Same twin themes taking hold – weakness and inflation.
| Highlights: |
| US | Mixed data |
| EU | Softening data could change ECB’s inflation rhetoric |
| JN | CPI Higher on food, energy prices; Mixed data continues |
| UK | Housing Market Continued To Show Weakness |
| AU | Businesses Less Confident About Q1 economic outlook |
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Opec reported Saudi production was up to 9.2 million bpd.
This means demand has increased at the current posted prices probably making further price hikes are more likely than not.
Bloomberg should have updated production numbers around February 5 for confirmation.
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From Karim:
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From Karim:
very volatile series-see chart-white line is purchase index-purple line is 4wk avg and green line is 12wk avg-latter is probably best indicator of trend and looks like still heading lower. Of course this series also reflects multiple applications for same home purchase, which is more likely over the past few months in light of tighter standards for many borrowers, so probably have to adjust for that compared to same series a year ago.
| Survey | n/a |
| Actual | 5103.6 |
| Prior | 4178.2 |
| Revised | n/a |
Refi index positive for ‘market functioning’, but purchase index could be softening.
As before, winter housing numbers are volatile.
| Survey | 40K |
| Actual | 130K |
| Prior | 40K |
| Revised | 37K |
Not the stuff of recession. While not a reliable predictor of Friday’s payroll report, it is a ‘real’ number as it’s ADP’s report of 392,000 business it services.
| Survey | 1.2% |
| Actual | 0.6% |
| Prior | 4.9% |
| Revised | n/a |
Lower than expected but still positive, consumer up 2% which is far from recession, and final sales for domestic purchases were up 1.4%, and the Dec export number won’t be reported until Feb 14. The durable goods number yesterday may portend a higher than estimated export number for the next Q4 GDP revised report. Inventories were burned off by 1.25% of GDP, which is also generally not indicative of recession.
| Survey | 2.6% |
| Actual | 2.0% |
| Prior | 2.8% |
| Revised | n/a |
Down but not terrible, and not the stuff of recession
| Survey | 2.6% |
| Actual | 2.6% |
| Prior | 1.0% |
| Revised | n/a |
Not good.
| Survey | 2.5% |
| Actual | 2.7% |
| Prior | 2.0% |
| Revised | n/a |
Very troubling to the Fed. Mainstream theory says you can’t let core elevate. The cost to bring it down is much higher than any possible losses due to near term weakness caused by keeping rates high.
| Survey | 3.0% |
| Actual | 3.0% |
| Prior | 3.5% |
| Revised | n/a |
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U.K. Mortgage Approvals Drop to Least Since 1999
By Jennifer Ryan
(Bloomberg) U.K. mortgage approvals dropped in December to the lowest in at least nine years, and consumer credit fell, threatening the outlook for economic growth.
Lenders granted 73,000 loans for house purchase, down from 81,000 in November and the least since records began in January 1999, the Bank of England said in London today. The median forecast in a Bloomberg News survey of 24 economists was 79,000. Lending on personal loans and overdrafts fell to 265 million pounds ($530 million), the least in 15 years.
Banks are tightening credit standards after contagion from the U.S. subprime mortgage market collapse, the Financial Services Authority said yesterday. Less access to credit for Britons with record debt may further slow consumer spending and a weakening housing market, adding to the case for an interest rate reduction by the Bank of England as soon as next week.
“The household sector was clearly under some kind of pressure at the end of 2007,” James Shugg, an economist at Westpac Banking Corp. in London, said in an interview on Bloomberg Television. “The U.K. housing market is embarking on a much slower growth period.” He predicted further interest rate reductions after a quarter-point cut last month.
In a separate statement, Prime Minister Gordon Brown reappointed central bank Governor Mervyn King to serve another five-year term. King accepted the position, saying in a statement that he looks “forward to working hard with my bank and MPC colleagues on the economic and financial challenges that face us all.”
Consumer Credit
The central bank’s report today showed consumers borrowed less on unsecured credit as they faced repaying a record 1.4 trillion pounds in debt and banks curbed lending to them. Net consumer credit fell to 557 million pounds in December, less than half the previous month’s total.
“A significant minority of consumers could experience financial problems because of their high levels of borrowing,” the FSA, the U.K.’s financial regulator, said in its risk outlook report yesterday. “A growing number of consumers are likely to experience debt repayment problems in 2008.”
The average cost for a fixed-rate mortgage maturing in the next 12 months and switching to a variable rate will rise by about 210 pounds per month, creating a “serious impact on the affordability of the loan,” the FSA said. The increase will affect about 1.4 million home loans.
Subprime Losses
Britons face higher home loan costs after banks around the world posted at least $133 billion in losses from the collapse of the U.S. subprime mortgage market.
The average rate offered by lenders on a mortgage for 95 percent of the price of a property, fixed for 24 months, rose to 6.53 percent in December from 6.44 percent, the central bank said Jan. 10. The central bank’s credit conditions survey showed banks plan to limit access to all debt in the first quarter.
“There is a risk that some consumers could find it difficult to meet their credit commitments due to tighter lending standards for both secured and unsecured credit,” the FSA said.
All 30 economists in a Bloomberg News survey forecast the Bank of England will cut interest rates a quarter point to 5.25 percent on Feb. 7 as growth slows and the housing market stalls.
U.K. retail sales rose at the slowest pace in 14 months in January, the Confederation of British Industry said yesterday.
House prices fell for a fourth month in January, Hometrack Ltd. said Jan. 28. U.K. real estate professionals said December was the worst month for the housing market since the aftermath of Britain’s last recession in 1992, according to a Jan. 16. report by the Royal Institution of Chartered Surveyors.
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Yes, it has been about domestic demand, but they now realize exports have taken up the slack and are holding up employment and real gdp, as well as contributing to inflation.
Staff inflation report will show deterioration of both headline CPI and core measures, along with tips fwd breakevens moving higher and survey info showing elevating prices paid and received. And food/fuel/import and export prices all trending higher, risking core converging to headline CPI.
Higher crude prices are now attributed to higher US demand by the markets and the Fed.
The last bit of system risk is from a downgrade of the monolines and that risk seems to be diminishing.
The ratings agencies have been reviewing them intensely for 6 months, and both the capital of the monolines and the credit quality of the insured bonds must still be adequate for the AAA rating. And in any case the risk is to go to AA, not to junk, meaning that credit per se isn’t the issue at all. The issue is forced selling by those who can’t legally hold insured bonds if the rating drops. That’s a very different issue.
Wouldn’t surprise me that if tomorrows numbers are as expected, and the fed cuts 50, markets start to look at that as possibly the last move, and reprice accordingly, with FF futures trading closer to a 3% trough than a 2% trough.
An unchanged decision may also result in a near 3% FF futures trough, with a couple of 25 cuts priced in.
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Seems most of Q4 was revised up, and Q3 as well.
TABLE-U.S. ISM non-manufacturing index revised to 54.4 in Dec
(Reuters) The Institute for Supply Management on Tuesday released annual seasonal adjustments to some of its monthly non-manufacturing indexes.
REVISIONS Dec Nov Oct Sept Aug July June May Apr Mar Feb Jan Bus Activity 54.4 54.6 55.5 55.7 56.3 55.9 59.7 58.4 56 53 54.9 57.9 New Orders 53.9 52 55.4 53.9 55.8 53.1 56.7 56.7 54.7 54.2 55.2 55.6 Employment 51.8 51.4 52.4 52.5 48.6 51.9 53.5 53.5 51.9 51.3 52.1 52.9 Prices Index 71.5 73.7 66.1 65 60.1 63.1 65.6 64.3 63.2 62.9 53.9 56.1
PRIOR FIGURES Dec Nov Oct Sept Aug July June May Apr Mar Feb Jan Bus Activity 53.9 54.1 55.8 54.8 55.8 55.8 60.7 59.7 56 52.4 54.3 59 New Orders 53.5 51.1 55.7 53.4 57 52.8 56.9 57.4 55.5 53.8 54.8 55.4 Employment 52.1 50.8 51.8 52.7 47.9 51.7 55 54.9 51.9 50.8 52.2 51.7 Prices Index 72.7 76.5 63.5 66.1 58.6 61.3 65.5 66.4 63.5 63.3 53.8 55.2
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As of 1pm today – this is what the Fed is looking at for today’s meeting.
Most say if you let expectations elevate it’s too late. Others think they can be allowed to elevate a little bit and then brought down.
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| Survey | n/a |
| Actual | 226,601 |
| Prior | 215,433 |
| Revised | n/a |
| Survey | n/a |
| Actual | 155,206 |
| Prior | 151,303 |
| Revised | n/a |
| Survey | n/a |
| Actual | 5.0% |
| Prior | -0.6% |
| Revised | n/a |
Doesn’t look much like recession to me. November revised up to where last month’s number might have changed impressions as well.
This also increases the chances that the December employment number gets revised up this Friday, along with a lower unemployment number for January.
From Karim:
The 5.2% rise in DGO is a bit of a mixed bag
–81% rise in aircraft orders (likely to help exports)
–ex-aircraft and defense still up 4.4%;
Yes, that’s what an export economy looks like.
but looks like making up for lost ground as 3mth trend (annualized) falls from -1.2% to -2.8%
–more troubling is shown in chart attached; inventory/shipments ratio threatening multi-year highs (inverted on chart); suggests more downside for industrial production in period ahead
Or it could mean larger shipments being readied.
Unfilled orders up 2.5% month over month; up 18.5% year over year,
Johnson-Redbook and ICSC chain store sales reflect weak January; sales about flat to December.
Yes, that’s what an export economy looks like. Decent employment but weaker domestic real consumption, as more of the output gets shipped abroad rather than getting consumed domestically.
Case-Shiller Index falls from -6.07% y/y to -7.74% y/y. 10 largest metro-areas fall from -6.67% to -8.42% y/y.
Yes, a November number. Real estate in largest areas was still falling back then.
| Survey | -7.1% |
| Actual | -7.7% |
| Prior | -6.1% |
| Revised | n/a |
| Survey | n/a |
| Actual | 188.8 |
| Prior | 192.9 |
| Revised | 192.9 |
| Survey | 87.0 |
| Actual | 87.9 |
| Prior | 88.6 |
| Revised | 90.6 |
| Survey | -24 |
| Actual | -27 |
| Prior | -23 |
| Revised | n/a |
Still looking weak. But with CNBC turning more positive on the economy, this might turn up soon.
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