Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070718e.jpg" width="353">
The total number of mortgage applications rose 1.9% last week following a 1.1% gain the prior week, according to the Mortgage Bankers Association.
Higher applications to refinance led the increase in the total with a 4.9% increase after three consecutive down weeks.
Purchase applications fell 1.6% after the prior week&#146;s 3.8% increase.
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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070718f.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage fell slightly to 6.93% from 6.96% the prior week. Rates averaged 6.84% last month, up from 6.28% in December. The peak for 30 year financing was 7.08% late in June. Rates for 15-year financing similarly fell to 6.63% last week. 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.<span style="font-size:10.0pt;font-family:Verdana;mso-fareast-font-family:&quot;Times New Roman&quot;;
mso-bidi-font-family:&quot;Times New Roman&quot;;mso-ansi-language:EN-US;mso-fareast-language:
EN-US;mso-bidi-language:AR-SA">
The Mortgage Bankers Association surveys between 20 and 35 top lenders in the U.S. housing industry. Then it derives 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>.

<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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a> </th>
<th scope="col">07/13/07 </th>
<th scope="col">07/06/07 </th>
<th scope="col">Y/Y </th>
<th scope="col">2006 </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index </td>
<td>631.6</td>
<td>626.2 </td>
<td>16.8% </td>
<td>584.2 </td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase </td>
<td>446.5 </td>
<td>4523.9 </td>
<td>12.0% </td>
<td>406.9 </td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing </td>
<td>1,717.4 </td>
<td>1,636.9 </td>
<td>24.7% </td>
<td>1,634.0 </td>
</tr>
</tbody>
</table>


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The total number of mortgage applications rose 1.9% last week following a 1.1% gain the prior week, according to the Mortgage Bankers Association. Higher applications to refinance led the increase in the total with a 4.9% increase [...]

Mortgage Applications Up Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070718c.jpg" width="353">
Housing starts rose 2.3% during June to 1.467M and slightly beat Consensus expectations for 1.45M starts. The increase did little to dampen this year&#146;s pace of 20%+ y/y declines.
The increase in June starts was all in multi-family structures. These rose 12.5% to 316,000 but essentially have been moving sideways.
Single-family starts slipped 0.2% to 1.15M, down for the third month in a row.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070718d.jpg" width="353">
By region, single-family housing starts in the South fell a hard 4.6% (-27.2% y/y). Single-family starts in the Northeast rose 0.9% (19.6% y/y) and starts in the Midwest rose 3.1% (-21.7% y/y). Out West starts recovered 6.7% (-20.3% y/y). 
Today&#146;s testimony by Fed Chairman Ben S. Bernanke can be found <a href="http://www.federalreserve.gov/boarddocs/hh/2007/july/testimony.htm">here</a>. 

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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1,467</td>
<td>1,434</td>
<td>-19.4%</td>
<td>1,819</td>
<td>2,073</td>
<td>1,950</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,151</td>
<td>1,153</td>
<td>-21.6%</td>
<td>1,478</td>
<td>1,719</td>
<td>1,604</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>316</td>
<td>281</td>
<td>-9.7%</td>
<td>341</td>
<td>354</td>
<td>345</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>1,596</td>
<td>1,513</td>
<td>-24.3%</td>
<td>1,834</td>
<td>2,159</td>
<td>2,058</td>
</tr>
</tbody>
</table>


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Housing starts rose 2.3% during June to 1.467M and slightly beat Consensus expectations for 1.45M starts. The increase did little to dampen this years pace of 20%+ y/y declines. The increase in June starts was all in multi-family [...]

Total Housing Starts Uptick All Multi-Family, Single-Family Down

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070717j.jpg" width="353">
The Industry index from METI is in a sharp decline and is lower over six months for a period of three months running. Services (the tertiary index) tend to be more stable. Their index has slowed in the past few months and even fell in May but it is growing at pace just below 2%.
The tertiary and industry index are still relatively strong in their five year context. Fixing them in the range of values they have experienced over the past five years we find that the tertiary index is in its 95Th percentile (top 5-percent). The Industrial gauge is a bit lower but resides in the 84th percentile about the top 15 percentile of its range. The percentile standing of the MFG sector is higher than we get from other surveys of Japan (NTC has the MFG sector in the bottom 30 percent of its five year range). Japan remains unconcerned about this weakness and the BoJ continues to talk of when it will go back to hiking rates. Onew BOJ board member thinks they should already have hiked them again.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
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 Key Japanese Sector Surveys
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Raw readings of each survey</td>
<td colspan="2">Percent of 5Yr range*</td>
</tr>
<tr>
<td class="firstcol"> Business Activity (METI:Indexes)</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>May-07</td>
<td>Apr-07</td>
</tr>
<tr class="odd">
<td class="firstcol"> Industry</td>
<td>107.1</td>
<td>107.4</td>
<td>107.6</td>
<td>84.9%</td>
<td>86.7%</td>
</tr>
<tr class="odd">
<td class="firstcol"> Tertiary (Services)</td>
<td>110.2</td>
<td>110.3</td>
<td>108.6</td>
<td>95.1%</td>
<td>96.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">*100 is high; Zero is low</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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The Industry index from METI is in a sharp decline and is lower over six months for a period of three months running. Services (the tertiary index) tend to be more stable. Their index has slowed in the past few months and even fell in [...]

METI Sector Surveys Show Some Weakness in May

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070717g.jpg" width="353">
The July ZEW survey of German institutional investors and analysts revealed a sharp deterioration in the excess of those who see improvement in the economic outlook six months ahead and those who see worsening conditions. The excess in July was 10.4% compared with 20.3% in June. The historical average of optimists over pessimists is 32.8%.
The participants in the ZEW survey also expressed slightly less confidence in the current situation. The excess of optimists regarding current conditions fell to 88.2% in July from 88.7% in June, nevertheless, the confidence in the current situation is among the strongest reported over the entire history of the survey, as can be seen in the first chart.
Concerns over the rising price of oil, the strengthening of the euro and higher interest rates may have accounted for some of the weakening confidence among the financial community. Although there was some relief to the rising price of oil and strengthening of the Euro in the second quarter of this year, the price of oil has risen almost 58% from the low point of the year of January 18, to July 16 and the euro is up almost 7% over the same period. The daily prices of a barrel of Brent Crude and the dollar exchange rates of the euro for the current year are shown in the second chart. While the European Central Bank (ECB) did not raise rates at its last meeting, its base rate has risen steadily over the last 18 months from 2% in November, 2005 to 4% currently, as shown in the third chart. Moreover, the bank continues to stress that further tightening may be needed. 

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<td><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070717h.jpg" width="353"><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070717i.jpg" width="353"> </td>
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<colgroup><col><col><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol">GERMANY&nbsp;&nbsp;</th>
<th scope="col">July 07</th>
<th scope="col">June 07&nbsp;</th>
<th scope="col">July&nbsp; 06&nbsp;</th>
<th scope="col">M/M Chg&nbsp;</th>
<th scope="col">Y/Y Chg&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">ZEW Indicator (%)</td>
<td>&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations 6 mo ahead</td>
<td>10.4</td>
<td>20.3</td>
<td>15.1</td>
<td>-9.9</td>
<td>-4.7</td>
<td>22.3</td>
<td>34.8</td>
<td>44.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Current conditions</td>
<td>88.2</td>
<td>88.7</td>
<td>23.3</td>
<td>-0.5</td>
<td>64.9</td>
<td>18.3</td>
<td>-61.8</td>
<td>-67.0</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>7/16/07</td>
<td>1/18/07</td>
<td>% Chg</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Euro/Dollar Exchange rate</td>
<td>1.38</td>
<td>1.29</td>
<td>6.98</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Price of&nbsp; Oil per bbl. Brent Crude</td>
<td>79.73</td>
<td>50.83</td>
<td>57.91</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
</body>
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The July ZEW survey of German institutional investors and analysts revealed a sharp deterioration in the excess of those who see improvement in the economic outlook six months ahead and those who see worsening conditions. The excess [...]

Confidence Among the German Financial Community Weakens in July

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070717c.jpg" width="353">
The Composite Housing Market Index from the National Association of Home Builders&#39; (NAHB) fell last month to the lowest level since early 1991. At 28 for June, the index fell 6.7% from May and fell by one third from a year earlier. 
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. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070717d.jpg" width="353"> 
The sub-index for current sales also fell 6.5% from May (-38.3% y/y) and the sub-index covering prospective sales in the next six months fell 4.9% m/m (-23.5% y/y). 
Traffic of prospective home buyers fell 4.5% (-27.6% 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>. 

<table border="0" cellspacing="0" width="100%">
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<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">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;06 </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>28</td>
<td>30</td>
<td>42</td>
<td>42</td>
<td>67</td>
<td>68</td>
</tr>
</tbody>
</table>
</body>
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The Composite Housing Market Index from the National Association of Home Builders' (NAHB) fell last month to the lowest level since early 1991. At 28 for June, the index fell 6.7% from May and fell by one third from a year earlier. [...]

NAHB Housing Market Index Fell Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070717a.jpg" width="353">
The producer price index for finished goods fell 0.2% last month following its 0.9% rise in May. The decline compared to Consensus forecasts for a 0.1% increase and it was the first decline since January.
Food prices fell 0.8% (+6.3% y/y) after May&#39;s 0.2% dip.
Energy prices, in addition, declined a sharp 1.1% (+4.3% y/y) as gasoline prices fell 3.9% (+3.8% y/y).Fuel oil dipped 0.5% (-0.6% y/y/y) but natural gas prices increased a hefty 2.6% (6.8% y/y), the firmest y/y increase since June 2006.
The core finished goods PPI increased 0.3%, bit more than the 0.2% May rise but the last two increases followed two months of unchanged readings during March and April. Consensus estimates were for a 0.2% increase in June.
Finished consumer goods prices less food &amp; energy rose 0.3% (1.7% y/y) as passenger car prices rose 0.9% (-1.8% y/y) after an unchanged reading during May.
Capital equipment prices increased 0.2% (1.8% y/y) after unchanged prices during the prior two months. Most of the June increase was due to a 1.0% (0.8% y/y) in prices of light motor trucks.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070717b.jpg" width="353">
Intermediate goods prices added 0.5% to the firm 1.1% increase during May.Intermediate food prices rose a large 1.6% (15.3% y/y), suggesting future strength in finished food prices. The index excluding food &amp; energy prices rose the same 0.4% (2.7% y/y) as it did during May. 
The crude materials PPI rose 0.3% (14.9% y/y), as energy prices rose 0.6% (8.5% y/y) and food prices rose 0.5% (27.1% y/y). The core crude materials PPI fell 0.2% (10.2% y/y) as copper scrap prices fell 6.6% NSA (+9.6% y/y) and aluminum scrap prices fell 2.3% NSA (-3.3% y/y). 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>-0.2</td>
<td>0.9%&nbsp;</td>
<td>&nbsp; 3.2%&nbsp;</td>
<td>2.9%</td>
<td>&nbsp;4.9%&nbsp;</td>
<td>3.6%&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.3</td>
<td>0.2%</td>
<td>&nbsp;1.8%</td>
<td>1.4%</td>
<td>2.4%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.5%</td>
<td>1.1%</td>
<td>3.4%</td>
<td>6.4%</td>
<td>&nbsp;8.0%</td>
<td>6.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.4%</td>
<td>0.4%</td>
<td>2.7%</td>
<td>6.0%</td>
<td>&nbsp;5.5%</td>
<td>5.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>0.3%</td>
<td>&nbsp;2.0%&nbsp;</td>
<td>&nbsp;14.9%</td>
<td>1.4%</td>
<td>14.6%</td>
<td>&nbsp;17.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>&nbsp;10.1%</td>
<td>20.9%</td>
<td>4.9%</td>
<td>&nbsp;26.5%</td>
</tr>
</tbody>
</table>
</body>
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The producer price index for finished goods fell 0.2% last month following its 0.9% rise in May. The decline compared to Consensus forecasts for a 0.1% increase and it was the first decline since January. Food prices fell 0.8% (+6.3% [...]

Lower Energy Prices Ease U.S. PPI; Core Prices Firm

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070717a.jpg" width="353">
The producer price index for finished goods fell 0.2% last month following its 0.9% rise in May. The decline compared to Consensus forecasts for a 0.1% increase and it was the first decline since January.
Food prices fell 0.8% (+6.3% y/y) after May&#39;s 0.2% dip.
Energy prices, in addition, declined a sharp 1.1% (+4.3% y/y) as gasoline prices fell 3.9% (+3.8% y/y).Fuel oil dipped 0.5% (-0.6% y/y/y) but natural gas prices increased a hefty 2.6% (6.8% y/y), the firmest y/y increase since June 2006.
The core finished goods PPI increased 0.3%, bit more than the 0.2% May rise but the last two increases followed two months of unchanged readings during March and April. Consensus estimates were for a 0.2% increase in June.
Finished consumer goods prices less food &amp; energy rose 0.3% (1.7% y/y) as passenger car prices rose 0.9% (-1.8% y/y) after an unchanged reading during May.
Capital equipment prices increased 0.2% (1.8% y/y) after unchanged prices during the prior two months. Most of the June increase was due to a 1.0% (0.8% y/y) in prices of light motor trucks.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070717b.jpg" width="353">
Intermediate goods prices added 0.5% to the firm 1.1% increase during May.Intermediate food prices rose a large 1.6% (15.3% y/y), suggesting future strength in finished food prices. The index excluding food &amp; energy prices rose the same 0.4% (2.7% y/y) as it did during May. 
The crude materials PPI rose 0.3% (14.9% y/y), as energy prices rose 0.6% (8.5% y/y) and food prices rose 0.5% (27.1% y/y). The core crude materials PPI fell 0.2% (10.2% y/y) as copper scrap prices fell 6.6% NSA (+9.6% y/y) and aluminum scrap prices fell 2.3% NSA (-3.3% y/y). 

<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/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>-0.2</td>
<td>0.9%&nbsp;</td>
<td>&nbsp; 3.2%&nbsp;</td>
<td>2.9%</td>
<td>&nbsp;4.9%&nbsp;</td>
<td>3.6%&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.3</td>
<td>0.2%</td>
<td>&nbsp;1.8%</td>
<td>1.4%</td>
<td>2.4%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.5%</td>
<td>1.1%</td>
<td>3.4%</td>
<td>6.4%</td>
<td>&nbsp;8.0%</td>
<td>6.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.4%</td>
<td>0.4%</td>
<td>2.7%</td>
<td>6.0%</td>
<td>&nbsp;5.5%</td>
<td>5.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>0.3%</td>
<td>&nbsp;2.0%&nbsp;</td>
<td>&nbsp;14.9%</td>
<td>1.4%</td>
<td>14.6%</td>
<td>&nbsp;17.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>&nbsp;10.1%</td>
<td>20.9%</td>
<td>4.9%</td>
<td>&nbsp;26.5%</td>
</tr>
</tbody>
</table>
Tom Moeller 
by <a href="/comment/Moeller.html">Tom Moeller</a> Industrial Production Rebounded In June July 17, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070717e.jpg" width="353">
For June, industrial production rebounded 0.5% after a revised 0.1% decline during the prior month. The magnitude of the rebound matched Consensus expectations.
Little of the figures were distorted by movement in the utility or in the mining categories. As a result, factory output rose 0.5% after a revised no change in May. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070717f.jpg" width="353">
Consumer goods output surged 0.7% (1.6% y/y) led by a 2.5% (-1.7% y/y) pop in motor vehicle output. Production of computers &amp; electronics also rose a strong 1.1% (9.3% y/y) while output of furniture rose a tentative 1.2% (-4.1% y/y). To the downside was production of apparel by 2.4% (-3.4% y/y.
Production of business equipment was unchanged for the second consecutive month (3.4% y/y), held back by a 0.6% decline in output of industrial &amp; other equipment. Information processing &amp; related equipment rose 0.4% (5.7% y/y.
Capacity utilization rose to 81.7%from 81.4% in May as capacity rose 0.1% (2.1% y/y for the fifth strait month.
How Accurate Are Real-Time Estimates of Output Trends and Gaps? from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/spring2007/watson.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">INDUSTRIAL PRODUCTION (SA)</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.5%</td>
<td>-0.1%</td>
<td>1.3%</td>
<td>4.0%</td>
<td>3.2%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>0.5%</td>
<td>0.0%</td>
<td>1.6%</td>
<td>4.7%</td>
<td>3.9%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Mining</td>
<td>0.6%</td>
<td>0.3%</td>
<td>-0.9%</td>
<td>2.7%</td>
<td>-1.6%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">Utilities</td>
<td>0.3%</td>
<td>-1.6%</td>
<td>0.7%</td>
<td>0.2%</td>
<td>2.0%</td>
<td>1.4%</td>
</tr>
</tbody>
</table>
NAHB Housing Market Index Fell Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 17, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070717c.jpg" width="353">
The Composite Housing Market Index from the National Association of Home Builders&#39; (NAHB) fell last month to the lowest level since early 1991. At 28 for June, the index fell 6.7% from May and fell by one third from a year earlier. 
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. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070717d.jpg" width="353"> 
The sub-index for current sales also fell 6.5% from May (-38.3% y/y) and the sub-index covering prospective sales in the next six months fell 4.9% m/m (-23.5% y/y). 
Traffic of prospective home buyers fell 4.5% (-27.6% 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>. 

<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/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a> </th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;06 </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>28</td>
<td>30</td>
<td>42</td>
<td>42</td>
<td>67</td>
<td>68</td>
</tr>
</tbody>
</table>
Confidence Among the German Financial Community Weakens in July  
by <a href="/comment/Curley.html">Louise Curley</a> July 17, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070717g.jpg" width="353">
The July ZEW survey of German institutional investors and analysts revealed a sharp deterioration in the excess of those who see improvement in the economic outlook six months ahead and those who see worsening conditions. The excess in July was 10.4% compared with 20.3% in June. The historical average of optimists over pessimists is 32.8%.
The participants in the ZEW survey also expressed slightly less confidence in the current situation. The excess of optimists regarding current conditions fell to 88.2% in July from 88.7% in June, nevertheless, the confidence in the current situation is among the strongest reported over the entire history of the survey, as can be seen in the first chart.
Concerns over the rising price of oil, the strengthening of the euro and higher interest rates may have accounted for some of the weakening confidence among the financial community. Although there was some relief to the rising price of oil and strengthening of the Euro in the second quarter of this year, the price of oil has risen almost 58% from the low point of the year of January 18, to July 16 and the euro is up almost 7% over the same period. The daily prices of a barrel of Brent Crude and the dollar exchange rates of the euro for the current year are shown in the second chart. While the European Central Bank (ECB) did not raise rates at its last meeting, its base rate has risen steadily over the last 18 months from 2% in November, 2005 to 4% currently, as shown in the third chart. Moreover, the bank continues to stress that further tightening may be needed. 

<table border="0" cellspacing="0" width="100%">
<tr>
<td><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070717h.jpg" width="353"><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070717i.jpg" width="353"> </td>
</tr>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">GERMANY&nbsp;&nbsp;</th>
<th scope="col">July 07</th>
<th scope="col">June 07&nbsp;</th>
<th scope="col">July&nbsp; 06&nbsp;</th>
<th scope="col">M/M Chg&nbsp;</th>
<th scope="col">Y/Y Chg&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">ZEW Indicator (%)</td>
<td>&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations 6 mo ahead</td>
<td>10.4</td>
<td>20.3</td>
<td>15.1</td>
<td>-9.9</td>
<td>-4.7</td>
<td>22.3</td>
<td>34.8</td>
<td>44.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Current conditions</td>
<td>88.2</td>
<td>88.7</td>
<td>23.3</td>
<td>-0.5</td>
<td>64.9</td>
<td>18.3</td>
<td>-61.8</td>
<td>-67.0</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>7/16/07</td>
<td>1/18/07</td>
<td>% Chg</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Euro/Dollar Exchange rate</td>
<td>1.38</td>
<td>1.29</td>
<td>6.98</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Price of&nbsp; Oil per bbl. Brent Crude</td>
<td>79.73</td>
<td>50.83</td>
<td>57.91</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
METI Sector Surveys Show Some Weakness in May 
by <a href="/comment/Brusca.html">Robert Brusca</a> July 17, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070717j.jpg" width="353">
The Industry index from METI is in a sharp decline and is lower over six months for a period of three months running. Services (the tertiary index) tend to be more stable. Their index has slowed in the past few months and even fell in May but it is growing at pace just below 2%.
The tertiary and industry index are still relatively strong in their five year context. Fixing them in the range of values they have experienced over the past five years we find that the tertiary index is in its 95Th percentile (top 5-percent). The Industrial gauge is a bit lower but resides in the 84th percentile about the top 15 percentile of its range. The percentile standing of the MFG sector is higher than we get from other surveys of Japan (NTC has the MFG sector in the bottom 30 percent of its five year range). Japan remains unconcerned about this weakness and the BoJ continues to talk of when it will go back to hiking rates. Onew BOJ board member thinks they should already have hiked them again.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
 Key Japanese Sector Surveys
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Raw readings of each survey</td>
<td colspan="2">Percent of 5Yr range*</td>
</tr>
<tr>
<td class="firstcol">Biz Activity (METI:Indexes)</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>May-07</td>
<td>Apr-07</td>
</tr>
<tr class="odd">
<td class="firstcol"> Industry</td>
<td>107.1</td>
<td>107.4</td>
<td>107.6</td>
<td>84.9%</td>
<td>86.7%</td>
</tr>
<tr class="odd">
<td class="firstcol"> Tertiary (Services)</td>
<td>110.2</td>
<td>110.3</td>
<td>108.6</td>
<td>95.1%</td>
<td>96.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">*100 is high; Zero is low</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body>
</html>

<html>
<head>
<style>
.odd{
 background-color:#edf5ff;
}
.even{
 background-color:#dde5ef;
}
.grey1{
	background-color:#f0f0f0;
}
.grey2{
	background-color:#e2e2e2;
}
.grey3{
	background-color:#d4d4d4;
}
.grey4{
	background-color:#c6c6c6;
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.grey5{
	background-color:#b8b8b8;
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</style>
</head>
<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716g.jpg" width="353">
The chart on select core HICP readings violates the rule on how many lines to plot on a graph (sorry). But the clear message is that few of these are trending lower and most are trending up. Among those that have any trend lower, there is usually abysmally high inflation rate anyway (Greece and Spain, for example).
The table below presents the discernable detail on core inflation trends on data that were not available last week. The table shows that inflation is accelerating in too many countries for comfort. In the same table we slice the data into a number of 12-month periods ended in June since that is the most recent observation.
As of June 2007 inflation was accelerating in half of the select 12 EMU members. Over the past year inflation also was higher on a year/year basis in seven countries than it had been in June of 2004. Any way you look at the inflation comparisons there is a hint of inflation. And these data look at core prices excluding the direct effects of food and energy inflation. These four presentations, the chars and the table below, make it clear why the ECB remains wary about inflation forces.
Inflation is simply trending higher into many categories to be ignored and across too many EMU countries to assume that it will go down all by itself. 

<table border="0" cellspacing="0" width="100%">
<tr>
<td><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716h.jpg" width="353"><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716i.jpg" width="353"> </td>
</tr>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Euro area Select Members: Core Inflation Yr/Yr
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"></td>
<td>Jun-07</td>
<td>Jun-06</td>
<td>Jun-05</td>
<td>Jun-04</td>
</tr>
<tr>
<td class="firstcol">Austria</td>
<td>1.9%</td>
<td>1.3%</td>
<td>1.6%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Belgium</td>
<td>1.7%</td>
<td>1.7%</td>
<td>1.4%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Finland</td>
<td>1.4%</td>
<td>0.8%</td>
<td>0.6%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>1.4%</td>
<td>1.4%</td>
<td>1.2%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>2.1%</td>
<td>0.8%</td>
<td>0.8%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Greece</td>
<td>2.9%</td>
<td>3.0%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>2.4%</td>
<td>2.1%</td>
<td>1.7%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>1.8%</td>
<td>1.8%</td>
<td>1.9%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Luxembourg</td>
<td>2.3%</td>
<td>2.3%</td>
<td>2.5%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">The Netherlands</td>
<td>1.5%</td>
<td>0.8%</td>
<td>0.6%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Portugal</td>
<td>2.4%</td>
<td>2.5%</td>
<td>0.2%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>2.4%</td>
<td>3.1%</td>
<td>2.5%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">EMU Core HICP</td>
<td>1.9%</td>
<td>2.5%</td>
<td>1.9%</td>
<td>2.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

The chart on select core HICP readings violates the rule on how many lines to plot on a graph (sorry). But the clear message is that few of these are trending lower and most are trending up. Among those that have any trend lower, [...]

HICP Trends Show Pressure

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

Job openings less than the number unemployed in July for first time since 2021

Reaccelerating goods price inflation along with sticky services inflation clouds the outlook

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

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Retail gasoline prices for all grades slipped to $3.15 per gallon (-1.3% y/y), on average, in the week ended November 3 after rising to $3.16 in the previous week. The recent high was $3.79 in the week ending April 22, 2024. Their all-time high of $5.11 occurred in the week ending June 13, 2022. Haver Analytics seasonally adjusts the retail prices of regular grade gasoline. That price held at $3.05 last week versus $3.05 in the previous week.

The price of West Texas Intermediate crude oil rose to $60.70 per barrel (-11.2% y/y) in the week ended October 31 after improving to $59.43 per barrel in the prior week. It was the highest price in three weeks but prices remained below a recent high of $74.17 during the third week of June. The cost of crude oil peaked at $120.46 in the week of June 10, 2022. Yesterday, the price was $61.05 per barrel. The price of European Brent crude increased to $65.02 per barrel (-10.5% y/y) in the week of October 31 after rising to $63.22 in the prior week. Prices remained below a recent high of $95.61 in the week of September 29, 2023 and below a peak of $127.40 in June 2022. Yesterday, the price was $65.79 per barrel.

Natural gas prices rose to an average $3.43/mmbtu (88.5% y/y) in the week ended October 31 after rising to $3.25/mmbtu in the prior week. The rise left prices at the highest level since the second week of April and well above the low of $1.40/mmbtu in the week of March 15, 2024. Yesterday, the price was $3.37 per mmbtu.

Gasoline demand declined 4.2% y/y in the four weeks ending October 24, following a 3.6% y/y decline in the prior four weeks. Demand for all petroleum products weakened 0.9% y/y in the four weeks ending October 24, after slipping 0.1% y/y in the previous four-week period. Crude oil input to refineries declined 1.7% y/y in the four weeks ending October 24, after a 0.3% y/y gain in the prior four weeks.

Gasoline inventories ease 0.1% y/y in the week ending October 24 following a 1.5% y/y gain in the prior week. Residual fuel oil inventories fell 10.0% y/y in the October 24 week after falling 13.0% y/y in the prior week. Working higher, crude oil inventories rose 1.7% y/y in the week of October 24 after rising 2.6% y/y in the previous week.

Measured in days’ supply, gasoline inventories fell to 24.3 days in the week of October 24. The recent low was 22.9 days in the week of November 8, 2024. The supply of crude oil held steady at 26.7 days in the week of October 24. The supply remained below a recent high of 31.9 days in the week of March 3, 2023.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** and **USENERGY** databases.

- Gasoline prices are minimally changed.
- Crude oil costs rise further.
- Natural gas prices strengthen.

U.S. Energy Prices Are Mixed in Latest Week

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U.S. light vehicle sales dove 6.9% (-4.5% y/y) in October to 15.48 million units (SAAR) after holding steady at 16.62 million units in September. Sales fell broadly. 

Light truck sales slid 6.9% (-1.4% y/y) in October to 12.90 million units, after rising 0.9% in September. Purchases of domestically-made light trucks fell 7.9% (+1.4% y/y) to 10.10 million units, the lowest level since February, after rising 3.4% in September. Sales of imported light trucks fell 2.8% (-10.3% y/y) to 2.80 million units, following a 7.4% September decline.

Trucks’ 83.3% share of the light vehicle market last month was steady with September and compared to 82.6% in August, and to 80.7% in October of last year. The share has averaged 82.4% so far this year versus 56.5% ten years earlier.

Passenger car sales declined 6.9% (-17.6% y/y) last month to 2.58 million, after falling 4.8% in September. Purchases of domestically-produced cars fell 7.2% (-16.5% y/y) last month to 1.93 million units, after weakening 7.1% in September. Imported auto sales declined 4.5% (-22.0% y/y) to 0.64 million units after holding steady in September.

Imports' 22.2% share of the U.S. light vehicle market rose from 21.4% in September. These compared to a high of 26.3% in November of 2023. Imports' share of the passenger car market edged up to 24.8% last month from 24.2% in September. It reached a high of 38.1% in September 2021. Imports' share of the light truck market increased to 21.7% last month from 20.8% in September.

U.S. vehicle sales figures can be found in Haver's **USECON** database. Additional detail by manufacturer is in the **INDUSTRY** database.

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- Light truck sales and auto purchases decline m/m.
- Total sales decline sharply y/y.
- Imports' market share declines.

U.S. Light Vehicle Sales Fall Sharply in October

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Factory sector activity remains under pressure. The ISM U.S. manufacturing PMI declined to 48.7 in October after rising to 49.1 during September from 48.7 in August, according to the Institute for Supply Management. These figures are below the 50 expansion-contraction dividing line. As a result, they continue to indicate that the U.S. manufacturing sector weakened for the eighth consecutive month. The reading remained remain above, however, a low of 46.9 in October of last year. A November index of 49.4 had been expected in the Action Economics Forecast Survey.

The production component declined to 48.2 last month after rising to 51.0 in September. It remained increased from an April low of 44.0. A lessened 27.3% (NSA) of respondents reported higher production while an increased 22.0% reported lower output levels. The inventory reading fell to a 12-month low of 45.8 from 47.7 in September. A lessened 13.2% (NSA) of respondents raised inventories while a higher 21.7% shed them.

Working higher, the new orders index rose to 49.4 during October from 48.9 in September. An increased 20.4% (NSA) of respondents reported new orders improvement while 26.0% reported a decline. The employment index increased to a five-month high of 46.0 last month after rising to 45.3 in September. An increased 13.1% (NSA) of respondents more hiring while 22.3% reported less. The supplier delivery index rose to 54.2 in October from 52.6 in September. Twelve percent (NSA) of respondents reported slower product delivery speeds while 3.2% reported a quickening.

The prices index weakened to 58.0 (NSA) during October from 61.9 in September. It was below a high of 69.8 in April, and well above its low of 39.4 in December 2022. A lessened 27.3% of respondents reported higher prices, a nine month low, while an increased 8.7% reported lower.

In other series, the export orders index rose to a seasonally adjusted 44.5 in October after falling sharply to 43.0 in September. It remained up from 40.1 May low. The imports index edged up to 45.2 last month from 44.7 in September. The index is below a high of 52.6 in February.

The ISM figures are based on responses from over 400 purchasing and supply executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These data are diffusion indexes where a reading above 50 indicates expansion; below 50 indicates contraction. The ISM Manufacturing PMI is a composite index based on the diffusion indexes of five of the indexes (seasonally adjusted) with equal weights: New Orders, Production, Employment, Supplier Deliveries, and Inventories. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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- Decline reverses all of September increase.					
- Lower production offsets new orders rise.
- Price index falls to nine-month low.

U.S. ISM Manufacturing PMI Eases in October; Price Index Declines Sharply

Tian Yong Woon

This week, we review a wave of key developments across Asia following US President Trump’s tour of the region last week. A central theme concerned countries courting closer ties with the US to avoid harsher actions, while also boosting regional cooperation amid trade barriers and scrutiny of China. This push for closer ties has manifested through new and updated trade agreements—ironically driven by ongoing uncertainty in global trade and supply chains, with US–China relations at the core. A major outcome of Trump’s trip was the new US–China trade agreement, which included the US halving tariffs on Chinese fentanyl-related products to 10%, while China suspended rare earth export controls and resumed soybean purchases vital to the US (chart 1). Perhaps more importantly, the deal signalled a small conciliatory shift and avoided a potentially worse outcome. Beyond the US–China agreement at the APEC Summit in South Korea, the US–South Korea trade deal also gained more clarity. Under the deal, US auto tariffs on South Korea has fallen to 15%, matching the rate applied to Japan and likely providing relief for South Korean automakers (chart 2).

Trump’s visit to Japan was another highlight. Relations with new Prime Minister Takaichi got off to a strong start, and further details emerged on Japan’s previously cited $550 billion investment commitment in the US—substantial even relative to Japan’s existing direct investment there (chart 3). However, specifics on the timing and implementation of the investment remain limited. Meanwhile, at the ASEAN Summit earlier in the week, aside from Trump’s engagements, the bloc officially welcomed its 11th member—Timor-Leste—the first new member in decades—granting it access to the bloc’s mechanisms and potentially supporting a catch-up in economic development (chart 5). Looking ahead, the focus on China and Japan is likely to continue, with China set to release its October trade (chart 6) and CPI data, and Japan scheduled to report employee wages and household spending.

**The APEC summit**
The US and China made a modest but meaningful step forward on trade following the Trump–Xi meeting at the APEC Summit in South Korea. The US lowered tariffs on Chinese fentanyl-related products to 10% from 20% and suspended enforcement of rules targeting subsidiaries of blacklisted firms—previous points of contention for Beijing. In return, China pledged stronger efforts to curb fentanyl flows, paused rare earth export controls for a year, and resumed purchases of US soybeans—significant given its historically large share of US export demand (chart 1). While not a comprehensive reset, these moves eased immediate tensions and helped avert more severe outcomes, including Trump’s previously threatened 100% tariff hike. The tone of the meeting also suggests a more conciliatory shift, though relations remain fragile and the risk of renewed escalation is still material.

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Beyond the headline-grabbing US–China trade deal, the APEC Summit in South Korea also saw the US reach a trade agreement with South Korea. Under the deal, US tariffs on South Korean autos and auto parts have fallen to 15% from 25%, matching the US tariff rate on Japanese autos and providing relief to South Korea’s sizable automotive export sector (chart 2). The agreement also clarified South Korea’s supposed $350 billion investment in the US: $200 billion in cash, capped at $20 billion per year to avoid currency market distortions, with the remaining $150 billion directed toward shipbuilding cooperation. While also not a major breakthrough, the deal represents incremental progress, addressing prior uncertainties and signalling steps toward a more favourable trade framework.

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**US President Trump’s Japan Visit**
Turning to US President Trump’s visit to Japan last week, new Prime Minister Takaichi appears to have gotten off to a strong start, with Trump hailing US–Japan relations as entering a “NEW GOLDEN AGE.” The two countries signed several agreements, including a Technology Prosperity Deal, and deepened cooperation on critical minerals and rare earths. Japan’s previously vague $550 billion investment commitment in the US is now somewhat clearer: up to $332 billion will support critical US infrastructure, $30 billion will target AI, and $15 billion will go toward electronics and supply chains, among other areas. While the headline figure is substantial—even relative to Japan’s already significant direct investment assets in the US (chart 3)—the open-ended nature of the commitment and the lack of a clear timeline leave its actual impact uncertain.

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**The ASEAN summits**
Whilst US President Trump’s attendance at the ASEAN–US Summit in Malaysia dominated headlines, there were also several other notable developments at last week’s ASEAN meetings in Kuala Lumpur. Most prominently, Timor-Leste was officially admitted as ASEAN’s eleventh member, following a two-decade accession process during which the country actively aligned its political and economic frameworks with ASEAN standards. Membership grants Timor-Leste access to the bloc’s broader security and economic mechanisms and could open further avenues for trade, investment, and development cooperation. Nonetheless, the country still has considerable ground to make up relative to its new ASEAN peers, particularly in terms of both GDP and GDP per capita (chart 4).

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The accession of Timor-Leste into ASEAN aside, last week’s summits also brought a number of economic developments for the bloc. More concretely, ASEAN and China signed an upgrade to their free trade agreement last week, bringing the deal to so-called version 3.0. The upgraded deal (ACFTA 3.0) introduces commitments in new areas such as Digital Economy, Green Economy, and Supply Chain Connectivity, among other themes. And notably, just as the US and ASEAN have found common ground to collaborate in fields such as those relating to rare earths, given how the US has seen vulnerabilities arising from this space given China’s dominance in the field, China has taken the year’s US-China frictions to foster closer ties with its neighbours in the region, including the collectively sizable ASEAN bloc. Just by the trade dimension alone, China-ASEAN-11 trade has growth significantly this year (chart 2), although the economies’ total trade with the US also rose, and at a more significant pace, despite tariff measures.

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Looking ahead, investors will focus on a series of China-related releases this week, notably the Caixin PMI readings, as well as October trade and CPI inflation data. These indicators will help gauge the economy’s performance under ongoing US tariffs and assess domestic demand and supply conditions, all in the broader context of recent US–China interactions during Trump’s Asia tour. In Japan, attention will turn to updated data on employee wages and household spending, which—together with developments in the external environment—will shape expectations for the Bank of Japan’s future policy stance. Elsewhere in the region, investors will watch interest rate decisions from Australia and Malaysia, where rates are expected to remain unchanged, as well as GDP readings from Indonesia and the Philippines.

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Asia

Economic Letter from Asia: Come Together

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The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) improved 0.3% during the four weeks ended October 31, 2025 after holding steady in the prior four week period. The index increased 0.8% y/y.

**Metals** group prices increased 4.3% (6.1% y/y) in the last four weeks as the cost of aluminum rose 7.0% (9.5% y/y). Copper scrap prices improved 6.5% (16.4% y/y) while zinc prices strengthened 6.8% in four weeks (3.0% y/y). Steel scrap prices rose 2.3% (-6.6% y/y) and tin prices increased 2.2% (16.1% y/y). Lead prices improved 1.1% (unchanged y/y) in four weeks.

Prices in the **Textile** group increased 1.2% during the last four weeks, and rose 2.4% y/y. The cost of burlap strengthened 14.5% in the last four weeks while surging 37.6% over the last year. Offsetting this rise, cotton prices fell 1.2% and declined 5.8% y/y.

**Miscellaneous** group prices weakened 3.0% in the last four weeks, unchanged y/y, as framing lumber prices fell 6.5% (+4.1% y/y). The cost of tallow, used for frying & baking, declined 13.1% (+11.2% y/y) in four weeks. Offsetting this weakness, natural rubber prices held steady (-10.1% y/y).

Prices in the **crude oil & benzene** group declined 1.7% (-9.3% y/y) in the last four weeks. The cost of West Texas Intermediate crude oil fell 3.1% in four weeks to $60.80 per barrel and declined 11.7% y/y. The price was increased from a low of $58.47 in the third week of the month. The price of the petro-chemical benzene fell 2.9% (-23.3% y/y) in four weeks.

**Excluding crude oil**, the industrial commodity price index rose 0.5% (1.6% y/y) over the last four weeks, the same as during the prior four weeks.

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

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- Metals and textile prices strengthen.
- Framing lumber costs backpedal.
- Crude oil prices weaken.

Economy in Brief: July 2007

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