NEW$ & VIEW$ (29 AUGUST 2014)

Today: U.S. economy strengthening, E.U. economy weakening. Another shortage of bears.

Pending Home Sales Rose in July The number of contracts signed to buy previously owned homes rose in July, a new sign that steady job growth is supporting a rebound in housing demand.

An index of pending home sales, reflecting purchases under contract but not yet closed, rose 3.3% to 105.9 in July from June, the National Association of Realtors said Thursday. That was a bigger gain than the 0.6% rise forecast by economists and placed the index comfortably over the 100 level that the trade group says indicates “normal” sales activity.

Pending home sales have now risen four of the last five months, though the index remains 2.1% below its level from a year ago. A regional breakdown of the July data showed sales rising in the Northeast, South and West, though they fell in the Midwest.

U.S. Banks Boosted Lending in Second Quarter U.S. banks increased their loan balances in the second quarter of 2014 by an amount not seen since before the financial crisis, a government report said, offering evidence of a pickup in lending as the economy slowly recovers.

The Federal Deposit Insurance Corp. said banks’ loan and lease balances rose to $8.11 trillion, a 2.3% increase over the first quarter of 2014 and the largest quarter-over-quarter jump since the end of 2007.

It was the first time U.S. bank lending has topped $8 trillion, as banks boosted construction loans, agriculture loans, credit-card balances and auto loans. Mortgage lending also was up compared with the first quarter but down from the year-ago period, reflecting a retreat from that market by some banks amid new regulatory and legal risks. (…)

FDIC Chairman Martin Gruenberg said Thursday’s data marked a transition for banks from a period of recovery to one in which they are putting more money at risk. (…)

Lending for Construction Grows 4% in 2nd Quarter

Figures released Thursday by the Federal Deposit Insurance Corp. show that outstanding construction loans for both residential and commercial projects increased to $223.2 billion in the second quarter, up 4% from the first. The gain is the sector’s largest since it began rising from its nadir of $201.5 billion in the first quarter of 2013.

The trajectory has been similar for lending for construction of one- to four-family homes. Home-construction lending increased to $48.2 billion in the second quarter, up 5.4% from the first quarter, according to the FDIC.

That, too, is the largest gain for home construction since the sector started rebounding from its low point of $40.7 billion of outstanding loans in last year’s first quarter. (…)

Kansas City Fed Launches New Job Market Index, Sees Improvements

The Federal Reserve Bank of Kansas City launched Thursday a new gauge to track labor market conditions, which signaled in its first outing a hopeful outlook for hiring in the U.S. economy.

The bank said that its Kansas City Fed Labor Market Conditions Indicators activity measure moved to -0.6 in July, something the report deemed a “substantial improvement” from the low of -2.1 seen in December 2009, in the depths of the greatest economic and financial downturn seen since the Great Depression. The new gauge also tracks labor market momentum, and found gains there as well.

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GDP Expanded at 4.2% Rate in Second Quarter The U.S. economy’s second-quarter rebound was more robust than previously thought, putting the recovery back on track as it ended its fifth year.

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(Haver Analytics)

U.S. Bonds Continue to Defy Bears Government-bond yields touched new lows in the U.S. and Germany, as investors piled anew into ultrasafe debt amid growing concern about the pace of European growth.

(…) Thursday’s bond-price rally was driven by expectations the European Central Bank will follow in the footsteps of the U.S. Federal Reserve and commit to purchasing bonds to boost economic growth. Expected ECB bond purchases drive up prices by adding a new source of demand, traders said.

Data released Thursday showed German inflation stabilized at a very low rate in August, while Spanish consumer prices fell at an accelerated pace.

The yield on the benchmark U.S. 10-year note fell to 2.334%, the lowest closing level since June 2013. Yields fall as prices rise.

The 10-year German yield settled at 0.885%. (…)

U.S. bonds offer superior yields compared with those of some other developed countries.

Adding to the appeal of U.S. bonds for buyers from other countries, the dollar has strengthened by about 1.5% this month against the euro, this week hitting its highest level since September 2013. (…)

Ruble Hits New Low The Russian ruble hit its all-time low as geopolitical conflict in eastern Ukraine intensified with an alleged participation of Russian troops.
Euro-Zone Inflation Cools Further

Annual inflation in the euro zone cooled to 0.3% from 0.4% in July, according to a preliminary estimate from Eurostat, the European Union’s statistics agency, driven by a fall in energy, food, alcohol and tobacco prices.

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Pointing up Hmmm, things may not be as bad as the headline numbers show. Annual “core” inflation is actually rising.

Italy Posts Biggest Consumer Price Decline on Record Amid Slump

Based on Italian methodology, prices fell 0.1 percent from a year earlier, the first reading below zero since 1959, Istat said. The fall in consumer prices was mostly due to an increased year-on-year decline of energy costs and to a slowdown in the price of services, Istat said.

The inflation rate based on European Union measurements fell 0.2 percent in August from a year earlier, Rome-based national statistics office Istat said in a preliminary report today.

German Retail Sales Drop German retail sales in July posted the biggest monthly decline in real terms since January 2012, the country’s statistics office said Friday.

Retail sales in July fell 1.4% compared with the previous month in real, calendar- and seasonally adjusted terms, sharply underperforming expectations for a 0.0% reading in a Dow Jones Newswires survey of analysts. The data followed a revised increase of 1.0% in June, from a first estimate of 1.3% rise.

On an annual basis, retail sales were up 0.7% in real terms in July, the statistics office Destatis said. In the first seven months, retail sales grew 1.3% in real terms compared with the same period of last year.

Schaeuble Sees Draghi’s Instruments for Growth Exhausted

The European Central Bank has run out of ways to help the euro area, putting the burden on governments to spur growth without running excessive deficits, German Finance Minister Wolfgang Schaeublesaid.

In an interview with Bloomberg Television at the Medef business leaders’ conference near Paris, Schaeuble said he agrees “100 percent” with ECB President Mario Draghi’s appeals for governments in the 18-country currency union to complement monetary policy with “structural reforms” to boost competitiveness and overcome the legacy of Europe’s debt crisis.

‘‘Monetary policy can only buy time,’’ Schaeuble said in the interview yesterday. “Liquidity in markets is not too low, it’s even too high. Therefore I think monetary policy has come to the end of its instruments and therefore what we urgently need is investments, regaining confidence by investors, by markets, by consumers.”

SENTIMENT WATCH
Running of the Bulls Hits Fever Pitch Trading volume may be pinned near rock-bottom levels, but the few folks still trading stocks are more bullish than they’ve been all year.

For the week ended Wednesday, the percentage of bullish investors in the American Association of Individual Investors’ survey rose above 50% for the first time since Dec. 26. Bullish sentiment has now gained three weeks in row, climbing from 30.9% in early August to 51.9% this week, the biggest three-week advance since September 2010. (Charts from Bespoke Investment)

ISI’s hedge fund survey shows their net equity exposure at a fresh high of 53.9 while institutional investors maintain a low 65% invested position.

NEW$ & VIEW$ (28 AUGUST 2014)

Today: confidence in confidence stuff?

Upbeat Consumer Optimism Is Bullish for Economy & Stocks

From Ed Yardeni:

Rising consumer confidence in the US is confirming my bullish outlook for the economy and stocks. Yesterday’s release of the August Consumer Confidence Index (CCI) was especially upbeat. It is based on a survey conducted monthly by the Conference Board. I think it is more sensitive to labor market conditions than the survey conducted by the University of Michigan to derive their Consumer Sentiment Index (CSI). Here are some of the key highlights that impressed me the most:

(1) The CCI jumped 2.1 points to 92.4 in August. That’s the highest reading since October 2007. The gain was led by the CCI’s present situation component. Also leading the way higher was the CCI for consumers who are 55 years old or older. They tend to have more income and wealth, and to spend more when they are optimistic.

(2) The Conference Board reported that the “jobs plentiful” response rate jumped from 15.6% during July to 18.2% during August, the highest since March 2008. The CCI is highly correlated with the quits rate. The latter rose in June to the highest reading since July 2008. August’s CCI suggests that it continued to rise during July and August. As Fed Chair Janet Yellen has noted, when workers perceive that jobs are plentiful, they are more likely to seek another job and quit their current one.

(3) I average the CCI and CSI to derive our Consumer Optimism Index (COI). It was little changed at 85.8 in August from July’s 86.1, which was the best level since October 2007. The present situation index jumped to 97.1, the highest since January 2008. The expectations component remains in its flattish and choppy range of the past couple of years.

Dr. Yardeni may be right as far as the economy goes (because of the better employment outlook) but I have yet to find a good correlation between consumer confidence and stock prices.

And now this from ChangeWave Research:

Continued Momentum for U.S. Consumer Spending – But Confidence Stumbles

The survey of 2,002 U.S. consumers – completed August 19 – shows spending is up for electronics and autos. Back to School shopping plans are positive as well, although the spending increase is a bit more modest than a year ago.

In another positive, consumer concerns over higher energy costs and inflation are easing. But in a note of caution, consumer expectations are down slightly and confidence has stumbled significantly this month. Nonetheless, the August survey contains the best overall spending scores in more than four years.

A total of 28% of respondents believe the overall direction of the U.S. economy will improve over the next 90 days – up 1-pt from July. But 23% now think it will worsen, which is 4-pts worse than previously.

A total of 45% now say they’re Less Confident in the U.S. stock market than they were 90 days ago – 11-pts worse than July. Only 12% say they’re More Confident – down 6-pts from previously to the lowest level of the past six months.

High five Consumers Have Confidence But Not Lots of Cash For consumers, good cheer hasn’t translated to stronger spending. As has been the case throughout most of this recovery, the spirit is willing but the wallet is weak.

The latest reading on consumer confidence, released Tuesday by the Conference Board, shows households are as upbeat about the economy as they were in 2007, as the last expansion was about to end. (…)

But for people with jobs, pay raises remain minimal and barely pacing inflation. Small wage gains have held back spending.

Worse still, the board survey shows households don’t expect much change in the situation. In August, 15.5% of households expected their earnings would rise in the next six months, down from 17.7% saying that in July and the lowest reading since March. (…) for most households, paychecks, not wealth or confidence, are the main driver for spending.

Speaking of cash, in reality, real disposable income is rising at a 2.5% Y/Y clip. Not great, but not so bad either. But note also that wages and salaries have been rising at a 7.4% annual rate in the last 6 months (+4.0% last 3 months).

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Meanwhile,

Euro-Area Confidence Falls as Low Inflation Alarms ECB
German Unemployment Rises as Risks to Economy Build German unemployment unexpectedly rose in August as a stagnating euro-area recovery and tension with Russia darkened the outlook for Europe’s largest economy.

The number of people out of work climbed a seasonally adjusted 2,000 to 2.901 million in August, the Nuremberg-based Federal Labor Agency said today. Economists forecast a decline of 5,000, according to the median of 30 estimates in a Bloomberg News survey. The adjusted jobless rate was unchanged at 6.7 percent, the lowest level in more than two decades.

Spain Growth Picks Up as Consumer Prices Drop Most Since ’09 Domestic demand drove faster economic growth in Spain last quarter, while consumer prices extended a decline in August that has sparked a debate about another round of European Central Bank stimulus.

Gross domestic product rose 0.6 percent from the first quarter as household spending and investment advanced, the National Statistics Institute in Madrid said today, confirming its first estimate. Consumer prices fell 0.5 percent in August from a year ago, the sharpest decline since Oct. 2009, it said in a separate release.

Nonbank Mortgage Lenders Bounce Back In the first half of the year, lenders that aren’t banks made almost a quarter of all mortgage loans, the highest level since at least the financial crisis.

(…) Now the nonbank mortgage leaders say they are catering mainly to safe borrowers and they view the current pullback by big banks as an opportunity to boost market share. (…)

Kiev: Russian Forces Seize Coastal Town Kiev said that Russian forces have seized a key coastal town near the border with Russia, part of a wider assault that is raising fears Moscow is undertaking an outright invasion.
Russia accused of Ukraine incursion Rebel leader claims as many as 4,000 Russians fighting in neighbour’s east

But don’t you worry (thanks Pat):

APPLE BUYERS FOUND!

Remember a while back when Zerohedge was wondering who might buy more Apple shares given that just about everybody owned the stock? Factset answers:

imageApple showed 121 additional institutional shareholders in Q2, which amounted to an increase of 4.5% quarter-over-quarter. Apple already had a large institutional baseline, with approximately 2,700 institutional shareholders in Q1 (the most of any equity), but its percentage growth in this metric still surpassed those of the ten most widely held equities.

The two largest buyers of Apple in Q2 held much smaller positions in the prior quarter. Capstone Investment Advisors and Susquehanna Financial Group added nearly $3.5 billion in Apple, which amounted to fourteen- and five-fold increases in exposure, respectively. However, Susquehanna was previously a much larger shareholder, and owned 1.7% of Apple as recently as Q4 2012 (it now holds 0.4% of shares outstanding). Fidelity Management & Research Co., Apple’s fourth largest shareholder, was the third largest buyer of Apple stock over the quarter, while SSgA Funds Management and BlackRock Fund Advisors, the second and third largest shareholders, were among the biggest sellers.

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