April 27, 2015 —The past week was again marked by generally disappointing data, including nine of 12 major economic releases missing consensus expectations. Sluggishness in the domestic manufacturing sector continues to be apparent, with Thursday’s Markit U.S. Manufacturing PMI and Friday’s report on durable goods orders still showing weakness. Of note, while the headline durable goods number beat expectations, the jump resulted from a large spike in demand for commercial aircraft. Excluding the impact of volatile aircraft orders, core durable goods orders once again indicated soft demand. The week also included diverging data on activity in the housing market. Wednesday’s existing home sales for March showed the strongest level of activity in 18 months, a sign of strong demand. However, the generally upbeat housing news was interrupted by Thursday’s report on new home sales for March, which plunged 11.4% to the slowest pace since November. Despite the disappointing new home sales report, it’s important to note that the preceding three months were strong for this data series, including February’s report, which showed new home sales at a seven-year high. Given the tendency for monthly new home sales data to be very volatile, in light of the strength indicated by March’s existing home sales, the evidence in aggregate still points to solid activity in the housing sector heading into the important spring selling season. Strength in the housing sector is one potential near-term positive that could help offset the continued sluggishness in manufacturing.
Other than some evidence of improvement in Europe, global economic data continues to generally disappoint. The HSBC Flash PMI for China was released Wednesday night and indicated manufacturing activity fell at the fastest pace in a year during April. Strong deflationary pressures were also apparent, with both input and output prices falling at accelerating rates. China’s central bank has cut interest rates twice since November and last week announced a 100-basis-point cut to banks’ required reserve ratio. The potential for an even more aggressive policy response to the soft data has contributed to an enormous run in China’s equity market, with the Shanghai Composite up an astonishing 20% just in April. The possibility that the U.S. Fed will maintain highly accommodative monetary policy for longer than previously believed has also helped support U.S. equity markets as the Nasdaq Composite and S&P 500 hit all-time highs in the past week. The coming week represents the peak of earnings season, with 892 companies set to report first-quarter results. So far earnings season has exceeded very low expectations with 66.5% of firms beating earnings estimates. That would be the best quarterly beat rate since 2010 if its holds up, although revenues have been less impressive with just 52.3% of firms beating on the top line. Aside from earnings news, notable economic releases this week include the initial reading for Q1 GDP on Wednesday and April’s ISM Manufacturing Index on Friday.