1) It seems that the US/China negotiations are progressing to some sort of deal as Mr. Market and the underlying economies of each are pressuring both to resolve this.
2) Thanks to lower energy prices, headline CPI was up by 1.9% y/o/y, the least since August. But, the core rate was still up 2.2% y/o/y for the 4th month in the past 5 and is up .2% m/o/m for the 3rd straight month. Services inflation ex energy was higher by 2.9% and core goods prices are no longer falling.
3) Initial jobless claims totaled 216k for the week ended January 5th, 10k less than expected and down from 233k last week (revised from 231k). Due to the holidays and now the government partial shutdown, we must smooth out these weeks and the 4 week average was 222k vs 219k last week.
4) Purchase applications bounced 16.5% w/o/w after falling by 14.5% in the 3 prior weeks. Refi’s rebounded by 35.3% after a 14% drop in the 3 weeks before. That 30 yr mortgage rate did fall to 4.74% on average, down 10 bps on the week and that’s the most attractive since April.
5) China CPI rose 1.9% y/o/y vs 2.2% in November and below the estimate of 2.1% but the ex food and energy figure was up 1.8% for the 3rd straight month. PPI slowed to a rise of just .9% y/o/y and that was well below the forecast of up 1.6% and a slowdown from 2.7% in November. It was all due to the sharp drop in commodity prices and wholesale consumer goods prices were little changed from the month prior.
6) China reported that is FX reserves in December totaled $3.073T, a touch above the estimate of $3.072T and that is up about $11T from November. The State Administration of FX attributed the lift to valuation adjustments higher in their holdings of non dollar currencies and with the value of their bond holdings, particularly US Treasuries.
7) In Japan, November saw regular base pay rise by 1.6% y/o/y vs 1.5% in October and that is the fastest pace of gain since 1997.
8) In the Eurozone, the November unemployment rate did fall to 7.9% from 8% in October. That is the smallest level of unemployment since late 2008.
9) While the industrial side has been soft, the German consumer is feeling a strong labor market and higher wages. Retail sales jumped 1.4% m/o/m in November, well better than the estimate of up .4% and October was revised up by 4 tenths.
10) Retail sales too for all of the Euro region was better than forecasted in November as they rose .6% m/o/m vs the estimate of up .2%. October was also revised up.
11) Congrats to Bohemian Rhapsody for winning best Drama Motion Picture award at the Golden Globes. Not that I care that much even though I liked the movie but it gives me an excuse to play my favorite song of theirs, https://www.youtube.com/watch?v=HgzGwKwLmgM
1) Putting aside the reasons, whether company specific or margin related or due to broader macro issues, the stock market response to what we’ve seen from corporate earnings news this week, let alone over the past month, has been violent. Thus, expect the upcoming earnings season to be a mine field to tip toe carefully thru.
2) This is what Jay Powell has said since early October when it was already widely anticipated that they would hike in December, which of course they did: “we’re a long way from neutral at this point”, rates “remain just below the broad range of estimates of the level that would be neutral”, “I think that the runoff of the balance sheet has been smooth and has served its purpose and I don’t see us changing that”, “If we came to the view that the balance sheet normalization or any other aspect of the normalization was part of the problem, we wouldn’t hesitate to make a change”, the balance sheet “will be substantially smaller than it is now.” Lastly, I guess the strike price of the Powell Put is down 20% in the S&P 500, maybe, maybe not. I’m flexible on that belief.
3) I’ll add this, the December rate hike and Powell press conference that followed reflected absolutely no messaging correlation to how the FOMC minutes they released this week was worded and reflected. It was like the minutes came from a completely different meeting but we know how the Fed manipulates the communication to make the minutes a new found form of telling us what they currently think, rather than what they thought 3 weeks prior at the actual meeting.
4) The December NFIB small business optimism index did slip by .4 pts to 104.4. That is the 4th straight month of declines that has taken the index down by a total of 4.4 pts and it now sits at the lowest level since October 2017. Some key components notably softened, particularly capital spending and the forward looking questions on the economy. Finding qualified labor remains the number one challenge for small business.
5) The December ISM services index fell 3.1 pts m/o/m to 57.6 and that was below the estimate of 58.5. That is also the lowest since July. New orders rose a touch to 62.7 from 62.5 but backlogs fell 5 pts to just above 50 at 50.5. That is the least since January 2018. With respect to New Orders, ISM said “Due to the potential impact of tariffs, some clients are choosing to procure what they need in early 2019 now.” Of the 18 industries surveyed, 16 reported growth vs 17 in the 3 months prior. Noteworthy though, the number of industries seeing an ‘Increase in Business Activity’ fell by 5 and the number that said they saw an ‘Increase in New Orders’ fell by 2 to 13, the least in 5 months. The ISM’s bottom line was this: “The non-manufacturing sector’s growth rate cooled off in December. Respondents indicate that there still is concern about tariffs, despite the hold on increases by the US and China…Respondents are mostly optimistic about overall business conditions.”
6) The number of job openings in November totaled 6.888mm, 162k less than expected and is the least amount of available jobs since June. This is down from 7.131mm in October. Of note, the number of hiring’s fell by 218k after the increase of 232k in October, decrease of 210k in September and hiring of 183k in August. The number of quitters was down for the 3rd straight month.
7) Germany, France, the UK, Spain and Italy all reported declines in industrial production in November and all that were well below expectations.
8) The December Eurozone economic confidence index fell to 107.3 from 109.5. That’s 1 pt below expectations and is at the weakest level since December 2016. It’s down 8 pts from where it sat at the end of 2017 when ‘synchronized global growth’ was the Davos mantra. The components covering manufacturing, services, the consumer and construction all fell m/o/m. Retail sales is the only one that rose and all it did was go to zero from -.5.
9) Investor sentiment on the Eurozone according to Sentix did weaken to the lowest level since December 2014. Sentix said “From an economic point of view, the new year begins just as the old one ended: the worries on the forehead of investors about the overall economic situation did not diminish at the beginning of January 2019.”
10) French consumer confidence in December fell to the weakest level since November 2014.
11) UK new car registrations in December fell 5.5% y/o/y and that was off a very easy comparison as they fell by 14% last December.
12) Japanese household spending fell by .6% y/o/y in November which was below the forecast of down .1%.
13) The consumer confidence index in Japan in December fell just .2 pts but at 42.7, that’s the weakest since November 2016.
14) The Japanese Markit services PMI for December slipped to 51 from 52.3. That’s a 3 month low but if you take out the influence of the natural disasters on the September number, today’s index is at the lowest since May. Markit said “Softer inflows of new work restricted the increase in output, as demand improved to the slowest extent since July.” Employment though was a bright spot and “Looking ahead, confidence was elevated and held close to November’s recent high.”