FAST FACTS ABOUT TODAY’S ECONOMIC DATA:
- S. Tax Receipts up +8.8% M/M thus far in September, following August decline.
- NAHB Housing Index slowed to 64 in September.
- China home prices continue to climb but slow on Y/Y basis in August.
U.S. TAX RECEIPTS UP +8.8% Y/Y IN 1H SEPTEMBER:
According to the U.S. Treasury, tax receipts are up +8.8% Y/Y through September 14th following a decline of -1.8% Y/Y in August. Note that tax receipts are up +5.5% Calendar YTD (versus +5.3% at the end of August). The increase in the month was widespread, led by Corporate Income Taxes, which rebounded +24.8% Y/Y and +0.9% Calendar YTD (versus -1.2% Y/Y at the end of August). Also, Income and Employment Withholdings Taxes rebounded +5.7% Y/Y and +5.9% Calendar Y/Y (+5.9% Y/Y at the end of August). It should be noted that Income withholdings may be boosted due to the +7.3% increase in the maximum amount of earnings subject to Social Security tax ($127,200 in 2017 vs. $118,500 in 2016). Furthermore, Excise & Other Taxes increased +11.0% Y/Y and +6.1% Calendar Y/Y (+5.9% Y/Y at the end of August).
NAHB/WELLS FARGO U.S. HOUSING MARKET INDEX SLOWED TO 64 IN SEPTEMBER:
The NAHB Housing Market Index fell -3 points to 64 in the month of September. Nonetheless, this marks the 39th consecutive month above 50! In the month, Current sales fell -4 points to 70, Future Sales fell -4 points to 73, and Traffic flows fell -1 point to 47. Geographically, there were increases in the West (+2 points to 79) and the Northeast (+1 points to 50); however, there were declines in the South (-4 points to 65) and the Midwest (-6 point to 59).
CHINA NEW HOME PRICES UP BUT SLOW ONCE AGAIN ON Y/Y BASIS IN AUGUST:
According to China’s Bureau of Statistics, new home prices in China’s 70 major cities increased for the 28th consecutive month, up +0.2% M/M in August. Moreover, New home prices increased +8.2% Y/Y, which is a slight slowdown versus +9.2% Y/Y prior. The increase in New home prices were led by Guilin (+1.1% M/M), Hunhot (+1.0% M/M), Beihai (+0.9% M/M), and Zunyi (+0.9% M/M). Note that prices declined in Haikou (-1.0% M/M), Guangzhou (-0.7% M/M), and Shenzhen (-0.4% M/M).
Furthermore, Newly constructed commercial residential buildings increased +0.2% M/M and +8.2% Y/Y on average (+9.4% Y/Y prior). Also, Second-hand home sale prices increased for the 29th consecutive month, up +0.3% M/M and +7.1% Y/Y (versus +7.9% prior). The increase in the month was led by Wuxi (+1.2% M/M), Urumqi (+1.0% M/M), Guilin (+0.9% M/M), and Xian (+0.9% M/M). On the other hand, prices fell in Beijing (-0.9% M/M), Tianjin (-0.8% M/M), Zhengzhou (-0.4% M/M), and Shanghai (-0.2% M/M).
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. However, given that 1H 2017 GDP is currently estimated at just 2.0% growth, it will be difficult 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 +1.4% Y/Y in July (away from 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 just 51%). Not to mention, increased inflation (as well as increasing inflation expectations), give the Fed reason to begin balance sheet tapering at their meeting this week (September 20th).
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, we believe the S&P is now fully valued. We continue to favor the homebuilders, given the demographic tailwind and lack of inventory and are encouraged by the improvement in pending home sales.
Argentina: In short, the economic data out of Argentina remains bad (but less bad than it was a year ago). Industrial Production increased +5.9% Y/Y in July (+6.6% Y/Y prior), CPI is up +22.9% Y/Y in July (+23.4% Y/Y prior), Consumer Confidence remains depressed but ticked higher in August, and GDP is up just +0.3% Y/Y.
Brazil: The macro data in Brazil continue to improve. Retail sales are now up +3.0% Y/Y, unemployment has fallen for four straight months to 12.8%, PMI’s continue to trend higher, tax receipts are growing, inflation is falling – 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: Given concerns about Canada’s housing market (Existing home sales fell again in July and Building Permits are slowing) and potential fallout from lower oil prices, we added Canada to our downside risk watch; however, 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 accelerating, and Canada’s monthly GDP continues to increase (+4.3% Y/Y in June).
Mexico: Recent economic data in Mexico have been worsening. GDP slowed to +1.8% Y/Y in Q2, Unemployment increased to 3.4% in July, Industrial Production declined -1.6% Y/Y in July, and Retail Sales slowed significantly in June (+0.4% Y/Y vs. +4.1 Y/Y prior).
Venezuela: We will leave this as a placeholder in the event that Venezuela ever becomes an investible market again. We are hopeful …
United Kingdom: The U.K. economy remains resilient. Consumer Confidence has deteriorated, Retail Sales slowed in July, and Q2 GDP slowed to 1.7% Y/Y (+2.0% prior); however, Unemployment continues to decline, home price gains are steady, inflation is in an uptrend, and PMI’s improved in July. In fact, the Bank of England stands ready to raise rates if inflation continues to climb. We are watching the U.K. for further deterioration.
European Union: Economic data has recently slowed in Europe. Unemployment increased slightly, PMIs indicate slower growth, Industrial Production fell -0.6% M/M, and Consumer Confidence remains negative. However, we are seeing improvement in Southern EU nations as well (including Greece). As such, 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. The ECB has now begun 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 (higher PMI’s, higher retail sales, lower inflation, and improving business confidence), however, Unemployment remains persistently high at 27.7%.
Turkey: Despite the political situation, the macro backdrop has been strong. Consumer confidence has been rising for months, business confidence increased in June, Unemployment is turning lower again, and inflation has reversed its recent rising trend. One area to watch for signs of weakness is housing as Home Prices slowed slightly in May (still up +12.6% versus +13.1% prior) followed by a sharp decline in home sales thereafter (-8.1% Y/Y in June). Furthermore, industrial production declined -3.6% Y/Y in June. Note that July manufacturing PMI slowed slightly as well.
ASIA / PACIFIC:
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 been steady, and PMI’s have held up, despite weakness in commodities prices. That being said, we are starting to see weakness in the housing market (private sales down -3.7% and building approvals down -13.9% Y/Y). We remain neutral on Australia at this time, on concerns about China exposure but so far China is still posting strong data.
China: Recent data suggest some modest improvement in China’s manufacturing sector. Note that China PMIs indicated steady growth in August, Industrial profits were up a solid +16.5% Y/Y in July, and China’s consumer and services sectors remain resilient. We continue to believe China has the levers necessary to stimulate ahead of the National Communist Party Congress later this year, but we are watching for further signs of stress within China’s credit and housing markets.
India: Indian economic activity took a nosedive in July following the new Goods and Services Tax (GST) as PMI’s fell into contractionary territory. This downturn in activity follows months of weakening durable goods sales and slowing industrial production. With the SENSEX index just off its all-time high and up 21% this year, we are monitoring India for further deterioration, but a de-escalation on the border with China should help markets. Given declines in inflation, the central bank cut rates this month.
Indonesia: Indonesia’s GDP and Private Consumption Expenditures have been stable at 5% Y/Y, but Consumer Confidence and inflation appear to be turning higher. As a result, it is reasonable to assume that the central bank’s dovish policy stance (six rate cuts in 2016) may revert to a more neutral stance this year.
Japan: We have a bullish view on Japan’s Nikkei 225 given improvement in Japan economic activity, employment, and small business confidence, although the 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 GDP accelerated in Q2. Furthermore, PMI’s accelerated in August, Retail Sales have rebounded, Real Disposable Income and Wages have turned up, and Unemployment rate improved to 5.1% in July. Meanwhile, inflation is moderating, which allowed the Bank of Russia to cut rates once again. Russian equities remain the cheapest in the industrialized world and we remain bullish.
GLOBAL CENTRAL BANK SCORECARD:
MACRO TRADING IDEAS:
WEEK IN REVIEW – BEST & WORST PERFORMERS:
S&P 500 SECTOR PERFORMANCE:
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BEST/WORST PERFORMING WORLD BOND MARKETS:
COMMODITIES MARKET PERFORMANCE:
MAJOR GLOBAL STOCK MARKETS:
MAJOR GLOBAL BOND MARKETS:
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