Positives
- While the headline jobs number missed expectations, the private sector figure beat if we include the upward revision to the two prior months. The 3 month private sector job gain is now 177k vs the 6 month average of 153k, the 12 month average of 192k and vs 221k in 2015 and 240k in 2014. With a gain of 354k jobs in the household survey vs the labor force increase of 444k raised the unemployment rate by one tenth to 5%. Positively, the 25-54 age range saw a gain of 334k as this has been a portion of the population where many have gone missing from work. The participation rate did tick up by one tenth to 62.9% but the U6 all in unemployment rate held at 9.7%. The workweek rose back to 34.4 which is where it stood for 6 months before it fell to 34.3 in August. Average hourly earnings were up by .2% m/o/m and 2.6% y/o/y. Average weekly earnings were up 2.3%. A job gain of 23k in the construction space offset a 13k decline in manufacturing which followed a drop of 16k in the month prior. Services saved the day again. With respect to the Fed’s response, we are a month and a half and two payroll numbers from Yellen saying the “case for a rate hike has strengthened.” Will they respond to the flow of the data or the stock? If the latter and if they are truly apolitical, go raise rates in November.
- Initial jobless claims totaled 249k, 7k less than expected and down from 254k. This is the lowest level since April when we saw a print of 248k. The 4 week average moves to 254k, the lowest since 1973 from 256k last week. Continuing claims, delayed by a week, fell another 6k to the lowest since 2000 after falling by 85k over the two prior weeks.
- The September ISM services index jumped to 57.1 from 51.4 in August. That was well above the estimate of 53.0. This is the best level since August 2015 after falling to the weakest level since 2010 in the month prior. Of the 18 industries surveyed, 14 saw growth vs 11 saying the same thing in August. Four saw a contraction vs 7 in the month prior. The ISM summed up the report by saying “The comments from the respondents are mostly positive about business conditions and the overall economy. A degree of uncertainty does exist due to geopolitical conditions coupled with the upcoming US presidential election.”
- September vehicle sales totaled 17.65mm SAAR, above the estimate of 17.5mm but it took record incentives to achieve this. Auto sales peaked in this cycle at 18.04mm in October 2015.
- The w/o/w drop in mortgage rates helped refi’s which were up 4.7% w/o/w. That drop in mortgage rates however was short lived as its up 7 bps this week according to Bankrate.
- Within the factory order data, core capital spending in August was revised slightly higher to a .9% gain from the first print of .6% m/o/m but the y/o/y drop is still 2.8%. Shipments were revised up by 3 tenths to a drop of .1%.
- The UK manufacturing PMI rose 2 pts to 55.4, the best since June 2014 and well above the estimate of 52.1. Thank you weaker pound for driving export orders but at the cost of higher input prices.
- The UK Construction PMI for September to 52.3 from 49.2 in August. That’s the best level since March and Markit said the improvement was “primarily driven by a recovery in residential building. New orders also rebounded…which ended a 4 month period of sustained decline…Survey respondents cited improving confidence among clients and a reduced drag on demand from Brexit related uncertainty.” Thank you uber low interest rates.
- Germany factory orders in August were higher by 1% m/o/m which was much better than the .3% gain that was expected. The y/o/y gain of 2.1% comes after a decline over the prior three months.
- German industrial production for August rose 2.5% m/o/m after a 1.5% drop in July and well more than the estimate of up 1%. French IP also beat expectations because of an improvement in manufacturing. Spain did too.
- This is negative for markets that have been drugged up by QE, NIRP and ZIRP but for the sake of the banking system some ECB members are publicly acknowledging bank pain. Theresa May even called out Mark Carney this week by saying “While the monetary policy provided the necessary emergency medicine after the financial crisis, we have to acknowledge there have been some bad side effects. People with assets have got richer. People without them have suffered. People with mortgages have found their debts cheaper. People with savings have found themselves poorer. A change has got to come. And we are going to deliver it.” That the evidence continues to build that we’ve reached the logistical and political limits of extreme monetary activism cannot be more stark.
- In its first central bank meeting without Raghuram Rajan, the Reserve Bank of India cut interest rates by 25 bps to 6.25%. That’s the lowest rate since 2011 and the recent moderation in inflation has given them cover where they certainly have bullets to expend.
- In China, the state sector weighted manufacturing PMI held unchanged at 50.4 about as expected. The services index was up a hair to 53.7 from 53.5 and which keeps it in line with the six month average of 53.6.
- Manufacturing PMI’s in Japan, Indonesia, Taiwan, Vietnam, and the Philippines all rose slightly.
- Japanese consumer confidence rose to the best level in 3 years led by the Employment component. Income growth was up a touch.
Negatives
- When does an FX move become disorderly? Right now in the UK. Yes, pound weakness helps its exporters but the 10 yr Gilt yield is up 7 bps on the day (rose 14 bps intraday) and 20 bps on the week due in part to a global rise in rates but also on import inflation concerns.
- UK IP missed estimates as manufacturing production rose by .2%, half as expected, not helped by the weaker pound.
- The UK services PMI fell slightly to 52.6 from 52.9. This figure fell 5 pts in July to 47.4 in the initial reaction to Brexit.
- While the Markit US services PMI improved by 1.3 pts to 52.3, the index was not nearly as good as the ISM and the outlook weakened. Markit said “the degree of positive sentiment eased in September and was close to June’s survey record low. Survey respondents cited fragile economic conditions, some noted hopes of a rebound in client spending after the election.”
- Purchase applications to buy a home were unchanged w/o/w but are down almost 14% y/o/y on tough comparisons as last year’s figure was juiced by regulatory changes.
- US construction spending fell. 7% m/o/m in August and July was revised down by 3 tenths. Both private residential and non residential spending fell.
- The August US trade deficit widened to $40.7b from $39.5b in July instead of falling to $39.2b as expected. The 1.2% increase in imports m/o/m offset the .8% rise in exports to the most since July.
- The Atlanta Fed GDPNow forecast for Q3 has fallen to 2.2% from 2.4% last week, 2.9% in the week prior and vs 3.5% one month ago.
- The European services PMI was revised to 52.2 from the initial print of 52.1 for September but that is down from 52.8 in August and is at the lowest level since December 2014. This brought the manufacturing and services composite index to a final read of 52.6 as expected but the weakest since January 2015. Markit is seeing “signs that momentum is waning…The slowing rate of growth across the region in part reflects growing caution among businesses in terms of their spending due to worries about the economic outlook, linking in many cases to political uncertainty. We see this trend persisting into next year, as the impact of Brexit is exacerbated by uncertainty surrounding elections in France and Germany alongside ongoing political unrest in Italy and Spain.”
- Eurozone retail sales fell .1% m/o/m which was better than the expected fall of 3 tenths but July was revised down by 8 tenths.
- The nonsense of Kuroda and the BoJ of wanting 2% inflation is that August regular wage pay in Japan rose just .5% y/o/y. This was also more than offset by a 1.9% drop in overtime and a 7.7% fall in bonus pay which brought the aggregate number to a decline of .1% for cash earnings. The estimate was for a gain of .4%. It was 1994, the year Forrest Gump came out, the last time regular pay in Japan rose 2% on a y/o/y basis.
- There was no change in the Q3 Japanese Tankan manufacturing report q/o/q which held at +6 vs the estimate of +7. The services component fell 1 pt. For smaller companies, manufacturing fell 2 pts while services were up 1 pt. The outlook for all was also flat to down slightly. As for cap ex plans, they were little changed too. Corporate profit expectations took a hit as they are expected to drop by 14.6% for the year ended March (worst since 2009) vs the previous estimate of a decline of 11.6%.
- The PMI September services index in Japan weakened to 48.2 from 49.6. That’s the weakest print in 2 ½ years.
- On a closing basis the offshore yuan is falling to the weakest level in six years vs the US dollar at 6.71. Remember that yuan devaluation panic last August? China reported its FX reserves shrunk by almost $19b in September to $3.166T. The estimate was for just a $5b drop. The outflows leaves the reserves at their lowest level since May 2011 and are down $827b from the peak in June 2014.
- In Asian manufacturing PMI’s m/o/m declines were seen in India and Thailand.