Initial jobless claims fell to 259k from 263k last week. The estimate was 265k. This brings the 4 week average to 261k from 263k last week. Continuing claims, delayed by a week, fell by 7k after rising by 6k in the week prior. Bottom line, the story remains the same in that the pace of firing’s remain modest and is likely due in part to employer’s holding on tight to their existing work force as its proven tougher and tougher to find the right qualified employee. We’ve also seen that this is not inconsistent with the slowing pace of job hiring’s. It is consistent though with the lack of labor supply which also inhibits hiring and limits firing’s.
Mario Draghi is not committing to an official extension of QE but is certainly leaving it out there as he said the current program will go until March 2017 and beyond if needed. He though specifically said they DID NOT discuss the extension of QE but let’s assume that conversation will happen soon. He remains committed to getting inflation higher via all means. He also left open the possibility of cutting rates even more by saying he “sees rates at present or lower level for an extended period.” And, he said he’s looking at even more “stimulus options” and thus believing doing even more of what is not working will all of a sudden work. He also remains in conflict as the ECB is printing all the money they can to generate higher inflation, aka higher oil prices, but he said today that low oil prices were helping to “bolster consumption.” The ECB kept their 2016 inflation forecast unchanged at up .2%. They cut their 2017 estimate by one tenth to 1.2% and left the 2018 forecast at 1.6%.
Notwithstanding another round of Mario Draghi tough talk, the euro rallied this morning vs the dollar. European sovereign bonds sold off on the lack of details on ‘doing even more if needed.’ The German 10 yr bund yield is up by 5 bps to a less negative print of -.065%.The French oat 10 yr yield is also up by 5 bps to +.21%.
In dollar terms, Chinese exports in August were lower by 2.8% y/o/y but that was a bit better than the estimate of a drop of 4%. With a weaker yuan, exports rose by 5.9% in yuan terms. Exports to the US were flat y/o/y, mixed to Asia and up 2.4% to the EU. Bottom line on Chinese exports, while slightly better than expected, they’ve declined in 13 out of the past 14 months as we all understand the modest pace of global trade.
On the import side in dollar terms they rose by 1.5% y/o/y which was well better than the forecast of a decline of 5.4%. That is actually the first increase since October 2014. I don’t know whether this is due to a crackdown on fake invoices or something else but imports from Hong Kong ‘only’ rose by 14.3% y/o/y. I say ‘only’ because they were up by 123% in the month prior. The import lift came from within Asia and also from the EU, particularly the UK thanks to the weaker pound. UK imports were up 26% y/o/y. Markets didn’t respond much to the trade data as the Shanghai comp was up by .1% thanks to a late day rally. The H share market was up by .4% and the yuan was little changed.
In terms of commodities, China still has a voracious appetite notwithstanding talk to the contrary (thanks to property and infrastructure). On a volume basis, copper imports are up 17.4% ytd y/o/y, crude oil imports are higher by 13.5% ytd y/o/y, iron ore imports rose 9.3% ytd y/o/y, coal imports are up 12.4% ytd y/o/y and the imports of soybeans, they are higher by 3% ytd y/o/y. I’m still a bull on commodities at current levels and believe they have bottomed as the global supply side response in industrial metals and crude oil has been dramatic. Bear markets end when news gets less bad, not when it turns good.
The other thing of note out of China overnight was a whopping 388 bps increase to 5.45% in the cost of borrowing offshore yuan. That’s the highest since February and likely an attempt on the part of Chinese authorities to crack down on yuan weakness speculation now that the G20 meeting is over (where people assumed the yuan would resume its downward trend).
The individual investor in the US remains pretty confused on the stock market as Bulls and Bears are pretty much at the same level, 29.75 vs 28.5. Those that are neutral are at 41.8. These readings are in contrast to the very high bullishness seen in the II figures.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.