THE DAILY EDGE (29 June 2018):

BOOM?

U.S. Pending Home Sales Continue to Fall

The National Association of Realtors (NAR) reported that pending sales of existing homes fell 0.5% during May (-2.2% y/y) following a 1.3% April decline. Sales fell to an index level of 105.9 (2001=100) which was the lowest level since January. Sales were 6.3% below the peak in April of 2016.

The decline in the overall sales figure last month was due to a 3.5% sales shortfall in the South after a 1.0% decline. They were unchanged y/y. Elsewhere in the country sales increased. In the Midwest, sales rose 2.9% (-2.5% y/y) after April’s 3.2% fall. Sales in the Northeast rose 2.0% m/m (-4.8% y/y) after having been steady in April. Pending sales in the West improved 0.6% (-4.1% y/y) and reversed the prior month’s 0.7% easing.

U.S. Durable Goods Orders Decline

New orders for durable goods fell 0.6% during May (+9.2% y/y) following a 1.0% April decline, revised from -1.7%. A 0.7% drop had been expected in the Action Economics Forecast Survey. During the last three months, orders have risen at a 4.5% annual rate, down from the 13.8% pace as of February. (…)

Orders for nondefense capital goods fell 2.0% (+10.5% y/y) after a 6.5% April decline. Orders excluding aircraft eased 0.2% (+6.1% y/y) after a 2.3% gain. (…)

This key data on capex is looking reasonably strong being up 6.1% YoY…

…but it has hit its 3 previous peak levels…

… and displays no signs of positive momentum on a MoM basis:

In fact, the current apparent strength is totally due to the surge in September 2017 orders. New orders for the last 12 months total $4.3B but only $635 million ex-September’s $3.7B number. Since September 2017: –$490 million! So much for the strengthening manufacturing sector.

• The ongoing decline in the US market share of exports suggests a loss of American competitiveness. This will be hard to fix with tariffs, especially if the dollar keeps climbing. (The Daily Shot)

Source: Goldman Sachs

Two Fed Presidents Warn Trade-War Angst Is Weighing on Businesses

St. Louis Fed President James Bullard said he’s hearing “full-throated angst” from regional companies, while Atlanta Fed President Raphael Bostic said businesses are “extremely concerned about the prospects of a trade war.’’ (…)

Bullard, whose district includes parts of seven states including most of Missouri and all of Arkansas, said some suppliers were using the threat of new tariffs as a reason to raise prices, even when new tariffs would not directly target their business. (…)

“There is so much concern in the business community about this and it goes across almost all sectors,’’ he said. “The more there is uncertainty, the less likely we will see the numbers of firms robustly investing in their businesses.’’ (…)

Eurozone Inflation Tops ECB Target for First Time in More Than a Year The eurozone’s annual rate of inflation rose above the ECB’s target for the first time since early 2017 during June, but that was largely due to higher energy costs, while underlying price pressures remained muted.

The European Union’s statistics agency Friday said consumer prices in the 19 countries that use the euro were 2.0% higher than in June 2017, an increase from the 1.9% annual rate of inflation recorded in May and the highest since February of last year.

(…) the core rate of inflation—which excludes volatile items such as energy and food—fell to 1% in June from 1.1% in May and has been little changed over recent years.

That drop reflected an easing in the pace of price rises for services, to 1.3% over the year from 1.6% in May. (…)

Fed’s Rosengren Says It’s Time to Take Away Monetary-Policy Punch Bowl Signals support for two more rate increases this year

(…) He is warning that without more interest-rate increases the central bank risks a buildup of unsustainable pressures that lead to excessive inflation or financial bubbles and, ultimately, another downturn. (…)

• Fed’s Bullard: Inverting Yield Curve ‘Key Near-Term Risk’ Federal Reserve Bank of St. Louis President James Bullard said he is watching the flattening of the yield curve with concern and said the Fed should slow its rate increases to keep it from turning negative.

• Odds of Bank of Canada Rate Hike Climb After Poloz’s Remarks

Odds of a hike at the July 11 rate decision jumped to more than 70 percent Thursday, from just over 50 percent a day earlier, after Poloz told reporters he expects to continue raising interest rates in spite of mounting trade tensions because inflation has already hit the central bank’s 2 percent target. (…)

“We’ve said clearly that, given where the economy is, we’re in a situation where the economy will warrant higher interest rates,” Poloz told reporters after a speech in Victoria, British Columbia. “We’ll ensure that that is a gradual process because there are certain issues that we must monitor along the way, and we’ve laid those out.” (…)

“The way we think of this is that the economy is operating very close to its capacity and inflation’s on target, so we’re more or less what I’ve described as ‘home’ in other speeches,” Poloz said. “And the thing that looks odd in that picture is that interest rates are still very low by historical standards.” (…)

Eurozone Industrial Production Continues to Falter

• German Economy Loses Luster as Global Tensions Bite

• Eurozone Economy Wobbles in First Quarter

• EU Indexes Slip Gradually Lower

The European Commission indexes of economic activity for June continued to erode at the pace of oxidation. In three months the headline index has lost only 0.5 points, but it has declined in each month. (…) The obvious conclusion is that Europe has transited into some sort of weak spot and the weakness is in some sense broad-based since more than half of the respondents for June also saw declines in their country indexes for April and May as well. (…)

China’s Push to Tame Debt Starts to Sting Economy

China exporters wary as Trump tariffs loom  More companies say new orders fell ahead of July 6 White House deadline

Brazil Central Bank Cuts 2018 GDP Growth Forecast to 1.6% From 2.6%

TRADE

China eases foreign ownership curbs as trade war looms Rules over industrial sectors relaxed as Beijing sweetens appeal to international businesses

(…) The National Development and Reform Commission, China’s top economic planning body, on Thursday eased or scrapped foreign ownership limits on surveying and mapping, some mining, shipbuilding and aircraft manufacture, power grids and some crop science.

The NDRC’s shortened “negative list” — which identifies sectors off-limits to foreign investors — includes previously announced commitments to remove ownership caps in certain financial services sectors by 2021, and on vehicle manufacture by 2022.

China has also issued several announcements liberalising the financial services sector — a reform that had been promised for many years but shelved as the Chinese economy came under stress from 2012-2016. (…)

Foreign investment in cloud computing is restricted, oil and gas is still limited to partnerships with Chinese companies, and foreign companies are banned from rare earth mining — a strategic sector — and tobacco. (…)

Goldman Sachs, Morgan Stanley Dinged in Fed Stress Tests Regulators cleared most of the biggest U.S. banks to return billions of dollars to shareholders but limited the ability of Goldman Sachs and Morgan Stanley to boost shareholder payouts.

• Wells Fargo to Raise Quarterly Dividend
• Deutsche Bank Fails Fed’s Stress Test
• JPMorgan Upping Quarterly Dividend by 43%
• Bank of America said it would increase its dividend 25% and buy back $20.6 billion in stock, up from $12.9 billion last year.

(…) Goldman Sachs and Morgan Stanley, which each fell below the minimum capital levels set by the Fed, were blocked from raising their total payouts but were cleared to distribute roughly what they had over the past year or so.

The problem for these two Wall Street giants wasn’t a hypothetical trading blowup or loan losses, the Fed said, but rather the effect of the 2017 tax overhaul, which created a one-time hit to their capital levels. In the long run, the tax cuts are a boon to big banks, generating billions of dollars in savings.

The Fed’s treatment of Goldman and Morgan Stanley—a compromise without the black eye of failure—was unprecedented and, to some bankers, a sign of an administration that is friendlier to Wall Street’s interest. (…)

Bitcoin is down 70 percent from its December high and hundreds of other virtual coins have all but gone to zero.

(…) The carnage is mostly the consequence of failed projects from the thousands of startups that used initial coin offerings to raise billions in funding, and a global regulatory crackdown on questionable practices and scams. (…)

Fewer than 4 percent of ICOs raising from $50 million to $100 million were successful or promising, according to a March analysis from ICO advisory firm Satis Group.

(…) investors may have still lost as much as $500 million, estimated Lex Sokolin, global director of fintech strategy at Autonomous Research LLP. (…)

The industry’s bellwether, Bitcoin, is down 57 percent this year. And the number of articles declaring its demise is up to since 2010, according to 99Bitcoins. About 80 percent of the 1,586 coins that surveyor Finder.com looked at declined in the week ended June 25, by an average of 19 percent. (…)