FMX | Connect – www.fmxconnect.com - (Reported 7/15/2010)
Excerpt from MARKET MUSINGS & DATA DECIPHERING
CAPITULATION CAME EARLY
The Investors Intelligence (II) poll just came in for the latest week and showed the bull share all the way down to 32.6% from 37.0% the prior week, while the bear share stayed at 34.8% (the correction camp jumped to 32.6% versus 28.2% as well).
This is the first time since April 2009 that the II poll showed more bears than bulls. This is also consistent with the Commitment of Traders report showing the large net short speculative position on S&P “minis” — though this has more recently reversed itself.
FED UPS ITS UNEMPLOYMENT RATE FORECAST
The most important nugget in the June 23 FOMC minutes were the revisions to the unemployment and inflation rates. These forecasts all but guarantee that the Fed will not touch rates for a long, long time (years) and this will be fodder for a huge bull flattening in the yield curve — all the more so given the public backlash against more fiscal largesse:
• The FOMC raised 2011 unemployment rate from 8.1-8.5% to 8.3-8.7%. It raised 2012 unemployment rate from 6.6-7.5% to 7.1-7.5%; 7%+ unemployment rate in 2012 is downright scary. Enough said.
• PCE inflation taken down to 1.0-1.1% from 1.2 to 1.5% for 2010. For 2011, it was revised down to a range of 1.1 to 1.6% versus 1.1 to 1.9% previously. The Fed also took down 2012, to 1.0-1.7% from 1.2-2.0%.
• Core PCE taken down for the most part too. In 2010, range is down 0.8% to 1.0% (from 0.9-1.2%). In 2011, it is now at 0.9-1.3% from 1.0-1.5% and the new range for 2012 is 1.0-1.5% compared to 1.2-1.6% in the April projection.
DOUBLE DIPPING RETAIL SALES
We normally dive into the details of the retail sales report but couldn’t help but ponder the headline of yesterday’s June retail sales, especially in light of all the talk of a double-dip recession. June retail sales fell 0.5% MoM following a 1.1% decline in May — the last time we had a back-to-back decline was in February/March of last year when we were in the midst of a recession.
We went back to the history books to see how often back-to-back monthly declines occur during expansionary periods (which is what we are supposedly in). It is a rare event to see two consecutive monthly declines: it is a 1 in 35 event to be precise or only 3% of the time going back to the mid-1960s when these data began.
The details of the report were decidedly weak as well, especially given that Memorial Day fell late in May and sales should have spilled over to June, as well as June being a five-week month. Auto sales plunged 2.3%, following the 0.6% decline in May and sales are now at the lowest level in four months. The housing malaise extended its grip to home furnishing sales, which fell 1.1%, the third decline in as many months.
Interestingly, grocery stores saw sales down 0.6% while restaurants were up 0.2% (but then again, it’s much nicer sitting outside on a patio than cooking in a kitchen during a heat wave). There were other bright spots including a big jump in computers sales (+2.8%, likely iPad and iPhone related) as well as increases in clothing (up 0.2%) and department stores sales (+1.1%).
The detail that matters the most for the consumer spending GDP outlook is ‘core’ sales (which excludes autos, gasoline and building materials). While June was up 0.2%, there were sustainable downward revisions to the April and May data and taken together this suggests consumer spending of around 1.7% annualized. We noticed on Bloomberg that the latest consensus estimate for Q2 real consumer spending was just taken down two tenths, to 2.8%, at the start of the month. After yesterday’s numbers, we expect that most analysts will be revising those numbers down again, as well as the current 3.1% Q2 GDP estimate.
MORTGAGE APPLICATIONS FOR NEW HOME PURCHASES DOWN AGAIN
For the week ending July 9, the Mortgage Bankers Association mortgage applications index fell 2.9%, the first decline in three weeks, despite the fact that mortgage rates remained at near record low during the reporting week. In a sign that people who can refinance have done so, the MBA’s refinancing activity index fell 2.9% as well on the week, reversing some of the gains we saw in the prior two weeks when refi activity surged 22%.
However, the story remains in the purchase index, which extended its losing streak to four consecutive weeks (or nine of the past 10 weeks), down 3.1%. The level of the purchase index now stands at 163.3, which is the worst reading we have seen since 1996 and is now 44% lower than the interim peak we saw back April. Averaging out the first two weeks in July, the purchase index is down another 5% from the June average. So consider this trend, May -18%, June -15% and now -5% ... now that’s a trend that can’t be ignored.
David A. Rosenberg
Chief Economist & Strategist Economic Commentary
drosenberg@gluskinsheff.com
+ 1 416 681 8919
Source: Market Musings & Data Deciphering
http://www.fmxconnect.com/
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