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May 2013

US Total Vehicle Sales Should Be at or Above 15 million SAAR in May

Automakers will release May vehicle sales next Monday (June 3) and currently, analysts estimate May sales to be at or above 15 million (seasonally adjusted and annualized). It will represent an increase compared to April when sales slowed to their lowest monthly pace (14.92 million) since last autumn.


Here are some forecasts from specialists:


1/ Edmunds: Car Sales Expected to Get Back on Track in May, Says


“, the premier resource for car shopping and automotive information, forecasts that 1,420,937 new cars and trucks will be sold in the U.S. in May for an estimated Seasonally Adjusted Annual Rate (SAAR) this month of 15.1 million light vehicles. The projected sales will be a 10.6 percent increase from April 2013 and a 6.5 percent increase from May 2012.” … “May sales quickly chased away any of last month’s concerns that the auto recovery is stalling”


2/ TrueCar: May 2013 New Car Sles Expected to Be Up Almost Nince Percent Accordiing to TrueCar; May 2013 SAAR at 15.2M, Highest May SAAR since 2007


“For May 2013, new light vehicle sales in the U.S. (including fleet) is expected to be 1,435,495 units, up 8.5 percent from May 2012 and up 12.1 percent from April 2013 (on an unadjusted basis).” … “The May 2013 forecast translates into a Seasonally Adjusted Annualized Rate (“SAAR”) of 15.2 million new car sales, up from 14.9 April 2013 and up from 13.9 million in May 2012.”


3/ JD Power: J.D. Power and LMC Automotive Report: May New-Vehicle Retail Selling Rate Expected to be 1 Million Units Stronger than a Year Ago


“Robust new-vehicle retail sales in May are the driving factor of returning total sales above the 15-million unit selling level for the month, according to a monthly sales forecast developed by J.D. Power & Associates’ Power Information Network”


4/ Wards: May Sales Should Return to Trend


“Steadily improving economic factors, including rising consumer confidence, should help boost May U.S. light-vehicle deliveries back to the current 6-month sales rate after an April dip in the seasonally adjusted annual rate, a new WardsAuto forecast says.” … “U.S. auto makers are expected to sell 1.43 million cars and light trucks in the month, equivalent to a 55,127-unit daily rate over 26 selling days, a 7.8% improvement from year-ago that also had 26 days.”


5/ Kelley Blue Book: New-car Sales To Improve 6 Percent In May With Help From Memorial Day Weekend Sale Events


“New-car sales will hit 15.0 million seasonally adjusted annual rate (SAAR) in May, which is an expected 6 percent year-over-year improvement, according to Kelley Blue Book, the leading provider of new and used car information.”


This rebound in sales is coherent with some articles which underlined that U.S. automakers accelerated production lines and, in some cases, even canceled the North American industry’s traditional summer factory shutdowns to meet strong demand.
As a consequence, in May, we can expect:
1/ an increase of industrial production
2/ a rebound of retail sales
3/ some hiring in the auto sector

US Mortgage Rates Reached 12-Month Highs

Recently, some concerns appeared regarding the level of mortgage rates. Yesterday, Zillow recorded that this week, mortgage rates for 30-year fixed mortgages rose to 3.71% (up from 3.58% at this same time last week) and reached a 12-month highs. This movement occurred after ten-year Treasury bond rebounded above 2% amid speculation that the Federal Reserve could pull back on its bond-buying program before than expected. This idea was backed by Erin Lantz, director of Zillow Mortgage Marketplace:


“Rates spiked last week after meeting minutes revealed the Fed was contemplating scaling back economic stimulus plans much earlier than expected”


Remind that US central bank is buying $40B of MBS and $45B of Treasuries every month in an effort to reduce borrowing rates and that there is a strong correlation between the mortgage market and the US Treasury bond market. Indeed, holders of mortgage securities used to hedge the risk of declining MBS prices by selling US Treasuries.


Zillow data were confirmed by numbers which show a rebound in May of 30-fixed-mortgage-rates (almost 50 bp to 3.88%).



FT noted this sharp rise is also the result of a sell-off in the market for mortgage-backed securities as real estate investment trusts and portfolio managers had been active sellers. The article underlined that:


“MBS prices have tumbled to levels not seen in more than a year, and well below the level when the Fed began its latest round of purchases last September.”… “Further sharp falls on Tuesday sent the price of some recently issued MBS, which pay a coupon of 3 per cent, below a price of 101 of face value, down from a peak this year of nearly 105 in early May. The slide in price has eroded capital gains for investors, and added fuel to the sell-off. The most popular tranche of MBS, securities which pay a coupon of 3.5 per cent, have tumbled from a peak of almost 107 to below 104.”


Even if my view is that 10-year Treasury bond will not hit 2.40% before at least the end of the year (mainly because of moderate growth and low inflationary pressures) and will not push mortgage rates much higher, this move will affect immediately refinancing activity and then purchasing activity. Note that refinancing activity is already under pressure as Mike Fratantoni, MBA’s Vice President of Research and Economics said today:


“Refinance applications fell for the third straight week bringing the refinance index to its lowest level since December 2012 as mortgage rates increased to their highest level in a year”

Chinese Growth Continued to Slow in May

Since the beginning of the year, Chinese data, both private and public, have showed that growth is slowing in a context where Chinese government and PBOC opted for a more efficient growth.


Authorities want to refocus the activity from exports towards domestic consumption. Therefore, they try to improve households’ living standards by increasing the urbanization rate (more infrastructure investments) and to support housing affordability and purchasing power (lower inflation).


Currently, the problem is that property prices are increasing sharply as new home prices rose 4.9% YoY in April 2013 (biggest increase since Apr 2011). As a consequence, officials started to implement measures to curb prices which will penalize construction’s activity.


In the mean time, money supply (M2) accelerated in April reaching the highest level since March 2011 at 16.10%. This figure is well above the official target (14%) and could result in inflation in the coming months. It explains why PBOC has adopted  a less accommodative stance. Therefore, lowering interest rates or RRR seem to be excluded in the short term.


In these conditions, the activity keeps on slowing in May as the preliminary reading of  Purchasing Managers’ Index released by HSBC Holdings Plc and Markit Economics was 49.6 down from 50.4 in April. It shows that China’s manufacturing is contracting for the first time in seven months, adding to signs that economic growth is losing steam for a second quarter.


According to Bloomberg data, this negative signal is confirmed by imported iron ore price which has declined significantly since mid-February 2013 and reached today its lowest level since October 2012.



Investors and economists will look closely at the official manufacturing PMI which will be published on Saturday. According to our analysis, it is likely that this figure will be below consensus (50) and will confirm the contraction in manufacturing sector. Let we see…


In May, French Consumer Confidence Fell to its Lowel Level Since July 2008

In May 2013, households’ confidence about the economic situation strongly declined, with the French statistics agency, Insee, saying its monthly synthetic confidence index lost 4 points to 79 falling to its lowest level previously reached in July 2008. The figure is well below the long-term average of 100.



This statistic confirms that the recession has persisted in France in Q2 2013 after GDP shrank by 0.2% in Q4 2012 and Q1 2013, according to the EU’s statistics office Eurostat.


Moreover, regarding the labor market, despite earlier this month, France passed a range of measures aimed at stopping the rise in unemployment by reforming the country’s labour laws, the consumer satisfaction survey also shows that French households believe the rate of unemployment in the country will continue to rise beyond France’s current rate of 11 percent.


As a consequence, the French economy, which represents about 20% of the Eurozone, could be a drag in Q2 offsetting the positive effect of Germany.