Only 5 more points to go!:
I want to make clear though that this is just one survey and should only be used as another short term trading tool even though I don’t really know its usefulness in timing markets.
And, we’re almost there. The price to sales ratio in the S&P 500 is just 4% from the peak in March 2000 and 32% above the last cycle top in 2007. We all know valuations mean nothing in the short term until they do but they do mean a lot in trying to figure out what the longer term potential market returns are.
PRICE TO SALES RATIO S&P 500
Notwithstanding all the evidence of a shortage of labor in Japan, base pay continued its anemic growth rate in August with a .4% y/o/y rise vs .5% in the two prior months. Only with a 1.5% boost in overtime pay and a 6.1% jump in bonus’ did the overall cash earnings number print up .9% y/o/y (which by the way is the most in a year). The issue of modest pay for full time workers and more generous pay for part time workers (because of Corporate Japan’s reluctance to take on full time staff) remains. The 40 yr JGB yield did trade off modestly on the better headline number and closed the week with a yield of 1.10%, up by 1.4 bps and matching the highest in 20 months. The 10 yr Japanese inflation breakeven was up by 1.6 bps to just below a 3 month high. Modest yen weakness helped the Nikkei close up .3%.
Markit reported Hong Kong’s September PMI index and it rose to 51.2 from 49.7 but the internals were mixed. Markit said “Hong Kong’s private sector economy showed signs of recovery at the end of the third quarter but business sentiment remained downbeat. The latest PMI survey signaled renewed growth in output and order books although the labor market continued to struggle.” In trying to glean what this means for China, the 2nd biggest economy in the world, “while demand for Hong Kong’s products and services were reported to have strengthened, there was evidence that Chinese orders had faltered. Survey data indicated that sales to mainland China fell for the 1st time in 5 months. Anecdotal evidence suggested that yuan depreciation and policy restrictions had dampened Chinese demand.” This confidence figure (along with many) is not market moving but the Hang Seng did close up by .3%.
After a soft July, German factory orders in August came back strong with a 3.6% m/o/m jump. That is well above the estimate of up .7% and the y/o/y gain was 7.8%. The strength was driven by non eurozone countries and also from within Germany. Orders from within the eurozone was negative for a 3rd straight month. The German Economic Ministry said “Order activity has increased once again from an already high level” and they expect this to continue. With growth outside of the eurozone, this also means that the recent strength in the euro has had no impact on business. The German 10 yr bund yield is up by 2.3 bps to match a 2 month high at .48%.
We also saw Spanish industrial production in August come in better than expected with a 1% m/o/m rise vs the estimate of up .2%. The European economy remains on track for a solid year for them with 2%+ growth.
The British pound continues to have a crappy week as now I’m hearing calls for Theresa May to resign over the early goings of Brexit negotiations. The pound is down 2.5% on the week vs the US dollar and is at the lowest level in a month.