Positives
1)At least for now, the tension between the US and Iran took a dramatic step lower and WTI oil prices are back below $60.
2)We finally have a Fed member in Dallas President Robert Kaplan that is vocal that the dramatic rise in the Fed’s balance sheet since September doesn’t happen in a vacuum and is fully aware of the impact on financial assets (whether due to psychological reasons or actual) even though it wasn’t intended to have any. Bernanke created a monster with the Fed’s balance sheet and now we’re seeing how difficult it is to control in terms of its impact and its ever greater relationship with asset prices.
3)Initial jobless claims totaled 214k, 6k less than expected and down from 223k last week (revised up by 1k). Smoothing out the holiday season has the 4 week average at 224k vs 233k last week because a print of 252k dropped out.
4)The ISM services index for December rose to 55 from 53.9, .5 pt better than expected and compares with 54.7 in the month prior. This brings the 2019 average monthly print to 55.5. The internals though were mixed. Of the 18 industries surveyed, 11 saw growth vs 12 in November and 13 in October. That matches the least since January 2016. Six industries saw a contraction. ISM said “The respondents are positive about the potential resolution on tariffs. Capacity constraints have eased a bit; however respondents continue to have difficulty with labor resources.”
5)The Markit services PMI for December rose to 52.8 from 52.2 and that is a 5 month high. Markit said however, “while moving in the right direction, service sector growth remains well below that seen in the early months of 2019, and the overall survey results are indicative of GDP rising at a relatively modest annual rate of 1.8% in December.”
6)Trade will be a boost to Q4 GDP as the November trade deficit shrunk to $43.1b from $46.9B in October. But, the contribution was mixed as while exports rose m/o/m after two months of declines, imports fell for a 3rd straight month.
7)The Bloomberg consumer confidence index for the week ended January 5th rose to the best level since October 2000.
8)The Conference Board’s measure of CEO confidence for Q4 bounced to 43 from 34 in Q3 but still remains below the breakeven of 50. So call it less pessimistic. They said “While the abatement of trade and tariff issues has helped improve confidence, CEO’s still remain apprehensive about global growth prospects in early 2020.”
9)While I think we should throw this data point out because of the holiday distortion, I’ll give it anyway. The MBA said purchase applications rose 3% w/o/w and up by 2.4% y/o/y. Refi’s jumped by 25% but after falling by 26% last week. Next week should be free of noise.
10)November German industrial production did beat estimates as it grew by 1.1% m/o/m, 3 tenths more than expected and October was revised higher by 7 tenths. Production still fell though by 2.6% y/o/y, down for the 13th straight month. Hopes remain that Germany is coming to the end of its downturn and the Economy Ministry said that business “should brighten somewhat in the coming months.”
11)November industrial production figures from France, Spain and Italy all were slightly better than expected.
12)In the Eurozone, the December services PMI was revised to a better 52.8 from the initial print of 52.4 vs the estimate was for no change. That is up from 51.9 in November and clearly is offsetting the big drag from manufacturing. Markit said “All nations covered by the survey recorded growth in activity, led by Spain and Ireland.” Overall, growth is still anemic in the region as Markit expects .1% GDP growth in Q4 from Q3.
13)The November Eurozone unemployment rate held at 7.5% as expected at the lowest rate since 2008.
14)In December, the Economic Confidence index for the Euro region improved a touch to 101.5 from 101.2 and that was .1 pt above the forecast. Continued weakness in manufacturing was offset by an improvement in services. Retail and construction also rose but consumer confidence fell to the lowest since February 2017.
15)Eurozone retail sales in November rose 1% m/o/m, above the estimate of up .7% and October was revised up by 3 tenths.
16)The UK services PMI was revised up by 1 pt to exactly 50 and above the estimate of 49.1. That is up from 49.3 in November and vs 50 in October. Markit said “It is notable that the forward looking business expectations index is now the highest since September 2018…The modest rebound in new work provides another signal that business conditions should begin to improve in the coming months, helped by a boost to business sentiment from greater Brexit clarity and a more predictable political landscape.”
17)Driven again by skyrocketing food prices, China said its December CPI rose 4.5% y/o/y, the same pace as in November but that was two tenths less than expected. Food prices rose 17.4% y/o/y again driven by pork prices which were up by 97% y/o/y. Taking this and energy out though and prices rose a more benign 1.4%, unchanged with the month prior. Wholesale prices fell .5% y/o/y, about as expected and less of a moderation compared to November.
18)Taiwan for December said its export rose 4% y/o/y with exports to China and Hong Kong up by 6.2%. With China becoming less dependent on US chip companies, Taiwan will be the beneficiary. The estimate was up 3.1%. Imports jumped by 13.9% y/o/y, well more than the forecast of up 5%.
19)Hong Kong’s December PMI bounced to 42.1 from 38.5 but still remained in deep contraction for reasons we all know. Singapore’s PMI improved to 51 from 50.4 while services PMI for Australia was revised slightly higher and India’s services PMI rose too.
Negatives
1)December payroll growth was 145k, 15k less than expected and the two prior months were revised down by a combined 14k. The household survey said jobs grew by 267k after a slight decline last month and when put together with the rise in the labor force of 209k, the unemployment rate was basically unchanged at 3.5%, still a 50 yr low. But, the U6 fell two tenths to an expansion low of 6.7%. Both the participation rate and employment to population ratios remained unchanged m/o/m. Reflecting some weakness was the drop in hours worked to 34.3 for the 3rd month from a pace of 34.4 and that’s the lower end of a 34.3-34.6 range since 2011. Wage growth was a slight miss as average hourly earnings rose by .1% m/o/m, two tenths less than expected but partially offset by a one tenth upward revision to November. When taken together, average weekly earnings slowed to a pace of 2.3% y/o/y from 2.8%, disappointing. Non supervisory and production wage growth was 3% y/o/y, also a deceleration. Smoothing out all the monthly noise has the 3 month job growth average at 184k vs the 6 month average of 189k and the 2019 average of 176k. This compares with the average monthly gains of 223k in 2018, 179k in 2017 and 193k in 2016.
2)While this could very well be a holiday effect, continuing claims, delayed by a week relative to initial claims, rose to the highest level since April 2018.
3)The pace of household borrowing on a non revolving basis, mostly student and auto loans continued unabated rising by $14.9b to $3.09 Trillion outstanding in November. That is almost double the level at the pre crisis peak in 2008. Helping to explain the good but not great holiday spending season, revolving credit outstanding fell $2.4b m/o/m.
4)The CPI for the Eurozone for December rose 1.3% y/o/y as expected, up from 1% in November. The core rate held at 1.3% y/o/y, matching the quickest pace of gain since October 2015 as services inflation was higher by 1.8% y/o/y.
5)German exports in November fell 2.3% m/o/m, worse than the estimate of down .9%.
6)In November German factory orders fell 1.3% m/o/m, worse than the estimate of up .2%, partially offset by a 6 tenths upward revision to October. Versus last year, orders fell 6.5%, the 18th straight month of declines. There is hope though that they are close to bottoming out in orders. The German ministry said “business expectations in manufacturing have brightened somewhat. So the outlook for industrial activity has improved a bit.”
7)Likely in response to the transit shutdowns in protest to the Macron’s proposal to change the pension system, French consumer confidence in December fell 3 pts m/o/m.
8)The wage situation in Japan continues to be disappointing. In November, regular base pay rose just .2% y/o/y and when combined with declines in bonus pay and overtime, it fell .2% y/o/y.
9)The December Japanese services PMI was revised to 49.4 from 50.6 and that is down from 50.3 in November and is the weakest in more than 3 years. Combine this with soft manufacturing and Markit said “Overall, survey data for the 3 months to December imply that 4th quarter GDP is likely to contract. While the sales tax and typhoon hampered October’s performance, we saw a very limited recovery in November and the service sector has registered its strongest downturn in over 3 years in December.”
10)The manufacturing PMI remained soft in Japan slipping to 48.4, below 50 for the 10th month in the past 11.
11)China’s private sector Caixin services PMI for December fell 1 pt m/o/m to 52.5 and that was below the estimate of 53.2. Caixin said “the level of optimism expressed by service sector firms edged down to the 2nd lowest on record. Companies highlighted ongoing trade tensions, relatively subdued economic growth and staff shortages as factors that could dampen prospects over 2020.” Combining the services PMI with manufacturing has the composite index at 52.6 vs 53.2 in November and vs 52 in October.
12)As a big fan of Van Halen, I was absolutely horrified listening to David Lee Roth this week at his Las Vegas residency, //www.youtube.com/watch?v=18OpJ2H9myk.