EARNINGS WATCH
We now have 60 companies in, a 78% beat rate and a +4.4% surprise factor. But these 60 companies reported earnings down 9.1% YoY on a 7.4% revenue growth.
Estimates are for Q2 EPS to rise 5.9%, -3.5% ex-Energy. Q3: +10.3% vs +11.1% on July 1.
U.S. Wage Growth Tracker
A few charts from the Atlanta Fed:
Overall wages are up 6.7% in June after 6.1% in May. Hourly wages are up 7.1% from 6.8%.
Job stayers: 6.1% vs 5.4%. Switchers: 7.9% vs 7.5%
Services: 6.6% vs 6.0%.
U.S. Existing Home Sales Fall for Fifth Straight Month
Existing home sales declined 5.4% m/m (-14.2% y/y) in June to 5.12 million units at an annual rate, their fifth consecutive monthly decline, on top of a 3.4% m/m drop in May. This was the lowest level of sales since June 2020. The Action Economics Forecast Survey had expected June sales to total 5.40 million units. In the first six months of 2022, sales fell 15.9%. (…)
Home sales declined in June in three of the four major regions of the country and were unchanged in the fourth. Sales were lower than a year ago in all four regions. The largest monthly decline in June was posted in the West where sales slumped 11.1% m/m (-21.3% y/y). Sales were down 6.2% m/m (-14.1% y/y) in the South. Sales in the Midwest fell 1.6% m/m (-9.6% y/y) in June. Sales were unchanged m/m in the Northeast but were down 11.8% from a year earlier.
The number of existing homes on the market rose 9.6% (NSA) to 1.26 million and was up 2.4% from a year ago. The months’ supply of homes on the market rose to 3.0 at the current selling rate, its highest since August 2020, from 2.6 in May. This is the fifth consecutive month that the months’ supply has increased. These figures date back to January 1999.
The median price of an existing home increased 1.9% m/m to a record $416,000 last month and was up 13.4% y/y. The price data are not seasonally adjusted.
Rising interest rates and home prices along with ongoing supply-chain problems continued to weigh on new residential construction in June. Housing starts declined 2.0% m/m (-6.3% y/y) in June to 1.559 million units at an annual rate following an upwardly revised 11.9% m/m decline in May (initially -14.4% m/m). The June reading was the lowest level of starts since September 2021. The Action Economics Forecast Survey had expected 1.585 million starts in June.
Single-family starts declined 8.1% m/m (-15.7% y/y) in June to 982,000 units at an annual rate, their fourth consecutive monthly decline, on top of a 9.0% m/m drop in May (revised up slightly from -9.2% m/m). By contrast, starts of multi-family units rebounded in June, rising 10.3% m/m (+15.6% y/y) to 577,000 units after an upwardly revised 17.2% m/m collapse in May (initially -23.7% m/m).
By region, housing starts were mixed last month. Starts in the Northeast increased 10.6% m/m in June on top of a 6.0% monthly rise in May. Starts in the West rose 3.7% m/m in June, but this fell far short of reversing the 18.2% monthly drop in May. By contrast, starts in the Midwest slumped 7.7% m/m in June, more than reversing their 6.4% monthly gain in May. And starts in the South declined 4.8% m/m in June on top of a 15.4% m/m plunge in May and their third monthly decline in the past four months.
Building permits edged down 0.6% m/m (+1.4% y/y) in June to 1.685 million units at an annual rate, their third consecutive monthly decline, following a 7.0% m/m decline in May. Permits to build single-family homes plunged 8.0% m/m (-11.4% y/y), their fourth consecutive monthly decline, following a 5.2% monthly drop in May. Again by contrast, permits to build multi-family units jumped up 11.5% m/m (+26.0% y/y) in June, their first monthly increase in three months, following a 9.8% m/m drop in May.
A Recession for Thee but Not for Me Many companies are worried about the economy, but optimistic about their own businesses
(…) A quarterly survey of chief executive officers, conducted by the Business Roundtable in the latter part of May through early June, showed that even though their confidence had ebbed, CEOs remained positive about their own companies’ prospects. The Business Roundtable’s CEO Economic Outlook Index, based upon CEOs’ expectations for their own companies’ performance, clocked in at 95.6 for the second quarter, with anything 50 or above indicating expansion. That compares with 76.7 in the prepandemic fourth quarter of 2019.
A separate survey of chief financial officers, conducted by Duke University’s Fuqua School of Business and the Federal Reserve banks of Atlanta and Richmond in late May through early June, showed a similar dynamic, with an index of CFO optimism regarding their companies’ prospects, rated on a scale of zero to 100, coming in at 68. That was around its average level in the five years ended in 2019. Meanwhile, the index for CFO optimism on the economy was at 50.7, which was the lowest level since 2011. The gap between the two indexes has never been so wide in the history of the survey.
John Graham, a Duke finance professor who helps direct the survey, thinks the CFOs’ optimism about their own companies reflects a belief that they will be able to manage any challenges the economy throws at them. “Things aren’t great, but we have a plan,” is how he categorizes the mind-set.
Better not bet too much on CEOs and CFO’s ability to forecast macro…
Oil Edges Lower in Volatile Session as US Gasoline Demand Stalls A US inventory report showed a build in inventories at the largest storage hub in Cushing, while gasoline stockpiles grew more-than-expected 3.5 million barrels last week, according to an Energy Information Administration report.
(…) Gasoline demand rose week over week but remains below where it was this time of year in 2020, when Covid lockdowns kept millions off the road. (…)
Weekly Petroleum Status Report (Princeton Energy Advisors)
- The latest report saw weak demand and flagging production
- Inventories
- Crude inventories rose again this week and have returned to near-normal levels.
- Refined product inventories are normal.
- Demand for refined products eased back again this week.
- Overall, gasoline and distillate consumption are consistent with a recession beginning in January of this year.
- US crude and condensate production was down 0.1 mbpd to 11.9 mbpd. This is the lowest in six weeks, possibly the result of extreme heat in the mid-continent
- Oil prices rebounded this week, up $8 / barrel from last week.
- Incentive to store analysis continues to show very tight – and tightening – markets, suggesting upside on oil prices as traders return to their desks after Labor Day.
China’s Credit Market Rocked by More Debt Delays, Plunging Bonds
China’s credit market is now showing stress on an almost daily basis, as a worsening property crisis shatters assumptions about safe borrowers and even Chinese investors turn against troubled debtors.
The country’s junk dollar bonds are on the brink of record lows Thursday, as a state-backed developer sought payment delays on $1.6 billion of dollar notes. In other signs of stress, debt of a private builder deemed healthy just months ago has sunk, while creditors spurned a restructuring plan by the parent of BMW AG’s China partner.
Taken together, the incidents point to a credit market in a new phase of turmoil as stress spreads from cash-starved private developers to those with government backing and companies outside the housing sector. Chinese investors pushing back on debt reprieves or unfavorable restructuring plans also suggest dwindling confidence in Beijing’s ability to pull off a fast economic turnaround. (…)
The day began with China South City Holdings Ltd. proposing changes to its dollar bonds, including extending maturities and paying principal in installments. A slide in the securities — which were near par just two months ago after a bailout — has rattled investors who had bet its state links would help insulate it. (…)
The selloff has engulfed even investment-grade peers including China Vanke Co. Another builder previously seen as relatively safe, Country Garden Holdings Co., had trading of one of its yuan bonds briefly suspended Thursday after the security fell 22% to 54 yuan. China’s top-performing mutual fund this year is among a growing list of investors cutting exposure, with major developers like Vanke and Seazen Holdings Co. dropping out of its top ten holdings. (…)
Canada’s inflation rate hits 8.1% but early signs suggest peak near The consumer price index (CPI) rose 8.1 per cent in June from a year earlier, up from 7.7 per cent in May, Statistics Canada said on Wednesday. It was the highest inflation rate since January, 1983.
The acceleration was mainly because of gasoline, Statscan said. Consumers paid 6.2 per cent more at the pump in June than May, and 55 per cent more on an annual basis.
However, crude oil has tumbled in recent weeks, which has started to be reflected in retail pricing. The national average price for regular unleaded gas was $1.87 a litre on Tuesday, down from a peak of $2.15 in early June, according to data from Kalibrate Technologies.
Excluding food and energy, inflation rose 0.4 per cent in June from May, a slower pace than in recent months. And in a separate report on Wednesday, Statscan said that prices for industrial products fell 1.1 per cent in June, the first monthly decline since last summer. Softwood lumber fell 28 per cent in a single month, partly because of slowing U.S. construction. (…)
The average of the Bank of Canada’s core measures of inflation – which remove outlier changes in the CPI, such as gasoline – rose to 5 per cent from 4.9 per cent.
The cost of passenger vehicles rose 8.2 per cent in June from a year earlier, up from 6.8 per cent in May. Statscan said demand for automobiles is still outpacing supply as car producers struggle to procure semiconductors, putting upward pressure on prices.
The summer travel boom is leading to an explosion in prices. Accommodation rates were up 50 per cent on an annual basis. Airfares jumped 6.4 per cent in June alone. (…)
Mortgage interest payments jumped 1.4 per cent in June, the largest monthly increase since 1982. (…)
The Bank of Canada now expects inflation of 7.2 per cent this year and 4.6 per cent in 2023, having revised its CPI forecast higher several times. (…)
U.K. Inflation Hits 9.4%, a New 40-Year High Acceleration in consumer prices has triggered a surge in private sector pay, as BOE prepares for more rate rises
(…) Economists expect the annual rate of consumer-price inflation to increase further. The Bank of England has said it should top out at around 11% in the final months of the year. The U.K. sets a ceiling on home energy prices twice yearly, and the next adjustment is due in October, when a further rise of 50% is expected. (…)
“In simple terms, this means that a 50 basis point increase will be among the choices on the table when we next meet,” said BOE Gov. Andrew Bailey in a speech Tuesday. “50 basis points is not locked in, and anyone who predicts that is doing so based on their own view.”
Mr. Bailey also said the BOE would lay out a plan for selling some of the government bonds it bought under a series of stimulus programs known as quantitative easing. He said sales could start as early as September, and total between £50 billion and £100 billion in the first year, equivalent to $60 billion and $120 billion. (…)
The ONS Tuesday said wages, excluding bonuses, in the three months through May were 4.3% higher than in the same period of 2021. Since consumer prices rose at a faster rate, real wages were down 2.8%, the largest fall since records began in 2001. But the loss of spending power was much larger for government workers, who saw their pay rise by just 1.5% over the year, while private sector workers saw their pay increase by 7.2%.
The government Tuesday announced pay rises of around 5% for workers in the health service, education and police service. Several labor unions representing government workers have already gone on strike or threatened to do so in the coming months. (…)
The successor to Mr. Johnson may not be chosen until early September, and thus far the debate between candidates to succeed him has focused on the size of promised tax cuts.
Many economists worry that tax cuts delivered this year would boost demand and push prices even higher, with the BOE likely responding by raising its key interest rate more aggressively than might have otherwise.
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ECB Preps First Rate Rise in Decade European Central Bank President Christine Lagarde is expected to unveil the bank’s first interest-rate increase in more than a decade to combat eurozone inflation of nearly 9%.
Russia Resumes Nord Stream Gas Supply to Europe The restart of the pipeline buys time for governments to decouple from the Kremlin’s exports amid what they expect will be an increasingly unreliable supply of energy.
Italian Bonds Sell Off as Government Close to Collapse
Draghi Resigns as Italy’s Prime Minister as Support Crumbles The prime minister’s announcement came a day after three large parties in his national unity coalition government didn’t back the prime minister in a Senate confidence vote.
Japan Leaves Weak Yen Alone Despite Above-Target Inflation Central bank sees core prices rising 2.3% this fiscal year as Japanese currency stands near 24-year low
(…) “Any small rate increases will unlikely stop the yen’s depreciation,” Mr. Kuroda said at a news conference after the Japanese central bank renewed its commitment to ultralow interest rates. “If we want to stop the yen’s fall only by interest rates, it should be a big increase, and it will likely bring serious damage to the economy.”
The BOJ kept interest rates unchanged despite a consensus on its policy board that inflation is likely to rise above the bank’s 2% target this fiscal year. (…) The BOJ policy board forecast that core consumer prices, a measure that excludes fresh food, would increase 2.3% in the year ending March 2023.
Inflation and the weak yen go hand in hand because Japan has to pay more for dollar-denominated imports such as food, oil and gas. (…)
Mr. Kuroda has said recent inflation is mainly due to higher energy costs. The bank’s policy board expects consumer prices excluding fresh food and energy to rise 1.3% this fiscal year.
If Japan wanted to lift the yen without changing rates, its government could intervene in foreign-exchange markets. But analysts say that is difficult without support from Washington, which the Biden administration has made clear isn’t forthcoming.
A strong dollar helps lower the price of imported goods for American consumers and fights inflation, a top priority for President Biden.
On a visit to Tokyo last week, Treasury Secretary Janet Yellen said markets should generally determine foreign-exchange rates and government intervention was warranted “only in rare and exceptional circumstances.”
“Even if the yen falls below 140 to the dollar, there is almost a zero possibility for joint intervention before the midterm elections” in the U.S. in November, said Takahiro Sekido, an MUFG Bank strategist and a former BOJ official. “For it to become a possibility, the U.S. has to see real harm in the yen’s excessive depreciation, such as damage to U.S. manufacturers’ competitiveness.” (…)
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U.S. Starts Trade Fight With Mexico Over Energy Policy Washington accused President López Obrador’s government of favoring its state-owned utility and oil company at the expense of U.S. businesses.
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U.S. to Escalate Pressure on Nicaragua With a Limit on Sugar Imports The Biden administration is planning to drop Nicaragua from the list of countries eligible for low-tariff shipments of sugar into the U.S.
The Senate’s Semiconductor Spending Trick How a $76 billion bill became $250 billion. Hide the children.
(…) The Senate voted 64-34 to begin debate on its Chips bill, a corporate-welfare vehicle providing $52 billion in grants and $24 billion in tax credits to the profitable semiconductor industry. But it turns out that bill was merely the bad news. The really bad news is that Majority Leader Chuck Schumer quickly filed a 1,054-page bipartisan amendment to pour more than twice that amount of money into federal agencies. (…)
- Semiconductor Shares Sink as Chip Stockpiles Grow Slowing consumer demand for smartphones and personal computers is clouding the outlook for chip makers.
(…) TSMC’s top executive acknowledged, however, that the broader industry is dealing with an “inventory correction” that has led customers to cut orders from some of its peers. After two years of pandemic-driven demand, “our expectation is for the excess inventory in the semiconductor supply chain to take a few quarters to rebalance to a healthier level,” said chief executive C.C. Wei on an earnings call last week. (…)
The chip industry has long followed a boom-and-bust cycle that investors have grown familiar with. When strong demand pushes up prices, manufacturers increase their capacity to take advantage of the high prices and produce more chips. Eventually, it creates a supply glut. Prices then slide, along with revenues and production levels. The cycle repeats.
Some companies have recently reported higher semiconductor inventories, in some cases chips are sitting in storage for three to four months, which is longer than usual, said Phelix Lee, an equity analyst at Morningstar Inc.
“Naturally, excessive inventories will lead to fears of lower future demand because the customers may have to cut some of their orders” to correct those inventory levels, he said. He expects excess chip inventories to persist through the end of the year before the situation normalizes. (…)
The war in Ukraine is influencing the Chinese government’s considerations on “how and when” — not whether — to invade Taiwan, CIA Director Bill Burns said yesterday.
- “I wouldn’t underestimate President Xi’s determination to assert China’s control” over the self-governing island, Burns told NBC’s Andrea Mitchell at the Aspen Security Forum in Colorado.
Burns doesn’t expect an imminent invasion, Axios’ Rebecca Falconer writes. He said: “The risks of that become higher, it seems to us, the further into this decade that you get.”
- Burns said the lesson China is likely taking from Vladimir Putin’s “strategic failure” in Ukraine “is that you’ve got to amass overwhelming force.”
Crypto Woes Spread as Celsius, Babel Links Hit Another Firm
Emerging Markets
From Callum Thomas:
Basically Strong Dollar ~= Weak Emerging Markets
(a few reasons for this: firstly just the translation effects, i.e. the below chart is using US$ denominated indexes, so all else equal a big move in the US dollar will be reflected in this chart just by virtue of math. Also though, flowing on from that, investors chase/flee performance — strong dollar means lower returns for a USD denominated investor in EM equities, and hence it triggers outflows from EM – which can be self-reinforcing. Also, strong dollar can effect funding conditions for EM, and have a general tightening effect on EM financial conditions… and then ultimately if you get stress in EM then it triggers safe-haven demand for USD {feedback loop})
Source: @beursanalist
Speaking of currencies, EM Commodity Currencies look like they know something treasuries don’t know…
(and p.s. if you look at the broader picture for EMFX it even looks much worse than that, especially some of the smaller countries)
Source: @IanCulley
Extreme downside volatility in EM Debt …can they find support soon? (or another wave down before all is said and done?)
Source: @exposurerisk @exporiskprivate
and released them to take care of supply.
The index measuring traffic of prospective buyers worsened 22.9% (-43.1% y/y) to 37, the sixth m/m decrease in seven months to the lowest level since May 2020, after a 9.4% drop to 48. The index was 51.9% below the record-high 77 in November 2020 and below 65 last July.
Bank of America’s survey, which included 259 participants with $722 billion under management in the week through July 15, said high inflation is now seen as the biggest tail risk, followed by a global recession, hawkish central banks and systemic credit events. At the same time, the most investors since the global financial crisis are betting that inflation will be lower in the next year, which means lower interest rates, according to the poll. (…)