Manufacturing sector activity continues to register surprising improvement. New orders for durable goods increased 0.8% during April (7.1% y/y) following a 3.6% March rise, initially reported as 2.6%. The increase beat expectations for a 0.7% decline in the Action Economics Forecast Survey. New orders for transportation equipment continued to lead the monthly increase with a 2.3% advance (12.3% y/y) which added to even stronger gains in the prior two months. It reflected a 13.1% jump (5.6% y/y) in defense aircraft & parts bookings. Commercial aircraft & parts orders declined 4.1% (22.5% y/y) after two strong monthly increases while motor vehicle & parts bookings were off 1.0% (+0.8% y/y).
Outside of the transportation sector new orders ticked 0.1% higher (4.8% y/y) last month following a 2.9% jump. New orders for electrical equipment and appliances gained 1.1% (4.1% y/y). The rise was offset, however, by a 2.9% drop (+7.2% y/y) in machinery bookings and a 1.1% shortfall (+2.9% y/y) in orders for computers & electronic products. Fabricated metals orders jumped 3.4% (-0.2% y/y) but primary metals orders declined 0.4% (+5.5% y/y). Nondefense capital goods orders declined 1.0% (+6.7% y/y) following a 9.7% surge. Orders excluding aircraft were off 1.2% (+3.9% y/y) after a 4.7% jump.
Home-Price Growth Eases The growth in home prices across the U.S. continues to lose momentum. Prices increased 0.2% in this year’s first quarter, according to the S&P/Case Shiller Home Price Index report.
Compared with a year earlier, national home prices are up 10.3%. The index covering 10 major U.S. cities increased 12.6% in the year that ended in March, while the 20-city index advanced 12.4%. That is a slowdown from February’s 12.9% yearly pace, but better than the 11.8% expected by economists.
Two Haver charts from 2007: consumer confidence is slowly rising to its previous peak, thanks in large part to Americans under 54. In fact, the younger, the more confident.
Really? Then why does the Confidence Gap Widen? Charts from Bespoke Investment with a longer perspective…
…and something strange when considering that younger Americans typically earn less:
During the month of May, confidence among Americans with incomes above $50K increased from 100.74 to 105.78, while confidence among consumers with incomes between $35K and $50K declined from 76.66 down to 72.36.
…still, can they be so confident given this…
…and that (last 2 charts from FT Alphaville):
Cities ranging from Tianjin in the north to Nanning in the south—Ningbo lies in between—have eased government restrictions on home buying and lending for purchases in recent weeks. The central government is also helping, entreating banks this month to lend more.
Authorities hope to reverse a downturn that has led to a 9.9% nationwide drop in housing sales by value in the first four months of the year, compared with a year earlier. Construction starts for housing have fallen 24.5% over the same period. (…)
Property investment directly contributes 12% to the country’s gross domestic product, analysts said. The total is more than 20% if items such as wages paid to construction workers and output from related industries are included. (…)
Big Banks Warn on Trading Executives from some of the biggest U.S. financial firms said a slump in trading that has hammered bank results for more than a year is likely to continue to weigh on profits
Large investors are retreating from the market, big trades are rare and price swings are shrinking, executives told investors at an industry conference in New York on Tuesday. Those factors have combined to reduce trading revenue, particularly in fixed-income, currencies and commodities trading, traditionally a profit engine for large banks.
Citigroup Inc. Chief Financial Officer John Gerspach told investors the bank expects the slide it has reported in markets revenue to deepen in the second quarter.
His words echoed the comments of J.P. Morgan Chase & Co.’s head of investment banking, Daniel Pinto, who said volatility levels were at 10- to 15-year lows. He said that even if trading volumes rise, it is hard to make money if volatility is low.
Citigroup’s second-quarter trading revenue, when adjusted to strip out changes in the value of the bank’s debt, could fall between 20% and 25% from a year earlier, Mr. Gerspach said. That also would be lower than the first quarter.
In the first quarter, Citigroup reported its combined markets revenue, which includes fixed-income and equities trading, fell 13% from a year earlier to $4.73 billion, driven mostly by an 18% drop in fixed-income revenue.
J.P. Morgan this month said that it expects its markets revenue to drop 20% in the second quarter. (…)
(…) It’s the tale of a company called Sasol, SOL.JO -0.02% the former South African state oil company, which is embarking on what could be the single-largest foreign investment project in U.S. history.
Sasol is building a 3,034-acre energy complex near a bayou in Lake Charles, La. Tapping into cheap, fracked natural gas as well as the pipeline and shipping infrastructure along the Gulf Coast, Sasol plans to spend as much as $21 billion there.
It is expensive, elaborate and dirty work. Sasol plans to reduce, or “crack,” the gas into ethylene, a raw chemical used in plastics, paints and food packaging. It also plans to convert the gas into high-quality diesel and other fuels, using a process once advanced by Nazi scientists to power Panzer tanks. The state of Louisiana is even kicking in $2 billion of incentives to make it happen.
This is engineering on a scale so large that it requires closing 26 public roads, buying out 883 public-property lots, and hiring 7,000 workers at peak construction. Some 100 additional trucks will be on the road each day once the complex is completed. Entrepreneurs have already begun construction of a “man camp” to house 4,000 temporary workers streaming into Lake Charles for this and other projects.
In that way, Sasol is a metaphor for what we don’t yet understand about America’s gas boom. Most know what fracking has meant for oil and gas prices. But because much of the work hasn’t started yet, few appreciate the true extent of the industrialization that’s about to begin.
So let’s put it this way: We are building a Qatar on the Bayou. From whole cloth, companies are laying new cities of fertilizer plants, boron manufacturers, methanol terminals, polymer plants, ammonia factories and paper-finishing facilities. In computer renderings, the Sasol site looks like a fearsome, steel-fitted Angkor Wat.
In all, some 66 industrial projects—worth some $90 billion—will be breaking ground over the next five years in Louisiana, according to the Greater Baton Rouge Industry Alliance. Tens of billions of other new investments could be coming, says Louisiana’s economic development secretary, Stephen Moret. How many projects will actually get built remains to be seen. (…)
The entire GDP of the state of Louisiana is about $250 billion annually. (…)
Similarly, we probably underestimate the deepening shortage of skilled laborers needed to design, weld and operate these mechanical beasts. Wages are already pushing higher, which could delay or even squelch some projects. (…)
Large companies tapped cash reserves to buy back more stock in the first quarter than any quarter since mid-2007, according to projections from S&P Capital IQ.
Companies in the S&P 500 have almost matched the last record of $158 billion in share repurchases, with roughly 10% of the index yet to report, according to Howard Silverblatt, senior index analyst with S&P Dow Jones Indices.
The all-time quarterly record was $172 billion in the third quarter of 2007.
Importantly, more companies these days are reducing their overall share count through buybacks, more than offsetting dilution from stock options, Mr. Silverblatt said. About 120 companies have decreased their shares outstanding by 1% or more; just 25 have boosted the count by at least that much.
Apple Inc.AAPL +1.84%, with nearly $18 billion in buybacks last quarter, far outpaced the rest of the field. International Business Machines Corp.IBM -0.63% came in second at about $8.2 billion, and Exxon Mobil Corp.XOM +0.04% was third with around $3.9 billion.
Nonfinancial companies in the index will likely end the period with less cash than they started with for the first time in seven quarters. Cash among the group is running 6% below last year’s fourth quarter, which was the record.
(Note to Pat S.: I will be back to you shortly on buybacks)
One Bull Cheers, One Bear Capitulates As the stock market keeps racking up new highs, one bull is gaining confidence in the rally while one bear is losing faith in his views.
Two market watchers with vastly different views made headlines Tuesday that underscore the state of the rally. Market veteran and well-known bull Laszlo Birinyi predicted the S&P 500 would keep rallying in the months ahead, while the usually skeptical Dennis Gartman said he was throwing in the towel on calling for a correction.
“Simply put, we’ve been wrong…badly…to have expected the market to correct,” Mr. Gartman, publisher of an eponymous daily investment newsletter, wrote Tuesday.
Mr. Birinyi, president of Birinyi Associates, Inc., predicted the S&P 500 will close at or above 1970 between now and the end of September. It finished at 1911.91 on Tuesday, its 12th record high of the year. “The market is not cheap but it is not especially expensive either,” he wrote to clients of his Westport, Conn.-based investment management and research firm.
Mr. Birinyi’s latest call comes after he predicted in February that the S&P 500 would hit 1900 this quarter, a feat that it accomplished on Friday. He suspects stocks are getting closer to the exuberant phase, which could lead to more gains before the bull market comes to an end. “We are still of the belief that this market will, like others before it, end with a burst of enthusiasm,” Mr. Birinyi said.
Both calls come as the market appears to be on the verge of breaking out of its recent trading range. The S&P 500 is up 3.4% this year amid a slow grind higher that has gained some steam in recent weeks.
One of the most widely circulated pieces of accepted wisdom on Wall Street is the stock market is overdue for a pullback. The Dow Jones Industrial Average and S&P 500 haven’t had 10% declines since 2011, which many think makes them ready for the long-awaited correction.
Mr. Gartman had been one of those folks calling for such a pullback. That is until this week, when he said he has given up trying to predict the market’s next drop.
“It’s so silly for me to think I can call a correction,” he told MoneyBeat, while adding: “It’s funny. I find myself going from nicely bullish to neutral sometimes and every time I turn neutral I wish that I hadn’t.”
Some market watchers worry that perpetually bearish investors turning bullish could mark the sign of a market top. The thinking is significant peaks occur when they are least expected and when all the pessimism has been flushed out.
But Mr. Gartman doesn’t see that scenario playing out any time soon. He said most mom-and-pop investors are too skeptical to get back into stocks due to fear of getting burned again, just like they did when the tech bubble burst in 2000 and when the housing market collapsed during the financial crisis in 2008.
“Everybody knows the story but nobody is acting because they say the correction is inevitable and yet the correction never comes,” he said. “From where I sit, why fight it?”