United States
ADP said a net 178k private sector jobs were created in July, 12k less than expected but June was revised up by 33k to 191k. Again, the service sector dominated the growth with 174k more jobs while construction added 6k, natural resources/mining 4k and manufacturing was a drag of 4k. Within services, education/healthcare added 41k and administrative/support services contributed 42k.
Bottom line, at least according to ADP, job growth still remains good and certainly better than what the BLS has said. The BLS estimate for the private sector is 180k on Friday. The ADP print brings the 3 month average to 200k and the 6 month average to 209k which both compare favorably with the 181k seen in 2016. This is in contrast to the BLS which before Friday’s July report has average private sector job growth of about 170k this year. Either way, job growth north of 150k is still enough to put continued downward pull on the unemployment rate and Friday’s estimate is for a one tenth decline to 4.3% which would match the lowest level since 2001 and more reason for QT to start in September.
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According to Investors Intelligence, Bulls held the 60 handle for a 2nd straight week but fell .2 pts to exactly 60. Bears fell by .3 pts to 16.2% and that level was last seen in July 2015 right before the August tantrum. The Bull/Bear spread is at a 4 month high. Purely from a sentiment/contrarian standpoint, II said Bulls remain in the “danger zone.” Bottom line, what we’ve seen this year is when bullishness has gotten extreme, all the market has done has churned and consolidated until sentiment cooled off a bit. It did so for almost 3 months after the 30 yr high in Bulls on March 1st and its done so over the past two weeks. Two weeks ago the S&P 500 closed at 2474 vs yesterday’s close of 2476.
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While the average 30 yr mortgage rate held at 4.17% for a 2nd week, mortgage applications to buy a home fell 2% w/o/w and marks the 3rd week in the past 4 with declines. It is now at the lowest level since mid March but still are up almost 9% y/o/y. I’ll say again, I believe the affordability is becoming more and more of an issue. The CEO of CoreLogic said this just a few days ago, “Home prices are marching ever higher, up almost 50% since the trough in March 2011…“With no end to the escalation in sight, affordability is rapidly deteriorating nationally and especially in some key markets such as Denver, Houston, Miami and Washington.” Refi applications fell by 3.8% w/o/w and are down by 41% y/o/y.
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Quantifying the softer than expected auto sales in July puts the SAAR at 16.69mm and marks the 5th straight month of below 17mm in sales with much of that reason being a large slowdown in fleet sales. JD power said while usually incentives cool after July 4th, “this year elevated inventory levels coupled with the sales slowdown, have compelled them to maintain aggressive discounts throughout July.” Also of note is that leasing is slowly becoming a smaller percentage of overall sales. They made up 29% in July vs last year’s peak of 32%. Not that we needed another reminder of peak auto’s in this cycle but it was reaffirmed again in July.
Asia
With inflation dropping, the Reserve Bank of India took advantage and cut rates by 25 bps as expected to 6%. On a sell on the news response, the Sensex did fall .3% from its all time high. I got bullish on India when Modi was campaigning and remain so. India is one of the most exciting 10 yr+ stories out there.
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I watch the monthly Japanese consumer confidence data because it always asks for people’s expectations on income growth. In July, confidence did rise .5 pt to 43.8 which is just shy of the best level in 4 years but has still not regained its 2013 post Abe euphoria. Specifically, the Income Growth component was up .1 pt to 41.7 and which is still below the 2013 peak too. Bottom line, it has been the industrial and export side of the Japanese economy that has prospered since Abe took office while the consumer side has been a major drag. Instead of wanting to generate a higher cost of living when wage growth is so modest and the Japanese saver is getting crushed with no returns, the BoJ should give up the 2% target as it’s not the answer to what ails them. This number is never market moving and the .5% rise in the Nikkei had more to do with the weaker yen overnight.
Europe
Wholesale prices in the Eurozone in June fell .1% m/o/m as expected but were still up by 2.5% y/o/y. Wholesale prices were running 4% higher just a few months ago on oil base effects but it was also falling by 4% last year for the opposite reason. This number should have no bearing on what the ECB will announce in September.
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A day before the BoE reports to us on their thoughts with their conundrum of failing at the mandate of price stability with their desire to have emergency monetary policy over fears over the economic fallout from Brexit, the Markit July construction PMI fell to a one year low. Both commercial and residential construction fell and Markit said “Worries about the economic outlook and heightened political uncertainty were key factors contributing to subdued demand.” Notwithstanding the 2 pts miss relative to expectations, the pound is higher vs the US dollar and is now above $1.322 due to the general dollar malaise and is in turn weighing on the FTSE 100. Gilt yields are also up but along with yields in the rest of the region.