Positives
1)Continuing claims fell about 1mm w/o/w to just under 11mm. The estimate was 11.4mm. We of course hope that most have found jobs rather than just having their benefits expire.
2)The September ISM services index rose to 57.8 from 56.9 and that was 1.6 pts above expectations. It compares with 58.1 in July. The breadth was good as 16 of 18 industries saw growth vs 15 in the two prior months. One saw a contraction vs three in the month prior. The ISM summed up the report by saying “Respondents’ comments remain mostly optimistic about business conditions and the economy, which correlates directly to those businesses that are operating. There continues to be capacity and logistics issues, as business volumes have increased.” They also talked about the lift to business activity has driven by “end of fiscal year spending and resuming projects placed on hold due to Covid.”
3)With the help of another drop in mortgage rates (which will reverse higher with the jump in the 10 yr yield) to 3.01%, the MBA said refi’s jumped 8.2% w/o/w and are up 50% y/o/y.
4)China’s private sector focused Caixin services PMI for September rose to 54.8 from 54 and that was .5 pt better than expected. Caixin said “Growth was supported by a marked rise in total new business, though new export work continued to decline. Nonetheless, the sustained rise in overall client demand led firms to expand their payrolls for the 2nd month in a row amid increased capacity pressures. Companies also retained a positive outlook regarding activity over the year ahead, with business confidence improving since August.”
5)Hong Kong’s September PMI bounced to 47.7 from 44 but it was March 2018 the last time this number was above 50. Markit said “Hong Kong’s private sector moved closer towards stabilization at the end of the third quarter, with the latest PMI data indicating a slower deterioration in business conditions as some social distancing curbs were relaxed.”
6)There was a nice bounce in the Japanese Economy Watchers Survey for August (thus somewhat dated) whose Current Conditions component jumped to 49.3 from 43.9. This was 41.9 in January and 7.9 in April. “The economy is showing signs of rebounding, although difficulties remain under the impact of Covid. As for the future, hopes are placed on rebounding, even though concerns are seen about the infection trend.”
7)Taiwan, a great technology bellwether, saw its September exports rise 9.4% y/o/y, just below the estimate of up 9.6%. Huawei building inventories helped semi exports, according to the Ministry of Finance, with exports overall to China higher by 22%. Exports to the US rose 14.5%. The negative was the 5.4% y/o/y drop in imports vs the forecast of up 2.3% where some imports go into eventual exports.
8)Australia’s services PMI September index was revised up to 50.8 from the initial print of 50 and is up from 49 in August. Japan’s services PMI was also revised up to 46.9 from 45.6 in the flash read and up from 45 in August. It was January the last time it was above 50. South Korea’s manufacturing PMI got to just below 50 at 49.8 from 48.5 (“Output returned to growth amid signs of improving demand conditions and some reports of the reopening of client businesses. However, not all is positive, as the virus continued to impact firms.”) Taiwan’s manufacturing index rose another 3 pts to 55.2 (“The stronger index readings can partly be attributed to a release of pent-up customer demand following an easing of Covid restrictions worldwide.”) Singapore’s PMI was 45.1 from 43.6 (“Business activity fell at a slower rate, though underlying data pointed to an uneven development across sectors…In line with hopes that the Covid situation will improve, firms were optimistic about the year ahead outlook for the 1st time since January.”)
9)The September Eurozone services PMI was revised up to 48 from the flash read of 47.6. The estimate was for no change and that is down from 50.5 in August. Markit said “With the eurozone economy having almost stalled in September, the chances of a renewed downturn in the fourth quarter have clearly risen.”
10)The UK services PMI was also revised up to 56.1 from 55.1 initially but down from 58.8 in August. While showing “resilience” according to Markit, “Optimism about the year ahead has meanwhile cooled somewhat, hinting that risks for coming months lie skewed to the downside. Companies grew increasingly worried about the impact of a 2nd wave of virus infections and the gradual withdrawal of government support, especially the furlough scheme. Brexit worries are also rising again, causing hesitancy in spending and investment decisions. While the 3rd quarter will inevitably see a strong economic rebound, growth in the fourth quarter looks likely to be far less impressive.”
11)German factory orders in August rose 4.5% m/o/m, better than the estimate of up 2.8% and follows a 3.3% rise in July which was revised up by 5 tenths. Most of the growth came from within the Eurozone as domestic and non Eurozone growth was more modest. The German Economy Ministry said “The catch-up in factory orders continues at remarkable speed. It’s supported primarily by demand from abroad.”
12)German exports in August rose 2.4% m/o/m, better than the estimate of up 1.5% and imports grew more than forecasted as well.
13)Italian August industrial production saw a 7.7% m/o/m jump vs the estimate of up just 1.4%. The production of consumer goods was the particular bright side. Versus last year overall production is down only .3%.
Negatives
1)Initial jobless claims totaled 840k, 20k more than expected and last week was revised up by 12k to 849k. This is now the 6th week in a row that we seem to be settling in to the 800k range.
2)Markit’s services PMI index for September was 54.6 vs 55 in August but still reflecting an economy trying to recover. The big caveat though in the Markit figure was this commentary: “business expectations regarding the outlook for output over the coming 12 months slumped at the end of the third quarter. Although optimistic of a rise in business activity, hesitancy among service providers reportedly stemmed from concerns relating to the ongoing Covid pandemic and the impact on future demand.”
3)I’ll leave to the WSJ editorial page to respond to Jay Powell’s speech on Tuesday where he said “The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods.” They said, “Side by side? This sounds as if he sees the Fed as a political partner of Congress and the US Treasury, if not a subsidiary.” On the possibility that Biden wins on November 3rd, “His vow to have monetary and fiscal policy working together sounds like a signal to Mr. Biden and Democrats on Capital Hill that he and the Fed will be there to monetize as much new federal spending and debt as they want. Another few trillion dollars on the Fed balance sheet? At your service, likely Treasury Secretary Lael Brainard.” Finally, with market function no longer a problem, “and neither liquidity. Yet the Fed shows no signs of removing any of its special measures…The Chairman is taking the Fed into unchartered waters, and the toast of the town one day can became the scapegoat the next.”
4)The MBA said mortgage applications to buy a home took a breather for the 3rd week in the past 4, by 1.5% but the y/o/y gain is still strong at 21%. The average loan size hit a fresh record high of $371,500.
5)We saw the August trade data where the deficit between exports and imports is just shy of the record high seen in 2006. For perspective, exports at $171.9b compares with $186.6b in March and $209.6b in February. Imports totaled $239b vs $232.7b in March and $246.7b in February.
6)Job openings in August totaled 6.5mm, just as expected but down from 6.7mm in July. Hiring’s were modest but after a sharp decline in July. The number of quitters fell by 139k but after 3 months of increases and layoffs increased by 272k.
7)The UK economy grew 2.4% from July but that was half the estimate as industrial production and on the manufacturing side, was well below expectations. Their economy is 10% below its peak.
8)Germany, France and Spain all reported August industrial production figures that were below expectations.
9)The Eurozone construction PMI for September, something that low rates are supposed to drive, was 47.5 vs 47.8 in August. It’s the 7th month in a row below 50. Markit said “Home building, infrastructure work and commercial projects all contracted, with the sharpest downturn recorded for the latter.”
10)EVH, another musical legend lost way too early. “I live my life like there’s no tomorrow.” One of my favorites, //www.youtube.com/watch?v=i2eHaBUemjM