Succinct Summation of the Week's Events

Succinct Summation of the Week’s Events:

Positives,

1)Action packed central bank week with the Norges bank in Norway hiking rates, Brazil cutting its Selic rate and the Fed (though Powell’s words actually cut rates further), BoE, SNB, BoE, and the central banks in Taiwan and the Philippines sitting tight.

2)The December S&P Global US services PMI rose .5 pt to 51.3. The bottom line from them, though we saw a slight uptick “the increased cost of living and cautious approach to spending by households and businesses means the overall rate of service sector growth remains far short of that witnessed during the travel and leisure revival back in the spring and summer.”

3)Core retail sales for November were about as expected with the 2 tenths monthly beat offset by a 2 tenths downward revision to October. And September was revised down by one tenth.

4)Initial jobless claims remained low, falling to 202k, 18k under expectations and down from 221k last week. This drops the 4 week average to 213k from 221k and highlights the still subdued pace of firing’s.

5)November headline CPI rose one tenth m/o/m while the core was up by .3% m/o/m, with the former one tenth above the estimate and the latter as expected. Versus last year, headline CPI is higher by 3.1% and the core by 4% vs 3.2% and 4% respectively in October. Energy prices kept a lid on the headline, falling by 2.3% m/o/m and by 5.4% y/o/y. Food prices at home grew by .2% m/o/m and 2.9% y/o/y. Breaking it down further, services inflation ex energy rose .5% m/o/m and 5.5% y/o/y. Core goods prices is where the disinflation/deflation has taken place broadly. They fell .3% m/o/m and are unchanged y/o/y.

6)November PPI was unchanged m/o/m both headline and core with the former as expected (though October was revised up by one tenth to a drop of .4%) and the latter two tenths less than anticipated. The y/o/y gains are now .9% and 2% for both. The 1.2% m/o/m drop in energy and lower by 8.4% y/o/y weighed down on headline inflation while food prices rose by .6% m/o/m (chicken eggs up by 59%) but fell by 4.9% y/o/y. On the goods side, prices ex food and energy were up by .2% m/o/m and 1.8% y/o/y. For services, prices here were flat m/o/m though still up 2.1% y/o/y.

7)The Atlanta Fed November (3 month average) wage growth tracker was up 5.2% y/o/y for a 3rd month. For perspective, this averaged 3.4% growth in the 20 yrs leading into Covid. For 'job switchers', wages rose by 5.7% y/o/y, a 4 month high. 'Job stayers' though saw further moderation, with wages higher by 4.6% y/o/y vs 4.8% in the month before and that is the slowest since December 2021.

8)The mortgage application data saw another drop in rates which led to a 19.4% w/o/w jump in refi’s after the 14% increase in the week before. Again, most are likely cash out refi’s as about 90% of mortgage holders have rates below 6.0%. Purchases were up by 3.5% w/o/w and up for the 5^th week.

9)From Costco: "Overall for the first fiscal quarter, fresh foods were relatively strong once again with food and sundries right behind. Non-foods showed improvement over the September, October, November timeframe as did e-comm sales…In terms of Q1 comp sales metrics, traffic or shopping frequency increased 4.7% worldwide and 3.6% in the US. Our average transaction was down .009% worldwide and down 1.6% in the US." With regards to inflation, it continues to cool. "Most recently, in the last fourth quarter discussion, we had estimated that y/o/y inflation was in the 1% to 2% range. Our estimate for the quarter just ended that inflation was in the 0% to 1% range. Bigger deflation in some big and bulky items like furniture sets due to lower freight costs y/o/y, as well as on things like domestics, bulky lower priced items, again, where the freight cost is significant...And in talking to the buyers overall, our inventories and our SKU counts are in good shape across all channels."

10)From Lennar: "During our fourth quarter, the economic environment shifted as interest rates rose for most of the quarter, and then subsided. Higher interest rates tested homebuyer sentiment, although purchasers remained responsive to incentives that enabled affordability. The well documented production deficit and chronic supply shortage continued to result in housing demand outweighing short supply." 

11)From Southwest Air: "Fourth quarter 2023 travel demand and yields continue to be healthy. Leisure demand remains strong with record revenue over the Thanksgiving holiday period. Close-in bookings, including managed business bookings, have performed at the better end of expectations in November and December-to-date. As a result, the Company now expects fourth quarter unit revenues to improve to the better end of its previous guidance range, and continues to expect record fourth quarter operating revenues and record fourth quarter passengers."

12)A bright spot in Asia continues to be Japan and that was reflected in their Q4 quarterly Tankan report which for large manufacturers improved to 12 from 9 and that was 2 pts better than expected. The non-manufacturing index was also up 3 pts q/o/q to 30, 3 pts above the forecast and that is a 32 yr high. The outlook though was more mixed as it rose for non-manufacturing but fell for manufacturing. Similar readings were seen for smaller companies. Also, capital spending plans remained very healthy, expected to rise 13.5% in the current fiscal year, unchanged with the prior quarter.

13)The UK unemployment rate for the 3 months ended October held at 4.2% with an increase of 50k for those working. Weekly earnings ex bonuses were up by a pretty robust 7.3% y/o/y but one tenth less than expected and down from 7.8% in September.

14)The December German ZEW investor confidence viewpoint on their economy rose 3 pts m/o/m to 12.8 and that was above the estimate of 9.5. The Current Condition component though remains deeply negative at -77.1, though up 2.7 pts m/o/m. ZEW said "Despite the current budget crisis, the assessment of the situation and economic expectations for Germany have once again slightly improved. This is due to the fact that the share of respondents expecting interest rate cuts by the ECB in the medium term has doubled. This, in turn, is good news for the German construction industry, for which we observe significantly more optimistic expectations this month. Likewise, the share of respondents expecting inflation rates to fall further is decreasing."

15)China said its November CPI fell by .5% y/o/y vs the estimate of a two tenths drop and it was all due to the 4.2% y/o/y drop in food prices. Is that not a good thing for people who need to eat each day? Prices ex food and energy rose .6% y/o/y, no change from October. Consumer goods prices is where the price pressures are occurring, just as they are in the US, falling 1.4% y/o/y. Service prices were up by 1% y/o/y. 

Negatives,

1)The S&P Global US manufacturing PMI for December fell to 48.2 from 49.4. The bottom line, manufacturing “remains a drag on the economy.”

2)The NY manufacturing index for December fell back into contraction at -14.5 from +9.1 and well worse than the estimate of +2. After falling by 24 pts in November, the 6 month business outlook rose by 13 pts to the 2^nd lowest level since May. Capital spending plans rebounded after the November weakness.

3)Continuing claims reflecting the slowdown in the rate of hiring’s rose by 20k to 1.876mm, the 2^nd highest read since November 2021.