Archive for August, 2009

US Week Ahead: The Start of September…

August 29th, 2009 Michael McDonough Comments off

This week brings the onset of a notoriously bad month for returns, and given the week’s vast array of critical data, the ball is sure to start rolling in one direction or another.  First let me apologize if this week’s calendar seems somewhat abridged, as I am on vacation, and am writing it amid the sounds of seagulls and breaking waves.  This week’s key releases are the ISM manufacturing report, which has the chance to move above the breakeven point of 50 for the first time in roughly 20 months, and August’s employment report, which is likely to show continued deterioration.  Other notable reports include motor vehicle sales  on Tuesday, which will help us better comprehend the full magnitude of the government’s ‘Cash for Clunkers’ program, the ISM non-manufacturing report, and the release of the FOMC minutes, which will help investor’s gain a finer understanding of the Fed’s bias.  It is a busy week, so I recommend paying close attention.

Monday August 31st:

9:45AM: Chicago PMI (Risk: Neutral, Market Reaction: Moderate): This Chicago PMI measures business activity in the mid-West, and is released one day prior to the national ISM index.  In July most of the index’ components experienced gains, supporting a recovery in the US.  The current Bloomberg consensus forecast for August’s release is 48.0, compared to a previous reading of 43.4.  It will be important to pay close attention to any significant changes to the new orders, employment, and prices paid indices, all of which are currently below the breakeven of 50.  Last month the PMI stated, “If this were an average recession, it would end four months after the low point in the Barometer, suggesting an end of the recession in August 2009. A more conservative rule would draw an analogy to the 1981-82 recession, since this is not working out to be an average recession. Using that rule, the end of this recession would be projected to be 9 months after the lowest value of the Chicago Business Barometer. With March as our best current estimate of that minimum, the recession is projected to end in December 2009.”

3:00PM: Farm Prices (Risk: Neutral, Market Reaction: Marginal): Given the relationship between farms prices and food prices, this index could have significant implications on future headline CPI.

Tuesday September 1st:

Motor Vehicle Sales (Risk: Upside, Market Reaction: Moderate): Motor vehicle sales will likely be up significantly on the back of the government’s ‘Cash for Clunker’ program.  The current Bloomberg consensus forecast is for sales is10.5mn, compared to the previous month’s sales of 8.3mn.

7:45AM: ICSC-Goldman Store Sales (Risk: Downward, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number indicated a rise of 0.6% in store sales compared to a decline of -0.9% a week prior.

10:00AM: ISM Manufacturing Index (Risk: Upside, Market Reaction: Significant): The ISM has experienced seven straight months of gains, and given this trend and improvement in other manufacturing indicators has the potential to move above the breakeven point of 50 this month.  This belief is strengthened by strong performance of the ISM’s new order index last month, which came in at 55.3. The current Bloombeg consensus forecast is for a reading of 50.5, compared to July’s reading of 48.9.

10:00AM: Construction Spending (Risk: Neutral, Market Reaction: Moderate): Increased activity in the residential and government sectors will likely be offset by diminishing spending on the commercial structures, leading the no significant changes in construction spending.  The current Bloomberg consensus is for a 0.0% change from last month, compared to an increment of 0.3% a month prior.

10:00AM: Pending Home Sales (Risk: Upside, Market Reaction: Moderate): Large increments in new mortgage applications and general improvements in the housing sector will likely sustain upward momentum in pending home sales.  Pending home sales were up 3.6% a month prior.  Pending home sales tends to be a reasonable forward looking indicator to final home sales, however, not all pending sales become final.

Wednesday September 2nd:

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Last week the overall index increased for the fourth consecutive week with a gain of 7.5%; while the refinance index rose 12.7% and the purchase index rose 1.0% on the back of relatively low mortgage rates and declining home prices.

7:30AM: Challenger Job Report (Risk: Neutral, Market Reaction: Marginal): This index measures the number of announced corporate mass layoffs.  But, this data does not take into account the timing of the actual layoffs.

8:15AM: ADP Employment Report (Risk: Neutral, Market Reaction: Significant): The ADP Employment report is considered a reasonable window into Friday’s critical payroll number.  Last month, however, the ADP reported indicated job losses of -371K, while payrolls declined by only -247K.

8:30AM: Productivity & Costs (Risk: Neutral, Market Reaction: Marginal): This will be the final release of 2Q productivity and labor costs.  It is unlikely there will be significant changes from the preliminary numbers, which showed a significant 6.4% increase in productivity and a -5.8% decline for unit labor costs.  In fact the current Bloomberg consensus forecast calls for no changes in either indicator.

10:00AM: Factory Orders (Risk: Upside, Market Reaction: Marginal): Increased durable goods orders largely on the back of the US government’s ‘Cash for Clunkers’ program will likely supply positive momentum for factory orders.  The current Bloomberg consensus forecast is for an increment of 2.3%, compared to 0.4% a month prior.

10:30AM: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report indicates domestic petroleum inventories, which could have a significant impact on the energy sector.  Last week this report showed an increase in inventories of 0.2mn barrels after declining -8.4mn a week prior.

2:00PM: FOMC Minutes (Risk: Neutral, Market Reaction: Marginal): Given the three week lag between the FOMC meeting and the release of the minutes this should have only a marginal effect on trading. But, the minutes could elaborate the rationale behind the FOMC’s decision, and give some clues to future decisions, in which case the market could move on the release.

Thursday September 3rd:

Chain Store Sales (Risk: Downside, Market Reaction: Moderate): Chain store sales probably came under pressure again last month, as consumers reduced spending on the back of weakness in the labor market.  In fact, a recent survey by the National Retail Federation found that families this year will be spending on average US$549 versus US$594 last year on back to school goods.  This along with other negative factors should adversely impact this summer’s retail sales.

Monster Employment Index (Risk: Neutral, Market Reaction: Marginal): This survey conducted by Monster Worldwide Inc. measures online job demand.

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell last week by 10K to 570K. Claims should marginally improve over the coming months as weakness in the labor market slowly abates. But, make no mistake about it these levels are still uncomfortably high, and will continue to adversely impact the US payroll data for some time.  The current Bloomberg consensus for this week’s initial claims number is 562K.  In fact using a simple regression analysis claims at their current levels would indicate a decline in payrolls of roughly 500K, however, recently this model has been exaggerating the actual effect on payrolls, but nevertheless is a cause for concern going forward.

10:00AM: ISM Non-Manufacturing Index (Risk: Upside, Market Reaction: Moderate): August’s non-manufacturing ISM should show continued improvement, but remain below the breakeven mark of 50.  In July the new orders component came in below 50 at 48.1, and is not expected to break above 50 this month either.

10:00AM: EIA Natural Gas Report (Risk: Neutral, Market Reaction: Moderate): This report highlights domestic natural gas inventories, which could have a significant impact on the energy sector.

4:30PM: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  Last week the Fed’s balance sheet rose to US$2.049trn from US$2.037trn a week prior.  The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to helping to control interest rates.

Friday September 4th:

8:30AM: Employment Report (Risk: Downside, Market Reaction: Very Significant): Elevated levels of initial jobless claims will likely place continued pressure on payrolls.  The current Bloomberg consensus forecast is for a decline in payrolls of -200K, and an unemployment rate of 9.6%.  I believe the consensus forecast for payrolls may be somewhat optimistic, and will be looking for additional hits in this week’s ADP and ISM employment indices.

Enjoy the weekend!


Consumer Sentiment Down Modestly From July

August 28th, 2009 Michael McDonough Comments off

The Reuters/University of Michigan preliminary consumer sentiment number was revised up to 65.7 from 63.2, compared to a reading of 66.0 in July.  August’s current conditions index finished at 66.6, compared to a preliminary reading of 64.9, and 70.5 in July.  The expectations index was revised up to 65.0 versus 62.1, and a reading of 69.2 in July.  Weakness in the labor market continues to weigh down consumer sentiment, while positive equity performance has helped offset some of this effect.

Categories: Consumer News, Data Release, US Tags:

Personal Income Flat, Consumer Expenditures Show Modest Gains

August 28th, 2009 Michael McDonough Comments off

Personal income was flat in July, compared to a consensus forecast of 0.1%, and a previous decline of -1.1%.   Disposable income was unchanged. Despite the government’s ‘Cash for Clunkers’ program consumer expenditures rose by 0.2%%, compared to a consensus forecast of 0.3%, and a previous reading of 0.6%.  Continued weakness in the job’s market continues to adversely impact both spending and income.  The market seems to be interpreting this as positive news, regardless of no gains in consumer income.  This could make any rally based on this news today very fragile.  The savings rate fell to 4.2% from 4.5% in July.  The last recession this country faced ended with a consumer led recovery, supported by significant consumer credit growth; this time that will not be the case.  Until we see improvements in the labor market consumer income and spending will likely remain moot.

Monthly Changes in Income & Expenditures:

Mar-09 Apr-09 May-09 Jun-09 Jul-09
Personal income, current dollars -0.5% 0.3% 1.4% -1.1% 0.0%
Disposable personal income:
Current dollars -0.2% 0.9% 1.7% -1.1% 0.0%
Chained (2005) dollars -0.1% 0.8% 1.6% -1.6% -0.1%
Personal consumption expenditures:
Current dollars -0.3% -0.1% 0.1% 0.6% 0.2%
Chained (2005) dollars -0.2% -0.2% 0.1% 0.1% 0.2%

Source: BEA


State Budget Turmoil Good News For Cons, Bad News For Everyone Else…

August 27th, 2009 Michael McDonough 2 comments

I was recently passed an article published in USA Today, which discussed some of the challenges states are facing due to dwindling state coffers.  Several states, including even New York, have decided to close down correctional facilities and reduce staff to ward off the budget shortfalls.  My first thought was that the prisoners impacted would be concentrated at other facilities that would remain open.  But, that is not always the case.  Some prisoners are receiving early release and/or being placed under house arrest, but since I reserve this site for economic and financial analysis, I will skip the social commentary.  From an economic stance, this news translates into more bad news for jobs in the already battered regions and the possibility for higher crime rates.  For example, closure plans in Michigan will cost the state 1,000 jobs, with one of the facilities being the county’s biggest employer.

Typically, prisons aren’t built on Park Avenue, they are often constructed in out-of-the-way remote vestiges of the state, where jobs can be scarce.  What the facility provides is lucrative and stable employment for residents, in addition to providing a means for their town’s to blossom.  But, with growing budget woes these towns, not just individuals, are in danger of financial collapse.  The article highlights several such towns that include Standish, Michigan and Franklin, New York.  Michigan, which has been especially hard hit by the current crisis, already has an unemployment rate well above the national average at 15.6%.  According to the BLS there are roughly 500K correctional officers working in the US, with an average annual income of around US$40K.  Job losses in this sector alone won’t make a significant impact on the national level, but similar situations in additional sectors aggregated together continue to adversely impact any would-be recovery in the labor market.  You need to understand the pieces before you can comprehend the whole picture.


2Q09 GDP Unchanged, Initial Jobless Claims Fall, & Corporate Profits Are Up

August 27th, 2009 Michael McDonough Comments off

US 2Q09 GDP remained unchanged from the advance reading of -1.0%, a month earlier.  The consensus estimate for the revision was -1.5%.   Despite what was no change in the headline number, there were revisions to the data behind it with exports and consumption being revised up, while inventories and non-residential spending were revised down.   Overall weakness in the 2Q09 GDP reading can be attributed to private inventory investment, nonresidential fixed investment, personal consumption expenditures (PCE), residential fixed investment, and exports.  Higher government spending and a decrease in imports have been the biggest positive contributing factor to GDP growth.  The improvement from 1Q09’s performance was due to smaller decreases in nonresidential fixed investment and in exports, an increment in federal government spending, smaller declines in private inventory investment and residential fixed investment, and a rise in state and local government spending.  (see table below)

Initial jobless claims fell by 10K to 570K, compared to a consensus forecast of 550K.  Continuing claims fell by 119K to 6.13mn.  Claims data should continue to improve over the months ahead, but will remain well above comfortable levels for at least the remainder of this year, as the unemployment rate will likely exceed 10%. Using a simple regression analysis claims at their current levels would indicate a decline in payrolls of roughly 500K, however, recently this model has been exaggerating the actual effect on payrolls, but nevertheless is a cause for concern going forward.

Corporate profits were up 5.7% on a quarterly basis.  In total corporate profits  finished the quarter at an annualized 1US$.050trn from US$0.976 trn the prior quarter.

Source: BEA

Contributions to Percent Change in Real Gross Domestic Product

08:Q1 08:Q2 08:Q3 08:Q4 09:Q1 09:Q2
Percent change at annual rate:
Gross domestic product. -0.7 1.5 -2.7 -5.4 -6.4 -1.0
Percentage points at annual rates:
Personal consumption expenditures -0.39 0.06 -2.49 -2.15 0.44 -0.69
Goods -1.24 -0.12 -1.89 -2.41 0.56 -0.77
Durable goods -0.75 -0.46 -0.95 -1.64 0.28 -0.43
Motor vehicles and parts. -0.50 -0.63 -0.64 -0.84 0.14 -0.13
Furnishings and durable
household equipment. -0.13 0.05 -0.22 -0.27 -0.13 -0.14
Recreational goods and
vehicles -0.04 0.25 -0.06 -0.30 0.20 -0.12
Other durable goods -0.07 -0.13 -0.03 -0.21 0.07 -0.02
Nondurable goods. -0.49 0.35 -0.94 -0.78 0.29 -0.35
Food and beverages purchased
for off-premises consumption 0.05 0.03 -0.29 -0.41 0.03 0.20
Clothing and footwear -0.04 0.16 -0.27 -0.21 -0.04 -0.21
Gasoline and other energy
goods. -0.23 -0.11 -0.42 0.27 0.17 -0.01
Other nondurable goods. -0.27 0.27 0.04 -0.43 0.12 -0.33
Services. 0.85 0.17 -0.60 0.26 -0.13 0.09
Household consumption
expenditures (for services). 0.70 0.13 -0.79 0.06 0.34 0.20
Housing and utilities 0.33 0.11 -0.18 0.46 0.02 -0.15
Health care 0.65 0.28 -0.06 0.19 0.37 0.25
Transportation services -0.17 -0.15 -0.11 -0.17 -0.15 -0.01
Recreation services -0.01 0.04 -0.08 -0.10 0.05 -0.01
Food services and
accommodations -0.10 0.11 -0.11 -0.35 -0.07 -0.10
Financial services and
insurance. -0.13 -0.07 -0.16 -0.24 0.03 0.19
Other services. 0.13 -0.18 -0.09 0.27 0.10 0.02
Final consumption expenditures
of nonprofit institutions
serving households 0.15 0.05 0.18 0.20 -0.46 -0.12
Gross output of nonprofit
institutions 0.44 0.17 0.07 0.24 -0.22 -0.05
Less: Receipts from sales of
goods and services by
nonprofit institutions 0.29 0.12 -0.11 0.04 0.24 0.07
Gross private domestic investment -1.20 -1.66 -1.04 -3.91 -8.98 -3.20
Fixed investment. -0.99 -0.41 -1.30 -3.28 -6.62 -1.81
Nonresidential. 0.25 0.19 -0.73 -2.47 -5.29 -1.15
Structures. 0.27 0.56 0.00 -0.31 -2.28 -0.59
Equipment and software. -0.02 -0.38 -0.73 -2.15 -3.01 -0.56
Information processing
equipment and software 0.39 0.26 -0.17 -0.70 -0.79 -0.05
Computers and peripheral
equipment. 0.12 0.03 -0.19 -0.19 -0.08 0.07
Software. 0.22 0.09 -0.06 -0.17 -0.47 -0.21
Other 0.05 0.14 0.07 -0.34 -0.24 0.09
Industrial equipment. 0.02 -0.02 -0.15 -0.20 -0.82 -0.18
Transportation equipment. -0.27 -0.58 -0.54 -0.87 -0.92 0.09
Other equipment -0.16 -0.04 0.13 -0.38 -0.48 -0.43
Residential -1.24 -0.60 -0.57 -0.81 -1.33 -0.66
Change in private inventories -0.21 -1.25 0.26 -0.64 -2.36 -1.39
Farm. -0.29 0.34 -0.09 0.10 0.05 0.09
Nonfarm 0.08 -1.59 0.35 -0.74 -2.41 -1.47
Net exports of goods and services 0.36 2.35 -0.10 0.45 2.64 1.60
Exports -0.02 1.47 -0.48 -2.67 -3.95 -0.54
Goods 0.34 1.17 -0.17 -2.50 -3.41 -0.50
Services. -0.36 0.30 -0.31 -0.17 -0.54 -0.04
Imports 0.38 0.88 0.38 3.12 6.58 2.14
Goods 0.46 0.67 0.55 3.09 6.25 1.89
Services. -0.08 0.21 -0.17 0.03 0.34 0.25
Government consumption expenditures
and gross investment 0.51 0.71 0.95 0.24 -0.52 1.27
Federal 0.56 0.55 0.93 0.49 -0.33 0.82
National defense. 0.39 0.34 0.93 0.20 -0.27 0.67
Consumption expenditures. 0.27 0.10 0.81 0.15 -0.22 0.52
Gross investment. 0.11 0.24 0.13 0.05 -0.05 0.15
Nondefense. 0.17 0.21 0.00 0.29 -0.06 0.15
Consumption expenditures. 0.18 0.16 -0.02 0.16 0.06 0.16
Gross investment. -0.01 0.05 0.02 0.13 -0.11 0.00
State and local -0.05 0.15 0.01 -0.25 -0.19 0.44
Consumption expenditures. 0.07 0.02 0.08 0.04 -0.04 0.02
Gross investment. -0.13 0.14 -0.06 -0.28 -0.15 0.42
Goods -0.55 0.36 -1.91 -4.54 -2.19 -1.21
Services. 0.94 0.96 -0.22 0.46 -0.53 1.00
Structures. -1.12 0.13 -0.55 -1.30 -3.70 -0.80
Motor vehicle output. -0.64 -1.08 -0.15 -1.41 -1.69 0.20
Final sales of computers. 0.06 0.16 -0.02 0.02 0.06 -0.05


New Home Sales Up Big

August 26th, 2009 Michael McDonough Comments off

New home sales rose 9.6% to a rate of 433K in July, compared to a consensus forecast of 390K, and a previous reading of 384K units.  The rate of sales increased in July to its highest level since September 2008.  The inventory of new homes fell to 7.5 months from 8.5 a month prior.  The month’s supply of new homes is at its lowest levels since April 2007.  The median home price fell 0.1% in the month to US$210,100.

New home sales is yet another housing indicator demonstrating continued improvement indicating that housing may have bottomed and started on its measured recovery. Increasing foreclosures and delinquencies across all types of mortgages stemming from a weak labor market are still weighing heavily on the sector, but for now at least, have been offset by attractive mortgage rates, tax incentives, and relatively low home prices.  The first time home buyer incentive program is set to expire on December 1st.  What this means is qualified home buyers would need to start closing on a property by mid-October to take advantage of the program, without any government extensions.  Presently, it is hard to judge the total effect the expiration of this program could have on home sales, but it would almost certainly cause some downward pressure.

Source: Census

Source: Census


Durable Goods Orders Rise Above Expectations

August 26th, 2009 Michael McDonough Comments off

New orders for durable goods rose by 4.9% in July, compared to a consensus forecast of +3.3%, and a previous revised decline of -1.3%. This is the index’s largest increment since July 2007.  This month’s increment was bolstered by the US government’s popular ‘Cash for Clunkers’ program and a significant rise in commercial aircraft orders after a 30% dive last month.   Excluding transportation equipment, durable goods would have risen by only +0.8%.  Considering the well rounded increases in this month’s data, the factory sector looks set to continue on the long-road to recovery.

Jul-09 Jun-09 May-09
Shipments 2.0 0.7 -2.7
New Orders 4.9 -1.3 1.3
Excluding transportation:
Shipments 2.2 0.4 -1.4
New Orders 0.8 2.5 0.8
Excluding defense:
Shipments 2.5 0.3 -3.0
New Orders 4.3 0.7 0.9
Manufacturing with unfilled orders:
Shipments 1.0 1.5 -2.1
New Orders 5.8 -1.6 3.2
Primary metals:
Shipments 6.3 1.7 -3.2
New Orders 2.6 12.2 -0.2
Fabricated metal products:
Shipments 0.6 0.8 -2.4
New Orders 2.8 0.2 -2.6
Shipments -3.7 0.6 1.5
New Orders -6.6 4.5 7.2
Computers and electronic products:
Shipments 7.4 0.2 -2.6
New Orders 1.6 1.2 2.4
Computers and related products:
Shipments 2.7 0.3 -0.5
New Orders -2.8 0.5 15.9
Communications equipment:
Shipments 6.8 11.7 -2.0
New Orders 9.4 -0.6 -0.6
Shipments 43.0 -14.9 -14.5
New Orders (NA) (NA) (NA)
Electrical equipment, appliances, and components:
Shipments 1.7 0.3 -3.7
New Orders 5.3 1.7 -2.0
Transportation equipment:
Shipments 1.4 1.5 -6.5
New Orders 18.4 -12.0 2.9
Motor vehicles and parts:
Shipments 2.7 0.1 -9.0
New Orders 0.9 -0.2 -8.4
Nondefense aircraft and parts:
Shipments 5.9 1.8 -7.0
New Orders 107.2 -30.0 60.4
Defense aircraft and parts:
Shipments -9.6 8.9 7.4
New Orders -18.8 30.2 0.3
All other durable goods:
Shipments 1.9 -0.2 -0.4
New Orders 2.4 0.1 -1.0
Capital goods:
Shipments 0.1 1.6 -0.8
New Orders 9.5 -5.7 8.8
Nondefense capital goods:
Shipments 0.8 1.0 -1.0
New Orders 8.6 -0.4 9.1
Excluding aircraft:
Shipments 0.5 1.3 -0.4
New Orders -0.3 3.6 4.3
Defense capital goods:
Shipments -3.6 4.9 0.4
New Orders 14.8 -29.2 7.1
Categories: Data Release, GDP, US Tags:

Consumer Confidence Rises Well Above Forecast, FHFA Down

August 25th, 2009 Michael McDonough Comments off

The Conference Board’s Consumer Confidence Index rose to 54.1 in August, versus a Bloomberg consensus forecast of 48.0, and a previous reading of 47.4.  This is the highest level since December 2007.  The August Present Situation Index rose to 24.9 versus 23.3, while the August Expectations Index rose to 73.5 from 63.4.  Weakness in the labor market continues to weigh heavily on consumer confidence, but is being offset by positive equity performance.

Lynn Franco, Director of The Conference Board Consumer Research Center said, “Consumer confidence, which had posted back-to-back monthly declines, appears to be back on the mend. The Present Situation Index increased slightly, mainly the result of an improvement in consumers’ assessment of the job market. The Expectations Index improved considerably and is now at its highest level since December 2007 (Index, 75.8). Consumers were more upbeat in their short-term outlook for both the economy and the job market in August, but only slightly more upbeat in their income expectations. And, as long as earnings continue to weigh heavily on consumers’ minds, spending is likely to remain constrained.”

Unlike the Case-Shiller Index earlier this morning, The Federal Housing Finance Agency (FHFA) House Price Index fell in 2Q09 by 0.7%, compared to a 0.9% increment a quarter prior. Nevertheless, the majority of housing indicators continue to point toward a bottom and modest recovery for the sector, with the main exception being increasing foreclosure and delinquency rates for all types of mortgages.


Case-Shiller Home Price Index Shows Continued Improvement

August 25th, 2009 Michael McDonough Comments off

The Case-Shiller 10 Metro-Area Composite Index rose 1.4% in June.  A month prior the 10 and 20 Metro-Area Indices rose by +0.4% and +0.5%, respectively.  These were the indices first increments since June 2006.  This morning’s rise is consistent with other housing related data that seems to imply a bottom and modest recovery for the sector. The 10 Metro-Area Index is still down 15.1% on a year over year basis.  Another positive indicator from this month’s data is that prices in hard-hit San Francisco and Minneapolis have begun to recover.  But, prices in the hardest hit city, Las Vegas, still continue to decline.  The only other city showing a month over month declines was Detroit, which is down 25% on a year over year basis.  The markets are trading higher on the positive news.

Date M/M Y/Y
OH-Cleveland 4.2% -3.0%
CA-San Francisco 3.8% -22.0%
MN-Minneapolis 3.1% -19.8%
DC-Washington 2.8% -11.8%
TX-Dallas 2.7% -2.2%
MA-Boston 2.6% -5.9%
CO-Denver 2.5% -3.6%
CA-San Diego 1.6% -16.0%
GA-Atlanta 1.5% -13.7%
Composite-10 1.4% -15.1%
Composite-20 1.4% -15.4%
AZ-Phoenix 1.1% -31.6%
CA-Los Angeles 1.1% -17.8%
IL-Chicago 1.1% -16.7%
OR-Portland 1.0% -15.2%
NC-Charlotte 0.7% -9.6%
FL-Miami 0.5% -23.4%
NY-New York 0.4% -11.9%
FL-Tampa 0.4% -19.5%
WA-Seattle 0.4% -16.1%
MI-Detroit -0.8% -25.0%
NV-Las Vegas -2.0% -32.4%

Capesize Rates Could Face Additional Pressure This Week

August 24th, 2009 Michael McDonough 1 comment

Capesize rates have come under considerable pressure over the past week with forward contracts losing roughly 14% of their value over concerns on industry fundamentals.  Despite what has already been 5 consecutive days of declines for capesize rates, industry experts believe this week could bring even more downward pressure.  According to Lloyd’s List, a leading maritime and transport news terminal, plummeting demand in the capesize sector is coinciding with what is a significant amount of vessels coming of long-term charter contracts, essentially creating the perfect storm.  One Hong Kong shipbroker quoted in the report believed rates “would fall to around $35,000 per day by the middle of this week and could even fall below $30,000 per day by next Friday.”  Furthermore, there doesn’t appear to be any relief insight over the near-term as noted by a Shanghai based shipbroker, “With iron ore prices falling and inventory levels at Chinese ports at less than 72m tonnes, there does not seem much prospect of an increase in ore imports after the record levels seen in June and July.”  Iron ore inventories in China last week were reported up 240K tones to 71.2m tones, or 20% higher than the levels experienced in early June.  Those shippers who increased contract coverage to near 100%, while rates were elevated should still continue to benefit.    In addition to Chinese iron ore prices falling, steel prices have also declined, dropping almost 7% over the past week.

Source: Capital Link

Source: Capital Link