Dashboard update: consumer-side improvement and other reasons not to worry

Dashboard PDF file:

Macro and Markets Dashboard: United States (May 14, 2016)
Dashboard Update Summary

Surprisingly good April retail sales growth and preliminary signs of strong May consumer sentiment suggest a continued strengthening of consumer spending. Higher wages and low but rising inflation expectations boost individuals’ willingness to make discretionary purchases. Recent quarterly earnings data suggest that these purchases are increasingly taking place through Amazon and online retailers rather than department stores. Equities were lower over the past five trading days, partially as a result of poor earnings data from the latter. Jobless claims increased in the first week of May, but remain within a reasonable range. The yield curve flattened during the week as the spread between ten-year treasury bonds and three-month t-notes fell to its lowest level since February. The dollar appreciated against most major currencies.

Consumer sentiment and spending rising

Retail sales excluding food increased year over year by 2.7 percent in April. This is the second largest increase since January 2015 (the largest in the past 15 months was in February). In April, Retails sales overall were up three percent over the previous year and up a surprising 1.3 percent over the previous month. Many online retailers, including Amazon, had their strongest-ever quarter in Q1. Meanwhile, this week’s earnings releases from Nordstrom, Kohl’s, and Macy’s shows a continuation in consumers’ pivot away from U.S. department stores. U.S. equities closed lower on the week, with the S&P down half a percent, the Nasdaq down 0.4 percent, and the Dow down 1.2 percent.

retailsales_may132016

Prices remain low with some hills on the horizon

The uptick in retail sales can be attributed in part to higher wages for consumers, as evidenced in recent labor market data. Additionally, fuel prices remain low, yet there is some sign that movement is towards increasing price levels, which incentivizes spending today, especially given a very low return on savings. The April producer price index (PPI), which measures how prices of the inputs to production change, was released this week. The PPI for all commodities (intermediate demand) increased to a -4 percent year over year change, from -4.8. Energy prices fell less dramatically in the twelve month period ending in April. Oil prices climbed 3.5 percent during the past week, but remain below $50 a barrel, at $46.21.

ppiaco_may132016

Jobless claims rise

The number of new jobless claims during the week of May 7 was higher at 294,000. While the highest level of new jobless claims since February of 2015 may seem startling, the level is still low and the increasing bargaining power of labor makes voluntarily leaving a job less scary.

weeklyjobless_may132016

Yield curve flattens as foreign investors avoid negative yields

Another potentially startling indicator is the flattening of treasury yield curves, but again, there is an explanation to assuage concern. The yield spread between ten-year treasuries their three-month t-bill counterpart fell to 1.43 on Friday, from 1.6 a week earlier, as ten-year yields fell and three-month yields rose. Likewise, the spread between ten- and two-year treasuries fell. While this indicator is a potential bad omen, we must remember that foreign inflows to treasury auctions have been increased by negative interest rates in many EU countries and Japan. For example, as ten-year Japanese Government Bond yields remain negative, Japanese investors increasingly shift portfolios to the U.S. government equivalent.

yieldspread_may132016

Dollar appreciates against trading partners

Lastly, the U.S. dollar was stronger against most major currencies during the past week. The dollar appreciated by 1.4 percent against the Yen, by 3.5 percent against the Rand, by 0.85 percent against the Euro, and by half a percent against the British Pound.

I’ve redesigned the exchange rates table to be quicker to read, and include it below.

fx_may132016
Rates above as of May 13, 2016

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Dashboard update: lowered expectations

Dashboard PDF file:

Macro and Markets Dashboard: United States (April 16, 2016 — PDF)

Dashboard update summary:

Much of the past week’s macroeconomic news offered disappointment, yet markets dismissed the weak data as a result of what seems like lowered expectations. Retail sales, business inventories, and industrial production reports showed weakness in March (though labor market continues to look good). Corporate earnings have been quite soft in the first quarter, and GDP figures are likely to reflect the first quarter slowdown in output. Investors, however, seem relatively more risk-on, despite the weak macroeconomic data. Their expectations about earnings have fallen low enough to not only absorb the recent results, but to react positively in some cases. These investors are also faced with fewer high-earning alternatives, given sluggish and slowing growth abroad.

CPI and PPI data show little change, while oil prices continue to rebound. Currency markets are quite active, especially on the emerging markets side, where the dollar is weaker, partially as a result of the commodity price rebound.

Macro and Labor Market Indicators

Industrial production and total capacity utilization both fell in March. The industrial production index was down 0.6 points, largely stemming from decreases in production in mining and utilities market groups. This was magnified in the total percentage of capacity utilized figure, which fell to its lowest level since 2010. Mining capacity grew 1.6 percent year over year, despite a simultaneous 12.9 percent fall in production.

tcu_apr162016

The inventories to sales ratio ticked up in February, as a result of a fall in sales of 1.4 percent and an increase of inventories by 1.2 percent over their February 2015 levels. The most recent week’s data on new jobless claims showed the fewest new claims since 1973.

Equities and Fixed Income

Despite the weak data from the corporate side, equity markets were up and corporate bond yields down during the week. The Nasdaq and Dow were up 1.8 percent on the week, while the S&P 500 climbed 1.6 percent. Yields on U.S. Treasury bonds at all maturities, and U.S. corporate bonds at all maturities and credit ratings, have fallen over the past month, pushing prices higher.

Prices and Currency Markets

This week brought the release of March PPI and CPI data. Both were largely unchanged, as the PPI for all commodities increased slightly and the CPI fell slightly, over their February year over year percentage change levels. There was a surprise in CPI apparel prices, which fell 0.6 percent over their March 2015 levels, despite an increase in February. The data continue to reflect the very low prices of energy and moderate prices increase in healthcare and housing.

prices_apr162016

Currency markets were busy during the past week. The dollar strengthened against the Euro (0.91 percent), Yen (0.81 percent), and Swiss Franc (1.06 percent), while, as pointed out by FT’s hard currency, the dollar weakened further against the four R’s, the ruble, real, ringgit, and rand. These four currencies have seen a dramatic change in direction over the past month, appreciating against the dollar by more than 3.5 percent each and more than 5 percent in the case of the rand.

Note:

I try to gradually improve the dashboard and how I summarize changes. Any feedback would be much appreciated. Please feel free to leave a comment, or send me an email at brianwdew@gmail.com.

Dashboard update: adjusting the tools

Macro and Markets Dashboard: Japan (February 20, 2016 — PDF)

Macro and Markets Dashboard: United States (February 20, 2016 — PDF)

Given a relatively calm week for markets, I’m going to make a more procedural update this week and share two developments with my tools. First, I’m including a draft dashboard for Japan. Second, I’ll be sprinkling in some bar chart plots, which I hope dig a bit deeper into some interesting time series.

The draft dashboard for Japan still needs a lot of work, but provides a few interesting indicators of macro and market conditions in the land of the rising sun. For example, Japanese government bonds (JGBs) were in the news when the BOJ negative interest rate policy pushed yields on ten year bonds negative. While the shorter-duration bond yields are still negative, ten year yields are now virtually flat (see below). JGB_Feb202016

Additionally, I’ve developed some bar plots for looking deeper into changes to prices. Below, I include the decomposition of the Consumer Price Index and Producer Price Index into selected categories. I’ve used the 12-month percentage change to individual CPI and PPI series in this example. Hopefully, I can integrate these charts into the main dashboard, over the coming weeks. We can see from this example, that health care costs continue to rise more rapidly than other costs, and that the fall in energy prices slowed during January.

Prices_Feb202016