1) President’s Trump and Xi plan a get together at the G20 meeting the end of November.
2) The September consumer price index rose .1% both headline and core and that was one tenth less than expected. The y/o/y gains moderated to 2.3% headline from 2.7% in August. The core rate was up 2.2%, the same as in August. Again, core goods deflation of .3% m/o/m and y/o/y kept a lid on the 3% y/o/y rise in the prices of services ex energy. A main factor in the goods decline was a very sharp 3% m/o/m drop in the price of used cars and 1.5% fall y/o/y.
3) In a trend we’ll see thru year end ahead of higher tariff rates, wholesale inventories in August rose 1%, above the estimate of up .8% and follows an 8 tenths rise in July.
4) In that scramble to do business before the tariff rate against them ramps to 25% from 10%, China reported exports for September that were much more than expected. In dollars they rose 14.5% y/o/y, well above the estimate of up 8.2%. Imports were a bit light but in yuan terms beat the forecast. Exports to the US in particular rose 14%, the quickest growth since the beginning of the year.
5) Eurozone industrial production rose 1% m/o/m in August, twice the estimate of up .5%. The timing of auto emissions standards have impacted the timing over the summer of auto production.
6) It does seem like the Brits are getting close to a deal with the EU.
7) The UK reported its rolling 3 month GDP number thru August that was as forecasted m/o/m when including the July upward revision.
8) For the 2nd month in a row, August Japanese machinery orders surprised to the upside. They rose 6.8% m/o/m, well better than the estimate of down 3.9%.
9) With the 100 bps PBOC cut in the reserve requirement ratio, about 1/3 of the 1.2 trillion yuan released is going to be used to pay off medium term lending facilities that are outstanding and coming due with the balance likely used to cushion the impact of the tariffs and slowing growth that was happening anyway. The PBOC said it would “maintain reasonably ample liquidity to drive the reasonable growth of monetary credit and social financing scale.”
10) The Chinese private sector weighted Caixin September services PMI did improve to 53.1 from 51.5 and that was better than the estimate of 51.4. This helped to offset the weakness in the manufacturing index seen last week. The internals though were mixed. According to Caixin, “New business increased at a faster rate last month than in August pointing to some improvement in demand. However, employment in the service industry contracted abruptly.” Also, prices charged fell while those paid jumped to the most since January, negatively impacting profit margins. Lastly, “the sub index of business expectations…edged down in September from the previous month.”
11) Brazilian investors got the election outcome they wanted with a run off soon. Bolsonaro got 46% of the vote vs 29% for the far left candidate Haddad.
12) From a short term contrarian perspective, the CNN Fear/Greed index got to 5 on Thursday. Its range is 0-100 with ‘extreme fear’ and ‘extreme greed’ on either ends.
1) Raising rates to a real rate of zero is not crazy. What’s been crazy has been years of NIRP, ZIRP and trillions of QE. We will look back on this time and say WTF were they thinking.
2) The NFIB small business optimism index for September moderated to 107.9 from 108.8 and which was the record high. Higher wages continued as current compensation plans rose to a record, up by 5 pts to 37%. Future plans were up by 3 pts to match the most since 1989. This was driven by Positions Not Able To Fill which held at the highest level since 1973. Plans To Hire did fall by 3 pts after rising by 3 pts in August. The NFIB said “There is extraordinary competition for workers in this historically tight labor market. Small business owners are investing more in their employees to attract and keep qualified workers.” Capital spending plans also gave back its 3 pt rise in August. Those that Expect a Better Economy fell 1 pt and those that Expect Higher Sales rose by 3 pts (after dropping by a like amount last month). There was a 1 pt fall in those that said it’s a Good Time to Expand. I do expect an increase in inventories in the next few months for those companies that import goods from China but the inventory component here fell 7 pts. Expectations for Higher Selling Prices fell 2 pts off a 3 month high and earnings expectations dropped by 2 pts.
3) Initial jobless claims totaled 214k, 7k more than expected and up from 207k last week. The 4 week average rose to a 5 week high at 210k. Continuing claims were up by 4k.
4) The UoM October consumer confidence index fell about 1 pt to 99 from 100.1 last month. The estimate was for a modest gain to 100.5 and follows a 3.9 pt rise last month. It’s the 4th best print of the year. Both main components of the Current Situation and Expectations fell m/o/m. One year inflation expectations rose one tenth to 2.8% after falling by 3 tenths in September. Those expecting Higher Income fell 2 pts after rising 1 pt last month. However, for no reason I can understand, those expecting Lower Income rose 4 pts to match the most since May 2017. Employment expectations moderated by 3 pts but after rising by 4 pts last month. The answers to the business conditions questions were mixed. Spending intentions were mixed too. Consumers are optimistic on stocks as the percentage of those who expect a higher market in the next year rose to the most since January at 64 vs 62.7 last month.
5) The US producer price index for September rose .2% both headline and core as expected and if you also take out trade, it jumped by .4% m/o/m which was twice the estimate. Versus last year, PPI rose 2.6% headline, 2.5% core and 2.9% core ex trade. While the price of energy and food fell m/o/m, goods prices ex this rose .2% and continues a trend of higher wholesale goods prices that has yet to spill over into consumer prices, yet. Service prices rose .3% and driven by a 1.8% m/o/m spike in transportation and warehousing.
6) US import prices in September rose .5% m/o/m, 3 tenths more than expected and August was revised up by 2 tenths to less of a decline of 4 tenths. Energy prices were a main reason as import prices ex petro was flat.
7) The average 30 yr mortgage rate is now above 5% at 5.05% to be exact according to the MBA. That drove a 1.1% drop in applications to buy a home with y/o/y growth slowing to 2% (still up though). Refi’s fell 2.6% w/o/w and remain down 32% from last year. Reflecting those that are trying to shield themselves from the rate rise, those choosing to take out an adjustable rate mortgage totaled 7.3% of loans which matches the most since June 2017. A 5 year ARM is at a rate of 4.29%.
8) The 3 and 10 yr Treasury auctions were weak again. The 30 yr was decent but more influenced by insurance companies and pension funds.
9) September PPI in Japan rose 3% y/o/y for the 3rd straight month, matching one year highs.
10) China reported that its FX reserves in September shrunk by $22.7b, the 2nd most since the end of 2016 to $3.087 trillion below the estimate of $3.105 trillion. The State Administration of Foreign Exchange claims the drop was due to valuation adjustments of its FX reserves with the rally in the dollar rather than outright outflows but I’m sure the latter had something to do with this.
11) Economic growth in Singapore in Q3 slowed to 2.6%, the lowest pace since Q1 2017.
12) The German government’s Fall economic outlook lowered its GDP forecast for the country to 1.8% this year from 2.3% previously. The economy grew by 2.2% in 2017.
13) German exports in August fell .1% m/o/m vs the estimate of up .4%. That’s the 2nd month of declines. Imports dropped by 2.7%, well more than the expected fall of .1%.
14) There is still no calming the fears of investors in Italy as the 10 yr yield closed the week at the highest level since February 2014. The 10 yr yield closed up another 15 bps to 3.58%. This didn’t help, Deputy PM Salvini said “We are against the enemies of Europe, Juncker and Moscovici, shut away in the Brussels bunker. The politics of austerity of the last few years have increased Italian debt and impoverished Italy.”