We have no idea yet whether this is a signal or just a logistical thing but the BoJ overnight very modestly trimmed its purchases of longer dated JGB's. With maturities between 10 and 25 years they cut by 10b yen (only about $90mm) to 190b and for those longer than 25 years they also cut by 10b yen to 80b yen. Maybe, only maybe, was this a sign that they very slowly …
What I’m Watching
Last Thursday, the Institute of International Finance reported that global debt levels touched $233 Trillion at the end of Q3 2017, up $16 Trillion from the end of 2016. To quantify the potential impact of the current environment of less central bank easing and outright tightening and assuming an average duration of 5 years, for every 100 bps increase in interest …
ISM Services
The December ISM services index fell by 1.5 pts m/o/m to 55.9 and that was below the estimate of 57.6. This is a 4 month low and a touch below the full year 2017 average of 57. Of note, new orders fell to the lowest level since August 2016 at 54.3 while backlogs were down by 1.5 pts to exactly 50. Just 9 of 18 industries asked saw a gain in new orders. Employment rose …
Jobs
Payroll growth in December was 148k, well less than the estimate of 190k and the two prior months were revised down by 9k. The household survey added 104k similar to the 64k person increase in the size of the labor force which held the unemployment rate at 4.1%. The employment to population ratio also was unchanged at 60.1% and the participation rate remained at …
What’s Going On
As for the further reduction in monetary easing this year the Fed and the ECB have certainly garnered the headlines but the BoJ is also in the midst of a subtle taper as they are on track to be buying 50T of assets on a 12 month run rate vs their target of 80T. Here is a chart on the December y/o/y rise in their monetary base and you can visualize the change. Note …
Hiring
ADP said a net 250k private sector jobs were created in December, well more than the estimate of 190k and up from 185k in November (revised down by 5k). It’s the best month of job gains since March and brings the 6 month average to 199k and year to date average to 212k vs 181k in 2016, 206k in 2015 and 237k in 2014. It is common at this stage of an economic cycle to …
Sentiment Ebullient
At the individual investor level there is certainly a lot of excitement heading into the new year. AAII said Bulls rose to 59.8 from 52.7 last week. That is the highest level since December 2010. Bears are nowhere to be found, falling to 15.6 from 20.6 and that is the least amount since November 2014 by .5 pt. Another drop by more than .5 pt would put the bears at the …
US Manufacturing
The December ISM manufacturing index rose 1.5 pts m/o/m to 59.7 and that was better than the estimate of no change. It finishes 2017 as the 2nd best print vs the September one of 60.8. New orders jumped by 5.4 pts to 69.4 (15 industries reported growth in new orders vs 14 in November) while backlogs were up just 1 pt to 56. Inventories remained low both at the …
Inflation Watch
I’m going to harp again today on my belief that higher cyclical inflation is a VERY underappreciated risk in 2018 and pressures are continuing to grow. If you missed the comments yesterday in the Markit press release on US manufacturing it said this: “input price pressures intensified with the rate of cost inflation accelerating for the 2nd consecutive month. …
Things Change
It is rare that the change of the calendar matters with respect to fundamentals but this time is different. The change in the fiscal front is now clear and starting today there is also a liquidity shift in case you forgot via monetary policy. To quantify the latter, The Fed will double the size of QT to $20b in Q1 while the ECB will reduce its monthly purchases by …
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.