Tom Moeller

U.S. real GDP growth last quarter was revised down to 2.0% (AR). The estimate had started at 1.6% then was raised to 2.2% last month and compared to Consensus expectations for no change at 2.2%. The rise in GDP last quarter was the [...]

US 3Q GDP Growth Revised Lower

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061220c.jpg" width="353">
UK institutional investors added a record amount to their asset portfolios in Q3, according to the &quot;First Release&quot; of the widely followed &quot;MQ5&quot; report, which was issued this morning by the Office of National Statistics. Insurance companies, pension funds and trusts (mutual funds) acquired a net of &pound;27.8 billion in UK and overseas securities, cash, and real estate and other assets, compared with &pound;23.6 billion in Q2 and a previous record of &pound;27.7 billion in Q1 2001. Further, the sum of the first three quarters of 2006 is &pound;67.7 billion, just &pound;1.8 billion shy of the largest investment amount in any previous YEAR, which was &pound;69.5 billion in 2000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061220d.jpg" width="353">
Investment patterns have been quite interesting this year as well. In both Q2 and Q3 the firms have concentrated on additions to short-term holdings. See in the table below that such &quot;cash and equivalents&quot; are a large proportion of net investment, indeed, about 42% in Q3. In Q2 they were 40% of the total. This looks at a glance to reflect the negative yield curve in the UK -- and elsewhere, for that matter. In the second graph, we show net investment in short-term assets against the yield curve, measured as the spread between the 10-year nominal par yield on gilts and the 1-month sterling inter-bank rate. There appears to be a rough negative relationship, and indeed, why would investors put their money out long when short instruments pay more?<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061220e.jpg" width="353">
A second development of interest is the net liquidations of company shares, which are evident in our table. These groups of institutions have been net sellers of shares continuously since the spring of 2003, and off-and-on since 1999. It is important to notice here that these figures are the net of acquisitions and what in the UK are known as &quot;realisations&quot;. They are NOT net changes in market value. In fact, the latter have been positive, as seen in the third graph, which also shows the trend in stock prices. The market value of stock holdings has continued to rise, even as this important UK investor group has been selling. It&#39;s an intriguing situation.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U1/@U109/@U109.HTM">UK: MQ5 Net Investment</a><a href="http://www.haverselect.com/dlx/UK/@U1/@U109/@U109.HTM">,</a> &nbsp; &pound; Millions</th>
<th scope="col">Q3 2006</th>
<th scope="col">Q2 2006</th>
<th scope="col">Q3 2005</th>
Quarterly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Total Identified Assets</td>
<td>27,776</td>
<td>23,552</td>
<td>8,898</td>
<td>15,183</td>
<td>15,250</td>
<td>14,048</td>
</tr>
<tr class="odd">
<td class="firstcol">Short-Term</td>
<td>11,699</td>
<td>9,395</td>
<td>439</td>
<td>4,357</td>
<td>3,103</td>
<td>157</td>
</tr>
<tr>
<td class="firstcol">British Govt Securities</td>
<td>6,035</td>
<td>4,804</td>
<td>3,042</td>
<td>2,450</td>
<td>4,150</td>
<td>4,974</td>
</tr>
<tr class="odd">
<td class="firstcol">UK Company Shares</td>
<td>-8,203</td>
<td>-8,460</td>
<td>-6,044</td>
<td>-5,507</td>
<td>-5,209</td>
<td>-1,293</td>
</tr>
<tr>
<td class="firstcol">Other UK Company Securities</td>
<td>3,178</td>
<td>5,517</td>
<td>3,111</td>
<td>3,545</td>
<td>5,126</td>
<td>6,445</td>
</tr>
<tr class="odd">
<td class="firstcol">Overseas Company Shares</td>
<td>3,021</td>
<td>-1,832</td>
<td>3,253</td>
<td>3,289</td>
<td>3,594</td>
<td>924</td>
</tr>
<tr>
<td class="firstcol">Other Overseas Company Securities</td>
<td>5,530</td>
<td>6,671</td>
<td>-495</td>
<td>1,891</td>
<td>2,435</td>
<td>1,742</td>
</tr>
<tr class="odd">
<td class="firstcol">Overseas Govt Securities</td>
<td>2,266</td>
<td>2,219</td>
<td>-596</td>
<td>89</td>
<td>-1,011</td>
<td>-859</td>
</tr>
</tbody>
</table>
</body>
</html>

UK institutional investors added a record amount to their asset portfolios in Q3, according to the "First Release" of the widely followed "MQ5" report, which was issued this morning by the Office of National Statistics. Insurance [...]

UK Institutional Investors Invest Record Amount in Q3

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061220a.jpg" width="353">
In a complete reversal of the prior week&#39;s gain, the total number of mortgage applications fell 10.2% last week after the 11.5% jump during the prior period, according to the Mortgage Bankers Association.
Purchase applications fell 5.9% following an 8.7% rise during the prior week. Notwithstanding the decline, purchase applications remained in December 9.0% above the November average which rose 6.4% from the October level.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance slid 14.6% after two weeks of double digit increase. In December applications to refinance are 9.8% higher than in November.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061220b.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage increased again w/w to 6.29% but the 6.22% average so far in December is down versus 6.36% during November. The peak for 30 year financing was 7.08% late in June. Rates for 15-year financing also increased to 6.07% but has averaged 5.99% this month versus 6.13% during November. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey covers roughly 50% of all U.S. residential mortgage applications processed each week by mortgage banks, commercial banks and thrifts. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Economic Inequality in the United States from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-33-34.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">12/15/06</th>
<th scope="col">12/08/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>647.6</td>
<td>721.2</td>
<td>8.9%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>436.5</td>
<td>463.8</td>
<td>-3.7%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,968.8</td>
<td>2,304.4</td>
<td>38.8%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
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In a complete reversal of the prior week's gain, the total number of mortgage applications fell 10.2% last week after the 11.5% jump during the prior period, according to the Mortgage Bankers Association. Purchase applications fell [...]

Mortgage Applications Reversed Gain

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061220a.jpg" width="353">
In a complete reversal of the prior week&#39;s gain, the total number of mortgage applications fell 10.2% last week after the 11.5% jump during the prior period, according to the Mortgage Bankers Association.
Purchase applications fell 5.9% following an 8.7% rise during the prior week. Notwithstanding the decline, purchase applications remained in December 9.0% above the November average which rose 6.4% from the October level.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance slid 14.6% after two weeks of double digit increase. In December applications to refinance are 9.8% higher than in November.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061220b.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage increased again w/w to 6.29% but the 6.22% average so far in December is down versus 6.36% during November. The peak for 30 year financing was 7.08% late in June. Rates for 15-year financing also increased to 6.07% but has averaged 5.99% this month versus 6.13% during November. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey covers roughly 50% of all U.S. residential mortgage applications processed each week by mortgage banks, commercial banks and thrifts. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Economic Inequality in the United States from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-33-34.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">12/15/06</th>
<th scope="col">12/08/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>647.6</td>
<td>721.2</td>
<td>8.9%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>436.5</td>
<td>463.8</td>
<td>-3.7%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,968.8</td>
<td>2,304.4</td>
<td>38.8%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
UK Institutional Investors Invest Record Amount in Q3 
by <a href="/comment/Stone.html">Carol Stone</a> December 20, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061220c.jpg" width="353">
UK institutional investors added a record amount to their asset portfolios in Q3, according to the &quot;First Release&quot; of the widely followed &quot;MQ5&quot; report, which was issued this morning by the Office of National Statistics. Insurance companies, pension funds and trusts (mutual funds) acquired a net of &pound;27.8 billion in UK and overseas securities, cash, and real estate and other assets, compared with &pound;23.6 billion in Q2 and a previous record of &pound;27.7 billion in Q1 2001. Further, the sum of the first three quarters of 2006 is &pound;67.7 billion, just &pound;1.8 billion shy of the largest investment amount in any previous YEAR, which was &pound;69.5 billion in 2000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061220d.jpg" width="353">
Investment patterns have been quite interesting this year as well. In both Q2 and Q3 the firms have concentrated on additions to short-term holdings. See in the table below that such &quot;cash and equivalents&quot; are a large proportion of net investment, indeed, about 42% in Q3. In Q2 they were 40% of the total. This looks at a glance to reflect the negative yield curve in the UK -- and elsewhere, for that matter. In the second graph, we show net investment in short-term assets against the yield curve, measured as the spread between the 10-year nominal par yield on gilts and the 1-month sterling inter-bank rate. There appears to be a rough negative relationship, and indeed, why would investors put their money out long when short instruments pay more?<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061220e.jpg" width="353">
A second development of interest is the net liquidations of company shares, which are evident in our table. These groups of institutions have been net sellers of shares continuously since the spring of 2003, and off-and-on since 1999. It is important to notice here that these figures are the net of acquisitions and what in the UK are known as &quot;realisations&quot;. They are NOT net changes in market value. In fact, the latter have been positive, as seen in the third graph, which also shows the trend in stock prices. The market value of stock holdings has continued to rise, even as this important UK investor group has been selling. It&#39;s an intriguing situation.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U1/@U109/@U109.HTM">UK: MQ5 Net Investment</a><a href="http://www.haverselect.com/dlx/UK/@U1/@U109/@U109.HTM">,</a> &nbsp; &pound; Millions</th>
<th scope="col">Q3 2006</th>
<th scope="col">Q2 2006</th>
<th scope="col">Q3 2005</th>
Quarterly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Total Identified Assets</td>
<td>27,776</td>
<td>23,552</td>
<td>8,898</td>
<td>15,183</td>
<td>15,250</td>
<td>14,048</td>
</tr>
<tr class="odd">
<td class="firstcol">Short-Term</td>
<td>11,699</td>
<td>9,395</td>
<td>439</td>
<td>4,357</td>
<td>3,103</td>
<td>157</td>
</tr>
<tr>
<td class="firstcol">British Govt Securities</td>
<td>6,035</td>
<td>4,804</td>
<td>3,042</td>
<td>2,450</td>
<td>4,150</td>
<td>4,974</td>
</tr>
<tr class="odd">
<td class="firstcol">UK Company Shares</td>
<td>-8,203</td>
<td>-8,460</td>
<td>-6,044</td>
<td>-5,507</td>
<td>-5,209</td>
<td>-1,293</td>
</tr>
<tr>
<td class="firstcol">Other UK Company Securities</td>
<td>3,178</td>
<td>5,517</td>
<td>3,111</td>
<td>3,545</td>
<td>5,126</td>
<td>6,445</td>
</tr>
<tr class="odd">
<td class="firstcol">Overseas Company Shares</td>
<td>3,021</td>
<td>-1,832</td>
<td>3,253</td>
<td>3,289</td>
<td>3,594</td>
<td>924</td>
</tr>
<tr>
<td class="firstcol">Other Overseas Company Securities</td>
<td>5,530</td>
<td>6,671</td>
<td>-495</td>
<td>1,891</td>
<td>2,435</td>
<td>1,742</td>
</tr>
<tr class="odd">
<td class="firstcol">Overseas Govt Securities</td>
<td>2,266</td>
<td>2,219</td>
<td>-596</td>
<td>89</td>
<td>-1,011</td>
<td>-859</td>
</tr>
</tbody>
</table>
</body>
</html>

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061219i.jpg" width="353">
Italian industrial sales in October increased 1.19% from September and were up 9.88% from October 2005. While foreign industrial sales dipped almost 1%, domestic sales increased 2%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061219j.jpg" width="353"> A somewhat more subdued picture is shown by orders. Total orders declined 0.17% in October, with foreign orders, down 0.63% and domestic orders up 0.09% Domestic and foreign orders were, however, well above year ago figures, with domestic orders up14.49% and foreign, 10.88%. Domestic and foreign sales are shown in the first chart and domestic and foreign orders in the second.
Earlier this month German institutional investors and analysts of the ZEW survey swung from being pessimistic to being optimistic about conditions over the next six months. The businessmen represented in the IFO survey had been more positive than the financial types for several previous months. This month they continue to be optimistic regarding the current conditions and expectations for the next six months. The overall index at 108.7 has regained the peak reached when the series began in January, 1991 as can be seen in the third chart which shows the entire history of the series. The history of the business men&#39;s appraisal of current conditions and their expectations for the next six months are show in the fourth chart where the current values are at or near all time highs.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061219k.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061219l.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">ITALY INDUSTRIAL ORDERS AND SALES (2000=100)</th>
<th scope="col">Oct 06</th>
<th scope="col">Sep 06</th>
<th scope="col">Oct 05</th>
<th scope="col">M/M%</th>
<th scope="col">Y/Y%</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Sales&nbsp;</td>
<td>119.0</td>
<td>117.6</td>
<td>108.3</td>
<td>1.19</td>
<td>9.88</td>
<td>107.5</td>
<td>104.1</td>
<td>101.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Domestic</td>
<td>116.3</td>
<td>114.0</td>
<td>106.9</td>
<td>2.02</td>
<td>8.79</td>
<td>106.4</td>
<td>104.1</td>
<td>101.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Foreign</td>
<td>126.4</td>
<td>127.5</td>
<td>112.0</td>
<td>-0.86</td>
<td>12.86</td>
<td>110.7</td>
<td>104.0</td>
<td>101.4</td>
</tr>
<tr>
<td class="firstcol">Industrial Orders&nbsp;</td>
<td>117.1</td>
<td>117.3</td>
<td>103.4</td>
<td>-0.17</td>
<td>13.25</td>
<td>102.8</td>
<td>99.0</td>
<td>95.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Domestic</td>
<td>113.0</td>
<td>112.9</td>
<td>98.7</td>
<td>0.09</td>
<td>14.49</td>
<td>98.9</td>
<td>96.8</td>
<td>93.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Foreign</td>
<td>126.4</td>
<td>127.2</td>
<td>114.0</td>
<td>-0.63</td>
<td>10.88</td>
<td>111.6</td>
<td>103.7</td>
<td>98.7</td>
</tr>
<tr class="odd">
<td class="firstcol">GERMANY IFO SURVEY (2000=100)</td>
<td>Dec&nbsp; 06</td>
<td>Nov 06</td>
<td>Dec 05</td>
<td>M/M%</td>
<td>Y/Y%</td>
<td>2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr>
<td class="firstcol">Overall</td>
<td>108.7</td>
<td>106.8</td>
<td>99.5</td>
<td>1.78</td>
<td>9.25</td>
<td>105.5</td>
<td>95.5</td>
<td>95.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Conditions</td>
<td>115.3</td>
<td>113.9</td>
<td>98.8</td>
<td>1.23</td>
<td>16.70</td>
<td>108.4</td>
<td>94.7</td>
<td>93.1</td>
</tr>
<tr>
<td class="firstcol">Expectations 6 Months Ahead</td>
<td>102.5</td>
<td>100.2</td>
<td>100.3</td>
<td>2.30</td>
<td>2.19</td>
<td>102.7</td>
<td>96.3</td>
<td>97.8</td>
</tr>
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Italian industrial sales in October increased 1.19% from September and were up 9.88% from October 2005. While foreign industrial sales dipped almost 1%, domestic sales increased 2%. A somewhat more subdued picture is shown by orders. [...]

Italian Industrial Sales and Orders Steady: German Business Optimism Grows

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061219g.jpg" width="353">
 Pump prices for regular unleaded gasoline rose three cents last week to an average $2.32 per gallon. That left this month&#39;s average price for gasoline up seven cents from the November average of $2.23.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061219h.jpg" width="353">
The spot market (NY harbor) price for a gallon of regular gasoline has surged recently with the price yesterday at $1.74 per gallon versus an average $1.66 last week.
Oil prices also have been firm with the price yesterday for WTI crude at $62.22 (8.5% y/y).
The latest Short-Term Energy Outlook from the U.S. Energy Information Administration is available <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">Weekly Energy Prices</a></th>
<th scope="col">12/18/06</th>
<th scope="col">12/11/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">US Retail Gasoline Price, Regular</td>
<td>$2.32</td>
<td>$2.29</td>
<td>4.9%</td>
<td>$2.27</td>
<td>$1.85</td>
<td>$1.56</td>
</tr>
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Pump prices for regular unleaded gasoline rose three cents last week to an average $2.32 per gallon. That left this month's average price for gasoline up seven cents from the November average of $2.23. The spot market (NY harbor) [...]

Gasoline Prices Up Again

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According to the International Council of Shopping Centers (ICSC)-UBS, chain store sales last week rose again by 1.6% after the prior period&#39;s 1.0% gain. Despite these increases which recovered about all of a collapse in sales which opened the month, December sales are 1.3% below the November average which advanced 0.3% from October.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS rose again by 0.7% for the fifth weekly gain in the last six.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">12/16/06</th>
<th scope="col">12/09/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>466.1</td>
<td>458.8</td>
<td>2.4%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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According to the International Council of Shopping Centers (ICSC)-UBS, chain store sales last week rose again by 1.6% after the prior period's 1.0% gain. Despite these increases which recovered about all of a collapse in sales which [...]

Weekly Chain Store Sales Rose Again

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The Composite Housing Market Index from the National Association of Home Builders&#39; (NAHB) slipped in December to 32 and gave back half of last month&#39;s improvement. The index, therefore, remained down 5.9% in the fourth quarter versus 3Q and off nearly one half from last year. 
During the last twenty years there has been a 76% correlation between the y/y change in the Composite Index and the change in single family housing starts. 
The decline was led by a falloff in the traffic of prospective home buyers which reversed all of the November gain (-42.5% y/y). 
The sub-index for current sales also was unchanged m/m (-48.4% y/y) but the sub-index covering prospective sales in the next six months improved to its highest level since July (-26.2% y/y). 
The housing market index for the Midwest rose sharply (-35.3% y/y) to the highest level since June but that was offset by deterioration in the West (-58.7% y/y). 
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions good than poor. 
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

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<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a> </th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Dec. &#39;05 </th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>32</td>
<td>33</td>
<td>57</td>
<td>42</td>
<td>67</td>
<td>68</td>
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The Composite Housing Market Index from the National Association of Home Builders' (NAHB) slipped in December to 32 and gave back half of last month's improvement. The index, therefore, remained down 5.9% in the fourth quarter versus [...]

NAHB Housing Market Index Slipped

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

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Tian Yong Woon

In this week’s Letter, we cover the latest developments and implications of the Middle East conflict for Asia, while also making space for other important themes, including artificial intelligence (AI). The Middle East conflict remains in a no deal state coming out of the weekend, though some early Monday optimism emerged in Asian markets following Iran’s reported offer to reopen the Strait of Hormuz (chart 1). Nonetheless, as the Strait closure drags on, so too do the fiscal costs of domestic fossil fuel subsidies across Asia, which have been shown to move closely with crude oil prices (chart 2). While such measures offer direct relief by cushioning household energy costs, they remain difficult to sustain over the long haul.

Over the week, we also saw a further fraying in regional monetary policy trends, with the Philippines hiking its policy rate for the first time in about two years amid inflation concerns, while Indonesia stood pat on rates (chart 3). Investor attention is likely to remain fixed on monetary policy this week, with the Bank of Japan due to decide on policy. Expectations for an April hike have faded amid the persistent Middle East conflict, though yen weakness continues to present a source of concern (chart 4). The week also brings China’s latest PMI readings (chart 5), adding to the recent run of hard data accompanying the Q1 GDP release.

Beyond the Middle East conflict, the evolution of AI continues to demand close attention. Before geopolitical tensions took centre stage, AI was the dominant market narrative — and that enthusiasm has hardly faded. If anything, recent developments suggest the story is broadening: use cases are expanding, scalability is improving, and access is widening beyond large corporates to the mass market — increasingly spilling into the realm of physical AI. It may well be this persistent wave of optimism that is helping to underpin equity valuations, even as the geopolitical backdrop darkens (chart 6).

**The Middle East conflict**
About two months in, we remain stuck in the limbo of the US-Iran conflict, which has left the Strait of Hormuz largely closed and much of the world starved of the critical oil flows needed to power the global economy. The back and forth between the US and Iran has persisted in recent weeks, with both sides again failing to reach a peace deal over the weekend, though Monday’s news of Iran offering to reopen the Strait has revived some hope in markets. In truth, commodity and market valuations do not hinge so much on a peace deal itself, but rather on the resumption of oil flows through the Strait, something that could materialise even in the absence of a formal deal, though any agreement that includes and credibly delivers such a reopening would likely be warmly received by markets. Until then, market gyrations are likely to persist, with prices fluctuating in response to each new snippet of news. And until then, the world will continue both to be starved of, while gradually adapting to, the drip feed of oil flows emerging from the Strait.

260427T1.jpg

**The fiscal costs of the Middle East conflict**
As the Middle East conflict drags on, so too does the strain on fiscal resources across parts of Asia, as the costs of energy-related subsidy programmes continue to mount. While such programmes have an immediate, direct, and tangible impact in shielding households from surging energy costs, they are far from sustainable, particularly if oil prices remain well above targeted levels or stay elevated for an extended period. As chart 2 illustrates, the costs of these explicit subsidy programmes tend to rise closely with crude oil prices, as seen in India and Indonesia. Other measures adopted elsewhere, such as drawing down oil reserves, may be less fiscally costly, but are similarly difficult to sustain indefinitely. In both respects, the clock is ticking, and the world continues to hold its breath as the conflict drags on.

260427T2.jpg

**The latest central bank responses to the conflict**
Over the past week, Asia saw two central bank decisions. The Philippines’ (BSP) opted to deliver its first rate hike in about two years, while Indonesia’s (BI) chose to stand pat on policy rates and instead committed to stepped up FX intervention (chart 3). This latest round of decisions points to a further fraying of what had been a broad regional monetary policy consensus, namely that central banks would delay additional easing while maintaining a high bar for outright tightening. Domestic considerations, however, remain paramount. In the Philippines’ case, the central bank has moved to rein in inflation, which is already showing notable signs of price pass through stemming from disruptions linked to the Strait of Hormuz. That said, BSP is not the first in the region to buck the reluctance to tighten. Singapore’s central bank had already tightened policy in mid-April, albeit through its own distinct framework, given its use of the exchange rate rather than policy rates as the primary channel for monetary policy.

260427T3.jpg

**The week ahead**
Looking to the week ahead, a major central bank decision looms in Japan. Market expectations for the Bank of Japan to deliver a rate hike at its April meeting have ebbed amid the persistence of the Middle East conflict, to which Japan remains particularly vulnerable given its reliance on oil imports flowing through the Strait of Hormuz. At the same time, inflation in Japan has yet to become a major concern, with recent readings having picked up but not yet entering troubling territory. One potential source of concern, however, lies with the Japanese yen, which has remained on a weakening trend since early last year (chart 4). That depreciation has been one of the key arguments underpinning calls for further rate hikes.

260427T4.jpg

The week also brings China’s latest PMIs into focus. March saw a divergence between China’s official PMI readings, which improved, and the unofficial readings from RatingDog, which instead pulled back. Nonetheless, both official and unofficial gauges remained in expansionary territory (chart 5), with investors now watching closely to see whether that resilience can be sustained amid ongoing stresses from the Middle East, or whether offsetting drivers can continue to keep Chinese business sentiment and prospects buoyant.

260427T5.jpg

**Beyond the strait**
Moving beyond the Middle East conflict, a whole host of developments continue to unfold globally, many of which have in fact helped offset some of the pessimism wrought by the Strait’s chokehold. One such development is artificial intelligence (AI), which had dominated headlines before the outbreak of the conflict and continues to advance at breakneck pace. AI capabilities are still rapidly evolving, while practical applications, such as physical AI embodied in humanoid robots, are beginning to show broader and stronger use cases. Production of such robots is also becoming increasingly scalable and within reach not just for industrial complexes and healthcare, but for the mass market as well. It is perhaps growing optimism around these prospects that has helped keep equity valuations buoyant, even in the face of the festering conflict in the Middle East. Moreover, while concerns over AI-driven job displacement persist, new opportunities are emerging as well, particularly for AI adopters, with a growing share of job postings in Western economies increasingly referencing AI-related skills, as shown in chart 6.

260427T6.jpg

Asia

Economic Letter from Asia: Not Just About the Strait

Robert Brusca

260424E.jpg

The onset of the war in Iran appears to have hit the German economy extremely hard as the Ifo survey shows very substantial and broad-based decline across its survey in April. The Ifo survey features readings for five sectors as well as an aggregate reading, and it surveys them for climate, current conditions, and expectations. The decline in the Ifo survey is present for all three concepts and across all five sectors, marking the weakening in April as a highly significant and extremely disturbing development. Only manufacturing in the current conditions survey escapes a month-to-month decline.

**The Ifo sequences**: The **climate** reading fell both overall and across each of the five sectors. **Current conditions** declined for the overall and for four of the five sectors, with manufacturing the sole exception. **Expectations** declined for the overall and for all sectors. Several of the sector declines were for a very substantial magnitude, especially when compared to historic changes in these indexes.

**Monthly changes in readings—severe broad deterioration**
The month-to-month change in the climate reading has weakened more month-to-month 19% of the time. That overall result, however, is boosted by manufacturing where the monthly change has been weaker 35% of the time (on data back to 2011). However, all other sectors have seen climate weaker m/m only 2.3% to 6.3% of the time! The current situation readings weakened, with the headline weakening more m/m 11% of the time. This was boosted by manufacturing, the only sector that improved on the month; its ranking on change was in its 85th percentile—quite good and truly stand-alone good news. The other current changes by sector ranged from construction being weaker 1.7% of the time, to retailing that has been weaker about 30% of the time in terms of m/m changes. Expectation changes were uniformly terrible, with the headline drop weaker only 6.3% of the time and sector change month-to-month weaker between 9% and 1.7% of the time. The monthly weakening was uniform and substantial. I document it with these calculations, but you can also see it on the chart above.

**Climate**: The bottom line is that the all-sector index for climate fell to -20.3 in April from -18 in March, placing it at a 10.5 percentile standing on data since 1993. The sector ranking is the highest for construction with a 42.2 percentile standing and the weakness for services at a 1.1 percentile standing—weaker than the table reading nearly 99% of the time. In terms of percentile standing levels or monthly changes, conditions are closing in on grim.

**Current conditions**: Current conditions saw the all-sector index slip to -5.3 in April from -2.4 in March. The headline ranking stands at a 9.8 percentile mark, making it—like the climate reading—weaker than its current reading only about 10% of the time. The strongest reading under current conditions is for construction which has a 60.6 percentile standing; it is the only ranking in the table above its historic median. Manufacturing, the only sector in the survey that improved month-to-month, has a 22.5 percentile standing, while services record the weakest percentile standing under current conditions, at an 8.4 percentile standing.

**Expectations:** The all-sector index for expectations fell to -25.3 in April from -19.9 in March, placing it at a 6.3 percentile standing. The percentile standings across sectors range from a high of 9.5% for manufacturing to a low of 1.5% for retailing. Up until earlier this year, the Ifo was showing signs of improvement; however, all of that has simply collapsed in the last month. Weakness is across economic concepts and sectors, as documented above. For reference, the table also gives a separate set of rankings on where the various indexes stand since the invasion of Ukraine, since that was another marked event that drove the index, that had been improving after Covid, down to lower levels.  Ranked even on this reduced scale looking at conditions only since the invasion of Ukraine, when conditions have generally been weaker, the current rankings across the Ifo survey remained extremely weak. This is a very disturbing survey for the German economy.

260424.jpg

Germany

German Ifo Plunges Everywhere

Andrew Cates

**Energy shock lifts inflation, trims growth**
The IMF’s latest WEO revisions for 2026 broadly reflect the classic stagflationary impact of the recent Middle East energy shock, with growth downgraded and inflation revised higher across most major economies. Higher energy prices act as a tax on real incomes while simultaneously pushing up costs. That said, the picture is not uniform: a number of economies—notably the US, China and India—have seen growth upgrades, reflecting stronger-than-expected momentum so far in 2026. By contrast, the UK stands out at the stagflationary extreme, combining one of the largest growth downgrades with a relatively strong inflation uplift—consistent with its weaker underlying momentum, greater energy sensitivity and more persistent domestic inflation dynamics. More broadly, while the global revisions remain modest—pointing to resilience in activity—the message is that disinflation is no longer a smooth glide back to target but increasingly contingent on energy prices and geopolitical developments.

260423Z1.jpg

**Markets largely shrug off rising economic pessimism**
Notwithstanding a more downbeat assessment from economists—including the IMF’s stagflationary tilt to the outlook—there has been remarkably little follow-through into financial markets. Measures of systemic stress in both the US and UK remain low by historical standards, suggesting that investors are, for now, largely looking through the Middle East conflict. There are several possible explanations: corporate profits remain resilient, the AI-driven investment narrative continues to dominate market thinking, and markets may be assuming that any energy shock will be temporary and contained. In effect, investors appear to be pricing a benign baseline in which geopolitical risks do not materially disrupt growth, inflation expectations or policy. The UK is a partial exception, with a somewhat more visible uptick in stress, which aligns more closely with the IMF’s more challenging growth-inflation trade-off and the economy’s greater sensitivity to energy prices.

260423Z2.jpg

**Volatility falls despite deteriorating growth surprises**
Market optimism is also increasingly at odds with the incoming data flow. Typically, equity volatility declines when growth surprises are positive and inflation surprises are benign. However, the recent pattern has broken that relationship. Growth surprises across the G10 have turned increasingly negative (our series is inverted in the chart below), yet volatility has continued to fall. In other words, markets are becoming less sensitive to weakening macro data, continuing to price a benign outlook even as the data deteriorate. This divergence reinforces the broader theme: investors are, for now, looking through both geopolitical risks and softer economic momentum, placing greater weight on resilience in earnings, the AI-driven narrative and the assumption that policy will remain supportive.

260423Z3.jpg

**Inflation Nowcasts Have Jumped**
Incoming data suggest that headline inflation has moved higher in recent weeks, broadly in line with expectations given the rise in energy prices following the Middle East shock. Nowcasts for CPI across the major economies show a clear rebound in March and April from the lows seen at the start of 2026, with the move occurring in a relatively synchronised fashion. This reinforces the view that the recent pickup in inflation is being driven primarily by a common external factor—energy.

260423Z4.jpg

**Energy shock not yet feeding into underlying inflation**
However, the detailed breakdown of March inflation outcomes suggests that this remains, for now, a largely headline-driven phenomenon. While headline CPI prints were firm across most economies, core inflation—stripping out energy and food—was more subdued and in some cases weaker. This indicates that there has been very limited pass-through from higher energy prices into broader goods and services inflation at this early stage. In other words, the shock is still being absorbed rather than propagated. That distinction is critical for policy and markets alike: as long as second-round effects remain contained, central banks may be able to look through the near-term rise in inflation, even as headline rates move higher.

260423Z5.jpg

**Inflation Expectations Rising as Growth Sentiment Falters**
It remains early days, and much will hinge on how inflation expectations evolve from here. The latest ZEW survey for Germany already conveys the hallmarks of a classic stagflationary shock, with macroeconomic expectations weakening even as inflation expectations have ratcheted sharply higher. This shift is important: while the recent rise in headline inflation has so far shown limited pass-through into core, a sustained increase in expectations would raise the risk of second-round effects and make the inflation process more persistent. In that sense, the ZEW data highlight the key fault line in the current environment—whether the energy-driven shock remains contained, or begins to embed itself more broadly through expectations and pricing behaviour.

260423Z6.jpg

Financial markets have remained notably calm in recent weeks despite rising geopolitical tensions in the Middle East, a more downbeat macroeconomic narrative and elevated uncertainty. Measures of financial stress and volatility remain low, and equity markets continue to look through both the conflict and softer data. That resilience sits alongside a more nuanced macro backdrop. The IMF’s latest WEO revisions point to a classic stagflationary energy shock—growth downgraded and inflation revised higher—although the global impact remains modest and uneven, with some economies still benefiting from stronger momentum (chart 1). At the same time, market pricing appears increasingly detached from the data flow, with volatility declining even as growth surprises have turned more negative relative to inflation (charts 2 and 3). Incoming inflation data reinforce the idea of a largely headline-driven shock, with nowcasts rising in line with higher energy prices but only limited pass-through into core inflation so far (charts 4 and 5). However, it remains early days. Survey evidence, such as the latest ZEW release, suggests that inflation expectations may already be responding in a more concerning way, with a marked rise alongside weakening growth sentiment (chart 6). Taken together, the key question for markets is whether this remains a contained, energy-driven shock that can be looked through—or whether it begins to embed more persistently via expectations, forcing a reassessment of the currently benign outlook.

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Charts of the Week: Risks Build, Markets Shrug

Sandy Batten

260423F8.jpg

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The National Activity Index published by the Federal Reserve Bank of Chicago (CFNAI) slipped to -0.20 in March from an upwardly revised +0.03 in February (previously (-0.11). This is the lowest monthly reading since last November. Smoothing out the monthly volatility, the index's three-month moving average (CFNAI-MA3) declined to -0.03 in March from an upwardly revised +0.03 in February (previously -0.01).

This index is expressed in standard deviation units from zero (with a value of zero defined as trend real GDP growth). Research at the FRB Chicago indicates that readings on the 3-month average of -0.70 or below are consistent with the economy being in a recession. Therefore, even though the March reading on the 3-month average was negative, it indicates that the US economy is still growing, just slightly slower than trend, and is well away from recessionary conditions. The 3-month average would be much deeper in negative territory if the economy was at risk of contracting.

The National Activity Index is a composite of 85 economic indicators, grouped into four major categories: production and income; employment, unemployment, and hours worked; personal consumption and housing; sales, orders, and inventories. Three of the four broad categories of indicators used to construct the index decreased from February, and three categories made negative contributions in March. Production-related indicators contributed –0.20 to the CFNAI in March, down from +0.13 in February. The sales, orders, and inventories category's contribution to the CFNAI was –0.01 in March, down from +0.05 in February. Employment-related indicators contributed +0.02 to the CFNAI in March, up from –0.15 in February. The personal consumption and housing category's contribution to the CFNAI was –0.01 in March, down from a neutral value in February.

The CFNAI Diffusion Index, which measures the breadth of the change in the component series and is also a three-month moving average, increased to –0.04 in March from –0.08 in February. This is the highest reading since February 2025. A reading of zero indicates that all of the indicators are growing at their long-term average. If all of the underlying indicators in a given month are below their long-run averages, the diffusion index will equal -1. If all of the indicators are above their long-run averages, it will equal +1. Thirty-four of the 85 individual indicators made positive contributions to the CFNAI in March, while 51 made negative contributions. Forty-three indicators improved from February to March, while 40 indicators deteriorated and two were unchanged. Of the indicators that improved, 16 made negative contributions.

These figures are available in Haver's **SURVEYS** database.

- The monthly reading fell to -0.20 in March from an upwardly revised +0.03 in February.
- The three-month average slipped from +0.03 to -0.03.
- Despite the slip in March, the index points to near-trend economic growth and is well above recession territory.

Chicago Fed National Activity Index Slipped in March

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance rose by 6,000 to 214,000 in the week ending April 18, from 208,000 in the week ending April 11, revised from 207,000. The four-week average rose 750 to 210,750 in the week ending April 18, from 210,000 the April 11 week, revised from 209,750. The Action Economics/Haver Analytics Survey looked for 210,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 12,000 to 1.821 million in the week ending April 11, from 1.809 million in the week ending April 4. The four-week moving average rose to 1.812 million in the latest week from 1.811 million in the March 28 week. The insured unemployment rate remained at 1.2% in the week of April 11. It has remained at that level since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending April 4, the highest unemployment rates were in New Jersey (2.51%), Massachusetts (2.37%), Rhode Island (2.31%), Washington (2.25%), Minnesota (2.11%), and California (2.02%). The lowest rates were in Florida (0.30%), Louisiana (0.31%), Arkansas (0.35%), Alabama (0.36%), North Carolina (0.39%), Tennessee (0.46%), South Dakota (0.47%), Kansas and Virginia (both 0.49%). Rates in other notable states include New York (1.92%), Illinois (1.82%), Pennsylvania (1.52%), and Texas (1.04%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.

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- New claims rose by 6,000 to 214,000.
- Continuing claims rose by 12,000 to 1.821 million.
- The insured unemployment rate remained at 1.2%.


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