Positives
1)While this potentially could be momentous (sorry for the hyperbole), disruptive, destructive to holders and possibly temporary if I’m wrong, the shrinking pile of negative yielding securities to the lowest since June is desperately needed in order to reestablish a more normal, functioning financial system.
2)The October ISM services index rose to 54.7 from 52.6, which was a 3 yr low, and was 1.2 pts above the estimate of 53.5. While the headline figure rose, the breadth was the same as last month with 13 of 18 industries surveyed seeing growth, unchanged m/o/m. More reported a contraction totaling 5 in October vs 4 in September. ISM said while the “non manufacturing sector had an uptick in growth after reflecting a pullback in September, the respondents continue to be concerned about tariffs, labor resources and the geopolitical climate.”
3)Initial jobless claims totaled 211k, 4k less than expected and down from 219k last week (revised up by 1k). Because a like amount print of 210k dropped out of the 4 week average, it held at 215k. Continuing claims, delayed by a week, was little changed.
4)The initial November UoM consumer confidence index was little changed with October at 95.7 vs 95.5 last month. The estimate was for no change at 95.5 while the internals were mixed as Current Conditions fell 2.3 pts while Expectations were higher by 1.7 pts. One year inflation expectations held at 2.5%. With respect to the labor market, those expecting Higher Income fell 2 pts but after jumping by 9 pts last month. The employment component improved by 8 pts and back to where it was during the summer. Spending intentions softened as those that plan on buying a vehicle fell 5 pts to a 3 month low. Those that plan on buying a house fell 1 pt but after rising by 2 pts in October. Those that want to buy a major household item fell 7 pts but did rise by 10 pts last month.
5)The trade data out of China was less negative than expected. Exports in October fell .9% y/o/y vs the estimate of down 3.9%. Imports were lower by 6.4% y/o/y, a touch above the forecast of down 7.8%.
6)The eurozone October services PMI was revised to 52.2 from 51.8 initially and that was .4 pts better than expected and up from 51.6 in September. It still is the 2nd lowest read since January and Markit said “A marginal increase in new business volumes signaled during October, with growth only slightly up on September’s 8 month low. Export trade remained especially weak, declining for a 14th successive month.”
7)The Eurozone manufacturing PMI for October was revised to 45.9 from the initial print of 45.7 and up from 45.7 in September which was the lowest in 7 years. This level equates to a decline of more than 1% annualized in industrial production according to Markit. They cite Brexit and US trade policy as the main culprits. How are Eurozone companies dealing? “The focus of manufacturers remains on cost cutting, reducing inventories and investment spending while also lowering payroll numbers at an increased rate.”
8)Germany said its exports in September rose 1.5% y/o/y, better than the estimate of up .3% and August was revised up by 9 tenths. Exports to the US helped to offset weakness to China, their biggest trading partner. Imports too beat the Street estimate with its 1.3% y/o/y rise vs the estimate of no change.
9)Germany’s industrial production figure for September was about as expected. It was still down 4.3% y/o/y led lower by manufacturing. The Economy Ministry said “The weakness in industry is not yet overcome. But the recent slight improvement in orders and business expectations brightened the outlook for the fourth quarter somewhat.”
10)German factory orders in September surprised to the upside with a 1.3% m/o/m increase vs the estimate of up .1% and August was revised up by 2 tenths. The Economic Ministry was hopeful that this “could signal a bottoming out of orders.”
11)The BoE left rates unchanged as expected but unfortunately two members think a benchmark rate of .50% is somehow more stimulative to growth than one that is at .75% all while inflation is still well above and other central banks have gotten trapped around zero give or take.
12)The UK services PMI in October improved slightly but did get back to 50 from 49.5 in September and vs the estimate of 49.7. Markit said “The outlook improved slightly as a number of firms expected Brexit to be resolved early next year, reducing uncertainty, but overall sentiment remained historically weak.”
13)The October construction PMI in the UK rose to 44.2 but off a recessionary level of 43.3. The estimate was 44.1. “Civil engineering was the worst performing area of activity in October, with business activity dropping at the fastest pace in ten years…House building has also lost momentum this autumn amid a broader slowdown in market conditions…There are clear signs that construction firms are positioning for an extended soft patch for project starts, as highlighted by a further decline in purchasing volumes and another month of cuts to workforce numbers through the non-replacement of voluntary leavers.”
Negatives
1)Looking at the Markit PMI’s index on services, it is barely above 50 at 50.6. That’s the lowest since early 2016. Its employment component fell to a 10 yr low and it was a combination of less demand but also still the difficulty in finding new workers that are qualified. Markit said “voluntary leavers were not replaced and firms struggled to fill outstanding vacancies.” Also of note, new orders fell below 50 “for the first time since 2009.” There was some optimism over the possibility of a trade deal and the Fed rate cuts helping. “However, the overall degree of optimism remains sharply lower than this time last year as companies remain concerned by ongoing uncertainty about the outlook.”
2)The number of job openings in September fell to 7.02mm, the least March 2018.
3)Q3 productivity disappointed, falling by .3% q/o/q annualized vs the estimate of up .9%. Versus Q3 last year, productivity still was up 1.4% but a moderation from the 1.8% and 1.7% gains in the prior two quarters. Due to the q/o/q fall in productivity, unit labor costs jumped by 3.6% q/o/q and 3.1% y/o/y. That y/o/y gain follows a 2.6% rise in Q2 and it’s the biggest rise since Q1 2014.
4)The average 30 yr mortgage rate dipped back below 4% on the week but applications to buy a home fell 2.5% w/o/w and is down for the 4th week in the past 5 and the y/o/y gain is down to 6.8%. The index is at the lowest level since late August as the housing market continues to balance the benefits of lower rates and the affordability issue of high prices and limited inventories. Refi’s rose 1.8% w/o/w and are up 144% y/o/y.
5)The Federal Reserve’s Senior Loan Officer Survey points to a still very mixed situation. Demand for C&I loans softened, which has been seen in the weekly data, but standards were mostly unchanged. About 85% of banks said that investment in plant and equipment weakened in some fashion. Banks tightened standards for commercial real estate loans but demand was little changed. In line with the drop in mortgage rates, residential loan demand picked up while standards were steady.
6)Within the US September trade data, exports fell to the least amount since April. Imports dropped to the lowest level also since April.
7)The weekly Bloomberg consumer confidence figure (the old ABC number) dropped again this week to the lowest level since March. The components of State of Economy, Personal Finances and Buying Climate all fell.
8)Taiwan, a key tech exporter, said its October exports fell 1.5% y/o/y vs expectations of down .3% while imports were lower by 4.1% y/o/y vs the estimate of down just .1%. Exports specifically to China fell 3.5% y/o/y but rose by 18% to the US. The Taiex was lower by .2%.
9)Hong Kong’s October PMI fell further to 39.3 from 41.5 and well below the breakeven of 50.
10)Singapore’s PMI weakened further below 50 at 47.4. Markit said “Difficulties endured by Singapore’s economy have merely intensified at the start of the fourth quarter, with firms registering historically marked drops in demand and output, as well as cut backs to staffing levels. Weak regional economic activity across Asia has also clearly sent shock waves through the domestic economy, and panelists have subsequently curbed their expectations for the coming year.”
11)The Japanese services PMI for October fell below 50 to 49.7 from 50.3 in September. It’s the first time this area of their economy has entered a contraction in over 3 years. Japanese companies has had to deal with the VAT hike and a typhoon where both obviously disrupted business. Positively, the expectations component remained above 50 as “Plans to hire new staff and invest underpinned the confident outlook.”
12)Industrial production in France in September was a bit light relative to expectations but the manufacturing component specifically did beat the estimate by 4 tenths with a .6% m/o/m gain. Auto’s though were soft.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.