The Markit US services PMI for September rose to 51.9 from 51.0 which was the lowest since February. This brings the six month average to 51.6 which is well below the 2015 average of 55.9. Markit said “growth of new orders eased to a four-month low and companies reacted to modest inflows of new work by reducing their rate of hiring. There was no sign of inflationary pressures building during the month as both input costs and output prices rose at weaker rates than in August…The pace of accumulation in backlogs of work also eased and was the slowest in the current three month sequence of rising outstanding business.”
Markit bottom lined it with this: “The service sector sent mixed signals in September, with faster growth of activity during the month offset by gloomy forward-looking indicators. Although business activity showed the largest monthly rise since April, inflows of new business slowed and employment growth was the weakest for three-and-a-half years. A drop in optimism about the year ahead to a near post-crisis low meanwhile cast a shadow over the outlook.”
My bottom line is this: while the number was up m/o/m, it is barely above 50 and equates to an economy that is currently running at about 1.5%, the slowest pace of growth in years.
The Conference Board’s measure of consumer confidence for September rose to 104.1 from 101.8 in August. This is above the estimate of 99.0 and is the best level since August 2007. Current conditions were up by 3.2 pts while the Outlook was up by 1.7 pts. The answers to the labor market questions is where the lift in confidence mostly came from as those that said jobs were Plentiful also rose to the best level since August 2007 and those that said jobs were Hard To Get fell to the least amount since early 2008. The disappointment within the labor questions was Income Expectations where those expecting an increase fell 1.4 pts m/o/m after rising by the same amount in August. Notwithstanding the improved overall confidence, spending decisions were muted. Those planning on buying a home, a car or a major appliance in coming months all fell. Business conditions and expectations for it were also muted. One year inflation expectations rose two tenths to 5%, the most in 7 months.
The Conference Board said, “Overall, consumers continue to rate current conditions favorably and foresee moderate economic expansion in the months ahead.”
Bottom line, the improvement in confidence to the best since the recession is encouraging to see but it didn’t show up in spending plans looking forward. As for the impact on markets, confidence is always a coincident indicator and thus is rarely market moving. For example, the 10 year high in consumer confidence in July 2007 at 112 told us nothing about what was to come in the following 18 months just as the bottom in February 2009 at 25.3 told us nothing about the upcoming rebound.
The Richmond manufacturing index in September was -8, six points weaker than expected but up slightly from the -11 seen in August. It’s now negative for the 3rd month in the past 4. The details will bore you but were soft across the board. As to the future, “Looking ahead six months, producers’ expectations about future business conditions have softened compared to last month’s readings.” As for the national manufacturing survey out next week, expectations for ISM are at 50.2 vs 49.4 in August. Thus, we are essentially seeing no growth in US manufacturing. The consumer remains the only thing keeping the US economy on a growth trajectory, albeit modestly.
Bloomberg news is calling the move up in the S&P today the “Clinton Rally.” The obvious reference to the belief that a Clinton win would be better for markets than a box of chocolates Forrest Gump Trump win where you never know what you’re going to get. The Mexican peso is higher too.
Putting aside their personalities and policy proposals, it will likely not matter who the next President is when it comes to where markets go. As we are in the 2nd longest bull market of all time and as we approach the 8th year of this economic expansion (however punk), odds are high that whoever the next President is they will preside over a recession, a bear market and rising debts and deficits. Also, no matter who the next President is, at least throughout 2017, central banks will dominate markets just as they have for the past 8 years.
Markets in Europe today don’t care about the debate as the Euro STOXX bank index closed down .66% after yesterday’s 2.7% fall. The index is at the lowest level in a month. The other thing of note is the weakness in the sovereign bonds of Italy, Spain and Portugal relative to Germany and France. We still await in October the credit rating decision of DBRS on whether to downgrade them to junk which would end the ECB buying of their bonds. Italy has announced that the referendum on Constitutional change will take place on December 4th.
The ECB reported that loans to households were up 1.8% y/o/y in August, unchanged with July. Loan growth to businesses were up by 1.9% y/o/y, also unchanged with the prior month. Money supply growth was up by 5.1% y/o/y, about the pace seen over the past year. Considering how low rates are on top of another bounty of TLTRO money to banks, loan growth is still very mediocre, albeit steady. The demand for TLTRO, quite a cheap form of financing, is also mediocre. The demand side of the borrowing relationship remains modest.
The Japanese 10 yr JGB yield has now given back all of its move and then some the day of the BoJ “yield curve control” announcement when they said they would try to peg it at zero. It fell by another bp to -.07%, a one month low. Now granted it’s pretty close to zero and well off the low of -.29% of two months ago but the point is “yield curve control” is going to be very difficult to conduct.
Hong Kong’s trade data, highly sensitive to economic activity in China, came in better than expected in August. Exports rose .8% y/o/y instead of falling by 2% as expected. Exports to China rose 4.3% (China said imports from Hong Kong rose by 14.3%, the closest spread in a while) but fell to the US and Germany. Imports were up by 2.8% y/o/y vs the estimate of down 1%. The Hang Seng was up 1% which follows yesterday’s 1.5% decline.