Ahead of payrolls

Because of the challenge of finding workers for many industries, anything soft today should not matter for Fed policy to be announced in November and Jay Powell has said as much. And of course anything in line to strong would just clinch the soon to be taper. Luckily I don’t have to make estimates for these monthly numbers but if the numbers from ADP and BLS usually converge over time and will again, today should be an 800k print for the private sector (including any revisions) which would put the BLS in line with the 6 month average of 579k from ADP.

The thing about Fed tightening (yes, tapering is tightening because it’s less air/money flow going into the balloon) is that they will be doing it along with many other central banks. Just as we had global easing since March 2020, we very well could have global central bank tightening when looking out over the next 6-12 months. It is also why global bond markets will likely move together in lock step and as they are doing again today as yields are higher in Asia, Europe and the US. With respect to stocks in response, P/E multiples will go down just as they went up over the past 18 months I believe, and the question is to what extent earnings growth can offset that. Those with the fatter P/E’s will have more to give up relative to those with skinny ones, thus a possible attraction of value again but also dependent on the direction and pace of the E part. It’s also why investors need to widen their geographic focus because there remain many low P/E’s outside the US.

According to the Manheim Used Vehicle Index, prices went up 5.3% m/o/m in September and is up 27.1% y/o/y. The index is at a fresh record high. I don’t think you need an explanation as to why as we already know but the transitory inflation camp relied on a fall in used car prices after the earlier spike as reason. And keep in mind when thinking about how long this can last, we are in the process of creating less used cars for a few more years to come. For example, we have less 3 yr new car leases being created because of a lack of cars and we know after 3 yrs they become used cars. And, rental car companies are buying less new cars due to little supply and thus less used cars will be sold back in the market in the next few years.

MANHEIM

The Caixin China September services PMI jumped to 53.4 from 46.7 and that was well better than the estimate of 49.2 but seems mostly due to a relaxing of Covid restrictions. “At the same time, confidence towards the 12 month outlook improved, and firms expanded their staffing levels slightly. There were signs of stronger inflationary pressures, however, as both input costs and output charges rose at faster rates compared to August” Caixin said. Chinese stocks also reopened after its Golden Week holiday and it was up 2/3 of a percent and the H share index was up another .7% after the Thursday rebound.

China’s economy is really going to be a conundrum in coming years and I’m going to put aside the authoritarian leadership here and the inherent damage that could bring. I say ‘conundrum’ because we have the clear slowdown in residential real estate and the forced delevering that is taking place and will continue to do so. We have millions of households that have parked savings in apartments that stay empty and any mark down in prices could impact their spending behavior. On the other hand, I’ve seen estimates that the size of the Chinese middle class will double from about 300mm to 600mm in the coming 5 years and that means a lot of incremental consumer spending. Also, about 90% of urban employment is with private, entrepreneurial companies. I guess the bottom line with these major cross currents big picture will be that Chinese economic growth will definitely slow in the coming years but those looking for some economic collapse will be mistaken I believe. 
After the wild week in the European natural gas market, the Netherlands TTF Natural Gas forward price is almost back to unchanged on the week at 92.85 mwh after getting as high as 160 before Putin made his comments. It was 41 though at the end of July.

European Natural Gas