Consumer confidence rose to 92.4 (consensus 86) in July, from a ten month low of 85.3 in June. This was the largest monthly increase since last fall, and has brought the index back above its 12 month average of 88.6. Lower gasoline prices, low unemployment, combined with rising wages and stock values are being cited as reasons for the improvement.
Both current and future expectations rose, with expectations showing a larger gain. Inflation expectations fell for the next year to 3.3% from 3.4% last month, but over the next five years inflation is now expected to rise 3.1% versus 2.9% in June.
Friday, July 13, 2007
Business Sales Rose Faster than Inventories in May
Business inventories rose +.5% MoM (consensus +.3%) in May, while sales grew an even faster +1.3% MoM. Versus May of last year, total inventories have risen +4% YoY, with all categories except autos seeing gains. Total sales have also risen 4% YoY, with the best gains seen by wholesalers.
Manufacturers saw the smallest inventory accumulation with a gain of +.3% MoM. Ex-auto retailers saw the largest increase at +.7% MoM. Retailers saw the largest sales gains, at +1.6% MoM while manufacturers saw the smallest at +1% MoM.
The inventory to sales ratio dropped to 1.26 months of supply at the current sales pace in May, unchanged from a year earlier, but down from 1.3 as recently as last February. All subcategories saw declines, with wholesale I/S ration falling to 1.11 months, manufacturers down to 1.23, and retailers declining to 1.45.
Inventories have been reduced steadily over the past six months to reduce excess supplies. This has reduced GDP growth for the prior two quarters. Leaner inventories should help businesses cope with the slowing retail sales observed this morning.
Manufacturers saw the smallest inventory accumulation with a gain of +.3% MoM. Ex-auto retailers saw the largest increase at +.7% MoM. Retailers saw the largest sales gains, at +1.6% MoM while manufacturers saw the smallest at +1% MoM.
The inventory to sales ratio dropped to 1.26 months of supply at the current sales pace in May, unchanged from a year earlier, but down from 1.3 as recently as last February. All subcategories saw declines, with wholesale I/S ration falling to 1.11 months, manufacturers down to 1.23, and retailers declining to 1.45.
Inventories have been reduced steadily over the past six months to reduce excess supplies. This has reduced GDP growth for the prior two quarters. Leaner inventories should help businesses cope with the slowing retail sales observed this morning.
Higher Fuel Costs Push Up Import Prices for Fifth Month in a Row
June import prices rose +1% MoM (consensus +.7%), and accelerated higher on an annual basis to +2.3% YoY versus +1.4% YoY in May. Excluding petroleum, prices rose +.2% MoM (+2.6% YoY), down from +.5% MoM in May, as oil prices rose to a ten month high. May's monthly import price gain was revised higher to +1.1% MoM versus the prior reported value of +.9% MoM.
The cost of imported capital goods rose for the first time this year, increasing by +.2% MoM, but are still -.1% lower YoY. Costs for imported consumer goods, excluding autos, were unchanged for the third month in a row, but auto prices have been rising, gaining +.1% MoM. It appears that U.S. companies are not yet passing on higher costs to consumers.
Chinese goods rose +.3% MoM, for the second month in a row. This marks the largest two month gain ever recorded. Over the last year, import prices from China have risen +.6% YoY. Prices from other major trading partners are also rising, mainly due to petroleum price increases. On an annual basis, import prices from Mexico have risen +5.8% YoY, Canada +4.1% YoY, and prices from the EU have risen +2.1% YoY. Of the major trading partners, only Japan has continued exporting deflation, with prices falling -.7% YoY, but rising +.1% MoM.
The weakening of the dollar feeds directly into higher import prices, which is a concern as the dollar index approaches historic lows. This will keep the Fed concerned about inflation risks rising.
Export prices are accelerating higher, rising +.3% MoM in June after rising +.2% MoM in May, mainly due to a +2.9% MoM (+18.5% YoY) increase in agricultural prices.
The cost of imported capital goods rose for the first time this year, increasing by +.2% MoM, but are still -.1% lower YoY. Costs for imported consumer goods, excluding autos, were unchanged for the third month in a row, but auto prices have been rising, gaining +.1% MoM. It appears that U.S. companies are not yet passing on higher costs to consumers.
Chinese goods rose +.3% MoM, for the second month in a row. This marks the largest two month gain ever recorded. Over the last year, import prices from China have risen +.6% YoY. Prices from other major trading partners are also rising, mainly due to petroleum price increases. On an annual basis, import prices from Mexico have risen +5.8% YoY, Canada +4.1% YoY, and prices from the EU have risen +2.1% YoY. Of the major trading partners, only Japan has continued exporting deflation, with prices falling -.7% YoY, but rising +.1% MoM.
The weakening of the dollar feeds directly into higher import prices, which is a concern as the dollar index approaches historic lows. This will keep the Fed concerned about inflation risks rising.
Export prices are accelerating higher, rising +.3% MoM in June after rising +.2% MoM in May, mainly due to a +2.9% MoM (+18.5% YoY) increase in agricultural prices.
Retail Sales Much Weaker than Expected in June
June retail sales declined -.9% MoM (consensus -.1%), the largest monthly decline in almost two years. Excluding autos, retail sales fell -.4% MoM (consensus +.2%), the largest decline in nine months. Sales excluding gasoline fell -.9% MoM, the most since August 2005 as gas station sales fell -1.1%, on lower gasoline prices late in the month. Service station sales had risen over 4% in May as gasoline prices were rising toward the high of this year. Building materials sales declined by -2.3% MoM, and furniture sales fell -3% MoM (the biggest drop in over 4 years) as lower home prices slow home improvement projects. The retail sales data the government uses for calculating GDP is retail sales less autos, gasoline and building materials (these components come from other sources for GDP). This figure was unchanged in June after rising +.9% MoM in May.
Motor vehicles and parts fell -2.9% MoM (+.4% YoY). Electronics fell -1.4% MoM (+1.4% YoY). Clothing declined by -1.4% MoM (+4.9% YoY).
Areas showing strength were health care at +1.2% MoM (+6.7% YoY), food and beverages up +.4% MoM (+6% YoY), and sporting goods at +.4% MoM (+6.2% YoY).
Department stores fell -1% MoM while non-store retailers rose +1.2% MoM. Restaurant sales rose a minimal +.1% MoM.
Retail sales account for half of all consumer spending, which accounts for 2/3rds of GDP. So a slow down in retail spending directly implies a cooling of economic growth. Higher gas prices and falling home prices are negatively impacting spending. The low unemployment level and rising wages help support consumption.
This data is likely to reduce 2nd quarter GDP estimates. The weakness in retail sales was relatively broadbased, and shows that consumption is declining notably.
Motor vehicles and parts fell -2.9% MoM (+.4% YoY). Electronics fell -1.4% MoM (+1.4% YoY). Clothing declined by -1.4% MoM (+4.9% YoY).
Areas showing strength were health care at +1.2% MoM (+6.7% YoY), food and beverages up +.4% MoM (+6% YoY), and sporting goods at +.4% MoM (+6.2% YoY).
Department stores fell -1% MoM while non-store retailers rose +1.2% MoM. Restaurant sales rose a minimal +.1% MoM.
Retail sales account for half of all consumer spending, which accounts for 2/3rds of GDP. So a slow down in retail spending directly implies a cooling of economic growth. Higher gas prices and falling home prices are negatively impacting spending. The low unemployment level and rising wages help support consumption.
This data is likely to reduce 2nd quarter GDP estimates. The weakness in retail sales was relatively broadbased, and shows that consumption is declining notably.
Today's Tidbits
A Move to 30 Year Fixed Rate Mortgages in UK Will Alter Monetary Policy Effectiveness
From Dow Jones: “The Bank of England may have to move its key interest rate more dramatically if the U.K. government succeeds in developing a market for long-term, fixed-rate mortgages. Mortgages account for 84% of overall U.K. consumer debt,
BOE data show. When the central bank raises its key rate, borrowing costs rise, leaving consumers with less to spend on other goods and services, thus damping inflationary pressures…At present, the impact of interest rate moves on consumer spending - which is known as the transmission mechanism – is relatively immediate. That’s because while three-quarters of mortgages taken out currently are fixed-rate, only a small proportion -5% - are for durations of more than five years and many are for terms as short as two years. However, U.K. Prime Minister Gordon Brown wants to promote longer-term, fixed-rate mortgages as a way of helping more people buy homes. Some economists say that if a large proportion of consumers shifted to long-term deals, that would reduce their sensitivity to interest-rate moves, since the cost of meeting mortgage payments wouldn’t change. Nor would the impact on house prices be as large. “Since house prices represent the bulk of U.K. consumer wealth, this is likely to exacerbate the BOE’s problem of slowing domestic demand in order to stamp out inflation pressures,”…“This may mean that the market may have to get used to 50- basis-point moves in policy rates in future.”…Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said in a speech in London Wednesday that the U.K. transmission mechanism is much faster than that in the U.S. That’s because a far larger number of U.S. consumers are on long-term, fixed-rate mortgages.”
Broad-Based Labor Shortage in India Slows Outsourcing
From Forbes: “employers in as many as 20 sectors ranging from retail to textiles to financial services are facing extreme labor shortages, according to a new study. It isn’t just a fight for the highly qualified. The study by the Federation of Indian Chambers of Commerce and Industry found shortages of “skilled, semi-skilled and unskilled workers.” Post-secondary institutions aren’t churning out enough graduates with the skills companies are looking for, and the tight job market is allowing workers to job-hop at will for better opportunities…. In biotechnology, there is a need for 80% more scientists with doctorates. In banking and finance in 2006, there was a 90% shortage of risk managers; 65% for tech professionals, 50% for treasury managers, 75% for credit operations professionals and 80% for financial analysts. The tech sector is expected to face a shortage of as many as 500,000 employees in 2010, according to industry estimates… India churns out about 2.5 million college and university graduates each year, including 400,000 engineers, but the numbers are misleading. The number of graduates is small relative to the size of the population — about 10% of Indians receive any college training, as opposed to 50% in the United States — and the quality of their education is often doubtful… Several Indian businesses are scaling down their expansion plans in India in the face of the talent crunch and rising wages… And for foreign companies, it no longer makes sense to outsource a few hundred jobs to India… With the increase in wages as well as the cost of setting up in a big city like Mumbai, Delhi or Bangalore, “the market is now all about scale if outsourcing is to be cost effective,” …Recruiters say the only new source of skilled labor is overseas Indians attracted back by the booming economy. Indians in the Middle East and Far East are coming home, as are expatriates from destinations like the U.S. and the U.K.”
MISC
From Barclays: “Not for the first time this year we are struck by how the markets are consistently probing major historic levels across a broad spectrum of assets: 2007 is turning into a watershed year.”
From Merrill Lynch: “Every speculative financial bubble in history has been accompanied by excessive lending. The U.S. housing bubble has certainly fit that mold. Once again, we see that excessive lending when asset prices appreciate typically turns problematic when asset prices stabilize or decline….Most investors will agree that the financial markets have been powered for quite some time by excess liquidity…The incremental risk aversion now evident in the financial markets seems to us to be a sign that the financial liquidity spigot is starting to tighten.”
From RBSGC: “MBS underperformed UST 10Y by 10 ticks over the past month and 3+ ticks last week.”
From UBS: “The subprime triggered flight to quality rally began in earnest in early June. Since that time swaps and agency bullets have widened almost in lockstep - pushing out 10-12 bp in the 10y sector and 7-9 bps in 2s.”
From JP Morgan: “This week saw the biggest rise in CDS spreads and volatility for more than two years.”
From The Financial Times: “Investment banks and brokers have been among the hardest hit in credit derivatives markets during the dramatic volatility seen in recent days as their financial strength has comes under greater scrutiny… The focus on financials has been driven by concerns over their exposure to the crisis-hit US subprime mortgage industry. This has been the spark for the significant correction in the broader market for credit default swaps, which provide a kind of insurance against non-payment of corporate debt… Worst hit were the full-service banks such as BoA, Citi and JPM, who saw their cost of protection jump respectively by 48 per cent, 45 per cent and 37 per cent over the first half of this week… Among the broker banks – Bear, Lehman, Goldman, Merrill and MS – the moves in CDS spreads were more in the low 20 per cent range. Along with other areas of the CDS markets, these groups recovered some ground on Thursday, but BoA for instance was still trading at a spread of about 20 basis points – which means it costs $20,000 annually to insure $10m worth of its debt over five years. This is up by about one-third since the start of the week.”
From Goldman Sachs: “…the United States has turned into the world’s largest debtor nation, accumulating a negative net investment position valued at $2.14 trillion (16% of GDP) at year-end 2006.”
From Wachovia: “The dollar has fallen sharply against most major currencies over the
past month. Dollar losses were extended this week against most major currencies. This
dollar weakness is largely a result of market perceptions about future central bank policy
rate decisions. In the past two weeks, many foreign central banks have raised their rates,
while others are poised to hike their rates further. These data and market expectations
have laid the framework for greenback weakness, based on dollar-bearish interest rate
differentials.”
From Merrill Lynch: “About half of the stock market's return so far this year appears to be attributable to the weakening of the US dollar. The Dow is up about 11-12% in US dollars, but it is up only about 6-7% in non-US currencies.”
From FTN: “Yesterday’s 283 point rise in the Dow was the biggest percentage increase (2.1%) in nearly 4 years. Both the Dow and the SP500 hit new highs, while the NASDAQ added to what is now an 11.9% rise for the year.”
From Citi: “Iran requests Japanese payments for oil to be made in Yen… the small size of the oil-related flow between Iran and Japan would only lead to a negligible effect. The move would make itself mostly felt through a change in market sentiment and the anticipation of a more widespread adoption of such a stance. This would strengthen the Yen and weaken the USD at the margin.”
From Merrill Lynch: “San Francisco President Janet Yellen…said that "core inflation tends to be a better measure of where trends are headed". She told reporters that the Fed has not changed how it views core and total inflation, and that the Fed prefers to focus on core inflation as "it seems like it's a better predictor of the underlying trend".”
From JP Morgan: “The FOMC will have a new voter in August as Eric Rosengren replaces Cathy Minehan as Boston Fed President. Rosengren, a banking expert and career Boston Fed economist, will likely be regarded as a centrist on the committee. A search is still under way to replace outgoing Chicago Fed President Michael Moskow. President Bush has appointed Elizabeth Duke and Larry Klane to fill the two vacant seats on the Federal Reserve Board. Duke and Klane, both bankers, are unlikely to be scheduled for a Senate confirmation hearing before the next FOMC meeting.”
From Dow Jones: “[GE] announced it is exiting the U.S. subprime-mortgage business, and that it has already sold off $3.7 billion in loans to reduce its exposure to turmoil
in that market.”
End-of-Day Market Review
Treasuries remained in a tight range, with yields on the shorter end of the curve falling just under 2bp and long-bond yields falling almost 3.5bp. Equities built on yesterday’s record highs to close at new highs again. The Dow closed up 45 points, Nasdaq up 5.3, and the S&P rose 4.8 points. The dollar continues to weaken. The dollar index fell .06 to 80.58 after trading at a new low for this year earlier in the day. Oil futures rose $1.43 to close at a new ten month high of almost $74.
From Dow Jones: “The Bank of England may have to move its key interest rate more dramatically if the U.K. government succeeds in developing a market for long-term, fixed-rate mortgages. Mortgages account for 84% of overall U.K. consumer debt,
BOE data show. When the central bank raises its key rate, borrowing costs rise, leaving consumers with less to spend on other goods and services, thus damping inflationary pressures…At present, the impact of interest rate moves on consumer spending - which is known as the transmission mechanism – is relatively immediate. That’s because while three-quarters of mortgages taken out currently are fixed-rate, only a small proportion -5% - are for durations of more than five years and many are for terms as short as two years. However, U.K. Prime Minister Gordon Brown wants to promote longer-term, fixed-rate mortgages as a way of helping more people buy homes. Some economists say that if a large proportion of consumers shifted to long-term deals, that would reduce their sensitivity to interest-rate moves, since the cost of meeting mortgage payments wouldn’t change. Nor would the impact on house prices be as large. “Since house prices represent the bulk of U.K. consumer wealth, this is likely to exacerbate the BOE’s problem of slowing domestic demand in order to stamp out inflation pressures,”…“This may mean that the market may have to get used to 50- basis-point moves in policy rates in future.”…Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said in a speech in London Wednesday that the U.K. transmission mechanism is much faster than that in the U.S. That’s because a far larger number of U.S. consumers are on long-term, fixed-rate mortgages.”
Broad-Based Labor Shortage in India Slows Outsourcing
From Forbes: “employers in as many as 20 sectors ranging from retail to textiles to financial services are facing extreme labor shortages, according to a new study. It isn’t just a fight for the highly qualified. The study by the Federation of Indian Chambers of Commerce and Industry found shortages of “skilled, semi-skilled and unskilled workers.” Post-secondary institutions aren’t churning out enough graduates with the skills companies are looking for, and the tight job market is allowing workers to job-hop at will for better opportunities…. In biotechnology, there is a need for 80% more scientists with doctorates. In banking and finance in 2006, there was a 90% shortage of risk managers; 65% for tech professionals, 50% for treasury managers, 75% for credit operations professionals and 80% for financial analysts. The tech sector is expected to face a shortage of as many as 500,000 employees in 2010, according to industry estimates… India churns out about 2.5 million college and university graduates each year, including 400,000 engineers, but the numbers are misleading. The number of graduates is small relative to the size of the population — about 10% of Indians receive any college training, as opposed to 50% in the United States — and the quality of their education is often doubtful… Several Indian businesses are scaling down their expansion plans in India in the face of the talent crunch and rising wages… And for foreign companies, it no longer makes sense to outsource a few hundred jobs to India… With the increase in wages as well as the cost of setting up in a big city like Mumbai, Delhi or Bangalore, “the market is now all about scale if outsourcing is to be cost effective,” …Recruiters say the only new source of skilled labor is overseas Indians attracted back by the booming economy. Indians in the Middle East and Far East are coming home, as are expatriates from destinations like the U.S. and the U.K.”
MISC
From Barclays: “Not for the first time this year we are struck by how the markets are consistently probing major historic levels across a broad spectrum of assets: 2007 is turning into a watershed year.”
From Merrill Lynch: “Every speculative financial bubble in history has been accompanied by excessive lending. The U.S. housing bubble has certainly fit that mold. Once again, we see that excessive lending when asset prices appreciate typically turns problematic when asset prices stabilize or decline….Most investors will agree that the financial markets have been powered for quite some time by excess liquidity…The incremental risk aversion now evident in the financial markets seems to us to be a sign that the financial liquidity spigot is starting to tighten.”
From RBSGC: “MBS underperformed UST 10Y by 10 ticks over the past month and 3+ ticks last week.”
From UBS: “The subprime triggered flight to quality rally began in earnest in early June. Since that time swaps and agency bullets have widened almost in lockstep - pushing out 10-12 bp in the 10y sector and 7-9 bps in 2s.”
From JP Morgan: “This week saw the biggest rise in CDS spreads and volatility for more than two years.”
From The Financial Times: “Investment banks and brokers have been among the hardest hit in credit derivatives markets during the dramatic volatility seen in recent days as their financial strength has comes under greater scrutiny… The focus on financials has been driven by concerns over their exposure to the crisis-hit US subprime mortgage industry. This has been the spark for the significant correction in the broader market for credit default swaps, which provide a kind of insurance against non-payment of corporate debt… Worst hit were the full-service banks such as BoA, Citi and JPM, who saw their cost of protection jump respectively by 48 per cent, 45 per cent and 37 per cent over the first half of this week… Among the broker banks – Bear, Lehman, Goldman, Merrill and MS – the moves in CDS spreads were more in the low 20 per cent range. Along with other areas of the CDS markets, these groups recovered some ground on Thursday, but BoA for instance was still trading at a spread of about 20 basis points – which means it costs $20,000 annually to insure $10m worth of its debt over five years. This is up by about one-third since the start of the week.”
From Goldman Sachs: “…the United States has turned into the world’s largest debtor nation, accumulating a negative net investment position valued at $2.14 trillion (16% of GDP) at year-end 2006.”
From Wachovia: “The dollar has fallen sharply against most major currencies over the
past month. Dollar losses were extended this week against most major currencies. This
dollar weakness is largely a result of market perceptions about future central bank policy
rate decisions. In the past two weeks, many foreign central banks have raised their rates,
while others are poised to hike their rates further. These data and market expectations
have laid the framework for greenback weakness, based on dollar-bearish interest rate
differentials.”
From Merrill Lynch: “About half of the stock market's return so far this year appears to be attributable to the weakening of the US dollar. The Dow is up about 11-12% in US dollars, but it is up only about 6-7% in non-US currencies.”
From FTN: “Yesterday’s 283 point rise in the Dow was the biggest percentage increase (2.1%) in nearly 4 years. Both the Dow and the SP500 hit new highs, while the NASDAQ added to what is now an 11.9% rise for the year.”
From Citi: “Iran requests Japanese payments for oil to be made in Yen… the small size of the oil-related flow between Iran and Japan would only lead to a negligible effect. The move would make itself mostly felt through a change in market sentiment and the anticipation of a more widespread adoption of such a stance. This would strengthen the Yen and weaken the USD at the margin.”
From Merrill Lynch: “San Francisco President Janet Yellen…said that "core inflation tends to be a better measure of where trends are headed". She told reporters that the Fed has not changed how it views core and total inflation, and that the Fed prefers to focus on core inflation as "it seems like it's a better predictor of the underlying trend".”
From JP Morgan: “The FOMC will have a new voter in August as Eric Rosengren replaces Cathy Minehan as Boston Fed President. Rosengren, a banking expert and career Boston Fed economist, will likely be regarded as a centrist on the committee. A search is still under way to replace outgoing Chicago Fed President Michael Moskow. President Bush has appointed Elizabeth Duke and Larry Klane to fill the two vacant seats on the Federal Reserve Board. Duke and Klane, both bankers, are unlikely to be scheduled for a Senate confirmation hearing before the next FOMC meeting.”
From Dow Jones: “[GE] announced it is exiting the U.S. subprime-mortgage business, and that it has already sold off $3.7 billion in loans to reduce its exposure to turmoil
in that market.”
End-of-Day Market Review
Treasuries remained in a tight range, with yields on the shorter end of the curve falling just under 2bp and long-bond yields falling almost 3.5bp. Equities built on yesterday’s record highs to close at new highs again. The Dow closed up 45 points, Nasdaq up 5.3, and the S&P rose 4.8 points. The dollar continues to weaken. The dollar index fell .06 to 80.58 after trading at a new low for this year earlier in the day. Oil futures rose $1.43 to close at a new ten month high of almost $74.
Tuesday, July 10, 2007
Wholesale sales rise 2.5 times faster than inventories in May
May wholesale inventories rose +.5% MoM (consensus +.4%), and sales jumped +1.3% MoM in May. Inventories to sales fell to a record low of 1.11 months, based on the current sales pace, as stocks continue to be depleted to lean levels. Wholesale inventories represent about 25% of total business inventories. This is likely to encourage further production, especially for computer and furniture wholesalers which saw the largest gains in sales (almost +4% MoM) during May. Surprisingly, furniture inventories also hit a record low last month. Sales of non-durable goods rose +2.9% MoM. Auto sales saw a huge -5.3% drop in sales, which caused inventories to rise +1.3% MoM in May.
Monday, July 9, 2007
Today's Tidbits
Economic Outlook for Remainder of 2007 Looking Less Rosy
From Bloomberg: “The consensus forecast of a trouble-free second half rests on three pillars: a diminishing drag from the housing market, consumer-spending growth of 2-1/2 to 3 percent and stronger business investment. Tighter credit poses a risk to all three… Consumers are showing some signs of stress. They fell behind on loan payments in the first quarter at the highest rate since 2001, the American Bankers Association reported. Retailers feel the fall-out. The International Council of Shopping Centers and UBS Securities last week cut their forecast for June sales growth at retailers to 1.5 to 2 percent, from 2 percent… Automakers sold cars and light trucks at an annual rate of 15.6 million last month, the lowest for June since 1997…”
From UBS: “The data continue to be mixed enough to keep alive the debate over whether the apparent pickup in growth in Q2 marks the start of a sustained recovery or just a temporary bounce within a still-weak trend. In our view, much of the pickup
reflects a reversal of inventory-related weakness in Q1, with the trend in demand
still sluggish. Consumer spending appears to have slowed sharply in Q2.”
From Morgan Stanley: “Compared with the second quarter, in which we estimate that GDP rose by 3.8% annualized, we expect growth to slow noticeably in the second half of 2007, reflecting tighter mortgage lending standards, the ongoing housing recession, and higher energy prices. We also expect a slight pickup in both core and headline inflation in the second half of the year.”
Treasuries Looking Like a Poor Investment
From Citi: “U.S. 10s, JGBs and Bunds all posted bearish weekly reversals with last weeks close (weekly reversals towards lower prices/higher yields). This completes the set of developments on U.S. 10s seen since the price peak in June at 106 1/32 which point to the potential for a new low in price/high in yields for this cycle over the coming weeks (i.e. U.S. 10 year yields can move above 5.33%).”
From Bloomberg: “U.S. bonds offer cold comfort. With ultra-safe six-month Treasury Bills yielding as much as 5 percent, your real return is paltry after inflation and taxes.”
From Bloomberg: “…economists at Lehman Brothers Holdings Inc., Morgan Stanley and RBS Greenwich Capital…estimate 10-year government notes will return 1.28 percent this year, not even enough to cover inflation. The performance would be the worst since 1999, when they lost 8.25 percent, Merrill Lynch & Co. index data show…``It isn't a very appetizing environment'' for bond investors…”
Europe’s Financial Importance Growing
From Cumberland Advisors: “The European financial market place is rapidly growing and has exceeded that of the US in some areas…In the global bond world, the Euro denominated bonds now are a larger component in the international bond segment than the United States, 46% for the euro vs. 38% for the US dollar…This is critically important to understand since it is the world’s bond markets which are now driving bond interest rates in a powerful way. America is still the world’s leader in equities but our position has been declining. The US is about 40% of the world’s stock market capitalization. This is down from 50% a decade ago. In stocks the growth in the world has been in emerging market values. Japan has only added about 1% share of world value in the last decade and the Euro zone about the same. While the dollar is still the dominant world reserve currency, its role has been declining. US dollars constitute about 65% of global reserves, the lowest level since the advent of the euro. Compare this with a 24% euro position. Every indication points to a continuation of this trend as the Euro based financial markets continue to develop as an alternative to the US…Remember, the United States now has the second highest corporate tax rates in the world (Japan is highest) and contends with the Sarbanes-Oxley type reporting and regulatory requirements. Amazing as this statement may sound, business and corporate taxation in Europe is friendlier than in the US…European insurance companies (life and non-life) now receive more premium income than the US based insurers ($1.3 trillion vs. $1.1 trillion in 2005). This has been the trend since 2003 and the spread continues to widen. European bank assets are almost 4 times those of their American counterparts. Average revenues from European investment bank customers are up to 71% of those from American customers and the trend is continuing to rise.”
Energy
From JP Morgan: “Crude oil prices are making new highs and have broken out of the $60/bbl to $70/bbl range that held from April through June. The higher price is providing better fundamental support for product prices even as margins had begun to narrow in the gasoline market (both the crack spread and the markup of retail over spot), bringing down the retail price. As of last week, the US retail gasoline price had fallen 8% from its May peak.”
From Morgan Stanley: “The price of crude oil is rising again. In the short term, it could rise as high as $80/bbl. We believe that the markets are reacting to higher uncertainties regarding supply, against a backdrop of robust (but not surprising) demand. In addition, OPEC members, especially Gulf producers, are willing to protect their purchasing power, in a context of extreme weakness of the USD dollar…In the long term, however, we continue to expect the real price of oil to rise at a fast clip.
…we do not think that the rise is large enough to threaten global growth, unless other and independent supply side shocks happen. Although OPEC is announcing a 15% capacity margin, we believe that the market is so tight that a supply side disruption, caused for instance by an embargo against Iran, would send prices much higher. Only unexpected and clear signs of weakness in the global economy could bring prices down, at this stage, we think.”
From Bloomberg: “Global spare oil production capacity will shrink after 2010, increasing the risk of high crude prices as demand outpaces growth in production outside OPEC, the International Energy Agency said. Brazil and Russia will lead production growth outside of the Organization of Petroleum Exporting Countries while oil output in Europe will fall below that of Iran by 2012…OPEC's supply cushion of unused capacity rises until 2010, then declines to ``uncomfortably low levels,'' …all of the growth in non-OPEC supply over 2007-2012 comes from gas liquids, extra heavy oil, biofuels'' and by 2012 some coal-to-liquids production in China…By 2012, the quantity of OPEC crude oil theoretically needed to balance world supply and demand will rise to 36.2 million barrels a day, up from 31.3 million barrels a day for this year.”
From Bloomberg: “Far more than safety and environmental concerns, the biggest hurdle to fulfilling Bush's ambition to build the equivalent of three new nuclear plants a year by 2015 is money. U.S. utilities will have to invest about $350 billion by 2025 to satisfy the country's growing appetite for electricity…TVA is alone in executing the objective. Of the 16 U.S. electricity producers that have told the government they are interested in building new nuclear plants, none has committed to the projects. The challenges TVA faced at Browns Ferry…demonstrate how difficult it will be to relaunch the U.S. nuclear power industry. The tasks range from lining up billions of dollars in financing to securing scarce components in a manufacturing sector decimated decades ago, and hiring and training a new generation of skilled workers at a time when about one-third of the industry's existing workforce is close to retirement…the overwhelming stumbling block is that it costs about 28 percent more to build a new nuclear plant than the value Wall Street assigns to existing reactors…To satisfy an estimated 40 percent increase in U.S. electricity demand by 2025, the Bush administration is promoting nuclear power's development with tax credits, loan guarantees and a streamlined regulatory review process…The Nuclear Energy Institute estimates that only about 10 percent of the U.S. manufacturing capacity that existed to build the current generation of nuclear reactors remains. Most companies that produced the heavy steel forgings, cables, pumps and valves that went into U.S. reactors in the 1960s and 1970s have since been acquired by non-U.S. companies or folded, making parts hard to find and expensive…a drought in the Tennessee Valley that has reduced by 50 percent TVA's river-based hydro-electric generation, its cheapest energy source.”
From Bloomberg: “Ethanol tumbled 43 percent in the past 12 months, making the corn-based fuel additive cheaper than gasoline for the first time in two years…A rebound in ethanol became more likely after corn prices dropped 27 percent from a 10-year high in February. U.S. farmers planted more corn than in any year since World War II. Every $1- a-bushel decline in corn lowers the cost to make a gallon of ethanol by 25 cents…The U.S. ethanol industry, propped up by 25 years of federal subsidies, still needs government support to ensure its future…”
From Merrill Lynch: “The U.S. Senate has approved a bill that would allow the Justice Department to sue OPEC nations for price manipulation in U.S. courts. The "No Oil Producing and Exporting Cartels Act of 2007" would revoke the sovereign immunity OPEC members enjoy. The White House has threatened to veto the measure. OPEC President Mohammed al-Hamli considered the development a "really dangerous step," and said that OPEC had successfully deterred two prior attempts by Washington against the 12-member group. During a meeting with EU energy officials, OPEC Secretary-General Abdullah al-Badri said that OPEC does not currently see a shortage in crude oil. Not a view the market seems to hold.”
MISC
From Stone & McCarthy: “The Fed’s Consumer Credit surged by +$12.9 bln in May, following a revised +$2.3 bln gain in April…The primary strength in May consumer credit was in the revolving credit component…an indication that people are spending even with the additional burden from higher gasoline prices and the housing slowdown…”
From Bloomberg: “Keeping rates unchanged is the best option for promoting faster growth and slower inflation, according to Federal Reserve Bank of San Francisco President Janet Yellen. ``The virtues of this path are that it avoids exposing the
economy to unnecessary risk of a downturn while, at the same time, it is likely to produce enough slack in goods and labor markets to relieve inflationary pressures,'' …”
From Lehman: “Almost every indicator of employment growth has shown a slowdown in the first half of 2007 relative to 2006.”
From Stone & McCarthy: “``It is noteworthy that household employment, when adjusted for differences in definition with payroll employment, has slowed in a fairly pronounced fashion over the past six months, averaging only 45,000 a month, in sharp contrast to the payroll series, which has averaged 145,000 a month,''… ``We think that the BLS monthly payroll estimate is overstating the pulse of labor market conditions.''”
From Lehman: “In certain construction trades illegal immigrants are thought to reptese
From JP Morgan: “The NFIB small business optimism index declined to 96.0 in June from 97.2 in May. The 2Q average of 96.7 is below average for 1Q (98.1), 4Q06 (99) and 3Q06 (97.8), and has not shown sign of improvement like the ISM manufacturing and nonmanufacturing surveys have. One reason for this is the disproportionate share of construction firms: between 25% and 30% of survey respondents are in the construction industry, far higher than the industry’s share of value-added in GDP (about 3%). In June plans for hiring, capital expenditures, and inventories all softened slightly, while the net percent of firms expecting higher sales in six months dipped to its lowest value since last August. More firms are also raising selling prices, a source of upside inflation risk.”
From Bloomberg: “U.S. home sales in 2007 will drop to the lowest level since the start of the five-year housing boom in 2001 as mortgage rates and foreclosures increase, according to a forecast by Freddie Mac.”
From The Financial Times: “US corporate profits grew at the slowest rate in more than five years in the past quarter…”
From Citi: “Earnings season kicks off today…and really gets going in earnest next week. It's been a while since we've had a down move in SPX during earnings season. The last three have seen an average S&P gain of 3.3% (approximately) and you have to go back to last year at this time to see the S&P dropping during a reporting. By all accounts, 1Q was punk and 2Q wasn't great either, especially for retailers/restaurants, etc. as gasoline prices soared. Technology has led and could be the saving grace though.”
From Merrill Lynch: “Stocks (+6.3%) strongly outperformed Bonds (-2.1%) and Cash (1.3%) in the second quarter…Leadership is narrowing…The "Nifty Fifty" (largest 50 companies in the S&P500) outperformed the "Not-So-Nifty 450" (rest of the index) in the second quarter…Energy led sector performance by a sizeable margin in the second quarter, whereas Utilities lagged. Year-to-date, Energy led performance, whereas Financials lagged.”
End-of-Day Market Update
The 10y Treasury curve is settling at 5.15%, down 3.5bp, and the 2/10 Treasury curve flattened 1.5bp, as the 10y yield is now 18bp higher than the 2y yield.
Equities are closing higher, with the Dow up 36 and Nasdaq up +5 to its highest close since 2001.
The dollar is essentially unchanged after hitting a 26 year low versus the British Pound last week, and remains near its lowest level versus the euro since the currency was created.
Crude oil fell 62 cents, but closed above $72 a barrel in NY, and near a 10 month high.
From Bloomberg: “The consensus forecast of a trouble-free second half rests on three pillars: a diminishing drag from the housing market, consumer-spending growth of 2-1/2 to 3 percent and stronger business investment. Tighter credit poses a risk to all three… Consumers are showing some signs of stress. They fell behind on loan payments in the first quarter at the highest rate since 2001, the American Bankers Association reported. Retailers feel the fall-out. The International Council of Shopping Centers and UBS Securities last week cut their forecast for June sales growth at retailers to 1.5 to 2 percent, from 2 percent… Automakers sold cars and light trucks at an annual rate of 15.6 million last month, the lowest for June since 1997…”
From UBS: “The data continue to be mixed enough to keep alive the debate over whether the apparent pickup in growth in Q2 marks the start of a sustained recovery or just a temporary bounce within a still-weak trend. In our view, much of the pickup
reflects a reversal of inventory-related weakness in Q1, with the trend in demand
still sluggish. Consumer spending appears to have slowed sharply in Q2.”
From Morgan Stanley: “Compared with the second quarter, in which we estimate that GDP rose by 3.8% annualized, we expect growth to slow noticeably in the second half of 2007, reflecting tighter mortgage lending standards, the ongoing housing recession, and higher energy prices. We also expect a slight pickup in both core and headline inflation in the second half of the year.”
Treasuries Looking Like a Poor Investment
From Citi: “U.S. 10s, JGBs and Bunds all posted bearish weekly reversals with last weeks close (weekly reversals towards lower prices/higher yields). This completes the set of developments on U.S. 10s seen since the price peak in June at 106 1/32 which point to the potential for a new low in price/high in yields for this cycle over the coming weeks (i.e. U.S. 10 year yields can move above 5.33%).”
From Bloomberg: “U.S. bonds offer cold comfort. With ultra-safe six-month Treasury Bills yielding as much as 5 percent, your real return is paltry after inflation and taxes.”
From Bloomberg: “…economists at Lehman Brothers Holdings Inc., Morgan Stanley and RBS Greenwich Capital…estimate 10-year government notes will return 1.28 percent this year, not even enough to cover inflation. The performance would be the worst since 1999, when they lost 8.25 percent, Merrill Lynch & Co. index data show…``It isn't a very appetizing environment'' for bond investors…”
Europe’s Financial Importance Growing
From Cumberland Advisors: “The European financial market place is rapidly growing and has exceeded that of the US in some areas…In the global bond world, the Euro denominated bonds now are a larger component in the international bond segment than the United States, 46% for the euro vs. 38% for the US dollar…This is critically important to understand since it is the world’s bond markets which are now driving bond interest rates in a powerful way. America is still the world’s leader in equities but our position has been declining. The US is about 40% of the world’s stock market capitalization. This is down from 50% a decade ago. In stocks the growth in the world has been in emerging market values. Japan has only added about 1% share of world value in the last decade and the Euro zone about the same. While the dollar is still the dominant world reserve currency, its role has been declining. US dollars constitute about 65% of global reserves, the lowest level since the advent of the euro. Compare this with a 24% euro position. Every indication points to a continuation of this trend as the Euro based financial markets continue to develop as an alternative to the US…Remember, the United States now has the second highest corporate tax rates in the world (Japan is highest) and contends with the Sarbanes-Oxley type reporting and regulatory requirements. Amazing as this statement may sound, business and corporate taxation in Europe is friendlier than in the US…European insurance companies (life and non-life) now receive more premium income than the US based insurers ($1.3 trillion vs. $1.1 trillion in 2005). This has been the trend since 2003 and the spread continues to widen. European bank assets are almost 4 times those of their American counterparts. Average revenues from European investment bank customers are up to 71% of those from American customers and the trend is continuing to rise.”
Energy
From JP Morgan: “Crude oil prices are making new highs and have broken out of the $60/bbl to $70/bbl range that held from April through June. The higher price is providing better fundamental support for product prices even as margins had begun to narrow in the gasoline market (both the crack spread and the markup of retail over spot), bringing down the retail price. As of last week, the US retail gasoline price had fallen 8% from its May peak.”
From Morgan Stanley: “The price of crude oil is rising again. In the short term, it could rise as high as $80/bbl. We believe that the markets are reacting to higher uncertainties regarding supply, against a backdrop of robust (but not surprising) demand. In addition, OPEC members, especially Gulf producers, are willing to protect their purchasing power, in a context of extreme weakness of the USD dollar…In the long term, however, we continue to expect the real price of oil to rise at a fast clip.
…we do not think that the rise is large enough to threaten global growth, unless other and independent supply side shocks happen. Although OPEC is announcing a 15% capacity margin, we believe that the market is so tight that a supply side disruption, caused for instance by an embargo against Iran, would send prices much higher. Only unexpected and clear signs of weakness in the global economy could bring prices down, at this stage, we think.”
From Bloomberg: “Global spare oil production capacity will shrink after 2010, increasing the risk of high crude prices as demand outpaces growth in production outside OPEC, the International Energy Agency said. Brazil and Russia will lead production growth outside of the Organization of Petroleum Exporting Countries while oil output in Europe will fall below that of Iran by 2012…OPEC's supply cushion of unused capacity rises until 2010, then declines to ``uncomfortably low levels,'' …all of the growth in non-OPEC supply over 2007-2012 comes from gas liquids, extra heavy oil, biofuels'' and by 2012 some coal-to-liquids production in China…By 2012, the quantity of OPEC crude oil theoretically needed to balance world supply and demand will rise to 36.2 million barrels a day, up from 31.3 million barrels a day for this year.”
From Bloomberg: “Far more than safety and environmental concerns, the biggest hurdle to fulfilling Bush's ambition to build the equivalent of three new nuclear plants a year by 2015 is money. U.S. utilities will have to invest about $350 billion by 2025 to satisfy the country's growing appetite for electricity…TVA is alone in executing the objective. Of the 16 U.S. electricity producers that have told the government they are interested in building new nuclear plants, none has committed to the projects. The challenges TVA faced at Browns Ferry…demonstrate how difficult it will be to relaunch the U.S. nuclear power industry. The tasks range from lining up billions of dollars in financing to securing scarce components in a manufacturing sector decimated decades ago, and hiring and training a new generation of skilled workers at a time when about one-third of the industry's existing workforce is close to retirement…the overwhelming stumbling block is that it costs about 28 percent more to build a new nuclear plant than the value Wall Street assigns to existing reactors…To satisfy an estimated 40 percent increase in U.S. electricity demand by 2025, the Bush administration is promoting nuclear power's development with tax credits, loan guarantees and a streamlined regulatory review process…The Nuclear Energy Institute estimates that only about 10 percent of the U.S. manufacturing capacity that existed to build the current generation of nuclear reactors remains. Most companies that produced the heavy steel forgings, cables, pumps and valves that went into U.S. reactors in the 1960s and 1970s have since been acquired by non-U.S. companies or folded, making parts hard to find and expensive…a drought in the Tennessee Valley that has reduced by 50 percent TVA's river-based hydro-electric generation, its cheapest energy source.”
From Bloomberg: “Ethanol tumbled 43 percent in the past 12 months, making the corn-based fuel additive cheaper than gasoline for the first time in two years…A rebound in ethanol became more likely after corn prices dropped 27 percent from a 10-year high in February. U.S. farmers planted more corn than in any year since World War II. Every $1- a-bushel decline in corn lowers the cost to make a gallon of ethanol by 25 cents…The U.S. ethanol industry, propped up by 25 years of federal subsidies, still needs government support to ensure its future…”
From Merrill Lynch: “The U.S. Senate has approved a bill that would allow the Justice Department to sue OPEC nations for price manipulation in U.S. courts. The "No Oil Producing and Exporting Cartels Act of 2007" would revoke the sovereign immunity OPEC members enjoy. The White House has threatened to veto the measure. OPEC President Mohammed al-Hamli considered the development a "really dangerous step," and said that OPEC had successfully deterred two prior attempts by Washington against the 12-member group. During a meeting with EU energy officials, OPEC Secretary-General Abdullah al-Badri said that OPEC does not currently see a shortage in crude oil. Not a view the market seems to hold.”
MISC
From Stone & McCarthy: “The Fed’s Consumer Credit surged by +$12.9 bln in May, following a revised +$2.3 bln gain in April…The primary strength in May consumer credit was in the revolving credit component…an indication that people are spending even with the additional burden from higher gasoline prices and the housing slowdown…”
From Bloomberg: “Keeping rates unchanged is the best option for promoting faster growth and slower inflation, according to Federal Reserve Bank of San Francisco President Janet Yellen. ``The virtues of this path are that it avoids exposing the
economy to unnecessary risk of a downturn while, at the same time, it is likely to produce enough slack in goods and labor markets to relieve inflationary pressures,'' …”
From Lehman: “Almost every indicator of employment growth has shown a slowdown in the first half of 2007 relative to 2006.”
From Stone & McCarthy: “``It is noteworthy that household employment, when adjusted for differences in definition with payroll employment, has slowed in a fairly pronounced fashion over the past six months, averaging only 45,000 a month, in sharp contrast to the payroll series, which has averaged 145,000 a month,''… ``We think that the BLS monthly payroll estimate is overstating the pulse of labor market conditions.''”
From Lehman: “In certain construction trades illegal immigrants are thought to reptese
From JP Morgan: “The NFIB small business optimism index declined to 96.0 in June from 97.2 in May. The 2Q average of 96.7 is below average for 1Q (98.1), 4Q06 (99) and 3Q06 (97.8), and has not shown sign of improvement like the ISM manufacturing and nonmanufacturing surveys have. One reason for this is the disproportionate share of construction firms: between 25% and 30% of survey respondents are in the construction industry, far higher than the industry’s share of value-added in GDP (about 3%). In June plans for hiring, capital expenditures, and inventories all softened slightly, while the net percent of firms expecting higher sales in six months dipped to its lowest value since last August. More firms are also raising selling prices, a source of upside inflation risk.”
From Bloomberg: “U.S. home sales in 2007 will drop to the lowest level since the start of the five-year housing boom in 2001 as mortgage rates and foreclosures increase, according to a forecast by Freddie Mac.”
From The Financial Times: “US corporate profits grew at the slowest rate in more than five years in the past quarter…”
From Citi: “Earnings season kicks off today…and really gets going in earnest next week. It's been a while since we've had a down move in SPX during earnings season. The last three have seen an average S&P gain of 3.3% (approximately) and you have to go back to last year at this time to see the S&P dropping during a reporting. By all accounts, 1Q was punk and 2Q wasn't great either, especially for retailers/restaurants, etc. as gasoline prices soared. Technology has led and could be the saving grace though.”
From Merrill Lynch: “Stocks (+6.3%) strongly outperformed Bonds (-2.1%) and Cash (1.3%) in the second quarter…Leadership is narrowing…The "Nifty Fifty" (largest 50 companies in the S&P500) outperformed the "Not-So-Nifty 450" (rest of the index) in the second quarter…Energy led sector performance by a sizeable margin in the second quarter, whereas Utilities lagged. Year-to-date, Energy led performance, whereas Financials lagged.”
End-of-Day Market Update
The 10y Treasury curve is settling at 5.15%, down 3.5bp, and the 2/10 Treasury curve flattened 1.5bp, as the 10y yield is now 18bp higher than the 2y yield.
Equities are closing higher, with the Dow up 36 and Nasdaq up +5 to its highest close since 2001.
The dollar is essentially unchanged after hitting a 26 year low versus the British Pound last week, and remains near its lowest level versus the euro since the currency was created.
Crude oil fell 62 cents, but closed above $72 a barrel in NY, and near a 10 month high.
Economic Calendar
July 9-13, 2007
Consensus Prior
Monday, 7/9
May Consumer Credit $5.5B $2.6B
Consumer credit grew at a +4.7% annualized pace in the 1st quarter
April’s increase was below trend as credit card debt unexpectedly shrank
Tighter mortgage credit standards should increase credit card use in the future
Growth expected to be evenly split between revolving and non-revolving
Tuesday, 7/10
May Wholesale Inventories +.4% +.3%
Growth expected to remain near trend
Motor vehicle inventories have declined steadily this year
Inventory-to-sales ratio is at an historic low for wholesale inventories, suggesting demand to build inventories
Fed Chairman Bernanke speaks on Inflation with Q&A
Wednesday, 7/11
Philadelphia Fed President Plosser speaks on “Housing Prices and Monetary Policy” with Q&A
Thursday, 7/12
May Trade Balance -$60B -$58.5B
Expected to widen after contracting -1.9% in April on reduced imports
Imports expected to rebound mainly due to higher prices, especially for oil
Exports expected to continue to grow near 9% YoY as world economy remains robust
Food exports rose +12% in April and are expected to slow in May
Initial Jobless Claims 315k 318k
Continuing Claims 2520k 2569k
June Monthly Budget Statement $30B $20.5B
Deficit for first 8 months of fiscal year 2007 is -$148 billion
June will be a surplus month due to quarterly tax payments
Fed Governor Kroszner speaks on Basel II with Q&A
San Francisco Fed President Yellen speaks at luncheon on U.S. Economy
Friday, 7/13
June Import Price Index MoM +.6% +.9%
YoY +1.1%
Petroleum price gains continue to push up headline inflation
Consumer goods import prices expected to rise +.2% MoM (+ 1.7% YoY)
Data is not seasonally adjusted
June Advance Retail Sales +.2% +1.4%
Less Autos +.2% +1.3%
May’s rise was the largest since January 2006, severe deceleration expected for June
Domestic auto sales fell to lowest level since Oct. 2005 (20% of index)
Stabilizing gas prices will keep service station sales from rising
Building materials have only fallen -1.7% YoY despite housing slump
Redbook retail sales fell -1% in June
Ex-autos, gasoline, and building materials expected to grow at +.5% trend
July Preliminary U of Michigan Confidence 86 85.3
Lower gasoline prices are expected to give a small boost
May Business Inventories +.3% +.4%
Expected to continue growing at trend
Vehicle inventories expected to decline
Manufacturing inventories rose +.3% MoM in May
July 9-13, 2007
Consensus Prior
Monday, 7/9
May Consumer Credit $5.5B $2.6B
Consumer credit grew at a +4.7% annualized pace in the 1st quarter
April’s increase was below trend as credit card debt unexpectedly shrank
Tighter mortgage credit standards should increase credit card use in the future
Growth expected to be evenly split between revolving and non-revolving
Tuesday, 7/10
May Wholesale Inventories +.4% +.3%
Growth expected to remain near trend
Motor vehicle inventories have declined steadily this year
Inventory-to-sales ratio is at an historic low for wholesale inventories, suggesting demand to build inventories
Fed Chairman Bernanke speaks on Inflation with Q&A
Wednesday, 7/11
Philadelphia Fed President Plosser speaks on “Housing Prices and Monetary Policy” with Q&A
Thursday, 7/12
May Trade Balance -$60B -$58.5B
Expected to widen after contracting -1.9% in April on reduced imports
Imports expected to rebound mainly due to higher prices, especially for oil
Exports expected to continue to grow near 9% YoY as world economy remains robust
Food exports rose +12% in April and are expected to slow in May
Initial Jobless Claims 315k 318k
Continuing Claims 2520k 2569k
June Monthly Budget Statement $30B $20.5B
Deficit for first 8 months of fiscal year 2007 is -$148 billion
June will be a surplus month due to quarterly tax payments
Fed Governor Kroszner speaks on Basel II with Q&A
San Francisco Fed President Yellen speaks at luncheon on U.S. Economy
Friday, 7/13
June Import Price Index MoM +.6% +.9%
YoY +1.1%
Petroleum price gains continue to push up headline inflation
Consumer goods import prices expected to rise +.2% MoM (+ 1.7% YoY)
Data is not seasonally adjusted
June Advance Retail Sales +.2% +1.4%
Less Autos +.2% +1.3%
May’s rise was the largest since January 2006, severe deceleration expected for June
Domestic auto sales fell to lowest level since Oct. 2005 (20% of index)
Stabilizing gas prices will keep service station sales from rising
Building materials have only fallen -1.7% YoY despite housing slump
Redbook retail sales fell -1% in June
Ex-autos, gasoline, and building materials expected to grow at +.5% trend
July Preliminary U of Michigan Confidence 86 85.3
Lower gasoline prices are expected to give a small boost
May Business Inventories +.3% +.4%
Expected to continue growing at trend
Vehicle inventories expected to decline
Manufacturing inventories rose +.3% MoM in May
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