As my readers know, I’ve pointed out the importance of watching the 30 yr Treasury bond as the best messenger of market signaling since it’s furthest out on the curve away from Fed manipulation. Yesterday, the implied inflation rate in the 30 yr TIPS rose for the 6th straight day by 2 bps to 1.89%, the highest level since May 2019. Central bankers are going to have some 2021 if the inflation story is right next year which I believe it will be.
30 yr INFLATION BREAKEVEN
Ahead of the US PMI data from Markit at 9:45am est we saw some from overseas. Australia’s October manufacturing and composite index did improve to 53.6 from 51.1 with all of the contribution from the services side as manufacturing fell 1.2 pts m/o/m. Markit said “The service sector particularly benefited from loosening restrictions.” Australia is also benefiting from the rebound in China. But, it’s not all clear skies as “An area of concern, however, was the subdued growth in new business, casting doubt on the durability of the current upturn in private sector activity. Furthermore, lackluster sales meant that firms continued to be saddled with unused capacity. In response to rising costs and a further development of spare capacity, companies reduced their workforce numbers again in October, with lower employment seen in both the manufacturing and service sectors.”
There was almost no change in business activity in Japan in October remaining below 50 where its composite index was 46.7 vs 46.6. They said “the recovery is slow going.” That said, Markit said “the survey also revealed some bright spots. The labor market stabilized in October, with employment broadly unchanged from September. Business sentiment also improved to the strongest for over two years as firms highlighted expectations of economic recovery as well as planned business investment.”
The October Eurozone PMI fell back below 50 to 49.4 from 50.4 but all due to the services sector as its component fell to 46.2 from 48. Manufacturing improved to 54.4 from 53.7. Markit called it a “tale of two economies, with manufacturers enjoying the fastest growth since early 2018 as orders surged higher amid rising global demand, but intensifying Covid restrictions took an increasing toll on the services sector, led by weakening demand in the hard hit hospitality industry.” The manufacturing side continues to be helped by the need to restock inventories. To my inflation theme, “Signs of underlying price pressures building were evident via the largest rise in input costs since February. Increases were reported in both manufacturing and services.”
The UK PMI fell as well but both components drove that with manufacturing down to 53.3 from 54.1 and services lower by almost 4 pts to 52.3. Markit said “Not surprisingly the weakening is most pronounced in the hospitality and transport sectors, as firms reported falling demand due to renewed lockdown measures and customers being deterred by worries over rising case numbers.” With manufacturing, while still expanding, “Sharper falls in job numbers as a result of redundancies and reduced customer demand along with higher prices for raw materials means the sector is still under pressure.”
Bottom line to all of these, we’re still in the midst of a lumpy, uneven recovery where Covid restrictions are stunting the recovery in services and manufacturing is being helped by the need to build inventories while we’re seeing some budding inflationary pressures.
With the new round of Covid selective shutdowns in the UK, consumer confidence fell to -31 from -25 and that was 3 pts worse than expected and that’s the lowest since May.
UK CONSUMER CONFIDENCE
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.