U.S. Leading Economic Indicators Strengthen

The Conference Board’s Composite Index of Leading Economic Indicators increased 0.6% (5.7% y/y) during December following a 0.5% November rise, revised from 0.4%.(…)  Three-month growth in the index surged to 9.9% (AR), the quickest rate since early in 2010.

Component movement in the leading index was mixed. The ISM new orders index, the leading credit index, the interest rate spread between 10-Year Treasuries and Fed funds, consumer expectations for business/economic conditions and stock prices continued to register positive effects on the index. Nondefense capital goods orders and orders for consumer goods also gained. Initial unemployment insurance claims and building permits had neutral effects and the average workweek contributed negatively.

The Index of Coincident Economic Indicators increased 0.3% (2.1% y/y) last month following a 0.1% November rise, initially reported as 0.3%. Each of the component series, including industrial production, personal income less transfer payments, business sales and payroll employment, contributed positively to the index. During all of 2017, the index increased 1.7%, the eighth consecutive yearly gain. Three-month growth in the index strengthened to 3.2% (AR), its best since December 2014. (…)

U.S. New Home Sales Drop Back in December

Sales of new single-family homes fell 9.3% (14.1% y/y) to 625,000 (SAAR) in December; November’s sales were 689,000, revised down from 733,000 reported initially. Sales for all of 2017 totalled 608,000, up 8.4% from 2016.

The median price of a new home was $335,400 in December, up a mere 0.1% (2.6% y/y) from November’s revised $334,900; that earlier figure was originally estimated at $318,700. The average price of a new home rose 4.0% to $398,900 (+4.3% y/y), reversing a November decline.

New home sales decreased in all four regions of the country in December. (…)

  

TRADE AND CURRENCY WARS?

• ECB’s Draghi Criticizes Mnuchin’s Currency Comments

Mr. Draghi attributed some of the euro’s recent gains to “the use of language that doesn’t reflect the terms of reference that have been agreed.” He warned at a press conference that such language violated longstanding international agreements designed to prevent currency wars. (…)

Mr. Mnuchin sought to clarify his comments on Thursday, arguing that they didn’t represent a change in the U.S. position on the dollar. (…)

The ECB halved the pace of its bond purchases this month, but the bank hasn’t yet signaled when the quantitative easing will end, sparking a dispute within its rate-setting committee as some top officials worry the bank isn’t adapting quickly enough to the booming economy.

Mr. Draghi spoke glowingly of the eurozone economy Thursday, describing a robust expansion that “accelerated more than expected in the second half of 2017.”

But he stopped short of promising any policy changes that would further reduce the bank’s monetary stimulus, stressing that inflation remains too weak. ECB officials will review the outlook in March, he said. (…)

“I see very few chances at all that interest rates could be raised this year,” he said. (…)

• Dollar Resumes Slide After Rallying on Trump’s Comments

There is a scary reminiscence to 1987 when then US Treasury Secretary James Baker, on Saturday, October 17, 1987 warned Germany to “either inflate your mark, or we’ll devalue the dollar” (President Ronald Reagan was saying that a strong dollar was good). The apparent spat between the two economically strongest countries shook investors confidence and world markets started to collapse on Sunday the 18.

FYI, rookie Fed chairman Allan Greenspan had jacked up the Discount Rate 50 bps on September 9 as a “pre-emptive strike” against inflation which had been accelerating from 1.1% In December 1986 to 4.3% in August (core CPI from 3.5% to 4.0%). Exactly one year earlier, President Reagan had signed the Tax Reform Act of 1986 into law. The U.S. GDP was accelerating from 2.7% in Q1’87 to 4.4% in Q4’87.

Here comes Jerome Powel, right when the U.S. (and world) economy is accelerating, amid a big tax reform, and “threats” of rising inflation.

• A Global Convergence of Economic Conditions Is Driving the Market Melt-Up

(…) “The collapse in global output volatility to 60-year lows is providing a further boost to economic activity and equities,” Sterne said. “So we think 2018 is the year of melt-up rather than melt-down.” (…)

• LG Electronics Inc. has told retailers it plans to raise prices on some washers and dryers by $50, less than a day after President Donald Trump approved steep duties on imported laundry appliances. (WSJ)

Tax Incentive Puts More Robots on Factory Floors New tax rules are speeding up automation of U.S. factories because they provide a strong incentive for manufacturers to replace old equipment with more-automated machines—an immediate tax deduction of the entire cost.

The revised tax code allows companies to immediately deduct the entire cost of equipment purchases from their taxable income for the next five years. Previously, companies generally were allowed to write off only a portion of the cost in a single year. (…)

Sales of manufacturing equipment this year are forecast to rise as much as 12% annually, according to the Association For Manufacturing Technology, up from an annual rate of 9% as of November. (…)

Aneesa Muthana, owner of medical- and automotive-parts maker Pioneer Service Inc. in Addison, Ill., is willing to hire eight new workers to help operate the 12 machines she plans to purchase as a result of the depreciation benefit. She doesn’t know where she will find them, though.

“It’s almost impossible,” she said.

BTW:

The Teamsters have a message for United Parcel Service Inc. as the labor union kicks off contract talks: keep robots off delivery trucks. Union demands include a ban on drones, driverless vehicles and other new technology to transport packages without human intervention, WSJ’s Paul Ziobro reports. Delivery trucks are seen as a prime market for driverless technology, and UPS has been testing drone deliveries, including models that launch from vehicles’ roofs. The stakes are high: some 260,000 UPS employees are covered by the Teamsters contract, which expires in July. Automation is also a contentious point in negotiations between East Coast ports and dockworkers, with union negotiators prematurely ending contract talks last month over the issue. The Teamsters may succeed in pushing back driverless delivery trucks, but FedEx Corp. and Amazon.com Inc. are also experimenting with automation—and their drivers aren’t unionized. (WSJ)

Very important:

One provision lets companies deduct the cost of buying some sorts of assets immediately, instead of over several years as prior tax law required—and expanded this treatment to used assets as well as new ones.

That essentially lets a buyer like Aramark get an immediate discount on the cash cost of part of its deals, the portion that reflects the acquisition of equipment, machinery and other tangible property. (…)

“The cost of deals structured in this manner have taken a turn for the better,” Mr. Willens said. “You’re getting a full 21% discount.” (WSJ)

Investors poured $33.2 billion into stocks in the week to Jan. 24, Bank of America Merrill Lynch said in a research report, citing EPFR Global data. (…) U.S. stocks saw $7 billion of inflows while the $4.6 billion invested in European shares was the biggest in 37 weeks, the bank said. Emerging market equities received $8.1 billion in fresh money, the second biggest amount in the data series.

Here’s an interesting way to combine various valuation measures (Crescat Capital):

Source: @TaviCosta

Let’s hope we all have a good weekend (including Mnuchin, Draghi, Trump, etc.…)