April total business inventories increased 0.3% from March, which was in-line with consensus.  Year over year, inventories increased 4.4%.   March was revised lower to a final reading of -0.1%.  Retailers inventories increased 0.5% from the prior month.  The question one must ask is, did inventories rise due to a lack of demand or because businesses are building inventories in anticipation of increased demand?  Considering today’s stellar retail sales numbers, a strong labor market and the increasing wealth effect we have spoken about, we believe the latter applies. 

Business sales, trade sales and manufacturers’ shipments, rose 0.4% in April, slightly lower than March’s 0.6% increase.  Year over year, sales increased 6.7%.  The inventories to sales ratio (how many months it would take to sell down inventories at the current sales rate) for April was 1.35, flat compared to March, and down 1.38% from the prior year.    Sales in April increased at a faster pace than inventories, which may lead to higher prices.    

Inventories component changes (adjusted):

• Department stores +0.5%
• Building materials, garden equipment & supplies +0.5%
• Motor vehicle & parts +0.7%
• Clothing +0.4%
• Food & beverages -0.7%
• Furniture & appliances -0.3%

The Markets

Equity markets are split at this point in the day.  The Dow is off by 0.09%, while the Nasdaq, S&P 500 and Russell 2000 are higher by 0.80%, 0.22% and 0.44%, respectively.  Consumer discretionary/leisure stocks are having a good day.   Royal Caribbean Cruises (RCL), a long position on our Swing Service, is leading the group higher trading up 5.76%.  Consumers are spending on discretionary goods and services. 

The U.S. dollar (USD) is strong across the board as the European Central Bank detailed its plans to roll back its asset purchases.   The ECB plans to reduce its asset purchases by 15 Billion Euros per month beginning in September and ending in December of this year.  The bank further commented that they are expecting interest rates to remain at current low levels “at least through the summer of 2019.”  Investors had been anticipating the roll back of stimulus but were caught off guard by the length of time the EU would hold rates low. 

The Euro is getting hit hard, trading down 1.44% versus the USD.  In the world of currencies, 1.44% is a BIG move.  The weak Euro helped boost equities in Europe as the Stoxx Europe 600 closed higher by 1.23%.  The strong USD is holding the Dow and its multi-national companies back.  The bottom line is that the United States is outperforming the rest of the global economies. Hence, the USD should be strong and interest rates should be on the rise, but let’s hope its measured increases.