Chillin' out till it needs to be funded
The Thursday Morning shocker from the Housing report was no reason for markets to worry about US economic recovery in 2013 but a drop in Industrial production for April by 0.5% underlined a likely softness in Q2 GDP growth and jobless claims rose sharply to 360k showing up proponents of growth and in that unusually twisted way accustomed for market players during the crisis, the flurry of bad data from GDP and another negative cut of PPI and CPI turned into timed expectations of the roll down of the QE program being misplaced.
Although the week was not expected to produce hope in large scores after retail sales drops attributed to weather , tax refund delays and even the payroll tax break withdrawal in Monday reports continued to Tuesday’s reports of Chain Store Sales reported a 1.1% cut in comps. Walmart results did not help the markets either, comps down 1.4% on year . Walmart sales were up 30% in the online world much to the chagrin of my favorite digital competitors at Amazon.
The hidden Housing miracle
The share of distressed home sales including foreclosures and short sales was down drastically as expected and thus the smaller 853k growth in Housing starts. Single Family starts were up more than 20% year/year and were down only 2% from March. Single Family data is also confirmed by the NAHB Builder confidence number at 44, up from 41 in March. March also showed large gains in multi family units, Single family units starts and permits
Housing completion rates are down again as we find everyone waiting for real hard signs of a recovery to emerge. Completions are down to 536k from 594k in March.
Housing starts by intent shows commercial interest rising in single family units now, up 40% from 2012Q1 . Housing starts are up in the Midwest from the exceptionally low numbers till 2012. price reports for March also confirm uptick int he richer West and the Midwest regions. Permits were up 36% nationally year/year and probably reflected the shift for builders to single family units with completions still lagging
European GDP Data
Foreign buying of US securities did pick up in March to %5 B but did not stem outflows of $13.5 Bln for the month. This ofcourse is consistent with the sell down in bonds as 10Y yield ticks up to 1.87%. More importantly however, Germany’s positive 0.1% growth in Q1 reported yesterday was a rare blip in Eurozone reports showing France contracting 0.1% Q/Q, Holland 1.7% (contraction), Italy 0.5% (contraction) and especially Portugal 3.9% (contraction) and Greece 5.3% (contraction)
Eurozone GDP was down 0.2% as a whole even as Britain followed on with a improvement in unemployment rate to 7.8% and Mervyn King’s last report confirmed a GDP projection trending towards a whole point in 2013 and an inflation close to 3%. The verdict. German expectations confirm a slowdown , retail sales have been bad and production is down across Eurozone except in Britain where inflation remains high.
US Inflation reports
While the expected cuts in the Empire state and Philly indices materialised at -1.4 and -5.2, inflation data was also ignored during trading hours at a subdued 1.7% before markets were overshadowed by uncertainty on QE flows and closed with a sharp correction.
Q2 growth prospects have been accepted as dim by markets with today’s inflation report pegging CPI at an all time low 1.1% with monthly contraction of 0.4% spurred on by the second monthly cut of 4.3% in energy prices, Gasoline down 8% (natural gas inventories were also up by 5% showing a weakness in demand the harbinger of this drop in prices) for the month Core inflation was down to 1.7% . of course at these low prices, Gasoline demand could spur back the recovery immediately rather than later
The production contraction can also to an extent be explained by a 3.7% cut in utilities that followed a similar jump in March and indices for food, beverages and tobacco were positive (Econoday)
PPI was affected by the gasoline price drop as food prices also dropped 0.8% negating the growth in March. Gasoline dropped 6% on a 6.8% fall in March. pharma prices rose while Autos and PCs reflected the decrease in demand and PPI was up 0.1% month/month excl food and energy, holding 1.7% year/year
Asia and BRIC growth reports
FDI data from China confirms to an extent, the resilience of the Chinese standoff as they try to change over trends to new growth weighted by domestic consumption but Singapore and Korean data showed the frailty of those depending on Global trade. Singapore reported a deep cut in retail sales at 7.4% while Korea reported another month of deflationary prices with a PPI cut of 0.2%
Retail Sales reports from Brazil and South Africa were robust with growth of 4.5% and 2.8%.
The myth about Japan’s Abenomics?
Japan managed to gild in a second quarter of back to back growth , with a positive 0.9% GDP performance likely scoring high for the incumbent Prime Minister. Business investment as however conspicuous by its absence and that dry run could spell another disaster for Japan, with JGB sales continuing to raise prospects of a positive inflation supporting growth. Consumer spending was up 0.9% in Q1 and exports went up by 4% outpacing a 1% rise in imports and improving trade surplus data, frequently questioned in neighbouring China’s reports for veracity of data and for its role in increasing domestic consumption. Both deflation and business investments have to move up before a verdict on Abenomics is possible
Dell offer looks much better after results
Operating Profits were down 73% at the PC maker and the share price dipped below the Silver Lake/Dell offer of $13.65 per share or $24.4 billion . PC division sales were don another 10% at $8.9 B and overall sales ticked lower to $14.1 B with enterprise sales of $3.1 B
Brazil wrests control of WTO
Robert Azevedo from Brazil defeated Mexican and OECD preferred candidate Hermino Blanco without protest from US and Europe and FT refers(subscription required) in muted terms that this might still mean more marks for protectionism in domestic markets It remains to be seen if WTO remains relevant as global trade becomes the fevered instrument for growth
UK and Google improve on lead in ‘circles’
UK managed to build on the discomfort of trading partners in the Eurozone with only Germany reporting growth in Q1 GDP while UK growth was robust at 0.3% despite a small QE program of just GBP375 bln
Meanwhile Google’s All Access music subscription service launch seems to have music companies backing it as Apple fell 3.4% and Google market cap crossed $300 B into positive territory. FT reports(subscription required) 20m subscription service customers worldwide may be growing. Google as always launched its service at a 20% discount to other monthly rates from Spotify, while iTunes continues to boast of the largest collection of music properties
Digital followers may also like to comment on the new argument over Facebook driving out Google Ads with the surge in its new mobile revenues. Google’s lead in Android based smartphone installs is dwarfed by its own miniscule 18% global share in revenues from App stores.
The fracas over Gold
While Gold has lost over 6% in 6 days, the downward pressure on the metal may not materialise as a flurry of opinions tries to track the change in trend, and it still does not look likely that with contraction in Europe, Gold prices will go below 1350 in the next few days
More of S&P’s relevance insight?
S&P was prompt to downgrade Berkshire Hathaway lining up against the Buffett vehicle for its revenues from Insurance mentioning its cash pile of $49 B a source of concentrated risk from his choice for large exposures. Berkshire is meanwhile lined up in search for another large elephant after a $28 B stake in Heinz . Buffett does own a stake in rival Moody’s which also uses the same default and risk models (pretty similar) The new stock of earnings from BNSF was seen as another contributing factor. S& has actually corrected its valuations of insurance businesses likely categorizing weaker insurance claims in larger risk buckets, necessitating the downgrade