• S. Tax Receipts up +6.6% Y/Y in November.
  • S. Factory Orders slipped in October but prior months revised higher.
  • EU PPI increased for the 3rd month in a row but slowed on Y/y basis in October.


According to the U.S. Treasury, tax receipts increased +6.6% Y/Y in November and tax receipts accelerated slightly to +4.7% Calendar YTD Y/Y (+4.6% at the end of October).  The increase in the month was led by Income and Employment Withholdings, which increased +6.8% Y/Y and +6.0% Calendar YTD Y/Y (+5.9% Y/Y at the end of October).  Note that the maximum amount of earnings subject to Social Security tax increased +7.3% to $127,200 in 2017 – which would have been achieved earlier in the year by high income earners (thus, we should expect some deterioration in the Y/Y growth rate of tax receipts into year-end).    Furthermore, Excise & Other Taxes increased +6.8% Y/Y and +1.3% Calendar YTD Y/Y (+1.1% Y/Y at the end of October); however, Corporate Income Taxes declined -4.5% Y/Y and -2.1% Calendar YTD Y/Y (also -2.1% at the end of October).





The Census Bureau reported that U.S. Factory orders slipped -$0.292 billion to $479.59 billion in the month of October.  Thus, factory orders fell -0.06% M/M and slowed to +5.22% Y/Y (versus +5.46% Y/Y prior).  However, it should be noted that the prior month was revised higher to +1.68% M/M (versus +1.17% M/M previously reported).  Furthermore, Factory orders ex-transportation increased for the fifth consecutive month, up +0.79% M/M and +8.09% Y/Y to $402.175 billion (versus +5.61% Y/Y prior).  Lastly, Durable Goods orders declined -0.81% M/M but Non-Durable Goods orders increased +0.68% M/M.





According to Eurostat, the Euro Area PPI increased for the third consecutive month, up +0.4% M/M in the month of October.  However, PPI slowed to +2.5% Y/Y (versus +2.8% Y/Y prior).  The increase in the month was led by Energy prices, up +1.3% M/M and +3.1% Y/Y (+4.3% Y/Y prior).  Also, Eurozone PPI increased +0.4% M/M and +2.6% Y/Y (+3.2% Y/Y prior).





U.S. GDP:  Our GDP model points toward stronger growth in the quarters ahead (+2.8% Real GDP growth in 2H 2017, and 3% growth in 2018) given improvements in workforce population growth, workforce participation, and low interest rates and energy prices.  With Q2 2017 Real GDP officially at +3% growth and Q3 preliminary estimate at 3% growth, it is now possible for GDP to achieve our official forecast of 3.0% for 2017.

U.S. Inflation:  U.S. inflation is set to rise again over the coming months as energy prices return to positive territory on a Y/Y basis.  Additionally, recent data show that shelter costs have been turning up again.  However, the Fed’s preferred inflation metric, the Core PCE Deflator was up just +1.33% Y/Y in September (below the Fed’s 2% inflation target).

U.S. Federal Reserve:  With inflation set to turn back up again, the odds of another Fed hike will increase (note that December hike odds are currently 97%).   Not to mention, increased inflation (as well as increasing inflation expectations) have given the Fed reason to begin balance sheet tapering.

U.S. Treasuries:  With headline CPI having hit a near-term peak of 2.7% Y/Y, we believe the 10-year U.S. Treasury is now range-bound through the end of the year.  We would be inclined to be buyers of Treasuries if the 10-year yield were to approach its recent high of 2.63%.

U.S. Equities and Earnings:  S&P 500 operating earnings will rise materially in 2017, but our yearend S&P 500 target of 2400 has already been attained.  In fact, the S&P is closing in on our 2018 target too!  We continue to favor the homebuilders, given the demographic tailwind and lack of inventory.   We also prefer financials given expectations for economic growth.

Argentina:  Argentine economic data continues to improve. Consumer Confidence has improved for three consecutive months, GDP accelerated to +2.7% y/y in Q2, but inflation remains a problem at +24.5% Y/Y (far better than 45% from a year ago though).  However, Industrial Production has slowed for three consecutive months.

Brazil:  The macro data in Brazil continue to improve.  Retail sales are now up +6.4% Y/Y, unemployment has fallen for six straight months to 12.4%, Industrial Production is up +2.6% Y/Y, Manufacturing PMI continues to trend higher, tax receipts are growing, inflation is still in a falling trend – which allows the central bank to cut rates further, and GDP finally turned positive on a Y/Y basis (+0.3% Y/Y).  Of all the major global bond markets, Brazilian 10-year bond yields are the richest in the world at 10%.  As the economy improves, and inflation cools, we would expect to see investors reach for yield in Brazil.   As such, we recently initiated a Long Brazil 10-Year Sovereign Bond view.

Canada: Despite worries about Canada’s housing market, so far Canada’s economic data remain healthy.  Consumer Confidence remains at high levels, manufacturing PMI’s remain strong, unemployment has been in a declining trend, retail sales are elevated, and Canada’s monthly GDP remains at a healthy 3.5% Y/Y.

Mexico: Recent economic data in Mexico suggest that the Mexican economy has been mixed in Q3.  Manufacturing PMI’s were stronger in Q3 (but slowed in October) and exports accelerated to +13.2% Y/Y; however, Unemployment has increased to 3.6%, Consumer Confidence has trended slightly lower, industrial production is down -1.2% Y/Y, and retail sales have yet to turn higher.

Venezuela: We will leave this as a placeholder in the event that Venezuela ever becomes an investible market again.  We are hopeful …


United KingdomThe U.K. economy had been resilient but it is starting to show signs of weakness. Although unemployment continues to decline, Industrial Production accelerated to +2.5% Y/Y in September, and PMI’s improved in October.  On the other hand, Retail Sales fell -0.3% Y/Y in October, Consumer Confidence has remained negative, home prices have begun to turn lower in London, while inflation has turned higher.  In fact, the Bank of England raised rates due to higher inflation, despite recent weakness in economic data.

European Union:  Economic data has recently improved in Europe.  Unemployment continues to decline, PMIs indicate strong growth, and Retail Sales accelerated to +3.7% Y/Y in September.  We remain bullish on the Euro STOXX 50 Index.

European Central Banks:  The ECB is doing exactly what we thought they would do by favoring asset purchases over furthering lowering rates into negative territory and now the ECB is facing rising inflation.  Also, next year the ECB will begin to taper its asset purchases and certainly a discussion will begin on the process of how/when to raise rates.  We will watch to see if ECB tapering has any meaningful impact on zero (or near-zero) interest rates throughout the continent.

Eastern Europe: We continue to believe risks remain for Eastern Europe given high Debt/GDP levels, most notably Cyprus (104%), Croatia (88%, up from 66% at the end of 2013), and Slovenia (81%).   Yet, economic data have been robust this year across most of Eastern Europe.

South Africa:  Political chaos and debt downgrade risk aside, South African data improved in Q2 and the start of Q3 (higher PMI’s, higher retail sales, low inflation, and improving business confidence).  However, Unemployment remains persistently high at 27.7%.

Turkey:  The Lira seems to have stabilized (relatively speaking) after having fallen roughly 10% versus the U.S. Dollar over the past three months.  It remains to be seen if the decline in the Lira leads to CPI materially higher in Turkey (CPI already had accelerated to 11.9% Y/Y).   Despite the chaotic political situation, the macro backdrop had been strong, as business confidence increased throughout Q3, industrial production accelerated to +10.4% Y/Y, and Unemployment has been steady.  However, Consumer Confidence has ticked lower for four consecutive months and exports slowed to +8.7% Y/Y in September.


Australia: The RBA has cut rates twice in the past year and Australian data is holding up.  So far, business and consumer confidence have been strong, the job market has improved, and PMI’s have held up.    That being said, we are starting to see weakness in the housing market (private sales down -6.1% M/M and building approvals are up just +0.2% Y/Y) and Auto Sales turned negative in September.  We remain neutral on Australia at this time, on concerns about China exposure but so far China is still posting strong data.

China:   China data remain mixed but positive.  Recent data suggest improvement in China’s manufacturing sector, while Retail Sales, Fixed Investment, CPI, Industrial Production, Exports, and Credit/Money conditions have slowed on Y/Y basis.  We continue to believe China has the levers to stimulate its economy, but we are watching for further signs of stress within China’s credit and housing markets, particularly now that China is likely to be more focused on cutting overcapacity.

 India:  Indian economic activity appears to have recovered nicely since the new Goods and Services Tax (GST) was implemented as Industrial Production, Commercial Credit, and Retail Sales ended Q3 on an improving note.  Note that since the Indian central bank cut rates in August, inflation appears to have turned slightly higher.

Indonesia:  Indonesia’s GDP and Private Consumption Expenditures have been stable at 5% Y/Y, inflation moderated in Q3, Consumer Confidence has been stable, but industrial production and PMI’s weakened in Q3.  Our best guess is that the central bank’s dovish policy stance may revert to a more neutral stance going forward (they declined to cut rates again in October).

Japan:  With Abe winning his snap elections by a long shot, we are emboldened in our bullish view on Japan’s Nikkei 225.   Overall, Japan’s economic activity remains in an improving trend, although weakness in PMI’s over the past two months raises concern.  Bank lending is improving on a Y/Y basis in Japan, unemployment continues to improve, industrial production remains elevated, and consumer confidence remains in a slow up-trend.

Russia: Russian economic data continue to suggest economic growth as PMI’s have improved recently.  Furthermore, Retail Sales are in an improving trend, Wages have turned up, the Unemployment rate remains low (although ticked up in October), and exports are up over +20% Y/Y.  Meanwhile, inflation has slowed, which allowed the Bank of Russia to cut rates once again.  Russian equities remain the cheapest in the industrialized world and we remain bullish.







































This publication is for Institutional Investor use only and not for distribution to the general public. The comments herein are based on the author’s opinion at a particular point in time and may change at any time without notice. Merion Capital Group does not guarantee the accuracy or completeness of the information contained herein. Merion Capital Group is a FINRA-registered broker-dealer. Merion Capital Group shares in the commissions for trades that are executed through Tourmaline Partners, LLC, a FINRA-registered broker-dealer. This report is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. It does not constitute a general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. Past performance is not a guarantee of future performance. All investments involve risk, including the loss of all of the original capital invested.


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