The intra-day swings we’ve seen the past few days in equities is largely a result of Deutsche Bank headlines. Today the stock is higher by 14% on news it is close to a $5.4b settlement with the US Justice Department off the initial $14b request. That number is fully covered by what Deutsche Bank has already reserved for.
Elsewhere, The Chicago manufacturing PMI, the last regional survey before we see next week’s national ISM, rose to 54.2 in September from 51.5 in August and vs 55.8 in July. That was 2.2 pts better than expected. As this number has proven to be very volatile month to month we’ll smooth it out and get a 3 month average of 53.8 and a six month average of 53. Production jumped by 7.3 pts but the two key forward looking numbers, new orders and backlogs, were little changed with backlogs in particular still below 50. Off a 16 month high in August, employment fell. Inventories were a touch above 50. As for the impact of the upcoming election, MNI said “79% of Chicago panelists said the run up to it…is having a negligible impact on business.”
Bottom line, let’s call all the regional survey’s seen an all round mixed bag with the end result being a likely flat line in next week’s September ISM report off the 49.4 print in August.
After the upside surprise seen a few days ago from the Conference Board, the UoM consumer confidence number rose to 91.2 from the first print of 89.8 and 89.8 seen in August. It’s the highest since June and it was all in the Outlook as it rose 4 pts from August while Current Conditions fell by 2.8 pts to the lowest level since October 2015 on a final basis. One year inflation expectations were 2.4% vs 2.5% in August. The disappointment within the data was the Income component which fell to 6 from 14 in August. Employment expectations rose 1 pt. Similar to the trend seen in the Conference Board’s index, while headline confidence improved, plans to buy a car, house and/or a major household item all fell m/o/m.
Bottom line, the improvement in confidence was all about what’s to come as how they fell today fell to almost a one year low. Either way, the number is never market moving.
The PCE headline inflation deflator in August was up .1% m/o/m and .2% at the core. The y/o/y headline gain is now at 1% which is the 2nd highest print since late 2014. The core rate was up 1.7% y/o/y, the highest in two years. With core CPI at 2.3% and the core PCE now at 1.7%, the Fed has essentially met their robotic, made up inflation mandate while the fed funds rate sits at just .375%. Combine this with some Fed members thinking we’ve reached full employment and we can see the self imposed conundrum they face. The stock of the data screams for a rate hike while the flow certainly does not. For savers, the purchasing power of $10T+ of savings continues to suffer as inflation moves further above the .1% standard savings deposit rate.
Personal income grew by .2% m/o/m in August which was in line with the consensus estimate but a slowdown from the .4% gain in July. Private sector wages and salaries were up just .1% thanks to a gain in services. Manufacturing wages/salaries fell .4%. On a y/o/y basis, private wages/salaries were up by 3.9% which is ok but we’re still seeing no hoped for acceleration and this pace is down from the 5.5-6% level in the early part of 2016. Transfer payments is where the gains are as they rose .4% m/o/m for a 2nd straight month.
On the spending side, it was flat m/o/m, one tenth less than expected but July was revised up by one tenth to a .4% gain so it’s a push. After inflation, spending fell .1%. Spending on goods fell .6% m/o/m but saved by a .3% gain in services (with healthcare spending taking up a grower portion of this category thanks to high deductible plans). As a result of the income and spending figures, the savings rate rose one tenth to 5.7% which is around the one year average of 5.9%.
Bottom line, wage growth is still mediocre, spending is as well as healthcare takes up a larger portion of a households budget (along with rent for those that do). As for inflation, expect headline prints to continue to rise in coming quarters with the stabilization in oil prices on top of sticky services inflation.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.