Economies across Asia, including China, showed slowing growth or contraction in manufacturing activity, signaling the region isn’t yet feeling the benefits of renewed strength in the West
(…) In South Korea, manufacturing contracted for the first time in five months in June and exports fell for the first time since February—though an even larger fall in imports kept Seoul’s trade balance in surplus.
HSBC’s PMI for Indonesia fell to its lowest level in four months, while a gauge for Taiwan showed manufacturing contracting for the second straight month. Vietnam’s June PMI fell sharply to hit its third-lowest reading ever.
Only India and Australia bucked the trend, but with caveats: HSBC’s PMI for India rose to 50.3 from 50.1—far below readings last year that were regularly in the mid- to upper-50’s. An Australian manufacturing gauge showed improvement but remained in contractionary territory, according to data from the Australian Industry Group. (…)
(China PMI is covered separately)
Interbank interest rates eased in China Monday, but they are expected to stay high until later this month as Beijing tightens its grip over risky lending.
The European Union’s official statistics agency Monday that the proportion of the workforce without jobs rose to 12.1% in May from 12.0% in April to reach its highest level since records began in 1995. In the U.S., the unemployment rate stood at 7.6%.
As of May, 19.2 million people were without jobs in the euro zone, up 67,000 from April and 1.344 million from May 2012. The unemployment rate among people aged 24 or under was much higher, although it fell to 23.8% from 23.9% in April.
France’s car market shrank sharply again in June, bringing the decline in registrations of new cars to 11% for the first half of the year, with the country’s auto makers’ association warning of only a slight improvement by the end of the year.
The Comité des Constructeurs Français d’Automobiles said the French car market will likely contract 8% this year, to its lowest level since 1997, compared with an earlier forecast of a decline of roughly half that for 2013.
Euro area annual inflation up to 1.6%
Euro area annual inflation is expected to be 1.6% in June 2013, up from 1.4% in May, according to a flash estimate from Eurostat, the statistical office of the European Union.
Looking at the main components of euro area inflation, food, alcohol & tobacco is expected to have the highest annual rate in June (3.2%, stable compared with May), followed by energy (1.6% compared with -0.2% in May), services (1.4% compared with 1.5% in May) and non-energy industrial goods (0.7% compared with 0.8% in May).
BOJ Beat: Five Takeaways From Tankan Survey The Bank of Japan’s closely-watched tankan survey of corporate sentiment showed that the mood among businesses improved sharply in the three months to June after the central bank introduced an aggressive easing policy in April.
Recent market turmoil is pushing more investors into cash. Bond and stock mutual and exchange-traded funds saw outflows of $19.96 billion in the week ended Wednesday.
That’s the biggest outflow since August 2011, as the euro-zone debt crisis was intensifying and worries about the U.S. debt ceiling were coming to a head.
Some of the money went into money-market funds, which took in $5 billion during the week, according to Lipper. It’s likely that billions more flowed into cash or directly into short-term debt, said Matthew Lemieux, a senior research analyst at Lipper. The WSJ Dollar Index rose 1.6% in the period.
The latest fund-flow data captures the tail end of what’s been the biggest quarterly selloff in U.S. Treasurys since the fourth quarter of 2010. Ten-year Treasury yields have surged from a 2013 low of about 1.6% on May 1 to a peak of 2.667%, the highest since August 2011. (…)
Over the last four weeks, about $11.4 billion have come out of high-yield corporate bond funds that report weekly. That’s the largest of any four-week period tracked by Lipper.
Investment-grade corporate bond funds saw $2.32 billion exit in the last week, the second-largest outflow on record. (…)
Number of the Week: U.S. Oil Boom Affecting Global Prices The U.S. oil boom is finally affecting global energy prices — but don’t expect cheap prices at the pump as a result.
The U.S. pumped 6.5 million barrels a day of oil last year, according to the Energy Information Administration, the most since the mid-1990s, and production has continued to surge; April’s figure of 7.4 million barrels per day marked the best month in more than two decades. (Other sources suggest an even bigger increase.) (…)
The industry wasn’t expecting the huge surge in production from North Dakota, so companies didn’t have the pipelines in place to handle all the new oil. So rather than flow into the global market, much of the oil stayed in the middle of the U.S. That pushed down the price of West Texas Intermediate (WTI), the benchmark price for mid-continent oil, but had a much smaller effect on Brent crude, the benchmark price for most oil outside North America. In late 2012 and early 2013, WTI traded for more than $20 a barrel less than Brent.
Unfortunately for American drivers, a large percentage of U.S. gasoline is refined from oil priced off of Brent, not WTI. As a result, even as American crude oil prices remained moderate, prices at the pump stayed high.
Now, however, the gap between WTI and Brent is starting to narrow, as a new report from the Energy Information Administration makes clear. The industry has expanded pipeline capacity and found other ways, such as rail cars, to get oil from the middle of the country to major demand centers on the coasts. Meanwhile, coastal refineries are shifting to use more domestic crudes, leading to lower demand for Brent. The result: The gap between the two prices has narrowed to under $10 per barrel. (…)
CATCH AND RELEASE
While I was away salmon fishing, U.S. equities rose 2.2%, feeding on Fed officials’ generally more dovish comments and mixed economic news, all suggesting that the fed would continue to supply the financial heroin investors now believe they desperately need.
Here’s the week’s recap:
Orders excluding aircraft & parts, a measure of “core” business investment, gained 1.1% (3.2% y/y), the third consecutive month of a similar increase.
New home sales increased 2.1% (29.0% y/y) last month to 476,000 (AR) from a revised 466,000 during April, initially reported as 454,000. (…)
Note that the recent strength is primarily in the Midwest. Sales of new houses in the three other regions, including the important South and West regions (78% of all new home sales in the last 3 years) were essentially unchanged since March:
Similar trends are seen in pending home sales which are +1.1% YoY in the West, the weakest of all regions, while PHS are strongest (+22.2% YoY) in the Midwest.
Home price strength is building throughout the country. The seasonally adjusted Case-Shiller 20 City Home Price Index rose 1.7% (12.0% y/y) during April following its upwardly revised 1.9% March jump, earlier reported as 1.1%. The 3-month annualized rate of increase of 21.5% was a record for the series which dates back to 2000. Home prices in the narrower 10 city group rose 1.8% in April (11.6% y/y).
Home prices have risen in each metropolitan area with the strongest gains in San Francisco, Las Vegas, Phoenix, Atlanta, Detroit, Los Angeles and Minneapolis. Lagging the rest of the country have been home price gains in New York, Cleveland, Washington D.C., Dallas, Boston and Chicago.
The Mortgage Bankers Association reported that total applications for a home mortgage fell 3.0% w/w, extending the declines of the prior six weeks. The latest level was down by one-third since early-May. Last week’s decline reflected a 5.2% drop (-38.4% y/y) in applications to refinance an existing loan. Refinancings were down 41.8% since early May. Home purchase mortgage applications increased 2.1% last week (15.9% y/y), up 26.7% since year end.
Here’s a close up of purchase apps courtesy of BofA Merrill Lynch:
Real GDP growth for Q1’13 was revised lower to 1.8% (1.6% y/y) from last month’s estimated 2.4% rise. Expectations were for a 2.4% gain. Growth in consumer spending and business investment were significantly reduced, but residential investment growth was raised.
Personal income regained its footing in May with a 0.5% gain; April’s move, originally reported as down very marginally, was revised to a 0.1% rise. Year-on-year, income was up 3.3%, compared to the 2.8% reported last month for April.
Wages and salaries were up 0.3% in May (3.7% y/y), following 0.1% in April, which was originally reported as flat. The stronger income total came from gains in dividend income, 1.6% on the month (8.0% y/y), interest income, 1.9% m/m (2.3% y/y) and transfer payments, which rebounded by 0.8% m/m (3.4% y/y) after April’s 0.6% decline. (…)
Personal consumption expenditures also regained their footing in May, increasing 0.3% (2.9% y/y) after April’s 0.3% fall, a revision from 0.2% reported a month ago. The result was in line with the Consensus forecast of 0.3%. Durable goods outlays picked up by 0.9% (6.7% y/y), after two monthly decreases; motor vehicle purchases in particular were up 1.0% after edging lower for three months.(…)
Note that while disposable income was up 0.6% during April-May and +0.8% (+3.2% a.r.) during the last 3 months, personal expenditures were unchanged in April-May and up only 0.2% (+0.8% a.r.) during the last 3 months.
The personal saving rate rose to 3.2% in May, and April’s figure was revised to 3.0% from 2.5% in the initial report. It was 3.9% in May 2012.
The PCE chain price index increased 0.1% in May (1.0% y/y) after April’s 0.3% decline. Energy goods and services prices rose 0.2% after their drop in April of 4.5%; Gasoline prices continued lower modestly, but other energy costs rose markedly, especially natural gas for household utilities, which was up 2.4% (16.6% y/y). Elsewhere, durable goods prices were down 0.1% (-1.9% y/y) while apparel prices rose 0.2% (unchanged y/y). Food prices decreased 0.2% (+1.0% y/y) while services prices also were up 0.2% (1.8% y/y), including the natural gas item. The overall price index excluding food & energy was up 0.1% (1.0% y/y).
Adjusted for price changes, disposable income gained 0.4% in May (1.1% y/y) while real spending rose 0.2% (1.8% y/y).
- Eurozone Retail PMI Rises 2.3 To 49.1
The eurozone retail sector continued to record falling sales in June, Markit’s retail PMI® data showed. That said, the month-on-month drop in sales revenues was the slowest since March 2012, having eased for the third month in a row. Sales continued to fall sharply on an annual basis, however, and employment in the sector was cut for the fifteenth month in succession.
Germany’s retail sector continued to recover in June, registering a second straight month of rising sales and the fastest rate of growth since February 2012. Prior to May, retail turnover had declined four times in five months.
Meanwhile the eurozone’s second-largest economy, France, posted a decline in sales for the fifteenth month in a row in June. The rate of decline slowed sharply, however, to the weakest for a year. Italy’s retailers continued to experience a steep downturn in sales, and the rate
of decline reaccelerated in June having been the slowest in eight months in May.
Retail employment in the eurozone declined for the fifteenth month running in June. The rate of job shedding was modest, and broadly in line with the trend over the current sequence. Germany continued to register growth in retail workforces, as has been the case since June 2010.
SLOW AND SLOWER
Demand for industrial commodities continue to dwindle.
Consider the chart below of the S&P GSCI Industrial Metals Index:
This index tracks the price of industrial metals like copper, zinc, aluminum, nickel, and lead. The S&P GSCI Industrial Metals Index continuously declining suggests these metals aren’t being used as much—factories are not operating at their full potential in the global economy. (Michael Lombardi at Profit Confidential)
The Chicago Fed National Diffusion Index is once again hitting the –0.35 level. Thirty-three of the 85 individual indicators made positive contributions to the CFNAI in May, while 52 made negative contributions.
The Index itself is not at the ominous –0.70 level but nevertheless signals a weak economy and not one that is showing signs of improvement like the Fed is suggesting.
BTW, Fed misses are nothing new (chart from ISI)
MORE EVIDENCE OF SLOW AND SLOWER
ISI’s Company Survey Diffusion Index is rolling over. The consumer-related surveys were particularly weak last week, including the homebuilders which was the weakest.
CHINA ALSO SLOWER
The MNI China Business Survey fell to 53.7, from 56.7 in May. Both new orders and production are down and both current and future conditions are down. This confirms the HSBC survey for June.
Q2 earnings season officially begins July 8. Factset reports that a record high number and percentage of S&P 500 companies issued negative EPS guidance for Q2.
For Q2 2013, 87 companies have issued negative EPS guidance while 21 companies have issued positive EPS guidance. If 87 is the final number of companies issuing negative EPS guidance for the quarter, it will mark the highest number of companies issuing negative EPS guidance since FactSet began tracking guidance data in 2006. The current record is 86, which was recorded in Q1 2013. If 21 is the final number of companies issuing positive EPS guidance, it will mark the lowest number of companies issuing negative EPS guidance for a quarter. The current record is 25, which was also recorded in Q1 2013.
These numbers are also well above the five-year averages for the number of companies issuing negative EPS guidance (66) and positive EPS guidance (40) for a quarter.
The percentage of companies issuing negative EPS guidance is 81% (87 out of 108). If this is the final percentage for the quarter, it will mark the highest percentage of companies issuing negative EPS guidance for a quarter. The current record is 77%, which was also recorded in Q1 2013.
On average, companies have issued EPS guidance that has been 18.0% below the mean EPS estimate. However, if Peabody Energy is excluded, the average difference between EPS guidance and the mean EPS estimate would be -6.2%. This number is below the 5-year average of -8.3%.
At the sector level, the Information Technology (+6) and Consumer Discretionary (+5) sectors have witnessed the largest increases in the number of companies issuing negative EPS guidance relative to their five-year averages. The Information Technology (-8) and Consumer Discretionary (-5) have also seen the largest decreases in the number of companies issuing positive EPS guidance for the quarter relative to their five-year averages.
High Percentage (80%) of Companies Issuing Negative Revenue Guidance
For Q2 2013, 55 companies have issued negative revenue guidance for the quarter and 14 have issued positive revenue guidance. As a result, 80% (55 out 69) of the companies that have issued revenue guidance for the quarter have issued negative guidance. If this is the final percentage for the quarter, it will mark the third highest percentage since 2006. The current record is 86%, which was recorded in Q4 2008. At the sector level, more than half (39) of the companies that have issued revenue guidance for the quarter are in the Information Technology sector. In this sector, 29 of the 39 companies (or 74%) that have issued revenue guidance have issued negative guidance.
Fiscal Year Guidance: Increase in Number of Companies Issuing Positive EPS Guidance since Q1
For the current fiscal year, 164 companies have issued negative EPS guidance and 88 companies have issued positive EPS guidance. As a result, the overall percentage of companies issuing negative EPS
guidance to date for the current fiscal year stands at 65% (164 out of 252), which is below the percentage recorded at the end of March (69%).
Since March, the number of companies issuing negative EPS guidance for the current fiscal year has decreased by four, while the number of companies issuing positive EPS guidance has increased by eleven. The Financials (+4), Consumer Discretionary (+3), and Health Care (+3) sectors saw the largest increases in the number of companies issuing positive EPS guidance for the current fiscal year since March 31.
For the current fiscal year, 92 companies have issued negative revenue guidance and 66 companies have issued positive revenue guidance. As a result, the overall percentage of companies issuing negative revenue guidance to date for the current fiscal year stands at 58% (92 out of 158), which is above the percentage recorded at the end of March (52%). Since March, the number of companies issuing negative revenue guidance for the current fiscal year has increased by seven, while the number of companies issuing positive EPS guidance has decreased by seven.
The Health Care sector saw the largest increase in the number of companies issuing negative revenue guidance (+7) and the largest decrease in the number of companies issuing positive revenue guidance (-6) for the current fiscal year since the end of March.
At the sector level today (with a minimum of 10 companies issuing guidance), the Consumer Discretionary (61%), Industrials (61%), and Health Care (60%) sectors have the highest percentages of companies issuing negative revenue preannouncements, while the Consumer Staples (57%) sectors has the highest percentage of companies issuing positive revenue preannouncements.
The estimated earnings growth rate for the S&P 500 overall for Q2 2013 is 0.8% this week, slightly below last week’s growth rate of 0.9%. On March 31, the Q2 earnings growth rate for the index was 4.2%. Eight of the ten sectors have witnessed a decline in earnings growth rates since that date, led by the Materials, Information Technology, and Industrials sectors. Only the Financials and Utilities sectors have seen increases in expected earnings growth rates since the start of the quarter.
Grant Williams “Call my bluff” piece on Fed “communications”, etc. This image gives you an idea: