New manufacturers orders, vehicle sales, unemployment claims, rents, oil prices

This component is going nowhere:

Still trying to catch up from the oil capex collapse of 2016 and covid collapse:

Not good:

This is an all time low as people scramble to get extra jobs to deal with higher prices,
like paying rent, for example:

Oil prices taking a breather with the announcements of releases from strategic petroleum reserves.

Price direction, however, is instead set by Saudi OSP premiums to benchmarks which were just raised for the 3rd month and this time to record highs.

This puts a relentless upward bias to prices until Saudi pricing changes, and will propel what’s call inflation as well. And the higher prices can also trigger a sharp recession:

The Commodities Feed: Saudi OSP raised to record highs

ADP, Euro inflation, Mtg purchase apps, Loan officer survey, Saudi output, jobs

Highlights

ADP sees the private payroll reading in Friday’s employment report coming in at 178,000. But ADP has been wild lately, evident in its sharp 33,000 upward revision to June which is now at 191,000. Econoday expectations are calling for 175,000 in private payroll growth in Friday’s report and 178,000 in total nonfarm payroll growth.

ADP private falling off since year end:

The now strong euro seems to be keeping a lid on prices via a drop in import prices. Looks to me like this time around the falling dollar is more likely to result in deflation abroad rather than inflation here at home. Also, with China keeping its currency relatively stable vs the dollar and weaker vs the euro, seem like China is targeting the euro area for exports:

Euro zone producer price inflation slows in June to lowest this year

By Lucia Mutikani

Aug 1 (Reuters) — Euro zone prices at factory gates grew in June at their slowest pace this year. Eurostat said industrial producer prices in the 19-country currency bloc increased 2.5 percent on the year in June, slowing from an upwardly revised 3.4 percent rise in May and a 4.3 percent surge in April. Headline inflation was stable at 1.3 percent in July, far from its 2.0 percent peak reached in February, according to preliminary estimates released by Eurostat this week. On the month, prices eased in June by 0.1 percent, in line with market expectations. In May industrial prices went down by 0.3 percent on the month, slightly less than the 0.4 percent fall previously estimated by Eurostat.

No rebound in mortgage purchase apps this week:

The seasonally adjusted Purchase Index decreased 2 percent from one week earlier to its lowest level since March 2017. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 9 percent higher than the same week one year ago. …
Read more at http://www.calculatedriskblog.com/#AA1sVKDFp3qYGrIX.99

Confirmation of weakening loan demand by domestic US banks, though some of the deceleration was due to foreign bank competition:

July 2017 Senior Loan Officer Opinion Survey Indicates Demand For Commercial And Industrial Loans Weakened

from the Federal Reserve

The July 2017 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months. This summary discusses the responses from 76 domestic banks and 22 U.S. branches and agencies of foreign banks.

Regarding the demand for C&I loans, a moderate net share of domestic banks reported that demand from large and middle-market firms weakened, while a modest net share of banks reported that demand from small firms did so. The reported reasons for weakening loan demand were less concentrated than the reasons for having eased standards. Each of the following reasons for weaker demand was cited by at least half of the banks that reported weaker demand: shifts in customer borrowing to other bank or nonbank sources and decreases in customers’ needs to finance inventory, accounts receivable, investment in plant or equipment, and mergers or acquisitions.

Questions on commercial real estate lending. On net, domestic survey respondents indicated that their lending standards for all major categories of CRE loans tightened during the second quarter. In particular, a moderate net fraction of banks reported tightening standards for construction and land development loans and loans secured by multifamily residential properties, while a modest net share of banks reported tighter standards for loans secured by nonfarm nonresidential properties.

Banks also reported that demand for CRE loans weakened during the second quarter. A modest net fraction of banks reported weaker demand for construction and land development loans and loans secured by multifamily residential properties, while demand for nonfarm nonresidential loans remained basically unchanged on net.

Meanwhile, a modest net share of foreign banks reported tightening standards for CRE loans. Also, in contrast to the domestic respondents, a significant net share of foreign banks indicated that demand for CRE loans strengthened in the second quarter of 2017.

Not much happening here as Saudis continue to set price via their discounts to benchmarks, and let their output be demand determined:

Race to the bottom to see which party can make the stupidest proposals:

Democrats call for harsh new punishments on companies that outsource jobs

ADP, ISM non manufacturing, Interview, Saudi output, credit chart, Inflation chart, claims chart, Mueller team news

Lower than expected and last month revised lower:

Highlights

ADP sees June private payrolls rising 158,000 which misses Econoday’s ADP consensus of 180,000. Econoday’s consensus for actual private payrolls in Friday’s employment report is 164,000 which isn’t likely to shift following ADP’s results. Estimates this year from ADP have been hit and miss with a wild upside miss in May.

Decent number for this survey but still reflects trumped up expectations:

Highlights

ISM’s non-manufacturing sample continues to report extending strength with the index up 5 tenths in June to 57.4 which tops Econoday’s high estimate for 57.1. New orders, at 60.5, remain unusually strong with backlog orders, at 52.0, also rising in the month. New orders for export, at 55.0, are also up solidly though to a lesser degree than domestic orders.

Employment growth is very solid at 55.8 but is down slightly from May’s unusually strong 57.8 in results that won’t disturb expectations for improving strength in tomorrow’s employment report. Business activity (output) is very strong at 60.8 with inventories, at 57.5, on the rise in further confirmation of the sample’s confidence.

The strength in this report continues to be impressive but has yet to pan out to similar strength in government data.

My recent radio interview:

https://soundcloud.com/financialexchange/warren-mosler-2

Saudi output shows they remain swing producer and price setter:

Another way to look at where we might be in the cycle:
https://twitter.com/northmantrader/status/882670288177172480

Mtg purchase apps, Gas prices, Greek debt, Euro area trade and inflation, Oil prices

Another setback for those grasping for straws looking for housing to lead a recovery:

MBA Mortgage Applications
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Gas prices up enough to hurt consumers, but not enough boost oil capex.

You might say it’s in the ‘sour spot’:
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Again, for all practical purposes this IS full debt forgiveness, and something Greece has yet to recognize as such:

IMF Proposal on Greece Sets Up Battle With Germany

May 17 (WSJ) — A new IMF proposal goes far beyond what Greece’s eurozone creditors have said they are willing to do. Germany is leading the pressure on the IMF to dilute its demands and rejoin the Greek bailout program as a lender. The IMF wants eurozone countries to accept long delays in the repayment of Greece’s bailout loans, which would fall due in the period from 2040 to 2080 under the proposal. The IMF is also pressing for Greece’s interest rate on its eurozone loans to be fixed for 30 to 40 years at its current average level of 1.5%, with all interest payments postponed until loans start falling due.

Trade continues to provide serious fundamental support for the euro, much like it did for the yen for two decades, which continued to strengthen even with 0 rates, QE, and perhaps the highest debt/GDP ratios in the world:
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This also provides fundamental support for the euro:
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And the recently rising oil prices work to increase the US trade deficit with prices and imports rising, as the price increase isn’t enough to slow the decline in US output. Again, you could call it the ‘sour spot’ for as long as it lasts:
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Mexico car production, oil prices

Not a good sign for US sales:

Mexico Car Production

Mexico’s auto production decreased by 4.1 percent on the year in February of 2016 following a 0.4 percent rise in January and exports dropped 1.2 percent. Automakers produced about 271 thousand units during the month, while exports totaled 220 thousand. Car Production in Mexico averaged 179.92 Thousand Units from 1999 until 2016, reaching an all time high of 330.16 Thousand Units in October of 2014 and a record low of 81.53 Thousand Units in January of 2009. Car Production in Mexico is reported by the AMIA – Associacion Mexicana de la Industria Automotriz.

With ‘excessive’ Saudi discounts reportedly still in place, it’s hard to believe prices won’t be again falling until the Saudis change their pricing. Meanwhile, the higher prices will add to the US import bill, as will the increased imports that are replacing declining domestic production.

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Posted in Oil

Chicago PMI, Pending home sales, EU inflation, G20 statement, Virginia jobless claims

As previously suspected, last month’s higher print was just a bit of volatility on the way down, as per the chart:

Chicago PMI
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Highlights
Another month and another month of wild volatility for the Chicago PMI which lurched from solid expansion in January to noticeable contraction in February. At a headline 47.6, Chicago’s PMI has fallen outside Econoday’s consensus range for a third month in a row! Still, this report is closely watched and confirms other early indications of February softness, not only for manufacturing but for services as well since this report tracks both sectors. The good news in the report is that new orders have held over breakeven 50 which hints at better readings in next month’s report. Now the bad news. Production is down sharply, backlogs are in a 13th month of straight contraction, employment is down and in a fifth month of contraction, and prices paid are contracting at the fastest pace since 2009. The resilience in new orders limits the signal of damage from this report, but production and other activity look to have slowed in February following respectable strength in January.

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Another bad one, as the weakness that began with oil capex continues to dampen the rest:

Pending Home Sales Index
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Highlights
Pending sales of existing homes slowed in January, down an unexpected 2.5 percent to an index level of 106.0 in a decline offset but only in part by an 8-tenths upward revision to December to plus 0.9 percent. Econoday forecasters were expecting a much better reading, at a consensus plus 0.5 percent for January sales. Sales in the month fell in three of the four regions with only the South in the plus column. Year-on-year, pending sales are up only 1.4 percent. Today’s report is yet another disappointment for a sector that, despite high employment and low mortgage rates, is getting off to a flat start for 2016.

The oil patch is where the recession started and it keeps getting worse which means the rest of the economy will continue to deteriorate as well:

Dallas Fed Mfg Survey
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Highlights
Dallas, together with Kansas City, are two Fed districts that are being hit hardest by the collapse in oil prices. The Dallas Fed’s general activity index came in at a deeply minus 31.8 in February vs minus 34.6 in January. New orders contracted a further 8.4 points in the month to minus 17.6 for their lowest reading since 2009 in what is a very ominous signal for the months ahead. Unfilled orders are also in contraction as are production and shipments. Price contraction deepened for both raw materials and selling prices. Inventories are down as is employment. In fact, in a rare sweep of weakness, all 17 current components are in contraction! The company outlook index is at minus 17.4 with a quarter of the sample saying their outlook has worsened during February. The latter is a telling reading and suggests very strongly, in line with all other anecdotal readings this month, that the factory sector, hit by weak exports and a weak energy sector, fell back in February.

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Fundamentally high inflation = weaker currency as higher prices means the same amount of currency buys less,etc. and deflation = a fundamentally stronger currency. However, the euro has been falling on news of deflation, as portfolio mangers, traders, etc. sell what euro they still have (or get outright short), their logic/fears being that deflation will trigger more inflationary policy from the ECB, which has yet to ‘trigger’ inflation. Meanwhile, the lower euro, driven down by selling and not ‘fundamentals’, continues to support the large and growing trade surplus that removes net euro financial assets from global markets. This has been going on for maybe a couple of years now leaving the euro more and more ‘undervalued’ and in ever shorter supply:

Euro-Area Prices Decline Most in Year as ECB Mulls Easing

By Alessandro Speciale

Feb 29 (Bloomberg) — The inflation rate in the 19-nation bloc declined to minus 0.2 from a positive reading of 0.3 percent in January,. Core inflation, which strips out volatile elements such as food and energy, was at 0.7 percent, down from 1 percent in the prior month. In Germany, the European Union- harmonized inflation rate dropped to minus 0.2 percent from 0.4 percent. The rate in France fell to minus 0.1 percent, while Spanish prices slid 0.9 percent. The ECB has already cut its deposit rate to minus 0.3 percent and is pumping 60 billion euros ($66 billion) a month into the economy via asset purchases.

Nothing good here:

The world’s top economies are set to declare on Saturday that they need to look beyond ultra-low interest rates and printing money if the global economy is to shake off its torpor, while promising a new focus on structural reform to spark activity.

A draft of the communique to be issued by the Group of 20 (G-20) finance ministers and central bankers at the end of a two-day meeting in Shanghai reflected myriad concerns and policy frictions that have been exacerbated by economic uncertainty and market turbulence in recent months.

“The global recovery continues, but it remains uneven and falls short of our ambition for strong, sustainable and balanced growth,” the leaders said in a draft seen by Reuters.

“Monetary policies will continue to support economic activity and ensure price stability … but monetary policy alone cannot lead to balanced growth.”

Geopolitics figured prominently, with the draft noting risks and vulnerabilities had risen against a backdrop that includes the shock of a potential British exit from the European Union, which will be decided in a June 23 referendum, rising numbers of refugees and migrants, and downgraded global growth prospects.

But there was no sign of coordinated stimulus spending to spark activity, as some investors had been hoping after the market turmoil that began 2016.

Germany had made it clear it was not keen on new stimulus, with Finance Minister Wolfgang Schaeuble saying on Friday the debt-financed growth model had reached its limits.

“It is even causing new problems, raising debt, causing bubbles and excessive risk taking, zombifying the economy,” he said.

This is from a story about Virginia’s claims for unemployment which are down even as the economy has weakened:

Colonna said the dip to 1974 levels in new unemployment claims is baffling since economic growth has been so sluggish in Virginia recently.

The state’s economy didn’t grow at all last year, U.S. Bureau of Economic Analysis data show.

And for the 12 months ended in July, the number of Virginians working rose by just 12,200, or 0.3 percent, the Virginia Employment Commission reports. The number who were unemployed declined by 33,000 – a figure that’s larger because it includes people who have stopped looking.

Part-time workers can’t always qualify for benefits when they are laid off, since to receive the minimum $60 a week unemployment benefit in Virginia, a person must have earned at least $3,000 during two of the previous five quarters.

And if income from any part-time job exceeds a laid-off person’s unemployment benefit, the state won’t pay the unemployment benefit. The maximum unemployment benefit in Virginia is $378, and the maximum time it is paid is 26 weeks. You can’t get the benefit if you are fired or quit your job.

Mtg purchase apps, Car sales comments, ADP, ISM services, Exxon capex, BOJ comment

Up last week now back down as this sector remains in prolonged depression:

MBA Mortgage Applications
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Highlights
The purchase index has been posting outsized gains this year but not in the January 29 week, falling 7.0 percent. The refinance index, however, did post a gain in the week, up 0.3 percent. Low interest rates have triggered strong demand for mortgage applications. The average 30-year fixed loan for conforming mortgages ($417,000 or less) fell 5 basis points and is back under 4.00 percent for the first time since October, at 3.97 percent.
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Winter Weather Dings U.S. Auto Sales

Feb 2 (WSJ) — Overall, auto sales were flat for the month, declining less than 1% to 1.15 million vehicles, according to researcher Autodata Corp. January’s selling pace was an annualized 17.58 million compared with 17.34 million in December. Incentive spending jumped 13% last month to $2,932 a vehicle, according to TrueCar Inc.WardsAuto, which the U.S. government uses for economic analysis, said the annualized rate was 17.46 million and that monthly sales fell 0.4 percent from a year ago. WardsAuto said U.S. sales hit a record 17.39 million vehicles in 2015.

This is a forecast for Friday’s payroll number:

ADP Employment Report
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So with manufacturing having gone negative, which is about 15% of the economy, stands to reason some of those people are probably customers of the service sector? Skip to the charts which clearly indicate the direction it’s all going.

ISM Non-Mfg Index
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Highlights
Monthly growth is slowing noticeably in ISM’s non-manufacturing sample. The composite index for January fell a sharp 2.3 points to 53.5 from December’s revised 55.8 which is 2 points below the Econoday consensus. Slowing is most apparent in output (as measured by the business activity component) with employment growth also slowing sharply, to 52.1 for a 4.2 point dip. However new orders, at 56.5, remain solidly above breakeven 50 though here to there is slowing, from December’s 58.9. Supplier deliveries, the fourth component of the composite, slowed in the month in a sign of congestion in the supply chain in what is an offsetting positive for the month.

Other readings include a solid 52.0 for backlog orders which are extending a long string of monthly expansion that contrasts sharply with a long string of contraction in the rival PMI services report. Inventories in ISM’s sample continue to rise but at only a marginal pace. Weakness is signaled by both contraction in import orders, which points to business caution among U.S. businesses, and also for export orders, the result of weak foreign markets and the negative effects of the strong dollar. Input prices, which have been subdued, fell in the month.

A negative in the report is narrow breadth among industries with 10 reporting composite growth in the month vs 8 reporting contraction, with the latter led by continued weakness for mining. Strength is led by both finance and real estate and includes construction.

Through much of last year, this report was among the most resilient, consistently pointing to steady strength that for the most part proved correct. Today’s declines, along with the dip in the PMI services report released earlier this morning, unfortunately hint at soft growth for the first quarter while this report’s employment index, hitting its lowest point since January last year, points to modest disappointment for Friday’s employment report.

Still looks to me like it’s been falling back ever since the July spike:
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This is the ISM non manufacturing employment index for the last year:
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Exxon slashes spending after smallest profit in years

Feb 2 (Reuters) — Exxon said it will cut 2016 spending by one-quarter and suspend share repurchases. Exxon forecast capital spending at around $23.2 billion this year, a 25 percent drop from 2015. Exxon suspended its share buyback plan meant to return cash to investors in the first quarter. Exxon reported that fourth-quarter profit tumbled to $2.78 billion, or 67 cents per share, from $6.57 billion, or $1.56 per share, in the same period a year earlier. Exxon said its oil and gas output rose 4.8 percent in the fourth quarter as it pumped more crude oil.

To again quote the carpenter with his piece of wood- “no matter how much I cut off it’s still too short”:

BOJ Kuroda says ready to use more policy options to boost inflation

Feb 2 (Reuters) — “If we judge that existing measures in the toolkit are not enough to achieve (our) goal, what we have to do is to devise new tools,” BOJ Governor Haruhiko Kuroda said in a speech. “I am convinced that there is no limit to measures for monetary easing,” he said. Kuroda countered criticism that the BOJ was running out of ammunition to accelerate inflation, saying negative rates won’t hamper the bank’s efforts to gobble up government bonds. “If judged necessary, it is possible to further cut the interest rate from the current level of minus 0.1 percent,” he said.