Macro U.S.A: Which Way is UP...Revisited
Japanese data released this morning was DEAD ON, in terms of supporting our recent macro-thematic musings, as the trumpeted decline in the headline unemployment rate came as a RESULT of another steep decline in the labor force, as evidenced by the concurrent SIZABLE dump in the Number of Employed. Moreover, the (-) 5.6% monthly decline in Japanese exports (larger on a volume basis) led directly into a larger than anticipated decline in Industrial Output, which deflated by (-) 1.2% for the month.
We continue to put-the-pen to what is now a mighty-missive on the Japanese macro-eco-scene, to be delivering on Monday morning ...
... but for now, consider one simple market-based FACT ... the JGB is busting out to the upside, driving long-yields to new 52-week LOWS, and in fact, LEADING today's global bond rally.
Indeed, as we scan this morning's news, several items stand out, worthy of Mini-Monitor mention. Better yet, ALL of today's headline news-data items only serve to SOLIDIFY our macro-thematic thought-process. Note:
- UK British Bankers Association says UK Mortgage Approvals PLUNGED to their lowest level in FIVE YEARS, amid a HUGE (-) 17.5% MONTHLY decline, which resulted in the posting of a STEEP (-) 37.7% year-year rate of application deflation.
- Two Central Banks, two, as FAR REMOVED as possible, AND, covering BOTH sides of our Asian-Europe FX-theme ... BOTH banks CUT their 2005 GDP forecasts. We are talking about Thailand, and Switzerland.
German states report that the latest data on inflation, as per January's CPI readings, reveal an ACCELRATING push towards DISINFLATION. North Rhine-Westphalia CPI deflated by (-) 0.3% during the first month of the year, which drove the year-year rate to a full 50 basis points BELOW the ECB's 2% ceiling, reported at 1.5%, down from December's rate of 1.8%.
Also, Brandenburg state CPI deflated by a sizable (-) 0.4% during the month of January, driving the year-year rate down by a STEEP fifty basis points, to 2.0%, from 2.5% in December.
Of course, we MUST also mention the extending DISINFLATION in Chinese CPI reported this week, along with a continuation of the chronic DEFLATION revealed within Japanese CPI.
In fact, we note the DEEPENING Japanese CPI deflation, particularly in the context of what appears to be a PEAK in 'materials' inflation, which had driven a rise in the Corporate Goods Price Index, in a divergent reflationary push that was NOT mirrored by the Service Price component ...
... implying ... the overall price pressure at the Japanese corporate level remains DOMINATED by DISINFLATIONARY forces.
Indeed, one of those forces is the MONSTROUS (-) 3.8% yr-yr DEFLATION in Japanese Wage Earner Spending, another symptom of the DECLINE in the labor force, amid the rise in the number of employed, against new lows in the unemployment rate.
The decline in Japan's unemployment rate is NOT the correct 'read'.
Japan's labor market does NOT hold pocket-growth-aces ...
... but, rather, RAGS ... and is offering nothing more concrete than an all-out BLUFF.
In FACT ... as of this week's data ... price pressure dynamics HAVE BEEN DOMINATED by DISINFLATIONARY messages, from Asia, to Europe, to the U.S.
Indeed, the Fed has not even raised rates again, and already, DISINFLATIONARY forces are already beginning to intensify, in a CONCERTED and globally BROAD manner.
AND, it gets better (worse, depending on perspective) as we go forward into the CALENDAR year of 2005 ... considering that ... from January of 2004, to the end-summer 2004, prices for WTI crude oil rose from $33 per barrel, to an Aug-04 high of $49.40.
In other words, from the current just-under $50 level, crude oil would NEED to advance to nearly $70 ... just to provide the SAME inflation impetus this year, as posted via the rise LAST YEAR.
IMAGINE ... IF ... crude oil were to move back below $40 ... with the USD rising ... a combination that would CRUSH the year-year CPI input considerations, and, would skew such towards a STEEP DISINFLATION BIAS, statistically.
NOW, imagine ... the IF scenario laid out above ... INCLUDING ... NEW LOWS IN FOOD prices, which had ALSO provided a stiff reflationary statistical skew in the beginning of 2004, before succumbing to oversupply in the second half of the year.
NOW, not only are grains and oilseeds rolling over again, violating bullish long-term trends, and making new bear move LOWS ...
... but, ALSO, prices of OTHER ... LESS MONITORED ... food-stuffs are doing the same ...
... ROLLING OVER, and threatening to unleash a steep downside statistical skew to global inflation figures.
MMMmmm, we wonder, will PLUMMETING prices for 'hard-core' food-commodity products that HAD grabbed HEADLINES last year for their price INFLATION ... grab those same media headlines-attention, on the way down ??
In other words, will the media focus on the break DOWN in Milk prices, as noted in the long-term weekly chart on display below ????
Here too, JUST LIKE in the energy complex ... ANY further price decline begins to intensify a year-year calendar skew towards ...
... DISINFLATIONARY DOMINANCE.
Indeed, in this same vein, we would be MOST interested IF prices for Butter were to follow the same breakdown pattern, as suggested by the plunge in the long-term ROC. And of course, AGAIN, a breakdown would offer DISINFLATIONARY pressure on year-year inflation readings.
Long-time Money Monitor readers KNOW we monitor TWO specific grains, as GLOBALLY consumed indicators of food price pressure ... with our first focus always on Rice. As evidenced in the long-term weekly chart below, Rice is breaking down THIS WEEK, and WILL impart an INTENTLY NEGATIVE influence on global yr-yr inflation readings, as apply to food.
Our second focus, Wheat, which teeters on the verge of a downside price violation of the uptrend line in place since the previous macro-lows were made, back in Dec-99. Indeed, wheat is near a 2-YEAR LOW, which would of course result in another intensifying push towards year-year disinflation.
CERTAINLY ... a downside push in MEAT prices would represent a REVERSAL in the TREND influence on global inflation, emanating from this formerly high-flying food sector. Hence, we find it MOST interesting to note the recent fundamental input revealed within the Livestock market, ala HIGH 'placement' figures --- which --- has resulted in DOWNSIDE pressure in Feeder Cattle. Worse yet (not shown), the Feeder Cattle have broken down relative to the Live Cattle, in what we would consider a bearish sentiment reflection, as per the potential for a forward supply surplus.
Billy Ray Valentine must be selling Pork Bellies ... afraid that if he does NOT get enough MONEY for his bellies, he will not be able to afford the GI-Joe with the Kung-Fu grip. In other words, Pork Bellies are already breaking down, violating a multi-year reflation trend. Note the section of price inflation highlighted between January and June, of LAST YEAR, and get a feel for the potential DISINFLATIONARY push via the year-year comparison.
NO WONDER global bond prices are erupting, and yields are plummeting. Indeed, note the action in the U.S. 30-Year T-Bond yield, as it reaches for HISTORIC LOWS, ala the downside violation of the 1Q-04 yield lows, TODAY.
AND ... while we gather fodder --- particularly from within this morning's sickly GDP report --- for our next macro-dissection of the U.S. eco-scene, we note one single FACTOR highlighted within this week's data-revelations ...
... U.S. consumer income expectations have hit a NEW 10-YEAR LOW, as reported within the Conference Board's Consumer Confidence Survey. Amid expectations for further inflationary increases, higher interest rates, AND receding 'real' income ... a consumer cocoon seems MORE and MORE likely. Observe the statistical data, seen below courtesy of the eco-wizardry of Paul Kasriel's top-shelf research team at northerntrust.com.
Bottom Line ... LIFT-OFF ...
... as global bond prices, led by the U.S. long-end, confirmed by JGB ...
... rise from our famed Launching-Pad-Pattern, evident in the chart on display below.
OH ... and of course we MUST 'follow-up' yesterday's focus on the Morgan REITS Index, which DID in fact, VIOLATE its key downside pivot point during yesterday's decline ...
... which, in concert with today's bond price lift-off ... begs the question ...
... rock and roll, hoochie-koo ???
We remain BULLISH on the bond markets in the U.S., EU, Canada, and Japan.
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