Earnings, New issuance, UK services, Germany, MMT comments

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Expect Pre-Earnings Frowns to Turn Upside Down

(WSJ) Analysts polled by Refinitiv think earnings per share for companies in the S&P 500 will be down 2% from a year earlier. The number of companies that have had negative first-quarter earnings warnings so far has outpaced those with positive preannouncements by a 2.8-to-1 ratio—well above the ratio of 1.2 to 1 registered at the same time ahead of first-quarter earnings season last year or the 1.9 to 1 ahead of the fourth-quarter earnings season. By this point in the calendar, the earnings bar tends to be low enough for companies to easily clear. Positive surprises typically outweigh negative ones by more than 3-to-1.

Sharp sell-off late last year takes its toll on equity deals

(FT) Proceeds from stock market listings in the region fell 99 per cent in the first quarter compared with the same period last year, with just $144m raised, Refinitiv data show. Including follow-on deals for companies already listed on stock markets in Europe, the number of transactions, at 81, was down by almost half. Proceeds from initial public offerings in the UK dropped a more modest 85 per cent, while US and Chinese companies’ IPO proceeds both halved compared with the first quarter of last year. In total, Refinitiv reported that 404 equity deals were launched around the world in March.

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Retail sales, Construction spending, Chem activity, Apartment vacancy, Equity flows, South Korea exports, Trump comments

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Not looking good:


Not looking good:


In contraction:

South Korea March exports contract for fourth month

(Reuters) Overseas sales slid 8.2 percent in annual terms in March. Imports shrank by 6.7 percent in March from a year earlier. This produced a $5.22 billion trade surplus, nearly doubling the amount in February, the Korea Customs Service data showed on Monday. Analysts say the fall in exports was led by a slump in semiconductor business, the country’s key export, as well as cooling demand from China, its biggest market, amid the trade war with the United States. Bank of Korea Governor Lee Ju-yeol said last week the central bank may change its current neutral stance on monetary policy should “recovery sentiment” worsen significantly.

Trump’s Great Lakes Whoppers

Trump, March 28: I support the Great Lakes. Always have. They’re beautiful. They’re big. Very deep. Record deepness, right? And I’m going to get, in honor of my friends, full funding of $300 million for the Great Lakes Restoration Initiative, which you’ve been trying to get for over 30 years. So we’ll get it done. It’s time. It’s time. You’ve been trying to get it over 30 years. I would say it’s time, right?

In its first fiscal year, Obama recommended — and the initiative received — $475 million. After that high point, funding dropped in fiscal year 2011 to just under $300 million. And funding has stayed steady around that level ever since.

In his last two budget proposals, including the fiscal year 2020 budget released this month, Trump proposed just $30 million — the equivalent of a 90 percent cut. In his first proposed budget for fiscal year 2018, the president allotted zero funding for the program.

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Personal income and spending, Border closing

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Income and spending both weakening:

Income:


Ratcheting down with each setback:


Spending:

Highlights

Consumer spending in January wasn’t able to meet Econoday’s consensus, up only marginally at 0.1 percent even against the easy comparison of December which is now revised yet 1 tenth lower to minus 0.6 percent. Weakness in January spending is centered in durable goods and reflects the month’s very sharp drop in vehicle sales.

The Bureau of Economic Analysis is still catching up following the government shutdown and today’s report is a split between lagging data on spending and prices and up-to-date data on personal income which was also subdued, up 0.2 percent in data for February though the wages & salaries component did manage a respectable 0.3 percent gain.

Turning to prices they are also subdued, down 0.1 percent for the PCE price index in data for January and up only 0.1 percent for the core. Both of these miss the consensus forecasts. Year-on-year rates are at 1.4 percent overall with the core slipping back 2 tenths to 1.8 percent.

Nearly all the readings in today’s set of data miss the consensus with January consumer spending pointing to opening trouble for first-quarter GDP and the weakness in core prices raising the risk that the Federal Reserve may soon be defending the downside of its 2 percent inflation target. On both scores, the balance for neutral monetary policy tilts, however slightly, toward the rate-cut side.

This would slow things down further, for example:

Trump threatens to close ‘large sections’ of US-Mexico border next week over illegal immigration

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GDP, Pending home sales, Trade, Chem index, Erdogan on rates

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Decelerating faster than previously reported:

Weakness in imports may be confirming weak US consumer demand:

Highlights

January’s trade deficit came in at a much lower-than-expected $51.1 billion as exports rose a solid 0.9 percent to $207.3 billion while imports fell a sharp 2.6 percent to $258.5 billion. The goods deficit is the surprise in the report, at a still steep $73.3 billion but 10.1 percent lower than December’s outsized $81.5 billion gap. The nations surplus on services exports rose 2.4 percent to $22.1 billion.

Details show a very welcome $1.3 billion rise in food exports, which had been shrinking in prior months, as well as a $1.2 billion gain for vehicle exports. Imports of capital goods fell $3.0 billion, which is good for the deficit but a negative for business investment, while imports of industrial supplies, reflecting a decline for oil, fell $2.3 billion.

Country data show another deep deficit with China, at $34.5 billion but a little less steep than $36.8 billion in December, with deficits with all other major trading partners likewise narrowing.

This reports opens first-quarter net exports on a favorable footing which in turn should lift early estimates for first-quarter GDP.

Erdogan Revives Unorthodox Theory on Interest Rates, Prices

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Housing starts, Consumer Confidence, Auto sales, Rail traffic

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Rolling over:


Also rolling over, and inline with the drop in retail sales:

U.S. auto sales are falling as vehicle prices climb, indicating that buyers at the lower end are getting squeezed out of the new car market, according to a new industry forecast.

First-quarter auto sales are expected to drop by nearly 2.5 percent from a year earlier, to 4 million units, according to J.D. Power and LMC Automotive.

Retail sales, which exclude sales to rental car companies and other commercial businesses, are expected to drop by about 5 percent to 2.9 million units. It’s the first time first-quarter retail sales are projected to fall short of 3 million units in six years, said Thomas King, senior vice president of J.D. Power’s data and analytics division.

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Rate policy, Wholesale inventories

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While there’s no dispute that there’s been a substantial global economic slowdown, stocks have been doing well due to investor belief that Fed will be there with lower rates to stem the deceleration and reignite growth.

However, seems obvious to me that the Fed’s tools- low rates and QE- aren’t all they are cracked up to be, as per Japan, the euro zone, and the US for the last 10 years.

To the contrary, seems to me the Fed may be confusing the accelerator with the brake, as the govt. is a net payer of interest to the economy on $20+ trillion of outstanding treasury securities and interest bearing reserves. That means rate hikes add interest income to the economy as they increase the federal budget deficit, and rate cuts likewise remove interest income from the economy.

Highlights

There are few indications of economic slowing that are more convincing than an unwanted build in inventories — and that apparently is what’s underway in the wholesale sector. Wholesale inventories jumped 1.2 percent in January to far exceed anyone’s expectations and are up 7.7 percent year-on-year. Confirmation that this is unwanted comes from sales in the sector which did rise 0.5 percent in January but follow a long stretch of contraction. Year-on-year, sales are up only 2.7 percent. The sector’s stock-to-sales ratio continues to climb, at 1.34 vs 1.33 in December and against 1.28 in January last year. Today’s data confirm the wisdom of the Federal Reserve’s cautious outlook.

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Factory orders, Architecture billing, Corporate outlook

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Rolling over:

A growing list of companies from FedEx to BMW are warning about the world economy

  • Executives at FedEx, BMW, UBS and others are describing bleak macro-economic conditions around the world this week, which they say are weighing on business.
  • The head of UBS says it was “one of the worst first-quarter environments in recent history,” while FedEx cited slowing international conditions and weaker global trade growth trends.
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    US manufacturing, and growth forecasts, LA port traffic, Japan trade

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    Decelerating global trade hitting home:

    U.S. manufacturing sector slowing as economy loses steam

    (Reuters) The Fed said manufacturing production dropped 0.4 percent last month. January was revised up to show output falling 0.5 percent instead of slumping 0.9 percent. Production at factories increased 1.0 percent in February from a year ago. Motor vehicles and parts output slipped 0.1 percent last month after tumbling 7.6 percent in January. Excluding motor vehicles and parts, manufacturing output fell 0.4 percent last month. Capacity utilization for the manufacturing sector fell to a nine-month low of 75.4 percent in February from 75.8 percent in January.

    Economists Cut Forecasts for Jobs and Economic Growth in Early 2019

    (WSJ) Private-sector economic forecasters surveyed in recent days expect U.S. economic output to grow, on average, at a 1.3% pace in the first quarter. That is a sharp drop from the last survey, in early February, when they predicted a 2% growth rate for the January-to-March period. 84.2% said they saw a greater risk that the economy would grow more slowly than that it would grow more quickly over the next 12 months. When asked about the biggest downside risk to their forecasts, 46.8% mentioned trade policy or China.

    LA area Port Traffic Down Year-over-year in February

    Container traffic gives us an idea about the volume of goods being exported and imported – and usually some hints about the trade report since LA area ports handle about 40% of the nation’s container port traffic.

    On a rolling 12 month basis, inbound traffic was down 0.8% in February compared to the rolling 12 months ending in January. Outbound traffic was down 1.2% compared to the rolling 12 months ending the previous month.

    Exports and imports fading:

    Japan logs goods trade surplus of 339 billion yen in February

    (Kyodo) Exports fell for the third straight month in February, slipping 1.2 percent to 6.38 trillion yen. Imports declined 6.7 percent to 6.05 trillion yen. China-bound exports increased 5.5 percent from a year prior, but that failed to make up for a 17.4 percent plunge in January. Japan’s trade surplus against the United States shrank to 624.9 billion yen as a 4.9 percent rise in imports such as aircraft outpaced a 2.0 percent increase in exports. With the European Union, Japan had a trade surplus of 58.2 billion yen as exports grew 2.5 percent while imports edged up 0.5 percent.

    BOJ stands pat but downgrades view of output and exports

    (Nikkei) “The Chinese economy is decelerating,” Gov. Haruhiko Kuroda said. But “stimulus steps are already being taken by the government. Their effects will show up in due course. Many believe that will be in the latter half of this year,” he added. “There are risks to the global economy. They need to be monitored carefully. But continued gradual growth remains our main scenario.” The BOJ downgraded its view of exports and output, saying they have been showing weakness recently. Previously, the central bank described export and output conditions as being “on an expanding trend.”

    Economists Cut Forecasts for Jobs and Economic Growth in Early 2019

    (WSJ) Private-sector economic forecasters surveyed in recent days expect U.S. economic output to grow, on average, at a 1.3% pace in the first quarter. That is a sharp drop from the last survey, in early February, when they predicted a 2% growth rate for the January-to-March period. 84.2% said they saw a greater risk that the economy would grow more slowly than that it would grow more quickly over the next 12 months. When asked about the biggest downside risk to their forecasts, 46.8% mentioned trade policy or China.

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    Roreign direct investment, Construction spending, Durable goods orders, New home sales

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    Gone negative year over year adjusted for inflation:


    This series looks to me like it’s flattened and adjusted for inflation remains well below 2008 highs, and hasn’t fully recovered from the collapse of oil capex at the end of 2014:


    New home sales appear to have rolled over at very low levels. They are pretty much only at levels of the early 1960’s when the population was maybe half of what it is today:

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