Succinct Summation of Week’s Events:
1) ECB backs up Mario Draghi’s words with action and European and US markets celebrate (Asian markets mixed). Forgotten though is that the ECB balance sheet has shrunk by 1T euros over the past two years of which 500b euros of LTRO money has been paid back over the past year. Adding 400b of targeted LTRO’s just refills some of the tank.
2) US companies add a net 217k to their payrolls in May, in line with expectations and 4th month in a row above 200k. Unemployment rate steady at 6.3%, the lowest since September ’08. Earnings grow .2% after no change in April with hours worked unchanged.
3) S&P 500 rises to fresh record high.
4) ISM services index in May rose 1.1 pts to 56.3, a touch above estimates and the best level since August; ISM manufacturing index rose to 55.4 from 54.9 in April;
5) Unemployment 4 week average = 310k, the lowest since ‘07.
6) Vehicle sales in May totaled 16.7mm, the most since February ’07 and well above the estimate of 16.1mm.
7) China’s PMI services index improved to 55.5 from 54.8, a 6 month high. The manufacturing index ticks up to 50.8 from 50.4.
8) Japan’s services PMI rises almost 3 pts in May but remains below 50 at 49.3. The manufacturing index is left at 49.9.
10) German exports advance by 3% m/o/m in April, better than the estimate of up 1.3%.
1) Investors Intelligence said Bulls rose to 62.2, the 2nd highest on record and is now above the 60.8 seen in August 1987 and 62.0 in October ’07. The record was 62.9 in December ’04, 1 ½ years into that bull market but we’ll likely exceed that next week after the ECB move. Bears remain at a lowly 17.4.
2) US Initial Jobless Claims totaled 312k, 2k more than expected and last week was revised up by 4k to 304k.
3) The April trade deficit was $47.2b, well above expectations of $40.8b, it’s the highest since March ’12 and up from a revised $44.2b in March (a negative for Q2 GDP ~0.4%)
4) Coincident with the downward Q1 revision to GDP, nonfarm productivity was revised to a decline of 3.2% vs the initial print of down 1.7%. That was about in line with expectations and it brings unit labor costs up to 5.7% annualized in Q1 vs 4.2% first reported.
5) A one year low in the average 30 yr mortgage rate to 4.26% from 4.31% again did nothing to lift mortgage applications. Purchases fell 3.6% w/o/w, down for a 4th straight week and refi’s were lower by 2.9%, down for a 2nd week
6) The EU PMI services index was revised slightly lower to 53.2 from the initial report of 53.5 but it is up from 53.1 in April and at the highest level since June ’11.
7) While the ECB is easing again, the BoE is dealing with nationwide home prices which have now exceeded its 2007 peak on a nominal basis as they rose 11.1% y/o/y in May, above the estimate of 10.9%.
8) China’s HSBC PMI index was revised slightly lower to 49.4 from 49.7 initially but up at a 4 month high and vs 48.1 in April. The services index falls by .7 pts to 50.7.
9) Regular wages in Japan fall another .2% y/o/y in April but thanks to overtime and bonuses, overall cash earnings rise .9% but lower by 3.1% on a REAL basis.
10) German industrial production rose .2% in April, half expectations and March revised slightly lower.
Chief Market Analyst
The Lindsey Group LLC
11320 Random Hills Road
Fairfax, VA 22030