Boockvar’s Summation of the Week’s Events
From Peter Boockvar:
Positives,
1) Initial claims at 206k were about in line and the 4 week average dips to 206k from 208k. Continuing claims were little changed at 1.774mm.
2) The 10 and 30 yr Treasury auctions were great.
3) From Signet Jewelers: “We had a solid quarter with comps up over 2%, reflecting high single-digit comp growth at price points over $2,000, including a strong Mother’s Day…Time pieces continue to deliver strong category comp growth, up almost double digit to last year. We delivered low single digit comp growth in bridal, led by a stronger sales performance. Fashion saw a 1% comp decline.”
4) From MSC Industrial: “And now we’re starting to see the throughput increase on those machines (vending machines they have on plant floors) and in those programs which means that our customers’ actual demand is picking up. So we’re most excited. Aerospace has been strong for this whole period…We’re starting to see machinery and equipment get turned positive. Automotive, we had some early signals, heavy truck. So we’re optimistic.”
5) In Japan, July base pay growth of 4.1% in Japan seen today, the most in 34 years, gives them even more reason to hike.
6) As the ECB cut rates to a real rate of zero last year to just 2%, they continue to recalibrate by hiking its deposit rate to a still low 2.50%.
Negatives,
1) The August CPI rose .4% m/o/m headline and .3% core vs expectations of up .4% and .2% respectively. The y/o/y gains for each were 3.4% and 2.4% vs 3.4% and 2.5% in July. Energy prices rebounded by 2.1% m/o/m after the two prior months of declines. They remain up by 16.3% y/o/y. Food prices were higher by one tenth m/o/m and 2.7% y/o/y with ‘food at home’ prices up by 2.2% and by 3.4% y/o/y for ‘food away from home.’ Services inflation ex energy, still the main driver of CPI, rose .3% m/o/m and 3% y/o/y. Core goods prices rose .1% m/o/m and .7% y/o/y.
2) The August PPI rose .4% m/o/m as expected but with a one tenth upward revision to July. The core rate was as forecasted when including also an upward revision to last month as it rose .2% m/o/m after the .3% rise in July. Versus last year, wholesale prices are up 5.4% headline and 4.6% core. Energy prices rebounded by 4.2% m/o/m after two months of declines and up 24% y/o/y. Food prices were up .1% m/o/m and by a like amount y/o/y. On the core goods side, prices rose .4% m/o/m and 5.1% y/o/y. With services, prices rose .1% m/o/m and 4.5% y/o/y with truck and air transport leading the way.
3) The August NFIB Small Business Optimism index slipped to 98.7 from 99.8 and vs 97.4 in June. The bottom line from the NFIB, “Uncertainty remains elevated among small business owners as they face a mixed set of challenges with weakened sales, supply chain disruptions, and inflation pressures. While expectations for the overall economy dimmed, Main Street owners remain largely positive in the health of their own businesses.” As for the Single Most Important Problem, “In August, the top reported issue was labor quality or availability, with 23% of small business owners reporting it as their single most important problem. This was a 4-point decline from July, though the current reading is 11 points above average. Seven percent of business owners reported labor costs as their single most important problem, down 1 point from July and the lowest level since March 2021. Reports of inflation as the single most important problem rose 2 points from July to 16%. August’s reading remains elevated, with the historical average at 7%.”
4) The preliminary September UoM consumer confidence index fell to 47.8 from 51.7 and below the forecast of 51. Most of the decline was in the Expectations component. One year inflation expectations rose to 4.6% from 4%. Expectations for employment softened as they did for income. The mean % of those expecting income will exceed inflation in the coming 5 years fell to just 23.4%, the 2nd lowest read since at least 1998 when this figure was calculated. Spending intentions on big ticket items like vehicles and homes fell while little changed for major household items. From the UoM and not surprisingly, “With a resurgence in fuel prices and trade tensions, consumers anticipate greater pressures on their pocketbooks to come…Consumers perceive rising pressures on their cost of living both now as well as the future. About 56% of consumers cited high prices as a negative factor for their personal finances, up from 53% last month and 44% a year ago. After declining for two straight months, spontaneous references to gasoline increased this month at 29% of consumers amid rising fuel prices. Unsolicited comments about tariffs rose for the second month in a row, from 24% in July to 36% in September.”
5) Existing home sales in August fell to 3.98mm annualized from 4.06mm and still plumbing 30 year lows. Months’ supply rose to 4.9, the highest in more than 10 years from 4.6 while the median home price rose 1.6% y/o/y. Hopefully more home supply will lead to better affordability to offset the 7% mortgage rate.
6) With another rise in the average 30 yr mortgage rate, refi’s fell 6.2% w/o/w and down by 25% y/o/y. Purchases fell a touch, by .2% w/o/w and still up 3.7% y/o/y.
7) With respect to container rates, from Shanghai to NY, the cost of a 40 foot container rose another 1.5% w/o/w to $9,726, the highest since August 2022. The journey from Shanghai to LA got 2.3% more expensive w/o/w at $7,352, just below the most since July 2022.
8) The Baltic Dry Index, taking stuff like coal, iron ore and grains, fell yesterday but off its most expensive since October 2021.
9) The average gallon of diesel rose above $6.00 to $6.06 according to AAA. Gasoline rises to $4.30.
10) With regards to the US consumer broadly, the August NY Fed’s Consumer Expectations survey said one yr and 5 yr inflation expectations held at 3.6% and 3% respectively. Not surprisingly gas price expectations were higher and “Labor market expectations were mixed with unemployment and job finding expectations deteriorating while job loss and quit expectations improved somewhat.” Disappointingly, “Expectations of an increase in unemployment reached the highest level since April 2020.” And, “Perceptions and expectations about households’ financial situations both deteriorated with larger shares of households reporting a worse financial situation compared to a year ago and expecting a worse financial situation a year from now, and smaller shares of households reporting or expecting a better financial situation.”
11) From Oracle: “Q1 was another record quarter, driven by strength in both our cloud infrastructure and cloud apps businesses…Cloud infrastructure revenue for Q1 was $7.4 billion, up 121%, reflecting strong execution as we brought record levels of new megawatt capacity online, supported by a continued strong demand environment for compute and our database services…Our CapEx for the quarter was $28 billion, leading to negative free cash flow of $5 billion…We continue to anticipate $90 billion to $95 billion in CapEx for the full year, with not more than $70 billion in net cash CapEx.”
12) From RH’s Gary Friedman: “So $109, like, I mean, oil is $63 at the beginning of the war. You’re not going to be able to mitigate that. Costs are going up, inflation’s going to go up. There’s a reason why the administration said that the war was ending and we were going to have a deal in a day or two, 38x…So yes, we’re in a time of conflict. We’re going to be in a time of inflation. I don’t think they’re going to be able to keep a lid on interest rates. So I keep thinking, gosh, it’s like my entire career, and I’ve been doing this a long time, I never saw a housing market that was down longer than 18 months. So it looks like we’re going to go into year five….Yes, there’s a massive increase cost. Nobody’s got a magic wand. Nobody’s going to get that much of a better price than somebody else…So we’re going to be in a higher cost world for probably at least the next six to 12 months. I mean, even if tomorrow they end the war, there’s too much inflation in the pipeline. All the raw materials are going up everywhere on everything. Everything is impacted by oil. You’re seeing crazy things, right, trying to manipulate currencies, buying back things like this. It’s a crazy time.”
13) From Casey’s General Store: To the consumer reaction to higher gasoline prices, “we’re seeing exactly the type of behavior that we would expect to see. Fewer gallons per trip, but more trips made, which ultimately accrues to our benefit if we have more people coming to the store. People are trading out of premium and mid grade and opting for regular or higher ethanol blends of fuel, the higher ethanol blends of fuel carry a higher margin for us than clear gasoline…I would say that the trends that we saw in the first quarter were similar to what we’ve seen over the last several quarters…One is that the lower income consumers are being slightly more impacted than the other income cohorts. If you look at our business, all three income cohorts that we measure had positive growth in the quarter…But I would say that more of the impact we saw on the grocery and general merchandise side is really driven by category trends versus demographic trends. And what I mean by that is, if you look at the three areas where we had some softness is beer, snacks and cigarettes. And those categories have all been challenged for different reasons. And that’s an industry wide phenomenon. We’re not immune to that.”
14) From Macy’s: “Our consumers remained resilient and engaged in the 2nd quarter, responding positively to newness across our product offerings and our line-up of marketing and events. Across nameplates, we continue to skew toward middle and upper income consumers where performance remains stronger…And as we’ve noted before, at the lower end, a little more choiceful, but those trends have remained.” Also of note, “we are not seeing anything dramatically different in the competitive environment right now and expect our promotional activity to be in line with last year.”
15) From Chewy: “During the second quarter, while we did not see a meaningful recovery in the more pressured consumer backdrop for the pet market, importantly however, we did not see further deterioration. The environment has broadly stabilized to the trends we observed exiting the first quarter…Pressure on premiumization and discretionary spending materialized broadly in line with our expectations during the quarter, affecting both the consumables and hard goods categories…In the second quarter, treats sales growth slowed more sharply than growth in core food, reflecting moderation in discretionary purchases and the broader macroeconomic pressures we have been describing.”
16) From Kimberly Clark: “the freight market and logistics market in North America is tightening. So, we’ve seen the prices go up there. We’re a little more exposed to that than we usually would be because of the Los Angeles distribution center fire…And that will also be a significant impact in the quarter of about $30 million to $40 million of incremental costs.”
17) From General Mills: They reiterated their cost inflation at 4-5% “even if it’s tipping to the higher end of that range.” And one reason is higher logistics costs. “They’re up about 40% from where they were this time last year…So they are higher than we thought, but that’s a spot rate. We don’t pay the spot rate on all of our freight. We probably pay the spot rate on probably about 7% of our freight.”
18) The rise in oil prices, along with other commodities, including copper, drove a 3.8% rise in China’s August PPI figure. That is up from 3.5% growth in July and 2 tenths above the estimate. CPI was up by .8% y/o/y and by 1% ex food and energy.
19) China continues to run an annualized trade surplus above $1t and which came in at $119b in August vs $112b in July. Exports grew by 25% y/o/y while exports were higher by 28.2%, both just under forecasts. And China continues to diversify their export markets to Southeast Asia, Latin America and Africa.
20) Germany’s July exports fell .8% m/o/m, below the estimate of up .3% and due to a drop in exports to the EU. Total exports are still up by 6.1% though and highlighting the rebound in manufacturing. Competition with China was reflected in the 9.5% m/o/m and 12.7% y/o/y drop in exports to them from Germany.
21) This day always brings back awful memories but a day that must happen each year in order to teach those who didn’t live it, the history of it.
