Homebuilder Confidence Beats; Remains Negative For 5th Month

After 5 months of missed expectations and tumbling to one-year lows, the NAHB sentiment index jumped 4 points to 49 (still below the ‘positive’ 50 level). The Northeast – most troubled supposedly by the weather – saw prosepctive buyer traffic drop, but the otheer 3 regions rose with the West spiking. Just as we have seen in the last 2 cycles, NAHB survey data remains far adrift of the reality of sales, but that won’t stop the algos extrapolating this jump to new highs and a recovery in housing that is back on…as HANB Chair confirms “is a welcome sign and shows renewed confidence in the industry.”

 

NAHB remains adrift of reality…again

 

notably Northeast dropped as the other 3 regions rose…

 

“Consumers are still hesitant, and are waiting for clear signals of full-fledged economic recovery before making a home purchase,” said NAHB Chief Economist David Crowe. “Builders are reacting accordingly, and are moving cautiously in adding inventory.”

Perhaps MDC’s CFO summed it up best…

“While we’ve made improvements, we’re still well off of what would be considered maybe average or more of a normal basis,” John Stephens, chief financial officer, said during a June 5 conference presentation. “We need to see improvements in consumer confidence and job growth, really, which is really going to drive homebuilding at the end of the day.”

Charts: Bloomberg




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IMF Slashes US Growth Expectations; Pushes Higher Minimum Wage, Removing Tax Loopholes & Fiscal Stimulus

Who could have seen that coming? The IMF has slashed US growth expectations for 2014 from 2.8% to 2.0% (with 2015 hockey-sticking back to 3.0%). The IMF also warned the Fed should be “mindful of financial stability,” but that is not the most surprising aspect of the IMF’s mea cupla as they plunge head first into policy decisions…

  • *IMF RECOMMENDS RAISING U.S. MINIMUM WAGE
  • *IMF RECOMMENDS ADDITIONAL U.S. INVESTMENT IN INFRASTRUCTURE
  • *IMF RECOMMENDS LIMITING OR ENDING ITEMIZED TAX DEDUCTIONS

One wonders, rhetorically of course, if the IMF also pulled a “Polish Central Bank” and suggested that the US fire all Republicans in return for this suggestion; and we wonder how El-Nino is “priced-in” to this forecast.

 

As Bloomberg reports,

The International Monetary Fund cut its growth forecast for the U.S. economy this year and said the Federal Reserve may have scope to keep interest rates at zero for longer than investors expect.

 

The Washington-based IMF now sees the world’s largest economy growing 2 percent this year, down from an April estimate of 2.8 percent. The IMF left a 2015 prediction unchanged at 3 percent, and said it doesn’t expect the U.S. to see full employment until the end of 2017, amid low inflation.

 

The IMF also said it foresees longer-run potential growth averaging around 2 percent for the next several years, below historical averages and less than last year’s estimate. A year ago, the IMF projected potential growth rates at 2.3 percent in 2015-2016 and 2.4 percent in 2017-2018.

 

For the Fed, the forecast means “policy rates could afford to stay at zero for longer than the mid-2015 date currently foreseen by markets,” the fund said in its annual assessment of the U.S. economy.

Then they piled into policy…

They urged the U.S. to raise the minimum wage, invest in infrastructure and overhaul immigration policies to boost  potential growth as it slips below the long-term average.

 

The IMF also urged the implementation of more proactive labor market policies, which included strengthening the Earned Income Tax Credit and increasing the minimum wage to align more closely with U.S. historical levels and international standards.

 

“This would help raise incomes for millions of working poor and would have strong complementarities with the suggested improvements in the EITC,” said the report.

And worries about bubbles and fragility…

The Fed has to contend with “multiple areas of uncertainty,” making the outlook for its policy “particularly uncertain,” according to the IMF. That is “in contrast to the narrow range of market views on the path for future policy rates as well as the current historically low pricing of asset price volatility.”

 

Even if the Fed communicates well its planned increase in interest rates, there’s still a risk for “significant swings in market flows and prices” in coming months, including beyond U.S. borders, the IMF said.




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Industrial Production Beats But Autos Drop 3rd Month In A Row

Last month’s collapse in Industrial Production was handily revised up to a less taper-terrifying 0.3% drop (from 0.6%) and May saw the production gauge rise 0.6% vs 0.5% expectation for a notably unimpressive ‘surge’ post weather problems. Utilities fell modestly (as one would expect) but mining and manufacturing picked up slightly. Perhaps most notably, while total vehicle production rose, Auto production dropped for the 3rd month in a row as the Feb/March surge slows.

 

Aprils’ plunge was revised higher, making the modest beat in May less impressive

 

As auto production slowed for the 3rd month in a row…

 

 

Source: Bloomberg and Fed




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Chinese Treasury Holdings Drop To Lowest Since February 2013 As “Belgium” Treasurys Post First Decline Since August

With everyone expecting “Belgian” US Treasury holdings to surge by another inexplicable double-digit billion amount, and surpass $400 billion in what has been the most aggressive, and secretive, accumulation of TSYs by an unknown third-party using the Belgian jurisdiction as venue via Euroclear, the April holdings of the small European country posted their first drop since August. According to the TIC data released moments ago, total “Belgium” holdings – the third largest after China and Japan – declined by $15 billion in April, to a new grand total of $366 billion.

Offsetting this drop, almost to the penny, was the first increase in Russian paper which after posting its largest decline in history in March for reasons well-known, saw a $16 billion increase from its cycle lows of just $100. Still, this was a 22% decline from Russia’s holding as of a year ago. Furthermore, considering the deterioration in relations between Russia and the US since April, it would not surprise anyone if this blip in Russian TSY holdings is quite transitory, and the May data shows that Russian holdings have already dipped into double digit range.

Finally, looking at the top two holders of US paper, Chinese holdings declined from $1272.1 to $1263.2, the lowest Chinese total holdings since February 2013, which once again was offset almost to the dollar by Japan, whose holdings increased by $10 billion to $1209.7 billion – just shy of the insolvent island’s largest US paper holdings on record.




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Gold, Silver And Oil Jump On Middle East “Powder Keg” Concerns

Today’s AM fix was USD 1,281.75, EUR 947.34 and GBP 755.35 per ounce.          

Friday’s AM fix was USD 1,273.00, EUR 938.17 and GBP 750.06 per ounce.  


Gold climbed $3.10 or 0.24% Friday to $1,276.90/oz. Silver rose $0.14 or 0.72% to $19.70/oz.
Gold and silver were both up on the week at 1.92% and 3.52% respectively.

Middle East ‘Powder Keg’

Concerns over fighting in Iraq and Ukraine saw a global shift into traditional safe haven currencies, precious metals and bonds today as oil rose again and hovered near a nine-month high. European stocks fell.

Worries about Iraq were intensifying after Sunni insurgents seized the mainly ethnic Turkmen city in the northwest of the country over the weekend. It continued to drive fears about widespread turmoil in the country and the region.

Russia said it would cut off gas supplies to Ukraine this morning, setting the stage for a new phase of the months-long conflict between the two nations. The move came after the two sides failed to agree on a price for natural gas, a vital ingredient in Ukraine’s energy-intensive manufacturing economy. Ukraine is also a vital link between the rest of Europe and Russia’s gas supplies, transporting 15 percent of Europe’s gas supplies through its pipelines.


Hopes of Ukraine coming off the boil were dashed after pro-Russian separatists shot down a Ukrainian army transport plane, killing all 49 military personnel on board.

Gold climbed another 0.6% to the highest level in almost three weeks, extending a second weekly increase, as escalating violence in Iraq led to rising oil prices and safe haven demand. Gold rose 1.9%  last week and a fifth day of gains today would be the longest such run since February.

Silver reached a one-month high, while platinum and palladium rose. Silver for immediate delivery climbed over 1% to $19.889 an ounce, the highest level since May 14. Palladium gained 0.9% to $822.09 an ounce, while platinum rose 0.7% to $1,443.25 an ounce.



NYMEX Light Sweet Crude Oil (WTI) – 2014 YTD (Thomson Reuters)


Gold bullion
has advanced 6.7% this year in part because of unrest in Ukraine, where tension escalated last week after pro-Russian militants shot down a transport plane in the east of the country. In Iraq, the army killed more than 279 rebels as fighting intensified in OPEC’s second-biggest producer.

If Iraq’s oil supply goes offline, crude prices could reach $150 to $200 a barrel, T. Boone Pickens, founder of BP Capital Management, told CNBC on Friday. “That’s where you have to kill demand with price. That’s the only way you can do it, because oil won’t be there,” Pickens said in an interview with “Street Signs.”



Gold in U.S. Dollars – YTD 2014 (Thomson Reuters)

Geopolitical risk remains high and does not look like abating any time soon. Indeed, there is now the risk of geopolitical contagion and a serious regional war that could lead to a wider war.

Violence in Iraq exploded as Iraqi separatists,  the Islamic State of Iraq and al-Sham (ISIS), took over the second largest city in Iraq. ISIS forces are just 50 miles from Iraq’s capital, Baghdad.

 Sunni Islamist militants gained more ground in Iraq overnight, moving into two towns in the eastern province of Diyala. U.S. President Barack Obama is considering military strikes to halt their advance towards the capital Baghdad.


To the north, a Kurdish militia known as Peshmerga took over key government installations in strategically important, oil hub of Kirkuk. The situation in Iraq has deteriorated significantly in a very short period of time  and an all-out sectarian conflict is looking more likely as each day goes by.

With Syria’s Kurds already exploiting civil war there to run their own affairs, Iraqi Kurdish expansionism is worrying U.S. ally Turkey, which has its own large Kurdish minority and fears a renewed attempt to redraw borders and create a Kurdish state.


Iraqi President Maliki’s army already lost control of much of the Euphrates valley west of the capital to ISIS last year, and with the evaporation of the army in the Tigris valley to the north, the government could be left with just Baghdad and areas south – home to the Shi’ite majority in Iraq’s 32 million population.

The Wall Street Journal is reported that Iran sent two battalions of Iranian Revolutionary Guards to help the Iraqi government in its battle against ISIS. This is an important development. Iran has already intervened in Syria and has the power to crush ISIS in open combat.


Iran, which it is believed funds and arms Shi’ite groups in Iraq, could be brought deeper into the conflict, as could Turkey to the north. In Mosul, 80 Turks were held hostage by ISIS after Ankara’s consulate there was overrun.


NYMEX Light Sweet Crude Oil (WTI) – 20 Years (Thomson Reuters)

Iranian or Turkish intervention would make the conflict inside Iraq much worse. Israel wants to see a continuation of the tough line against Iran which it continues to see as an existential threat.

Gold bullion has increased 6% this year in part as tension between Russia and the U.S. and EU led to some haven demand. Developments in the Middle East are likely to deepen geopolitical tensions between Russia and the West and this should support gold and indeed lead to higher gold prices in the coming months.  


There is still the potential for a wider Middle East conflict as the region remains a ‘powder keg.’ Iraq may be the match that sees the region explode into chaos and war – with attendant effects on global oil prices and the global economy.

7 Important Points To Consider When Owning #Gold




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Key Events In The Coming Week

This week brings some key events and releases in DMs, including US FOMC (Goldman expects $10bn tapering, in line with consensus), IP, CPI, and Philly Fed (expect 13.5), EA final May CPI (expect 0.50%), and MP decisions in Norway and Switzerland (expect no change in either).

Among other releases, next week in DMs includes [on Monday] US IP and capacity utilization, Empire manufacturing, and Euro area CPI; [on Tuesday] US CPI and Housing starts, UK CPI; [on Wednesday] US FOMC and CA, Euro area construction, and Japan trade balance ; [on Thursday] US Philly Fed inaugurates what we call the active data period of the month, MP Decisions in Norway and Switzerland, NZ 1Q GDP (expect 1.4% qoq); and [on Friday] Euro area consumer confidence and CA, UK PSNB. The week also brings a few policy-maker speeches, including EU’s Barroso and RBA’s Kent, but most attention will center on the post-FOMC press conference by Fed’s Chair Yellen on Wednesday.

Monday, June 16

  • Events: Speeches by EU’s Barroso; RBA’s Kent; US Supreme Court expected to announce decision on Argentina’s request of review of pari-passu claim; Hungarian Supreme Court completes FX loan rulings; Iran – World Powers Nuclear Talks in Vienna begin.
  • United States | Industrial Production MoM (May): consensus 0.50%, previous -0.60%
  • United States | Capacity Utilization (May): consensus 78.9%, previous 78.6%
  • United States | Empire Manufacturing (Jun): Consensus 15, previous 19.01
  • Euro area | CPI Harmonized YoY (May F): previous (f) 0.5%
  • India | Wholesale Prices YoY (May): Consensus 5.40%, previous 5.20%
  • Russia | MP Decision: Expect rates on hold (at 7.50%, in line with consensus).
  • Also interesting: [DM] US Manufacturing Production, TIC Flows, Homebuilder’s Survey; Denmark PPI; UK Rightmove House Prices; NZ Westpac Consumer Confidence [EM] Czech Republic PPI; Turkey Unemployment; Nigeria Trade Balance; Israel CA; Poland Core CPI; Brazil IGP-10 Inflation; Colombia Retail Sales and IP; Peru Unemployment; Ukraine Retail Trade.

Tuesday, June 17

  • Events: Speech by RBI’s Rajan.
  • United States | CPI MoM (May): consensus 0.20%, previous 0.30%
    United States | Housing Starts MoM (May): consensus -3.7%, previous 13.2%
  • Euro area | ZEW Survey Expectations (Jun): Previous 55.2
  • United Kingdom | CPI YoY (May): previous 1.80%
  • United Kingdom | RPI YoY (May): previous 2.50%
  • Japan | Minutes of MP Decision
  • Japan | Machine Tool Orders YoY (May F): Previous 24.10%
  • Australia | Minutes of MP Decision
  • Also interesting: [DM] US Building Permits; Italy Trade Balance; Spain Labour Costs; Sweden PES Unemployment Rate; UK PPI Output and ONS House Prices; Australia New Motor Vehicle Sales and Goods Imports, Singapore Non-oil Domestic Exports, Hong Kong Unemployment [EM] Poland Employment and Average Gross Wages; Colombia Trade Balance.

Wednesday, June 18

  • Events: Post-FOMC Press Conference by Fed’s Chair Yellen; US BEA releases CA revisions.
  • United States | FOMC Decision: Goldman expect rates on hold (at 0.25%) and a further $10bn tapering in the pace of asset purchases (to $35bn per month, with a reduction equally split between Treasuries and mortgage-backed securities), in line with consensus. Per Goldman: “The economic data have, on balance, been encouraging since the April FOMC meeting, inflation has firmed a bit, and financial conditions have eased to their most accommodative level since early 2008. The committee is likely to make some upgrades to its description of the economic outlook in the post-meeting statement and its economic projections. Although the committee will need to reduce its 2014 real GDP growth forecast to take into account the Q1 disappointment, we would expect the committee to reduce its unemployment rate forecast and lift its inflation forecast slightly. These upgrades would, by themselves, suggest that the funds rate projections (or “dots”) might drift up and that the press conference might accordingly tilt towards the hawkish end. Three considerations, however, would point to a more neutral message: (1) the change in the FOMC’s composition, on balance, probably entails a dovish shift; (2) the committee’s projections of the longer-term funds rate might come down a bit; and (3) at the margin Chair Yellen might have become more comfortable in steering the monetary policy message in the direction of her own views at the post-meeting press conference. Taken together, we therefore expect a broadly neutral message.”
  • United States | Current Account Balance (1Q): Consensus -$96.6B, previous -$81.1B
  • Sweden | Economic Tendency Survey (Jun): Previous 98.8
  • United Kingdom | Minutes of MP Decision Meeting
  • Euro area | Construction Output MoM (Apr): Previous -0.60% (5.20% yoy)
  • Japan | Trade Balance (May): Previous (r) -¥811.7B
  • South Africa | CPI YoY (May): consensus 6.50%, previous 6.10%
  • Brazil | IBGE Inflation IPCA-15 MoM (Jun): previous 0.58% (6.31% yoy)
  • Also interesting: [DM] Canada Wholesale Trade Sales; Japan Dept. Store Sales; Australia Conf. Board and Westpac Leading Index; NZ Balance of Payments; South Korea PPI [EM] China Property Prices; Ukraine IP; South Africa CA; South Africa Retail Sales; Poland IP and PPI; Ukraine IP.

Thursday, June 19

  • Events: RBA Bulletin.
  • United States | Philadelphia Fed Business Outlook (Jun): consensus 14.0, previous 15.4
  • United States | Leading Index (May): Consensus 0.60%, previous 0.40%
  • Norway | MP Decision: We expect rates on hold (at 1.50%, same as consensus and previous)
  • Switzerland | MP Decision: We expect no change in policy (at 0.0% for SNB 3-Month Libor Target Rate)
  • United Kingdom | Retail Sales Ex Auto MoM (May): previous 1.80% (7.70% yoy)
  • New Zealand | GDP SA QoQ (1Q): consensus 1.10%, previous 0.90%
  • Japan | All Industry Activity Index MoM (Apr): Previous 1.50%
  • Poland | Minutes of MP Decision
  • Mexico | Aggregate Supply and Demand (1Q): Previous 0.40% qoq (1.80% yoy)
  • Colombia | GDP YoY (1Q): consensus 5.10%, previous 4.90%
  • Also interesting: [DM] US Jobless Claims; Italy CA; Netherlands Unemployment; UK CBI Industrial Trends Survey; Japan Leading and Coincident Index; NZ CA to GDP Ratio; Hong Kong Composite Interest Rate [EM] Philippines BoP; Russia Unemployment, Investment Statistics, Real Average Wages and Retail Sales; Argentina Trade Balance.

Friday, June 20

  • Canada | CPI SA MoM (May): Previous 0.20% (2.00% yoy)
  • Euro area | Consumer Confidence (June P): Previous -7.1
  • Euro area | Current Account NSA (Apr): Previous 20.9B
  • United Kingdom | PSNB ex Interventions (May): Previous 7.4B
  • Malaysia | CPI YoY (May): Previous 3.40%
  • Colombia | MP Decision: We expect a 25bp hike in the Overnight Lending Rate (to 4.00%, same as consensus; vs. previous 3.75%)
  • Mexico | Minutes of MP Decision
  • Also interesting: [DM] Canada Retail Sales; France Wages; Germany PPI; Italy Industrial Orders; Denmark Consumer Confidence and Retail Sales; NZ ANZ Consumer Confidence Index [EM] Taiwan Export Orders; Mexico Retail Sales; Russia Real Disposable Income, Wages, Retail Sales and Unemployment.

And the key highlights in table format:


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A.M. Links: Iraq Seeks Help from Iran, U.S. Evacuates Baghdad Embassy, Russian Tanks Enter Ukraine

  • The situation in Iraq keeps deteriorating. Early
    this morning, ISIS fighters captured the northern Iraqi city of Tal
    Afar. Meanwhile, Iran has reportedly
    sent troops to Iraq
    to help the government stem the insurgency.
    In Baghdad, the U.S. is
    evacuating staff
    from its embassy and strengthening
    defenses.
  • The U.S. Supreme Court is expected to announce one or more
    decisions today in argued cases. With the current SCOTUS term set
    to end on June 30,
    17 cases remain undecided
    , including disputes over presidential
    power, warrantless cellphone searches by the police, and
    Obamacare’s contraceptive mandate.
  • The San Antonio Spurs
    beat
    the Miami Heat to win the NBA Finals.

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Steve Chapman on How Long We Should Stay in Iraq

BushWhen the United States invaded Iraq in March
2003, Americans were told it would be a quick, simple project. When
asked how long the war might last, Defense Secretary Donald
Rumsfeld said airily, “Six days, six weeks, I doubt six
months.”

So what’s the complaint today from those who advocated the war
most vigorously? We left too soon.

Republican Sens. John McCain, Lindsey Graham, and Kelly Ayotte
put out a statement the other day blaming the recent rout of Iraqi
government forces on “President Obama’s decision to withdraw all of
our troops from Iraq in 2011.” That final pullout came in December
of 2011, or more than eight years after Rumsfeld expected our war
to be over, write Steve Chapman.

We could also resort to air strikes, drone attacks or even
ground troops. But if eight years of fighting by the American
forces didn’t save Iraq from chaos, another round is not likely to
make much difference, argues Chapman.

View this article.

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Empire Fed Hits 4 Year High Despite Tumble In Employee Index

It was the best of times, it was the worst of times. Empire Fed jumped to 19.28, notably better than the 15.00 expectation and reached highs not seen since June 2010. It doesn’t get much better than that – even in the V-shaped recovery off the recession lows… But, despite all this exuberant cycle high-ness, the number of employees index tumbles from 20.88 to 10.75 and worse still the forward-looking index dropped after 3 months of gains.

 

 

However, the worst news, comes for those who continue to, incorrectly, predict a CapEx renaissance:

As in May, indexes for the six-month outlook conveyed a strong degree of optimism about future business con-ditions. The index for future general business conditions fell four points, but remained high at 39.8. The future new orders index climbed to 44.5, and the index for expected shipments rose eleven points to 45.2. Indexes for expected prices were somewhat higher, with the future prices paid index ris-ing five points to 36.6 and the index for future prices received climbing two points to 16.1. The index for expected number of employees rose to 20.4, and the future average workweek index rose to zero. The capital expenditures index fell for a second consecutive month, dropping to 11.8—a sign that while capital spending plans were generally positive, spending growth was expected to slow.

In other words, hopefully offshore markets will keep demand strong, because local businesses sure aren’t investing in capacity expansion. And why should they: their shareholders get a far greater immediate benefit when instead of investing in the future, companies reward shareholders with (debt-funded) stock buybacks here and now.




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US Amphibious Warship With 550 Marines Enters Persian Gulf

Following the arrival of the US aircraft carrier CVN-77, the ironically named George H.W. Bush, in the Persian Gulf, another US warship, LPD-19, the USS Mesa Verde also entered the Persian Gulf moments ago.

Its cargo: some 550 US marines.

As CNN reported earlier, this comes after President Obama ruled out sending ground troops to the militant-assaulted country. The USS Mesa Verde is a San Antonio-class amphibious transport dock, a ship designed to carry an expeditionary force across the sea and deploy landing craft and helicopters.

Will the marines be offloaded in Iraq? Surely not: after all Obama, rushing to catch AF1 to Palm Spring last week said he didn’t intend to send ground troops to Iraq again, two years after pulling out American troops from the country. And Obama never lies about stuff like that.




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