U.S. Durable Orders Up 3.4% in June
New orders for durable goods—products such as toaster ovens and aircraft carriers designed to last at least three years—rose a seasonally adjusted 3.4% in June from a month earlier, the Commerce Department said Monday. That marked the first increase since March.
Orders for capital goods excluding the volatile defense and aircraft categories climbed 0.9% in June, following two straight months of declines [totalling –1.1%].
Excluding transportation, new orders rose 0.8%, the largest increase since August 2014. Excluding defense orders, another volatile category, orders rose 3.8%.
Overall, new orders were down 2% in the first half of the year compared with the same period in 2014. Orders of core capital goods were down 3.4% in the first half.
For all of Q2, durable goods shipments totalled –0.5% (-2.0% a.r.) while inventories rose +0.4% (+1.6% a.r.). Another great chart from Doug Short:
Weakness in Asia Batters Currencies Abroad The global commodities slump is testing the resilience of resource-driven economies, pushing currencies from Australia, Canada and Norway to lows not seen since the financial crisis.
(…) The loonie is down 8.1% against the U.S. dollar since May 14 in New York trading, making it one of the biggest victims of the steep decline in global commodity prices since then. In that same period, the Australian dollar is down 10% and the Norwegian krone, which is pegged to the euro, has dropped 9.8% against its U.S. counterpart. (…)
Oil prices are down more than half since last July, falling again below $50 a barrel amid growing concerns about global oversupply. The Canadian dollar has fallen by 17% over the same span.
Energy accounts for roughly 10% of Canadian economic output and a “disproportionate” amount of business investment, Bank of Canada Governor Stephen Poloz said. (…)
Across Canada, a promised export rebound has been slower than expected, raising questions about how low the loonie may have to fall before Canadian export volumes begin to pick up. About 75% of Canadian exports are to the U.S. (…)
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Record Shorts Send Mexican Peso to All-Time Low
The Mexican peso’s virtue as the most-traded currency in emerging markets is also its biggest curse. The peso’s $135 billion in daily trading makes the market so much deeper than for other developing countries that investors use the currency as a general proxy for risk. Bought a Brazilian corporate bond? Sell pesos to hedge any losses. Stuck with a load of Treasuries? Buy pesos to blunt the pain if a risk-on environment sparks a rout. Correlations are high enough that the hedges often work, according to JPMorgan.
- The Bloomberg Commodity Index is trading at a 13-year low and has plunged 61 percent since its peak in 2008, as of yesterday.
The Signal In Silver (Part II) (Charles Gave)
Last year I came up with a chart that I found rather intriguing. It showed that on every occasion in the last 100 years when the price of silver dropped more than 25% year-on-year, consumer price inflation in the US took a nose-dive soon afterwards.
These days silver is mostly an industrial metal. But down the decades it has retained some of its monetary characteristics. What’s more, for more than a century silver has traded freely in the market, unlike gold which only started to float in the 1970s.
Since 1915 there have been 10 occasions on which silver has fallen more than 25% YoY, and every time the annual rate of CPI inflation subsequently declined by at least 2pp. Last year, when the price of silver plummeted, I concluded there were two possible scenarios. The first was that all prices were going to decline, and by quite a lot. The second, and far more likely, hypothesis was that the price of oil was going to collapse. Sure enough, the oil price did collapse.
Now, a year later, I find myself flabbergasted: once again silver is down 25% over the last 12 months.
To revisit my previous remarks: either the price of oil is going to take another big fall, which Anatole thinks likely, or prices are going to decline across the board, with the prices of key goods and services each declining by 2% to 3%.
Given that US consumer inflation is currently running at just 0.1%, the second scenario would plunge us back into general deflation. If that sounds unreasonably pessimistic, take a look at how the prices of non-oil commodities have performed over the last year. Copper is down 27%, rubber 16%.
If we recall Gavekal’s four quadrants—inflationary boom, inflationary bust, deflationary boom, deflationary bust—silver is unequivocally signaling that we are in the bottom half of the plot, and that the choice is between deflationary boom and the deflationary bust.
Which is it? Alas, I am not especially optimistic about economic activity.
I hate to be bearish. I’ve always maintained that persistent bearishness betrays a fundamental weakness of imagination. So I’ll just say that I’m getting increasingly concerned.
EARNINGS WATCH
- 197 companies (53.2% of the S&P 500’s market cap) have reported. Earnings are beating by 5.6% (5.8% last Thursday) while revenues have positively surprised by 0.2% (0.3%).
- The beat rate is 75% (76%) , ex-Financials 78% (80%).
- Expectations are for revenue, earnings, and EPS of -3.7%, -1.0% (-1.3%), and +0.3% (+0.1%). EPS growth is on pace for 2.9% (3.0%), assuming the current 5.6% beat rate for the remainder of the season. This would be 7.8% (7.9%) on a trend basis (ex-Energy and the big-5 banks).