Boockvar on Japan Intervention, Rents, Earnings
The following is from Peter Boockvar:
Only 43 more years/Default rates/Rents/Earnings/PMIs
I mention this not as something that will majorly influence Japanese stocks but to highlight when a central bank goes so deep into the market fray with intervention, getting out is extraordinarily difficult. The Japanese yield curve certainly has seen that with the end of NIRP and YCC as 5 years ago the 10 yr JGB yield was at just .04% vs nearly 3% today. Not getting much coverage last week at the BoJ meeting was the news that they are quickening their annual pace of ETF stock sales. At the current pace it was going to take 110 years to sell all of the holdings. With the upcoming new cadence, that will shrink to ‘just’ 43 years. The interesting thing too is because their holdings have gains in them, any excess surplus at the BoJ that is created from the sales will get remitted to the government which can they get spent in the next Takaichi budget.
On Friday Fitch released its Q3 default rate data for its private credit coverage companies. It rose to 6.3% for the trailing 12 months and that is up from 6% in Q2 and the highest since they’ve been doing this. They said “Private credit default rates remained elevated in 3Q26, with stressed maturity extensions, interest deferrals, and payment-in-kind introductions continuing to account for most default events. Persistently high real interest rates are maintaining pressure on highly leveraged borrowers’ debt service capacity and refinancing options.”
While we know this year a big focus of the private credit scrutiny was on software companies, their default rate was just .6%. Instead, the headline figure was driven by Industrials and Manufacturing, and Consumer Products and Services with default rates at 9.7% for each. Healthcare providers had a default rate of 8.7%, though down from 9.4% in Q2.
Late last week the Apartment List October National Rent Report was released and we know rents (both new and renewed) are a key part of CPI. Rents fell .3% for new leases only m/o/m “as the rental market enters its off-season.” They are basically flat y/o/y, up .1% but “marking the first time in over three years that y/o/y rent growth is positive.” The vacancy rate fell one tenth to 7% “remaining elevated compared to long-run norms, but continuing to decline after peaking earlier this year.”
Rent concessions remain elevated with 32% of properties nationally offering them, “four percentage points higher than at this time last year.” And, “Concessions can take many forms, including discounted rents, cash back offers, gift cards, or free amenities” and they are “valued at one month of free rent or greater.”
Regionally, “The decline in our national index in recent years has largely been driven by markets throughout the Sun Belt and Mountain West regions, but we are now beginning to see these regions rebound. Meanwhile, many markets in the Northeast, Midwest, and parts of the West Coast continue to see prices trend up.”
The bottom line from Apartment List, “For years, the U.S. rental market has been experiencing a prolonged period of sluggishness, as a large wave of multifamily construction had been driving soft pricing and occupancy. However, we’re now at the tail end of that construction boom, and the market has been gradually moving toward more balanced conditions. This month’s data marks a significant milestone in that transition, as year-over-year rent growth flipped positive for the first time in over three years.”
I’ll add, not included here are renewal rates and they are running higher by 3-4% based on what I’ve heard from the publicly traded REIT’s. And, I think we’ll continue to see further absorption of the excessive supply in the sunbelt and mountain states as home buying remains unaffordable for many first-time buyers.
To some calls from late last week providing more color on the state of economic activity and the cost pressures many are dealing with.
From Colgate Palmolive, up 2.3% Friday in the tough tape with consumer staples stocks the safety trade and my favorite group, as expressed here before:
“Our strong results were broad based with organic sales growth in all four of our categories and four of our five divisions.”
The division that did not see growth was North America, “impacted by continued softness in the United States. Returning to sales growth in North America remains a key priority.”
“The US market backdrop remains challenging; consumer behavior is volatile, and sentiment is weak given increasing fuel prices. Overall, categories remain under pressure.”
“Raw material, packaging and logistics costs remain elevated, driven by the conflict in the Middle East, which has increased oil prices as well as other commodity costs. We are broadly locked in for the remainder of the year based on our cost projections, which may differ from spot prices.” The ‘other’ commodity costs include resins, petrochemicals and pulp/paper.
From Restaurant Brands, the owner of Burger King, Tim Horton’s and Popeyes and whose stock fell last week:
Burger King is experiencing a renaissance with US comps up 8.4%. “We widened our gap to burger QSR peers to nearly 10 points and after years of hard work, we are incredibly proud to have reclaimed the number 2 position in the US burger category.”
Tim’s Canada had a comp gain of 1.8%, “an encouraging improvement from the 2ndquarter.”
Popeyes had a negative comp of 1.8%.
From Mohawk Industries, the flooring company and whose stock rallied 7.3% Friday:
“We grew sales and executed price increases in response to rising inflation.”
“In our US market, where we generate a little more than half of total company sales, market conditions remain challenging. Following the recent rises in rates, demand weakened exiting the quarter and has remained soft across most products and channels during October, particularly in the builder channel.”
“In residential repair and remodel, which we estimate represents approximately half of our US sales, consumers continue to defer larger projects, and the outlook for existing home sales has weakened, entering seasonally slower months. Activity through the specialty retail channel is holding up better and improved sequentially, while larger format retail point of sale trends remain slow.”
From Eastman Chemical, whose stock was down on Friday but up for the week:
“Input costs continued to elevate, and the Eastman team successfully implemented higher sequential price increases in our specialties. We remain on track to implement approximately $500 million of selling price increases in 2026 compared to our expectations from before the Middle East conflict began.”
“In addition, sequential sales volume/mix decreased due to seasonal declines across our key end markets and softening underlying demand in automotive and consumer durables.”
From Exxon, up about 2% Friday:
“We recognize the impact high prices have on people’s lives and economic growth. We always have, which is why we have been constantly focused on efficiently growing advantaged production to keep market supplied. That focus and commitment pays off in times like this.”
“Our global outlook projects that global energy demand will continue to grow through 2050, with oil and natural gas supplying more than half of the world’s energy. Meeting that demand reliably will require continued investment across the industry, including in the Middle East.”
From Schneider National, the trucking company and down a touch last week:
“Looking at the freight environment, the supply thesis remains intact. Though capacity attrition occurred at a more measured pace than what we experienced in the first half of the year, we are continuing to see an overall constrained supply picture despite spot rates now having moved higher for nearly a year.”
“Capacity has remained hampered by driver availability, elevated operating costs, and increased barriers to entry. Further, we continue to see several factors that should support additional rationalization going forward.”
“At the same time, fuel costs have increased meaningfully. Driver wages are on the rise and smaller carriers are facing increasing economic pressure. Together, these dynamics are limiting the ability of supply to respond to improving pricing conditions and with noncompliant capacity exiting the market, we continue to expect supply to behave rationally as we move further through this up cycle.”
“While supply dynamics remain constructive, freight activities are a modest step back versus 2nd quarter, a reflection of anticipated seasonal patterns coming out of the Fourth of July holiday. Consumer spending remained resilient overall, though this varied by category. Higher interest rates and affordability constraints continued to weigh on certain key end markets such as housing and automotive.”
“Altogether, we believe 3rd quarter freight volume activity reflected typical seasonality and some normalization of inventory patterns rather than a deterioration of underlying demand trends which remained stable.”
Ahead of the US October ISM, here were the manufacturing PMI’s out today overseas and most remain above 50:
China 52 vs 52.1
Japan 53.3 vs 54.1
South Korea 51.3 vs 53.9
Taiwan 54.9 vs 56.7
Australia 49.6 vs 49.6
India 54.7 vs 55.1
Vietnam 52.3 vs 51.9
Thailand 54.8 vs 54.3
Indonesia 54 vs 52.4
Malaysia 51 vs 49.9
Eurozone final 52.7 vs 52.9
UK final 52.8 vs 51.9
For China specifically, RatingDog said ““Output expanded for the eleventh successive month, and at the sharpest rate since April, on the back of strong client demand and better production capacity, with growth broad based across all three monitored sub-sectors for the third month running and steepest in investment goods. Total new orders rose for the seventeenth consecutive month, with the pace of increase sharp and broadly in line with September, helped by new product launches, improved production capabilities and business development efforts. New export orders rose for the fourth month in a row, with anecdotal evidence pointing to greater volumes of new work from clients in Asia, Europe and Africa, though the pace of expansion eased to a three-month low and was modest, with growth slowing among consumer and intermediate goods makers while accelerating for investment goods firms.”
With Taiwan, S&P Global said manufacturing remained strong, we know helped by AI infrastructure and “The supply chain story was broadly consistent, as firms continued to face difficulties procuring inputs in a timely manner. The conflict in the Middle East, freight delays and the added supply chain pressure caused by the current AI wave were key contributing factors here.”
On the inflation side, “The cost environment remained challenging amid instances of material shortages and solid demand. Some firms even reported front-loading their purchasing to hedge against future price increases and to cushion the impact of supply chain disruption. There was some evidence that cost pressures had softened, however, and a subsequent drop in the rate of selling price inflation was also reported.”
With the Eurozone, from S&P Global “Another solid PMI reading extends the eurozone’s best growth spell for manufacturing for over four years. The sustained growth recorded since February paints an encouraging picture of resilience for the manufacturing sector, which has been buffeted by the headwinds of tariffs and conflicts in the Middle East and Ukraine, and in particular the surge in costs and supply difficulties that these have caused. Instead, increased defence spending, precautionary inventory building, diversification and changing trade patterns due to US tariffs have created growth opportunities for many producers.”
“However, growth is by no means broad-based, with manufacturers in France and Italy in particular continuing to struggle, the former suffering the additional stress of domestic political uncertainty.”
