United States
Death, taxes and 3pm stock market rallies. But, investors are becoming more selective and nothing reflects that better than this chart comparing the market cap weighted S&P 500 (in orange) and the Value Line Geometric equal weighted index of 1700 stocks (in white). My friend Helene Meisler yesterday also pointed out that 120 stocks in the NASDAQ made 52 week lows on the close, the most since the week before the US election when there were 225 stocks making 52 week lows.
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In terms of sentiment with this backdrop, yesterday Investors Intelligence said Bulls fell 2.5 pts to 57.5 after two weeks at 60+ while Bears were up by .8 pts to 17. As seen after the 30 yr high in Bulls on March 1st, when bullishness gets extreme as it did again 3 weeks ago (when Bulls got back to 60), the market tends to stall out, consolidate and chop around until the optimism cools a bit. The AAII measure of individual investor sentiment is about as neutral as can be. Bulls fell 2.4 pts to 33.7, Bears were about unchanged at 32.3, while those that are Neutral rose 2.2 pts to 34. ‘I don’t know’ basically explains that survey.
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Initial jobless claims totaled 244k, 4k more than expected and up from 241k last week (revised from 240k). The 4 week average fell by 1k to 241k and that’s the lowest since late May as a 248k print drops out. Continuing claims, delayed by a week, fell by 16k to a 4 week low. The bottom line is the same that in the context of a shrinking pool of qualified labor, the pace of firing’s remains low.
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The wholesale inflation data was below expectations across the board. Headline PPI fell .1% m/o/m vs the estimate of up .1%. The core rate also fell .1% m/o/m while the forecast was for a rise of .2%. Also taking out trade (measures change in margins received by wholesalers and retailers) in addition to food and energy saw prices flat m/o/m. Relative to last year, prices rose 1.9% headline, 1.8% core and 1.9% core and ex trade. It was declines in both goods and services that was a drag. With services, the BLS said about 60% of the decline was due to a 5.8% fall “in margins for chemicals and allied products wholesaling.” With goods, the headline drag was mostly due to a fall in gasoline, natural gas, cars/trucks, beef and veal and basic chemicals. The recent spike in wheat, corn and soybean prices showed up with a 17% spike in the index for grains.
Bottom line, the data reflects benign inflation pressures no question as raw industrial commodity prices were flat in July but I do want to highlight that the CRB raw industrials index is up by 1% in the 8 days of August from the July 31st close and is just less than 1% from the highest level since September 2014. Either way, the market cares more about tomorrow’s CPI where rent and healthcare costs will be a main focus.
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Not that new but lock in Fed voting Charlie Evans as a yes vote for QT initiation in September. “I personally think that it would be quite reasonable to do that in September, on the basis of the data I’ve seen so far.” It drives me absolutely nuts but he still remains obsessed with reaching 2% inflation which is his implicit way of saying “I root for your cost of living going higher.” I wish I can ask him exactly what prices would he like to see rise. Right now it’s your cell phone bill. He does though have his eye on the labor market and its possible feed thru to inflation. “As the unemployment rate continues to improve, and businesses tell you that they are having trouble hiring workers, I think eventually that translates into higher wages, and then the question is whether or not they are able to pass along those cost increases in the form of higher prices.” Bill Dudley will speak at 10am on ‘Regional Wage Inequality’ which will be followed by a Q&A. He also seems to be on board with QT’s start next month.
I believe that if equity markets handle QT relatively smoothly after its beginning next month, the Fed will hike rates again in December. If we have a market hissy fit instead, they will not. Thus, we will either rally ourselves right into another increase in interest rates or sell itself off away from one. Pick your poison I think.
Gold
Gold continues to be (at 2 month high) but as a bull on gold I don’t like to see it considered a ‘safe haven’ because that never lasts. It’s just a currency that has been around for 5000 years and is really tough to get out of the ground. That’s it. Thus trade it off what you think fiat currencies will do dependent on central bank action and credibility. Don’t buy it because of North Korea worries.
Asia
I just can’t get over how all over the place the economic data is out of Japan. Machine orders in June fell 1.9% m/o/m vs the estimate of up 3.6%. This marks 3 straight months of declines. The 5.2% y/o/y drop is the worst in 5 months. With respect to inflation, producer price increases actually has a 2 handle for the 4th straight month. July PPI was up by 2.6% y/o/y, 3 tenths higher than expected and the biggest rate of gain since late 2014. The caveat though is the very easy comparison’s PPI is up against as it fell 4.2% y/o/y last July. As global stock markets are weak again with North Korea worries, the yen is back below 110.0 and at its highest level in 2 months vs the US dollar. The Nikkei though was flat overnight.
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I didn’t see any particular news but the Chinese yuan continues to rip higher vs the US dollar and sits at the best level in almost one year (onshore yuan) with the offshore yuan at the highest since September. Is the yuan a North Korea flight to safety too?
Europe
A few days ago we saw weaker than expected German IP for June, today France said its IP index was soft as well falling 1.1% m/o/m vs the forecast of down .6%. It does though come off a good gain in May and the .9% manufacturing production decline was as expected. At least for Emmanuel Macron, if his approval ratings (below Trump’s) are any indication, his honeymoon was rather short with the broad populace but businesses remain very hopeful for real change which hopefully will be seen as the opportunity for it is in hand.
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Industrial production in the UK was better than expected, rising by .5% m/o/m vs the forecast of up .1% but it was all resource related, particularly oil/gas. Manufacturing production saw no m/o/m change as vehicle production puked by 6.7%. Expect sharp declines in US auto production in the back half of 2017 too as inventories get right sized. The pound did not respond to the data as its unchanged but the FTSE 100 is the worst performing European bourse today after not falling as much as others yesterday.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.