April 1st, 2015 7:27 am

Via Marc Chandler at Brown Brothers Harriman:

European Economic Thaw Continues, but Dollar Remains Firm

- The US dollar remains bid as liquidity begins to slip away from the foreign exchange market, not to return until April 7; ADP and ISM manufacturing in focus for the US today
- China reported better-than-expected official PMI data for March, but Japan’s Tankan Survey was disappointing
- Meanwhile, the cyclical recovery in the euro area continues, while Norwegian data was disappointing
- Korea data was weaker across the board today

Price action:  The dollar is mixed against the majors, trading in narrow ranges ahead of the Easter holidays.  CHF and EUR are up slightly, while NZD and NOK are underperforming and down on the day.  The euro is trading near $1.0750, while cable is edging lower to trade near $1.4760.  Dollar/yen is back above 120 after falling as low as 119.40 during the Asian session.  EM currencies are mostly firmer, with KRW and ZAR outperforming and RUB and TRY underperforming.  China PMI readings came slightly in firmer than expected, boosting the Shanghai Composite 1.7% on the day. Yet MSCI Asia Pacific fell for the fifth straight day, down 0.5% and led by nearly 1% declines in the Nikkei and Taiwan’s TAIEX.  Euro Stoxx 600 is up 0.8% near midday, while S&P futures are pointing to a lower open.      

  • The US dollar remains bid as liquidity begins to slip away from the foreign exchange market, not to return until April 7.  The inability of the euro and especially sterling to trade higher despite favorable economic news is noteworthy.  At the same time, the Nikkei’s fall (0.9%) after a similar slide in the S&P 500 yesterday (and a lower opening projected today) has failed to keep the dollar below JPY120.  
  • The US session features the ADP employment estimate (225k expected after 212k in February), ISM manufacturing (52.5 expected, down slightly from February’s 52.9), and March auto sales (expected to snap  a three-month softening streak and rise to 16.9 mln unit pace from 16.16 mln).   Investors have come to accept that Q1 growth in the US was poor, and like last year, weather was an important drag.  The West Coast port shutdowns also played a role.  In addition, after posting its best quarterly advance in a decade, consumption also eased (and weather was likely a factor as well).  The headwinds are expected to prove transitory and with warmer weather, an economic rebound is expected.  
  • The dollar posted strong Q1 gains.  The main exception was the Swiss franc, which rose 2.2% against the dollar and was the strongest of the major currencies following the SNB’s decision to lift the currency cap.  The yen also fared well, losing only 0.3% against the dollar.  The euro saw its largest quarterly decline of its brief history, falling 11.3%.  After the dollar’s upside ran out of steam a couple of weeks ago, the market appears to be searching for a new range.  These ranges look like something like $1.0680-$1.1050 in the euro, $1.46-$1.50 in sterling, and JPY118-JPY121 for dollar-yen.  
  • China reported its official PMI data for March.  Manufacturing PMI increased to 50.1 from 49.9.  This is a bit better than the market expected, and suggests large businesses are coping better than small businesses with the economic transition given that the HSBC manufacturing PMI final reading was at 49.6 (which gives more weight to small businesses).  The final HSBC reading was better than the flash estimate of 49.2.  This was sufficient to keep China’s equity advance intact, and the Shanghai Composite rose almost 1.7%.
  • Japan’s Tankan Survey was disappointing.  It follows last week’s news that inflation had fallen to zero.  The recovery from last April’s sales tax increase continues to be lackluster.  There was no improvement in sentiment among large manufacturers (12), which was slightly weaker than expected, and the expectations for June stand at 10.  The non-manufacturers saw modest improvement, but the June projection is for some slippage.  Also disappointing was the all industry capex plans.  Japanese companies project cutting capex by 1.2% this fiscal year that begins today.  The consensus expected a 0.5% increase.   Japanese officials, however, are sounding more like cheerleaders, looking past the disappointing data.  Nevertheless, many are still expecting the BOJ to step up its efforts.  
  • The cyclical recovery in the euro area continues.  The March manufacturing PMI rose to 52.2 from 51.9 of the flash and 51.0 in February.  It is a ten-month high.  The forward looking new orders component stands at an 11-month high.  Germany and France improved from their flash readings, though France remains below the 50 boom/bust line and is the true laggard in the region.  Italy also surprised to the upside (53.3 vs.52.1 expected and 51.9 in February).  Spain was steady (54.3 from 54.2).  
  • The euro saw its high in Asia just shy of $1.08.  However, it could not sustain the upticks, despite the constructive data.  Sterling’s performance is the same but more so.  Sterling poked through $1.4870 in Asia, but even a constructive manufacturing PMI (54.4 from a revised 54.0 in February—initially 54.1) failed to lend sterling any support.  It briefly was pushed through yesterday’s low before finding a bid near $1.4740.  Deeply held ideas that the economic data will not spur BOE action and the uncertainty surrounding next month’s election leaves sterling with few friends.  Tomorrow evening will be the televised debate between the candidates.  
  • On the other hand, Norway saw a dismal manufacturing PMI and the krone was punished.  The March PMI fell to 48.8 from a revised 50.9 (initially 51.2).  The krone has lost about 0.5% against the dollar and 0.6% against the euro.  There is potential for additional krone weakness as the market begins pricing the risk of easier monetary policy.  
  • Lastly, we note that oil prices remain heavy.  Negotiations over Iran’s nuclear development appear close to a conclusion, which could see their oil exports increase rapidly.  In addition, surveys (Bloomberg and Reuters) suggest OPEC output increased in March.  The EIA reports US oil stocks today, and expectations are for a 4.2 mln build.  Inventories have risen for 11 consecutive weeks.  
  • Korea data was weaker across the board today.  March CPI came in at 0.0% m/m, slightly lower than expected, reinforcing our view that there may be more easing in store down the line.  March trade was even more downbeat with exports falling -4.2% y/y, compared with -1.9% y/y expected, while imports were down -15.3% vs. -12.1% expected.  February current account will be reported Thursday.  Despite the data, the external accounts are not an issue for Korea.  Indeed, the rising surpluses are positive for the won, though this will likely be offset by worsening of the capital account.

What to Watch Today

April 1st, 2015 7:25 am

Via Bloomberg:

* (All times New York; may be subject to delays)
Economic Data
* 7:00am: MBA Mortgage Applications, March 27 (prior 9.5%)
* 8:15am: ADP Employment Change, March, est. 225k (prior 212k)
* 9:45am: Markit U.S. Manufacturing PMI, March final, est.
55.3 (prior 55.3)
* 10:00am: Construction Spending m/m, Feb., est. -0.1% (prior
* 10:00am: ISM Manufacturing, March, est. 52.5 (prior 52.9)
* ISM Prices Paid, March., est. 38 (prior 35)
* ISM Prices Paid, March., est. 38 (prior 35)</li></ul>
* Wards Total Vehicle Sales, March, est. 16.9m (prior 16.16m)
* Wards Domestic Vehicle Sales, March, est. 13.5m (prior
* Wards Domestic Vehicle Sales, March, est. 13.5m (prior
Central Banks
* 10:30am: Fed’s Lockhart speaks in Stone Mountain, Ga.

High Repo Rates

March 31st, 2015 9:00 am

Via Bloomberg:

Elevated GC Repo Reflects Reluctance to Add to Balance Sheets
2015-03-31 12:47:56.462 GMT

By Alexandra Harris
(Bloomberg) — UST GC repo trading around 50bps/35bps at
quarter-end amid regulations forcing largest banks to hold more
collateral on their balance sheets.
* Mortgage repo traded as high as 70bps, according to TD
* Raised levels expected within dealer community, though
still expensive: TD
* Raised levels expected within dealer community, though
still expensive: TD</li></ul>
* Higher repo rates indicate “the marginal cost of banks’
unwillingness to expand their balance sheets,” says Citi
strategist Andrew Hollenhorst
* “It’s more of an interdealer phenomenon than for cash
investors, though they may see rates move a little
higher in sympathy”
* “It’s more of an interdealer phenomenon than for cash
investors, though they may see rates move a little
higher in sympathy”</li></ul>
* Money market funds have had access to ~$500b in quarter-end
collateral via Fed’s O/N, term RRP operations
* 25 counterparties took $29.5b at O/N RRP; at seven-day
term RRP, 78 participants submitted $101.3b at 0.10%,
below $125b cap


March 31st, 2015 8:14 am

Via a fully paid up subscriber:

German Two-Year Note Yield Drops to Record-Low Minus 0.257%

Hawkish Lacker

March 31st, 2015 7:58 am

Via Bloomberg:

Fed’s Lacker Sees ‘Strong’ Case to Raise Rates at June Meeting
2015-03-31 11:53:48.660 GMT

By Jeff Kearns
(Bloomberg) — Federal Reserve Bank of Richmond President
Jeffrey Lacker said the main interest rate should be raised in
June amid a stronger job market, consumer-spending growth and
inflation heading back toward the Fed’s target.
“A strong case can be made that the federal funds rate
should be higher than it is now,” Lacker, who votes on policy
this year, said Tuesday in the text of remarks at the district
bank in Virginia. “Unless incoming economic reports diverge
substantially from projections, the case for raising rates will
remain strong at the June meeting.”
Lacker said consumer spending has gathered momentum and
business investment should contribute to growth this year,
putting economic growth in the 2 percent to 2.5 percent range.
In his last economic outlook speech in January, he said growth
in 2015 may be around 2.25 percent, while “there are reasons to
believe” it could be as high as 3 percent.
Policy makers opened the door March 18 to an interest-rate
increase as soon as June, while also indicating in their
forecasts it will go slow once it gets started. Fed Chair Janet
Yellen said last week interest rates will probably be raised in
2015 and made the case for a cautious approach to subsequent
increases that will keep borrowing costs low for years to come.
Officials this month also cut their median estimate for the
main rate at the end of 2015 to 0.625 percent, compared with
1.125 percent in December forecasts. Since 2008, the Fed has
held rates near zero and more than quadrupled its balance sheet
to about $4.5 trillion in three rounds of asset purchases.

Supplying Stimulus

Even after several rate increases, the Fed will still be
supplying “quite a bit of stimulus” to the economy for a
“considerable period,” Lacker said.  He said inflation will
rebound as the dollar peaks and energy prices start to rally.
Lacker said inflation is “likely to begin moving back
toward 2 percent this year” as the decline in energy prices
proves transitory. The Fed’s preferred price gauge rose 0.3
percent in February from a year earlier and has been below the
Fed’s 2 percent objective for almost three years.
Sluggishness in the housing market is unlikely to change
quickly, and homebuilding probably won’t be a “major
contributor” to economic growth this year, Lacker said.
Lacker, 59, spoke on Tuesday to a forum of regional
business leaders. He became president of the Richmond Fed in
2004 after five years as director of the regional bank’s
research department.

What to Watch Today

March 31st, 2015 7:31 am

Via Bloomberg:

* (All times New York; may be subject to delays)
Economic Data
* 9:00am: ISM Milwaukee, March, est. 51.5 (prior 50.32)
* 9:00am: S&P/Case-Shiller 20 City m/m SA, Jan., est. 0.6%
(prior 0.87%)
* S&P/CS 20 City y/y, Jan., est. 4.6% (prior 4.46%)
* S&P/CS 20 City NSA, Jan., est. 172.90 (prior 173.02)
* S&P/CS U.S. HPI m/m, Jan., est. 0.80%, (prior 0.73%)
* S&P/CS U.S. HPI y/y, Jan. (prior 4.62%)
* S&P/CS U.S. HPI NSA, Jan. (prior 166.82)
* S&P/CS U.S. HPI NSA, Jan. (prior 166.82)</li></ul>
* 9:45am: Chicago Purchasing Manager, March., est. 51.7 (prior
* 10:00am: Consumer Confidence Index, March, est. 96.4 (prior
* TBA: Benchmark Revisions Wholesale Inventory and Sales
Central Banks
* 8:00am: Fed’s Lacker speaks in Richmond, Va.
* 8:50am: Fed’s Lockhart speaks in Stone Mountain, Ga.
* 9:00am: Fed’s Mester speaks in Stone Mountain, Ga.
* 3:00pm: Fed’s George speaks in New York
* 11:30am: U.S. to sell $25b 52W bills, $40b 4W bills


March 31st, 2015 7:28 am

Via Marc Chandler at Brown Brothers Harriman:

Dollar Back on Top as Q1 Ends

- The US dollar is finishing the month as it began, with underlying strength
- The Fed’s leadership continues to point to a rate increase sometime in the June-September period
- The month-end, quarter-end, and fiscal year-end flows, ahead of the long Easter holiday, may be overwhelming the market’s reaction to economic data
- Turkish data out today was mixed

Price action: The dollar is broadly stronger against majors, but mixed against EM.  The euro broke below the $1.080 resistance level and is now trading around $1.0740.  Sterling is trading just below $1.4800, while the EUR/GBP cross continues to slide lower.  The yen is little changed, trading on both sides of ¥120.0.  The Norwegian krone is underperforming, its fourth consecutive session of substantial losses, with the dollar now at NOK 8.1200.  On the EM side, ZAR and the CEE currencies are underperforming, while INR and MYR are outperforming.  However, the EM moves have been moderate in comparison to those in the majors.  MSCI Asia Pacific fell for the fourth straight day, as the Nikkei and the Shanghai Composite were both around 1% lower.  This is the second down day for the Shanghai Composite in the last twenty days. Euro Stoxx 600 is down 0.2% near midday, while S&P futures are pointing to a lower open.


  • March may begin as a lion and end as lamb, but the US dollar is finishing the month as it began, with underlying strength.  The main exception is the Japanese yen, against which the dollar is flat, perhaps a reflection of the weaker Nikkei (-1%) and softer US shares.  The dollar’s firmer tone comes on the back of mixed US economic data.  Yesterday’s personal consumption expenditure data were soft, and some economists further revised down Q1 GDP toward 1.0%.  US consumers appear to have pulled back in January and February, after expanding consumption by a little more than 4% in Q4 14.  Poor weather also appears to have contributed.  
  • On the other hand, the solid rise in income (0.4%) saw savings rise to 5.8%, which can be expected to fuel future consumption.  A strong auto sales report tomorrow may drive the home the point that US consumer hiatus is brief.  The core CPI rate has surprised for two months to the upside, and the core PCE deflator also surprised to the upside.  At 1.4%, the core PCE deflator is essentially where it was (1.5%) in the middle of last year before the slide in oil prices.  
  • The Fed’s leadership continues to point to a rate increase sometime in the June-September period.  Despite downward revisions to its growth forecasts, Yellen has noted that it still anticipates above trend growth.  There is greater attention on the dollar’s rise from policy makers.  But judging from comments by several Fed officials, including Yellen and Fischer, it does not appear to be overshadowing other factors or that it has risen to a point that poses an obstacle to the beginning of the normalization of monetary policy.  
  • European economic news does not seem to have been the trigger for the euro’s slide, which is now amounting to about 3 cents in four sessions.  The euro staged a key reversal last Thursday.  It set a new high for the move just above $1.1050 and then proceeded to sell off and settled below last Wednesday’s low (~$1.09).  It opened this week in Asia near $1.09 and dropped below $1.0720 in the European morning.  Below here, support is seen near $1.0685, which corresponds to a 61.8% retracement of the euro’s bounce from the March 16 low near $1.0460.  
  • As expected, the eurozone flash CPI estimate for March ticked up to -0.1% from -0.3%.  However, the core rate slipped to 0.6% from 0.7%.  The euro area February unemployment was reported at 11.3% while the January series was revised to 11.4% from 11.2%.  This is in part mitigated by the stronger German March jobs report.  Unemployment queues fell 15k, a little more than expected, and this saw the unemployment rate fall to a new low of 6.4%.  
  • The month-end, quarter-end, and fiscal year-end flows, ahead of the long Easter holiday, may be overwhelming the market’s reaction to economic data.  Sterling is pinned near yesterday’s lows despite the unexpected upward revision to Q4 GDP on the third read.  GDP was revised up to 0.6% q/q and 3.0% y/y, despite a somewhat larger than expected current account deficit.  
  • Perhaps this data is too old to matter much.  The January index of services was considerably weaker than expected (-0.2% vs consensus of +0.3%), which raises questions over the pace of growth here in Q1 despite the more constructive PMI readings (note that the Markit/CIPS service PMI rose to 57.2 in January from 55.8 in December).  In addition, the election uncertainty (or is it certainty of a coalition government, or what is called a hung parliament?) is also taking a toll, which is evident in the price action and the volatility.  
  • The 0.5% rise in private sector credit extension in Australia, which lifted the year-over-year rate to 6.2% (a 6-year high) was not sufficient to offset the increasing speculation that the RBA will cut rates next week.  A nearly 80% chance appears discounted by the OIS market.  Last Tuesday, the Aussie was pushing toward $0.7940.  Today it is straddling the $0.7600 area.  Some observers are playing up the slide in iron ore prices to new ten-year lows,  but we tend to put more weight on the capital market developments than the goods markets, though we recognize that after a positive terms of trade shock, Australia (and other commodity producers) are wrestling with a negative terms of trade shock.  
  • This includes Canada.  It reports January GDP figures today, and a 0.2% contraction is expected.  This would bring the year-over-year pace down to 2.4% from 2.8%.  In four sessions, the US dollar has risen from CAD1.24 to CAD1.2750.  The multi-year high set earlier this month was near CAD1.2835.  During this period, oil has fallen about $5 a barrel.  At the same time, we expect sentiment to begin building for another rate cut, perhaps not next month but by the end of May (May 27th).  
  • Turkish data out today was mixed.  Q4 GDP was higher than expected, rising to 2.4% y/y against expectations for only 1.7%.  This means that full year 2014 growth was 2.9%, down from a revised 4.2% in 2013.  Much of the deceleration came from a fall in household spending, declining to 1.3% in 2014 from 5.1% in the previous year.  The February trade deficit, a less backward-looking data set, widened more than expected to -$4.66 bln.  Still, this is better than the 2014 February print of -$5.1 bln, showing some improvement in the country’s external accounts given the sluggish growth and falling commodity prices.  It’s important to note, however, that despite the recent weakness of the lira, the currency has experienced a significant appreciation on a real effective exchange rate (REER) basis.  This is noteworthy despite the lira having weakened over 20% against the dollar over the last twelve months.  This is because aside from much higher inflation than many of its trading partners, the currency has gained against the euro and the ruble over the period, the currencies of its two largest trading partners.

JPM Duration Survey

March 31st, 2015 7:24 am

Via Bloomberg:

RATES: Longs and Shorts Rise in Latest JPM Survey
2015-03-31 11:14:31.630 GMT

By Robert Elson
(Bloomberg) — The JPMorgan Treasury Client Survey for the
week ended March 30 vs weeks ended Mar. 23, 16.
* Longs 13 vs 9 vs 11
* Neutrals 65 vs 71 vs 67
* Shorts 22 vs 20 vs 22
* Net longs -9 vs -11 vs -11
* “The all clients survey shows the fewest net shorts since
March 2, 2015’’
* Active clients:
* Longs 8 vs 8 vs 17
* Neutrals 67 vs 75 vs 66
* Shorts 25 vs 17 vs 17
* Net longs -17 vs -9 vs 0
* “The active clients survey shows the highest net shorts
since October 6, 2014’’
* “The active clients survey shows the highest net shorts
since October 6, 2014’’</li></ul>

Overnight Economic Data

March 30th, 2015 9:51 pm

Via Robert Sinche at Amherst Pierpont Securities:

AUSTRALIA: The BBerg consensus expects February Private Sector Credit Growth to rise 6.3% YOY, which would be the strongest since Jan 2009, although far below the 16.5% peak of December 2007 as consumer spending moderated and capital investment weakened materially in recent years.

S. KOREA: February data on Industrial Production is likely to show a YOY decline, maintaining the lackluster growth trend over the last 2 ½ years as the KRW strengthened versus the JPY and hurt competitiveness.

JAPAN: The February data on Labor Cash Earnings should maintain the trend of falling real wages that continues to plague the Japanese economy. Higher headline inflation remains the problem, not the solution.

EURO ZONE: The BBerg consensus expects the February UR to be stable at 11.2% while the Headline CPI rebounds to -0.1% YOY in March from -0.3% YOY in February, while the core CPI remains stable at 0.7% YOY.

GERMANY: The BBerg consensus expects Unemployment to fall another -12K in March while February Real Retail Sales increased a healthy 3.4% YOY, a sign that domestic demand is responding to lower energy costs.

FRANCE: The BBerg consensus expects February Household Consumption to have increased a respectable 2.6% YOY for the 2nd consecutive month, the strongest gains since early 2011.

ITALY: The BBerg consensus expects Headline inflation to stabilize at 0.1% YOT for the 2nd consecutive month while the UR holds at 12.6% for the 2nd consecutive month.

SPAIN: The BBerg consensus expects February Retail Sales to be up about 4%, in line with the solid gains over recent months, as the recovery takes hold.

Eclectic Topic Via Merrill Lynch

March 30th, 2015 9:47 pm

Via Merrill Lynch Research:

Monday, 30 March 2015
Situation Room
No longer more bang for the buck
  • US IG credit has compressed significantly to EUR IG and the EUR/USD basis swap has declined further.
  • As result, on a currency hedged basis there is no longer more attractive value in USD over EUR denominated spreads.
  • Thus, following the recent compression in USD credit we no longer recommend that investors swap out of EUR, into USD credit.
  • No longer more bang for the buck. Following the February rally in US credit, and post-QE struggles for European credit, US IG credit has compressed significantly to EUR IG and the EUR/USD basis swap has declined further. As result, on a currency hedged basis there is no longer more attractive value in USD over EUR denominated spreads. Specifically we find that 10-year USD spreads for European issuers are 15bps wider than EUR denominated counterparts on a currency hedged basis, down sharply from 46bps at the beginning of the year. For US issuers spreads are now 4bps tighter in USD than EUR, a reversal from earlier this year where they were 15bps wider. Since earlier in the year we have recommended that investors swap out of EUR, into USD credit. However, following the recent compression USD credit no longer offers superior value to EUR and we take off this recommendation. In fact going forward the risk is that EUR spreads outperform. – Hans Mikkelsen, Yuriy Shchuchinov, Jon Lieberkind, Barnaby Martin, Ioannis Angelakis, Souheir Asba (Page 4)
  • The US consumer’s reality. In the 19 March US Economic Weekly, “The consumer’s shopping cart: half full“, we argue that while the retail sales report is an important early sign of monthly consumer spending, it is incomplete and can be misleading. We made three arguments: (1) retail sales are released in nominal terms, which means big swings in prices can send misleading signals; (2) the data are revised, sometimes significantly as more complete data are available; and (3) retail sales give a partial picture of the consumer, only capturing a third of total spending. After controlling for these factors, consumer spending looks stronger in 1Q than suggested by the retail sales figures. Indeed, we are tracking growth of 2.5% qoq saar for real consumer spending. This is only just below the average annualized growth of 2.8% in 2014. Michelle Meyer (Page 7)
  • China Economic Watch: Beijing steps up property easing measures. Easing measures to boost the weak property market. The PBoC issued a circular today loosening mortgage lending standards in an effort to boost the ailing housing market. It lowered the minimum down-payment ratio for second-home mortgages to 40% from 60%. It also loosened the housing provident loan policy. In a coordinated move, the Ministry of Finance (MoF) shortened the holding period to exempt home buyers from paying the capital gains tax to 2 years from 5 years. While largely expected by the market, these easing measures represented a positive surprise, as the magnitude of second-home mortgage down-payment ratio reduction was 10pp larger than expected. Today’s policy move is consistent with our expectations that Beijing would introduce more easing measures to help home buyers, after a slew of weak data recently. We believe the new policies will provide support to upgrading demand and sentiment in the property market, and reflect the government’s determination to stabilize growth this year. – Sylvia Sheng, Xiaojia Zhi (Page 8)
  • Auto Monthly: Motorin': March SAAR expected at 16.8mn. SAAR estimate at 16.8mn, GM +2%, F +0%, FCA +5%. We expect U.S. light vehicle sales in March to run at a SAAR of 16.8mn units, up from a SAAR of 16.5mn a year earlier. We estimate that GM sales will be up 2% YoY, after adjusting for selling days, driven by continued strong pickup sales. We forecast Ford sales to be flat YoY, after adjusting for selling days, as fleet sales have been weak while the F-Series ramps up. We expect FCA sales to rise an adjusted 5% YoY, continuing the robust momentum in trucks (Jeep and Ram) and the more recent momentum in cars. – Douglas Karson, Mark Hammond, Max Hubbard (Page 6)
  • Consumers frostbitten in February. Consumer spending rose 0.1% mom in February, disappointing expectations of 0.2%. Personal income surged 0.4% mom for the second consecutive month and pushed the saving rate up to 5.8% from 5.5%, the highest since December 2012. With headline PCE rising 0.2% (+0.1708% unrounded) real spending actually contracted 0.1% mom, which is the first monthly decline since April. January was also revised lower to reflect a 0.2% increase in real spending, versus 0.3%. Feeding these data into our GDP tracking model sliced off 0.4pp from 1Q, leaving us at 1.3% qoq saar. Looking at the components, the 2.8% decline in real auto sales was the biggest downward driver, though food services also fell 0.5%. A 1.2% increase in utilities and 1.3% rise in gasoline and other energy goods provided a small offset. These data suggest that harsh weather kept consumers indoors, cranking up the heat and staying warm. As expected, the Fed’s preferred measure of inflation, the core PCE price index, inched up 0.1% (+0.1340 unrounded) mom. This pushed up the yoy rate to a still-low 1.4%, from 1.3% in January. Housing continued to support the index, rising 0.3% mom. Financial services prices provided the next biggest boost, up 0.4% mom. On the flip side, transportation services prices fell 0.8% mom.
  • Pending sales surge. Pending home sales surged 3.1% mom in February, coming in well above expectations of a modest 0.3% increase. The index reached the highest level since June 2013, and was up 12.0% yoy versus 6.1% yoy in January. This reinforces the positive signal from the new home sales data, which were also strong in February. Strength in the Midwest was the biggest driver, with sales jumping 11.6%. Also, the West saw a 6.6% gain. Meanwhile, sales fell 2.3% in the Northeast and 1.4% in the South. The data are encouraging, but we caution against reading too much into it given that housing data can be quite noisy, especially during the winter months, and can see sizeable revisions. Looking ahead, we are hopeful that these data are an early sign of a solid spring selling season.Alexander Lin (Page 8)