oil breakeven

U.S. Durable Goods Orders Drop, But Trend Improvement Remains in Place

New orders for durable goods declined 1.1% during May following an unrevised 0.9% April fall. Despite the decline, orders increased 2.7% y/y after falling 1.7% during all of last year.

The decline in durable good orders was led by a 3.4% fall (-2.5% y/y) in transportation bookings, which followed a 1.8% drop. The decline was paced by a 30.8% plunge (+11.6% y/y) in orders for defense aircraft. Civilian aircraft orders were off 11.7% (-37.4% y/y). Motor vehicle & parts orders rose 1.2% (5.0% y/y) after increasing 0.5%. (…)

Nondefense capital goods orders declined 2.4% (-3.2% y/y), about the same as in April. Orders excluding aircraft eased 0.2% and have been stable for four months. The 5.0% y/y increase compared, however, to sharp declines in 2015 and 2016.

Here’s the important chart from The Daily Shot:

U.S. Pending Home Sales Fall Again

The National Association of Realtors (NAR) reported that pending home sales fell 0.8% during May to an index level of 108.5 following a 1.7% April fall, revised from -1.3%.

Pending sales declined across most regions. The index for the West declined 1.3% after a 5.7% rise. For the South, the index fell 1.2% after a 3.5% decline. The index in the Northeast was off 0.8%, down for the third straight month. Remaining unchanged was the index for the Midwest after two months of decline.

  

GM lowers outlook for U.S. 2017 new vehicle sales

General Motors Co (GM.N) now expects U.S. new vehicle sales in 2017 will be in the “low 17 million” unit range, reflecting a widespread expectation that the industry is headed for a moderate downturn, a top executive said on Monday.

“The market is definitely slowing … it’s something we are going to monitor month to month,” Chief Financial Officer Chuck Stevens told analysts on a conference call. “Pricing is more challenging.” (…)

He reiterated the company’s target to bring U.S. inventories of its vehicles down to 70 days’ supply by December from 110 days in June. (…)

With all the above, here’s a summary of the state of the U.S. economy:

CHICAGO FED NATIONAL ACTIVITY INDEX IN SLOW MODE

The Chicago Fed’s National Activity Index (CFNAI) is a monthly indicator designed to gauge overall economic activity and related inflationary pressure. It is a composite of 85 monthly indicators as explained in this background PDF file on the Chicago Fed’s website.

The next chart highlights the -0.70 level and the value of the CFNAI-MA3 at the start of the seven recession that during the timeframe of this indicator. The 1973-75 event was an outlier because of the rapid rise of inflation following the 1973 Oil Embargo. As for the other six, we see that all but one started when the CFNAI-MA3 was above the -0.70 level. (Doug Short)

• There is no evidence that the US economic activity is accelerating as some economists (and the stock market) had been expecting. (The Daily Shot)

Next week we get the PMIs for June. We got a preview last week:

Manufacturing is looking particularly weak:

IMF cuts U.S. growth outlook, cites uncertainty around Trump policies The IMF cut its forecast for U.S. economic growth for this year to 2.1% from a previous estimate of 2.3%. Its leaders cited highly uncertain policies on tax reform and an agenda that hurts middle class Americans as well as long term challenges such as an aging labor force.

The Atlanta Fed:

The NY Fed:

THE CB BACKSTOPS ARE WEAKENING:

• Global Bond Selloff Deepens Amid Hints at End of Stimulus Government bond prices slumped for a third day and the dollar fell as investors continued to digest messages from central banks signaling the end of easy-money policies.

(…) The market moves started on Tuesday when European Central Bank President Mario Draghi acknowledged a “strengthening and broadening” economic recovery in the eurozone. (…)

Speaking Wednesday at the same conference in Portugal, the chiefs of the Bank of Canada and Bank of England both suggested they’d be reducing monetary stimulus in the form of raising interest rates. The Canadian dollar and British pound spiked in response, and local bond yields headed higher. (…)

• Central Banks Give Sleepy Markets a Wake-Up Call

(…) The immediate trigger was a speech from European Central Bank President Mario Draghi arguing that as the eurozone recovery progresses, keeping policy unchanged would be a form of monetary loosening. Instead, the central bank could “adjust the parameters of its policy instruments.” In more straightforward terms, ultra-stimulative policy measures are set to be reined in, though Mr. Draghi emphasized that this would be a careful, gradual process. If they can, central bankers are likely to want to avoid a rerun of the “taper tantrum.” (…)

• ECB chief’s comments overinterpreted by markets: sources

• Pound Surges as BOE’s Carney Hints at Rate Rise The pound jumped after Bank of England Gov. Mark Carney said interest rates in the U.K. may need to rise if the economy keeps motoring despite weak consumer spending.

June 20th:

• Bank of England Governor Sees Weak Wage Growth Delaying Rate Rises ‘Anemic’ wage growth and uncertainty over Brexit talks mean now isn’t the time to raise interest rates, says Mark Carney

“From my perspective, given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anemic wage growth, now is not yet the time to begin that adjustment,” he said.

• Bank of Canada’s Poloz Signals July Rate Rise in Play Bank of Canada Gov. Stephen Poloz reignited expectations for a rate increase next month by saying excess slack in the Canadian economy is now being absorbed “steadily” at the current pace of growth.

  • Financial markets are banking on a July 12 rate hike from BoC

• Yellen Keeps Fed on Track for Rate Hikes

(…) “We’ve made very clear that we think it will be appropriate to the attainment of our goals to raise interest rates very gradually,” she said Tuesday in London. (…)

“Asset valuations are somewhat rich if you use some traditional metrics like price earnings ratios, but I wouldn’t try to comment on appropriate valuations, and those ratios ought to depend on long-term interest rates,” she said.

Yellen’s comment on asset prices follows remarks earlier on Tuesday by Fed Vice Chairman Stanley Fischer, who said increased valuations could only partly be explainedby an improving economic outlook. (…)

“What we would worry about is if it looked like inflation expectations were slipping because that could make low inflation become endemic and ingrained. So we certainly want to avoid that,” she said.

She added, however, that different gauges of inflation expectations were providing conflicting signals. “We don’t get a consistent story,” she said. (…)

OIL

This chart shows the breakeven price for the existing and new oil wells. At current levels, operating existing wells is still profitable, but new drilling is not. However, many energy producers have locked in much higher oil prices in the derivatives markets and will continue to drill. (The Daily Shot)

Source: @ConnectedWealth, @sobata417

• OPEC, Oil Prices and Disruptive Innovation

• OPEC Resists Flow of History With Reluctance to Cut Deeper 

Fed Clears All Banks on Payouts to Shareholders Big U.S. banks won approval from the Federal Reserve on Wednesday to return money to shareholders, suggesting regulators believe they are healthy enough to stop stockpiling capital.

ETF Buyers Propel Stock Rally

(…) ETFs bought $98 billion in U.S. stocks during the first three months of this year, on pace to surpass their total purchases for 2015 and 2016 combined, according to the Federal Reserve Board’s most recent quarterly tally of U.S. financial accounts. These funds owned nearly 6% of the U.S. stock market in the first quarter—their highest level on record—according to an analysis of Fed data by Goldman Sachs Group Inc. (…)

• Mutual-fund ownership of the U.S. equity market in the first quarter fell to 24%, the lowest since 2004, according to Goldman.
• There are more than 1,800 U.S.-listed ETFs with nearly $3 trillion in assets under management, offering push-button exposure to everything from 3D-printing stocks to bonds issued by governments in emerging markets, according to data provider XTF. More than 1,300 funds and $2.3 trillion are linked to stocks, while another 302 funds and $500 billion are tied to bonds.
• U.S. corporate demand for stocks in the first quarter was the smallest in a year and a half, at $136 billion, according to Goldman. A separate reading showed that S&P 500 companies repurchased $133.1 billion of their own shares in the first three months of the year, down 18% from the same period a year earlier, according to S&P Dow Jones Indices. (…)

Meanwhile: In general, US-focused M&A activity has been robust in the first half of the year (the green diamond in the chart below shows the annualized figure).

Source: Credit Suisse (via The Daily Shot)

• Buyouts rise to highest level for a decade Private equity accounted for $143.7bn, or 9%, of deals in first half of 2017

Merkel throws down gauntlet to Trump on trade German chancellor attacks ‘protectionism and isolation’ in combative speech

Senate GOP Scrambles to Rework Health Bill Senate Republican leaders scrambled to rework by week’s end their plan to dismantle the Affordable Care Act, but GOP senators remained mired in disputes.

• What GOP Holdouts Want Before Unblocking the Health Bill

Illinois Is in Deep Trouble Illinois is locked in a political stalemate, and is now in danger of becoming the first U.S. state ever to have its debt downgraded to junk status.