Morning Report: Empire State outlook dims 7/16/18

Vital Statistics:

Last Change
S&P futures 2802 -1
Eurostoxx index 383.92 -1.14
Oil (WTI) 69.81 -1.2
10 Year Government Bond Yield 2.84%
30 Year fixed rate mortgage 4.50%

Markets are flattish as earnings season gets into full swing. Bonds and MBS are flat.

Oil is dropping after US Treasury Secretary Steve Mnuchin said the US could waive some Iranian oil sanctions.

Bank of America reported decent earnings this morning. This is a big week for earnings, with about 200 major companies reporting. The early part of reporting season is generally dominated by the banks.

Jerome Powell will testify in front of Congress on Tuesday and Wednesday. Generally these events don’t yield much in the way of useful info – they are mainly for the benefit of politicians who want to draw attention to some issue that may or may not relate to monetary policy. Expect a lot of questions regarding how a trade war and income inequality will affect growth from Democrats, and expect a lot of questions regarding regulation from Republicans. The prepared remarks are here.

Retail Sales rose 0.5% in June, which was in line with expectations. Ex-autos and gas they rose 0.3% while the control group was flat. May numbers were revised upward. The control group was below expectations, but with the May revisions offset that. Discretionary items (clothing, sporting goods, department stores) declined, which building materials and furnishings rose.

Business Inventories rose 0.4% in May. The inventory-to-sales ratio is down to 1.34 from 1.39 last year.

Business activity in New York State exhibited continued strength in June, according to the New York Fed’s Empire State Manufacturing Survey. While the current conditions index exhibited strength, the outlook has slipped. The survey doesn’t say whether this is being driven by a potential trade war or something else. Planned capital expenditures (a proxy for expansion plans) decreased.

The Atlanta Fed took up their Q2 GDP estimate to 3.9%. Morgan Stanley warns that we are seeing a bit of a sugar rush in the economy courtesy of trade tensions. As companies worry about a potential trade war, they stockpile raw materials and other inputs. This gooses the inventory numbers which makes the current quarter look particularly strong. The problem is that you get a double whammy if the trade war materializes. Activity will drop, and that inventory will be liquidated, both of which will reduce GDP growth. Even if a trade war doesn’t happen, uncertainty could cause companies to pull in their horns. FWIW, I am skeptical of the “uncertainty” argument. Regulatory “uncertainty” out of DC generally causes companies to be cautious. The rest of the clatter is just noise. Certainly investors (judging by the S&P 500) aren’t worried.

One stat to watch: Corporate bond spreads. We are seeing a slight widening in some of the junkier investment grade debt. Baa spreads increased to 200 basis points from 165 in February. While spreads are still tight relative to historic levels, this is something to watch. Years of financial repression have given issuers the upper hand with regards to covenants and some of those chickens will come home to roost in the next recession.

81 Responses

    • As I’ve said MANY times, it’s a movie that takes place during the Christmas season (like Lethal Weapon, for example) but the movie is not about Christmas (like It’s a Wonderful Life or Miracle on 34th Street).

      Look, you can’t argue with science.

      Liked by 1 person

      • You also like the new Star Wars & Star Trek movies if I recall correctly, so I will discount appropriately.

        Liked by 1 person

        • I liked Rogue One and thought The Force Awakens was better than Episodes 1-3. The Star Trek reboot was FUCKING AWSOME!

          Like

        • You may be confusing the Star Trek reboot with The Orville, which, if not awesome, was very funny and easy to watch. I admit to not having watched more than two rebooted Star Trek episodes and I think they were both actually the pilot. I admit to watching every episode of The Orville.

          I watch the reboot of Lost in Space with my granddaughters and it is more compelling than the first two episodes of the new Star Trek. I thought that, anyway. YMMV.

          Liked by 1 person

        • I believe the Star Trek reboot in question is the movies, not the CBS series.

          Rogue One is great. Force Awakens vs Episode I – III is debatable. Last Jedi truly sucks. Solo was good, but not up to Rogue One level. Better than I-III and VII & VIII.

          Liked by 1 person

        • Ah so – the new Star Trek movies are pretty good, I agree.

          Will any Rs get on DJT for blaming America for shit? He’s as bad as EW on that score. Worse, actually. And I think EW is pretty bad.

          I think everyone should actually read the indictment of the 12 GRU agents. I don’t know enough about cybercrime to criticize it or analyze it but apparently it is a detailed enough indictment to make one wonder if CIA has infiltrated the GRU. I bet thowe 12 guys are dead men walking now. Maybe the leaker will defect!

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        • “Our relationship with Russia has NEVER been worse thanks to many years of U.S. foolishness and stupidity and now, the Rigged Witch Hunt!” -DJT tweet.

          Many Rs are now getting on DJT for blaming America for shit, and I am thankful for that result, which I feared would not be the case. It’s an era of being grateful for small favors, I admit. Just last week I had to note to myself that all the judges on his SCOTUS list were competent and smart, with no discernible history of dishonorable behavior, which was one of those small favors.

          The big picture remains one of thunder and lightning very very frightening, I think.

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        • The big picture remains one of thunder and lightning very very frightening, I think

          I admit, its Interesting to me that you write this.

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        • mark:

          The big picture remains one of thunder and lightning very very frightening, I think.

          I can’t stand listening to Trump. Literally. I turn him off every time he comes on TV, and I wouldn’t follow him on twitter even if I knew how to. Having said that, I think Trump’s tweets and various press conference comments are the very opposite of the big picture. To me what he does is far more important than what comes out of his incessantly running mouth. Especially when what he is talking about is the whole Russia “collusion” farce.

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        • Mark:

          I suppose it would have been very entertaining to see Trump “grill” Putin over assassinations and such during a joint press conference. But it also would have been unprecedented in the annals of joint press conferences, no? Is that really what you would have expected?

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        • ” Last Jedi truly sucks.”

          I liked the concept with Luke.* Ignored subplot. I probably grade on a curve when it comes to star wars, but i Liked, then didn’t, then i did. and no i’m meh.

          *probably because his retirement plan and mine are similar.

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        • I need to read a transcript of Trump’s news conference, but the hysteria on the progressive side has gone to 12+. I really didn’t think TDS could get worse, but it has.

          With regards to the indictment, I really want to see it tested in open court with actual evidence.

          Liked by 1 person

        • One of the problems is that the goal posts have shifted. Trump talks about how the Trump/Russia collusion narrative is a witch hunt/is discredited/IC community (read Deep State) made up bullshit. Media claims that Trump is saying Russian election meddling is bullshit. To me (and Trump, obviously) they are different things. In the parts of the press conference I heard Trump was railing against the collusion narrative and the press is pretending he is railing against the Russian Medling narrative.

          So, on further reflection, same as it ever was.

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        • “…Trump was railing against the collusion narrative and the press is pretending he is railing against the Russian Medling narrative.”

          The press asked him about meddling and he deflected by answering “no collusion.” He has continually refused to accept “Russian meddling” as presented to him by – everyone who has investigated the matter – at every opportunity.

          Suppose he had said in the first instance that based on the reports he had received Russians meddled in the election and appointed a Special Commission to make recommendations to harden our election processes against interference from abroad. This would have made it possible for him to answer every question about meddling with “It’s being handled bigly by the Commission. I have trust that this will be fixed, soon.”

          He could then throw in “no collusion” whenever he wanted to, but it would have skirted the appearance of complicity and made him appear part of the solution rather than part of the problem. EVEN IF THERE WERE NO PROBLEM, BTW.

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        • Mark:

          The press asked him about meddling and he deflected by answering “no collusion.”

          Isn’t that a pretty standard tactic of politicians, answering a question that wasn’t asked? Especially when answering the actual question in way that would appease the audience requires calling the person standing next to you a liar to his face?

          He has continually refused to accept “Russian meddling” as presented to him by – everyone who has investigated the matter – at every opportunity.

          Trump acknowledges Russia role in US election hacking

          I also think you are severely underplaying the degree to which virtually everyone, the media, the Dems, the Mueller investigation, routinely conflates Russian “meddling” with Trump “collusion”. The only reason the subject is an ongoing topic of conversation at all is because of the Mueller investigation, and the only reason that investigation exists is because of the vague accusations of “collusion”.

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        • Mark,

          What Trump is railing about is the concept that he wouldn’t have been elected without Russian interference. When the media asks questions about Russian meddling, it’s undeniable that their premise, the belief underlying their question, is always that if it weren’t for the former commie bastards Trump wouldn’t be President. His answers always address their underlying premise.

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        • Mueller’s indictment of the individual Ruskies seems pointless to me and could be argued that he’s trying to bury his lack of evidence by indicting people he knows will never go to trial.

          Unless he tries them in abstentia, which would be fun IMO.

          Liked by 1 person

        • Andy McCarthy’s post on Mueller’s Russian indictment.

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        • Thanks Scott. Forgot the link.

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        • Which is why I would like to see it tested at trial.

          And I don’t think they’ve actually shown much specific evidence of Russian involvement with the hacks, as opposed to making assertions with an appeal to authority and releasing summaries and conclusions with no supporting evidence.

          And it’s always worth remembering at the end of the day this is about releasing true information about the DNC and DCCC to the media and buying $100k of Facebook ads.

          Liked by 1 person

        • jnc:

          And it’s always worth remembering at the end of the day this is about releasing true information about the DNC and DCCC to the media and buying $100k of Facebook ads.

          Exactly!

          Liked by 1 person

        • If my understanding is correct, Mueller didn’t have access to the server either, he’s getting his information from the DNC and CrowdStrike. Also, from phishing attempts on Podesta’s email.

          Liked by 1 person

    • The radical left isn’t radical at all. Republicans, in their pursuit of power, forced the center to move left.

      Really? Former centrists have now become antifa?

      I held my tongue when U.S. Rep. Joe Wilson, a South Carolina Republican, in 2009 called President Obama a liar during a joint session of Congress, and in front of the entire country.

      Thank goodness nobody on the left or amongst elected Democrats can be accused of doing that to Trump! WTF? Lack perspective, much?

      I shook my head when Trump came down an escalator and labeled an entire nation of people racists and murders.

      A: he did not ever do this. Super-obviously did not ever do this.
      B: What he did do to a foreign nation, call some of them rapists and murderers, seems to align pretty closely to Clinton’s “basket of deplorables” speech, and to a lesser extent Obama’s “bitter clingers”. Wonder if he was shaking his head at those points.

      The recent protest won’t be my last. As expected, Trump did nominate an ultraconservative judge to fill Anthony Kennedy’s seat.

      He’s a moderate who is astonished that anybody might call him radical, while feeling that Trump’s SCOTUS pick is super-ultraconservative? Hmm.

      Maybe they’ll think differently on November 7.

      That seems less and less likely. Republicans went balls-to-the-wall to nail Clinton during impeachment (apparently under the same theory that catering to the base was a big winner), and they lost seats.

      Like

  1. Nothing makes me more comfortable in being anti-anti-Trump than all the hysterical proclamations about “act of war” and alleged Russian hacking being equivalent to Pearl Harbor & 9/11.

    The birthers look sober by comparison.

    Liked by 1 person

  2. So, hey. How happy are you guys all feeling with the fact that Republicans in office are standing silent on Trump’s trashing of the U.S.?

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    • Well, I dispute your premise (“Trump’s trashing of the U.S.”) so I doubt we’ll agree here.

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      • So his siding with Putin’s assurance over all of the US intelligence agencies doesn’t bother you?

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        • My read of the transcript is that he didn’t side with Putin over the intelligence agencies, but instead played the game of “it’s an open question and we’ll see” coupled with some hand waving about the missing server.

          I’d like to see one of these cases go to trial and have the evidence disclosed and challenged in open court, as opposed to relying on allegations, summations, and conclusions. Absent Roger Stone being indicted, that probably won’t happen.

          Liked by 1 person

        • Oh, c’mon. I know that you’re a lawyer and all, but that is stretching statements beyond any reasonable interpretation.

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        • I’m not a lawyer, and no I’m simply noting what he actually said.

          He’s playing the “on the one hand, on the other hand” game. I’ll readily concede that its disingenuous and deflecting because he doesn’t want to actually address the question especially with Putin standing right next to him.

          But expecting anyone who isn’t already outraged about Trump to view this incident as somehow over the line is wishful thinking.

          Liked by 1 person

        • So his siding with Putin’s assurance over all of the US intelligence agencies doesn’t bother you?

          Also, I would like to note that I don’t agree the US intelligence agency assessment at this point, or at least it’s presentation in the media. Not due to any assurance of Putin (who is, by all appearances, a murderous thug) but because the evidence doesn’t appear to be there, the expert assurances give all the appearances of being politically motivated, and $100k in Facebook ads targeted at the extreme base who would never vote for Hillary in a million years did not swing the election.

          Also, all the stuff I’ve heard turned into “hacking”, such as phishing attempts that could have been executed by almost an IT person to hack the account of someone whose email password was “password” (this should not be possible in a secure system, but whatever). Port scans from Russian IPs being characterized as “hostile attacks from the Kremlin seeking vulnerability, trying to hack our election” . . .

          There’d be a better argument (and more forensic evidence) for China hacking our elections, but Russian makes a better political narrative (obviously) so that’s what our objective and independent intelligence agencies have supposedly all signed off on (though even this doesn’t appear to be entirely true).

          But none of that involves me “siding with Putin”. Just as if it was a lovely day, and Putin said it was a lovely day but US intelligence insisted it was a horrible day, and I said, “I think it’s a lovely day” . . . that wouldn’t be me siding with Putin over US intelligence, that would be me saying that, in my assessment, it was a lovely day.

          But it’s fun how quickly the folks disgusted by Bush’s “you’re either with us or against us” orientation eagerly adopt it, when circumstances change.

          And note again: I don’t like Trump, and did not vote for him. I’m also not siding with Trump in my assessment in the credibility of the “Russian meddling” narrative, as generally portrayed as a 9/11-level event.

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    • Mich:

      How happy are you guys all feeling with the fact that Republicans in office are standing silent on Trump’s trashing of the U.S.?

      What “trashing of the US” do you have in mind?

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      • For purposes of this discussion, we’ll restrict it to the totality of the opinion of various intelligence agencies over Mr Putin’s assurances.

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        • Mich:

          For purposes of this discussion, we’ll restrict it to the totality of the opinion of various intelligence agencies over Mr Putin’s assurances.

          Like jnc, I don’t see see what he said as siding with Putin over anyone. Nor, if he did, would I characterize that as “trashing the US”.

          Question: When you sided with Saddam over US intelligence agencies with regard to WMD in Iraq, were you “trashing the US”? 😉

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        • I did not do that.

          The fact that after we went into Iraq there was evidence of unknown chemical weapons caches does not change the intelligence that was ignored to go to war in Iraq.

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        • Mich:

          I did not do that.

          I don’t understand. Previously you have told us that, prior to the 2003 war in Iraq, you knew that “the whole WMD thing was bullshit” and that you “spent weeks during the run-up to the Iraq war trying to get people (staffers) to listen to me about his utter lack of [WMDs] at that point”. You even offered once to “show you receipts for plane tickets and hotels for the trips I took to DC to cool my heels in congressional offices.”

          How is this not an instance of you agreeing with Saddam that he did not have WMD, and disagreeing with our intelligence services that said the opposite?

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        • If anything, Trump is siding with himself over US intelligence agencies.

          Liked by 1 person

        • The agencies that Chuck Schumer (D) warned him about!

          Liked by 1 person

        • Am I doing this right?

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        • Trump sides with himself, period.

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        • And excellent attempt at deflection, Scott.

          I note that you still haven’t answered my original question, but OK.

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        • Mich:

          And excellent attempt at deflection, Scott.

          Heh…same old Mich, I see.

          I note that you still haven’t answered my original question…

          Your question was unanswerable, since, like jnc, I reject the premise on which it was based.

          Like

    • BTW, I’m shocked that you guys aren’t able to read my mind. I mean, c’mon–you should have known what I meant!

      😎

      Liked by 1 person

    • And you’ve answered my question. Thanks.

      Liked by 1 person

    • Have not read the transcript, and to be honest, I don’t have the energy. I don’t trust the Democrats, I don’t trust the media, and I don’t trust Trump. I think the whole “Russia” thing is a modern day Whitewater. Maybe Iran-Contra. Something to whip up the outrage-o-meter for the out-of-power party.

      But the lack of energy is probably due to the fact that this is freakout number ten million from the left since DJT appeared on the scene and I stopped taking notice to their freakouts a long time ago. Don’t care.

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      • Short version: Trump basically says the same shit he’s always said about it being BS, etc. but it’s more egregious since he’s standing next to Putin at the time.

        I’m reasonably confident that if Ukraine was found to be behind the leak of the Access Hollywood video and Trump’s tax returns, we would not be seeing the same level of meltdown.

        The shoe has been on the other foot before in the 1990’s with the Republicans investigating Chinese money in the Clinton reelection campaign and while they certainly made political hay out of it, I don’t recall the same level of “TREASON!!!!” hysteria.

        Liked by 1 person

        • What Trump actions towards Russia should Congress roll back to demonstrate that they are not weak like Trump?

          Liked by 1 person

        • The big difference between this and Charlie Tree (or Obama’s laundering of foreign donations) is the degree to which the press has become part of the #resistance.

          And while I’m sure there are real things to nail Trump on (mob ties?), the way this narrative has taken shape feels more like mass delusion than anything substantive.

          Like

    • The GOP is as worthless as the Democrats on the whole. I’m not surprised they are silent and the hysteria amongst the Dems is making it super-easy for them. All they have to do his be quiet and roll their eyes and they “win”.

      While my opinion on the Russia thing is that human beings are fallible and easily deceived and can delude themselves into thinking they know far more than they do, Trump is an awful president and avatar of Americanism in the public and international sphere. However when Democrats are actively trying to blunt their chances in 2018 for a midterm sweep, of course elected Republica politicians are going to let themselves potentially shoot their own feet. Politicians acting like politicians is not surprising.

      That Trump lacks nuance is also unsurprising.

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      • KW:

        The GOP is as worthless as the Democrats on the whole. I’m not surprised they are silent…

        Turns out that even that part of Mich’s question was a false premise.

        https://www.wsj.com/amp/articles/republicans-reproach-trump-on-russian-meddling-1531764090

        Liked by 1 person

        • I factor that into my “they are all politicrats” analysis. 😉

          I would figure some would be critical, others politically more flexible, depending where their bread is buttered.

          My problem with these sorts of criticisms is they always cut both ways–if this were Obama apologizing to Iran for making terrorists be mean with our prosperity, then a large segment of the right would be having fits while a large segment of the left would be looking thoughtful and nodding sympathetically about Obama’s nuance.

          If this has been Obama attacking some slapdash FBI “Obama might be a secret Muslim” report, everybody on the left would be talking about how US intelligence had gone rogue and couldn’t be trusted and something would have to be done about our corrupt intelligence community.

          This is another case of its terrible when your side does it but okay when our side does it because “it’s totally different”.

          To me (and no doubt I’m biased), the left looks to be the more hypocritical parties here, overworked about a president criticizing the US intelligence apparatus on foreign soil, when if this were a Democrat in Europe criticizing tax-cutters and gun-rights folks it would be all defense and praise.

          And certainly the love of the NSA and FBI and CIA strikes me as odd and kind of sudden. Certainly I don’t understand why they should be trusted implicitly in any scenario. What excludes them for presenting actual evidence to the public if they are making bald assertions in public?

          Eh, this whole presidency is going to be like this. Every few weeks Trump will do the worst thing any president has ever done and “must be impeached!”

          Like

  3. Game over man.

    Game. Over.

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    • “Osama bin Laden of this generation.”

      This line of attack is going to backfire spectacularly.

      Liked by 1 person

      • I propose we launch the resistance and trump into the sun.

        Liked by 1 person

      • It sounds like your crazy conspiracy-theorist pothead friend going on about aliens or the moon landing. Very reminiscent of 9/11 truthers, or Birthers for that matter.

        All for the consumption of fellow travelers at this point. Nobody is won over or convinced by this kind of nonsense.

        Like

  4. This will be a interesting benchmark to judge future progressives on:

    “For the president of the United States to side with President Putin against American law enforcement, American defense officials, and American intelligence agencies is thoughtless, dangerous, and weak. The president is putting himself over our country.

    — Chuck Schumer (@SenSchumer) July 16, 2018”

    If you go against stop and frisk or another policy that law enforcement supports, you are “putting [yourself] over our country.” Presumably the same thing applies if you cut defense spending or go against another policy that the Joint Chiefs oppose.

    Liked by 1 person

  5. Like

  6. @gbowden41 ” and thought The Force Awakens was better than Episodes 1-3.”

    You’re out of your mind. TFA was mediocre at best.

    Star Trek reboot was okay (first movie). Into Darkness was crap. Magic blood? Redo of Wrath of Kahn death? Etc, etc. Garbage.

    Like

  7. Yeah, totally Kristallnacht.

    Liked by 1 person

  8. Good read:

    “Uncomfortable Questions in the Wake of Russia Indictment 2.0 and Trump’s Press Conference With Putin
    By Jack Goldsmith
    Monday, July 16, 2018, 5:26 PM”

    https://www.lawfareblog.com/uncomfortable-questions-wake-russia-indictment-20-and-trumps-press-conference-putin

    Liked by 1 person

    • The most interesting part to me was the last:

      There is a lot of anger against WikiLeaks and a lot of support for indicting Julian Assange and others related to WikiLeaks for their part in publishing the information stolen by the Russians. If Mueller goes in this direction, he will need to be very careful not to indict Assange for something U.S. journalists do every day. U.S. newspapers publish information stolen via digital means all the time. They also openly solicit such information through SecureDrop portals.

      Exactly!

      Liked by 1 person

    • That was not merely a good read. It was an excellent read. Thanks.

      Liked by 1 person

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