While somewhat dated both in terms of timing and being pre election, the number of job openings in October totaled 5.53mm, about in line with the estimate of 5.5mm and vs 5.63mm in September (revised from 5.49mm). While the jobs hiring rate remained unchanged at 3.5%, the absolute number of hirings fell to the lowest pace since May. Reflecting the very low level of jobless claims, Separations also dropped to the lowest since October 2015. The number of those quitting fell to a 3 month low but the quit rate remained at 2.1%.
Bottom line, in this recovery the level of job openings topped out in April but the current level is still historically high. The issue remains the supply of labor, not the demand. We know that there are 95mm people on the sidelines (many will stay due to age, disability, etc…) that may need higher wages and less incentive (less generous transfer payments) to stay home in order to bring more labor supply into the workforce. I expect that to happen. Because of the dated nature of this data, it’s never market moving. US Treasuries are consolidating the massive move over the past month but I continue to believe any pause in the rise in yields is just temporary.
After seeing yesterday’s VIX close at 11.5 which is 1.5 pts from the lowest level in nearly 10 years, we have the Investors Intelligence read last night showing Bulls up to 58.8 from 56.3 last week. This is the highest level since February 2015 when it touched 59.5. II for a 3rd straight week above 55 as in the “danger zone” and they said a number above 60 “would be a major call to take defensive measures.” Bears fell almost 3 pts to 19.6%, a level last seen in August 2015 right before the yuan devaluation. The Bull/Bear spread is now at 39.2 vs 34 last week and this is the most since early 2015.
The S&P 500 was basically flat over the past 3 weeks since Bulls first got above 55 and thus reflects a lot of the Trump news that has been priced in for now. I do want to emphasize though that these sentiment measures are just short term indicators but keep in mind, after seeing Bulls at 59.5 in February 2015, the S&P 500 was at the same level 15 months later with two big drawdowns in between. I also want to say again and sum up 2017 in one sentence: the direction of the stock market will be dragged back and forth between optimism over the Trump tax cuts and the reality that interest rates have a ways to go in their repricing higher. Yes, interest rates have the potential of going much higher in coming years as nominal GDP speeds up. We see a 4% 10 yr yield next year and headed to 6% in the few years after.
Even with an 18 month high in the average 30 yr mortgage rate at 4.23%, mortgage applications were little changed w/o/w. Purchases rose .4% and are up 3.1% y/o/y as the spike in rates encourages some to quickly buy and lock in but discourages others from pulling the trigger. Refi’s fell .7% after a 16% plunge last week. It’s down for the 9th straight week to the lowest level since January. I’ve seen an estimate that expects refi’s to fall by 50% in 2017 from 2016.
Chinese FX reserves in November shrunk again to $3.052T, down about $70b m/o/m and that was $10b less than expected. It’s also the lowest level since March 2011 but part of this was certainly the drop in the value of its non dollar reserves as the dollar rallied post election. This also of course coincides with the weakest yuan vs the US dollar in 8 years. Chinese officials continue to put up capital outflow walls with the latest being a proposed limit on takeovers of foreign companies. The consequence is a drying up of Chinese investment in a variety of industries (US real estate to name one) and in a variety of places. Just as wage controls don’t stop the rise in prices, capital controls won’t stop the exodus of capital and in turn may quicken it. The Chinese should instead continue to liberate its capital markets and let the capital flows flow where they may.
In a country that hasn’t seen a recession in 25 years, the Australia economy shrunk by .5% q/o/q in Q3, worse than the estimate of down .1%. The y/o/y gain was still 1.8%. A drop in construction and business investment led to the decline. The Aussie$ is little changed though after falling to near .74 in the first reaction. The ASX was higher by .9%.
In Europe, German IP rose by .3% m/o/m but that was 5 tenths less than expected. Construction drove the rise while manufacturing was up just .1%. The German economic ministry expects a “moderate recovery” in the months to come. The euro is little changed ahead of Mario Draghi tomorrow with the ECB balance sheet up to $3.6T euros, $500b above the summer of 2012 previous peak when he said “whatever it takes.” The German DAX rallied today to a one year high but still sits 11+% below its 2015 record high notwithstanding all the ECB QE.
The weaker pound gave no help to UK IP in October as it fell by 1.3% m/o/m instead of rising by .2% as expected. The manufacturing component was lower by .9% vs the forecast of a .2% rise. There was also sharp declines in oil/gas (one of their big fields was shut down) and mining production. UK industry is dealing with better export competitiveness but also a spike in input costs. The pound is down in response to the miss but that in turn is helping the FTSE 100 by 1.6% but the FTSE 250 (much less export dependent) is up just .5%.
For all the worries about the Italian banking system, they are all ripping higher again today (FTSE Italia All-Share Banks Index up 4.5%) and it helped drive the euro bank STOXX index to the highest level since March. As said before, the Italian stock market is so dirt cheap but the political quagmire remains the same.