U.S. Consumer Credit Usage Slows Broadly
Slowing but still rising faster than income
U.S. Monthly Auto Payments Reach Record High in First Quarter
Consumers are lengthening loan terms, with six years being the most common, to adjust to the higher costs and rising interest rates. (…)
More Than Half Of American Homes Are Overvalued, CoreLogic Warns
(…) CoreLogic Market Condition Indicators showed that 40 percent of the 100 largest metropolitan areas were overvalued in April, compared to 28 percent undervalued, and 32 percent in line with valuations.
The report uncovers a shocking discovery that of the nation’s top 50 largest residential real estate markets, 52 percent were overvalued in April. (…)
EUROZONE SLOWDOWN
Some ECB board members blamed Europe’s slower Q1 on “transitory factors”. It now appears the transition might be more painful and longer lasting as German new orders suggest:
Based on provisional data, the Federal Statistical Office (Destatis) reports that price-adjusted new orders in manufacturing had decreased in April 2018 a seasonally and calendar adjusted 2.5% on the previous month. For March 2018, revision of the preliminary outcome resulted in a decrease of 1.1% compared with February 2018 (primary –0.9%). Price-adjusted new orders without major orders in manufacturing had decreased in April 2018 a seasonally and calendar adjusted 1.7% on the previous month.
Domestic orders decreased by 4.8% and foreign orders decreased by 0.8% in April 2018 on the previous month. New orders from the euro area were down 9.9%, new orders from other countries increased 5.4% compared to March 2018.
In April 2018 the manufacturers of intermediate goods saw new orders rise by 2.5% compared with March 2018. The manufacturers of capital goods showed decreases of 5.6% on the previous month. For consumer goods, a decrease in new orders of 2.2% was recorded.
Haver Analytics’ Robert Brusca:
(…) German orders are uncharacteristically weak. The weakness is severe and it is broad encompassing both domestic and foreign orders. Real domestic sales are weak and on declining as well as decelerating growth rates. The degree of weakness in German real orders and real sales is a surprisingly sweeping phenomenon. (…)
Despite the unusual nature of these events four month strings of order declines are NOT closely associated with the presence of either a current recent or coming recession in Germany.(…) the current string of declines seems to mark another period of a slowdown following a spurt of growth that was well-marked by PMI strength. (…)
The slowing global PMI indices from Markit give us reason to believe that the German signal of slowdown has merit. US consumption has slowed and that is particularly evident from slowing in unit vehicle sales that have fallen back below 17mln units in the wake of hurricane replacement buying ending. Spending related to hurricane damage replacement may have fooled some into thinking that the US economy was accelerating. I do not think it is or was. Higher oil prices have diverted part of what was supposed to be an influx of funds to consumers from tax cuts in the US and rejiggered withholding tax tables. That was supposed to send more money to consumer bank accounts instead of to oil companies.
Now, we are on a slowdown watch as the G7 meets. And as key allies bump heads over geopolitical differences, tariff and trade policies and as the US prepares for a historic meeting with North Korea over peace and nuclear disarmament. Europe has its own special demons as it is already embroiled in conflict over the UK decision to leave the EU and as Europe ponders the future intent of Spain with a new socialist government. Italy has a new government that might prove to be separatist. Angela Merkel’s grip on power in Germany is less than it was and she has angered the US over Germany’s ‘choice’ to run a budget surplus instead make its fair payments to NATO as it is obligated. Italy is getting ready to break is budget rules as it has social welfare spending plans that will put it at odds with the EU rules and with the EU Commission. There is a lot in flux that could go right or wrong. That makes this an especially vulnerable period for markets.
Recent PMI surveys were suggesting weak exports but the above data also show a weak domestic economy. The huge 9.9% drop in new orders from the euro area is particularly worrisome. How transitory is this?
France’s retail sales declined 1.2% MoM in April and are up only 1.8% annualized YtD. German retail sales have decelerated every month this year and were up only 1.2% YoY in April.
Only a few months ago, the world seemed in synchronized growth! No more.
Only a few quarters ago, world leaders seemed in reasonable harmony. No more!
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Bernanke Says U.S. Economy Faces a ‘Wile E. Coyote’ Moment in 2020 He said Trump’s tax cuts and increase in federal spending “makes the Fed’s job more difficult.”
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Moody’s: Economic Growth Slows as Ratio of Debt to GDP Climbs Ever Higher
(…) On June 7, the Federal Reserve released its first-quarter 2018 estimates of outstanding private and public nonfinancial-sector debt via the Financial Accounts of the United States. In a manner that helps to explain 2018’s upswing by interest rates, the year-to-year growth rate of the U.S.’ private and public nonfinancial-sector debt quickened from Q1-2017’s 3.7% to Q1-2018’s 5.1%. However, that acceleration was the offshoot of a jump by the annual increase of U.S. government debt from Q1-2017’s 3.3% to Q1-2018’s 7.4%. The remaining nonfinancial-sector debt grew by 3.9% yearly for both Q1-2017 and Q1-2018.
The year-to-year growth rate for U.S. nonfinancial-corporate debt edged higher from Q1-2017 5.0% to Q1-2018’s 5.2%. (…)
The much faster growth of Treasury debt vis-a-vis corporate bonds helps to explain why the average 10-year Treasury yield jumped up from Q1-2017’s 2.44% to Q1-2018’s 2.76%, while corporate bond yield spreads over Treasuries narrowed from 167 bp to 153 bp for the long-term Baa industrial company bonds and from 397 bp to 353 bp for high-yield bonds.
High yield bond spreads are at their historical cyclical lows which generally coincide, with a lag, with equity highs:
While high yield spreads remain low, investment grade industrials are behaving bearishly…
EARNINGS, INFLATION WATCH
Smucker Forced to Raise Some Retail Prices to Counter Higher Costs
Shares in J.M. Smucker Co. SJM -5.37% fell sharply Thursday after the maker of Folgers coffee and Jif peanut butter said higher costs hurt profitability and the company needed to raise retail prices on some foods. (…)
“There are moments in our history and in the industry’s history where our retail partners push harder than others, and this happens to be one of those times,” Mr. Smucker said. He said it is taking longer to get grocers on board with price increases. (…)
He said some of the challenges Smucker faces are industrywide problems, but that he’s confident Smucker can navigate them. (…)
Oil Trades Near $66 Amid Signs OPEC to Clash Over Supply Policy
Brazil Selloff Feeds Global Emerging-Markets Retreat A sharp drop in Brazilian stocks and its currency stoked a decline in emerging-market assets Thursday, as concerns over trade tensions and a rising dollar reverberated around the world.
Money Markets See Biggest Inflows Since 2013 in Dash for Cash
At $45 billion, U.S. funds were the biggest beneficiaries of the $55 billion inflow in the week through June 6 — the second-highest on record — according to EPFR Global. Allocations into U.S. inflation-protected bond vehicles also hit their highest since the fourth quarter of 2016, according to the data provider.
“With the global growth story losing some of its shine, tariff-related rhetoric increasing in volume and a populist government taking office in Italy, investors opted for liquidity in early June,” Cameron Brandt, director of research, wrote in a note. European equity and emerging-market fixed income were big losers. (…)
