. S&P Global said "The services sector is being supported by the strong labor market, rising wages and a tourism sector that is flourishing throughout Europe."

15)German industrial production in April, while rebounding by 3 tenths after the 2.1% drop in March, is still pressured. The Economy Ministry in a statement said "Given the ongoing subdued demand, particularly from abroad, and the recent deterioration in business sentiment, the recovery in industrial activity is expected to remain subdued for the time being."

16)Germany factory orders fell .4% m/o/m in April, well below the estimate of up 2.8%. They are lower by 10% y/o/y. Foreign orders and those to the rest of the Eurozone fell but did rise domestically after the sharp drop in March.