Positives
1) The FOMC statement was as uneventful as can be but that itself is a message from the Fed that nothing that occurred in October is going to alter their interest in raising rates again in December.
2) Initial jobless claims at 214k was as expected and little changed from 215k last week. The 4 week average also held at 214k. Continuing claims, delayed by a week, fell by 8k and is down for a 6th straight week and at a fresh 45 year low.
3) The midterm elections are over and the flood of commercials, robo calls and door bell rings will stop, for now.
4) The October ISM services index fell 1.3 pts to 60.3 but that was 1.3 pts better than expected and is the 2nd best print since 2005. Internally, new orders were little changed but backlogs did fall 5 pts to a 3 month low. Employment fell by 2.7 pts but after rising by 5.7 pts last month. Export orders (only some service companies report exports) were unchanged. Prices paid did recede by 2.5 pts to a 4 month low. Breadth of the growth remained good with 17 of 18 industries surveyed seeing it, the same number as last month. Under the hood though, the number of industries seeing an increase in employment was 10, the lowest since the same print in April. The ISM summed up the report by saying “The non manufacturing sector has again reflected strong growth despite a slight cooling off after a record month in September. There are continued concerns about capacity, logistics and tariffs. The respondents are positive about current business conditions and the economy.”
5) The 10 yr Treasury auction finally saw some decent demand.
6) For the 3rd month in a row in September the number of job openings exceeded 7mm. In the just reported read for September, the amount was 7mm on the dot vs almost 7.3mm in August. The problem remains though finding the right match of workers with the jobs available. This was seen in the decline of 162k in the pace of hiring’s. This led to a drop in the hiring rate to 4.5% vs 4.7% in August and 4.5% in July. While the number of people quitting fell, the quit rate held at 2.4% for a 3rd month, the highest since January 2001.
7) The inflation figures out of China were as expected with CPI up 2.5% y/o/y and PPI higher by 3.3%. Within CPI, prices ex food and energy were up by 1.8% and just non food prices were up by 2.4%.
8) Chinese officials are encouraging banks to pick up the pace of lending to private businesses which have been more hindered in getting loans compared to state owned enterprises.
9) The trade data out of China reflected a lot of front loading that is likely going on in many places ahead of the tariff rate hike in two months. Chinese exports in dollars jumped by 15.6% y/o/y, more than the forecast of up 11.7%. Exports rose 13.2% to the US in particular but also did rise 15% to the EU and were pretty strong to the rest of Asia. Imports spiked by 21.4%, well above the estimate of up 14.5% but they fell 1.8% from the US.
10) Having cut the pace of QE in half, BoJ head Haruhiko Kuroda said this week, “Unlike in the past, Japan is no longer in a situation where a decisive, large scale policy is needed to overcome deflation.”
11) Japan’s services PMI rose to 52.4 from nearly the flat line read of 50.2 in September due in part to a recovery from a few natural disasters.
12) Singapore’s PMI rose back above 50, rising by 3 pts to 52.6 but there were “fewer inbound orders from overseas.” Hong Kong’s PMI remained below 50 for the 7th straight month but was up by .7 pts to 48.6. India’s services PMI was up by 1.3 pts to 52.2.
13) Q3 GDP in the UK was as expected, higher by 1.5% y/o/y. While the best pace of growth since Q3 2017, it does mark the 10 quarter in a row of below 2% growth ever since the Brexit vote.
14) Greece reported a 2% y/o/y increase in its September industrial production figure which matches the best since September 2017.
15) Factory orders in Germany in September did beat expectations with a .3% m/o/m rise vs the estimate of down .5%. August was also revised up. The Economic Ministry said “The development of industrial orders in August and September suggests that bottlenecks in vehicle registration due to new testing rules for cars are slowing clearing up.” Industrial production also exceeded the consensus estimate.
16) The Eurozone services PMI for October was revised to a slightly better 53.7 vs the initial print of 53.3. It still though is the weakest since October 2016. Combining services with the revision to manufacturing last week brought the composite index of the two to 53.1 from 54.1 in September and that is the lowest since September 2016. This is what Markit said in describing the economic situation over there, “An export led slowdown, linked to growing trade tensions and tariffs, has been exacerbated by rising political uncertainty, growing risk aversion and tightening financial conditions. The slowdown has consequently become more broad based to increasingly envelop the services economy.” Italy has fallen into contraction, Germany’s growth matched a two year low while “France and Spain have seen more resilient business conditions, though both are registering much slower growth than earlier in the year.”
17) The Reserve Bank of Australia kept rates unchanged at 1.5% as expected and sounded upbeat on the Australian economy but also acknowledging the easing of their property and household debt bubble.
18) I’m showing my 16 yr old son some colleges today. I don’t know whether to smile or cry.
Negatives
1) The producer price index was hotter than expected with a .6% m/o/m headline rise, 3 times more than was expected. The y/o/y gain is now 2.9%. Taking out food and energy saw a price jump of .5% m/o/m vs the estimate of up .2% with the y/o/y increase up 2.6% as trade prices jumped by 1.6% m/o/m. If we look at core and also take out trade, prices were up .2% m/o/m as expected and 2.8% y/o/y. An area that has been a focus of mine all year, Truck Transportation of Freight prices rose another .3% m/o/m and are up 7.1% y/o/y. Rail was up by 6.5% y/o/y. Plenty of companies have been quantifying the impact in their Q3 earnings releases. Next week we’ll CPI to see to what extent companies have passed on these profit margin pressures and CPI is what is market moving, not PPI.
2) Another rise in the mortgage rates, by 4 bps w/o/w to 5.15% to the highest since April 2010, led to a 4% drop in mortgage applications. Purchases fell 5% w/o/w and are flat y/o/y while the index level is at a two year low. Refi’s fell 2.5% w/o/w and are down 33% y/o/y. In order to offset the rise in rates, consumers are shifting more into ARMS and the percentage of ARM volume rose to 7.8%, the most since mid May 2017.
3) The 3 yr and 30 yr Treasury auctions were not good, continuing the string of mostly poor demand at the auctions.
4) Industrial production in France was soft in September with particular weakness in manufacturing. This component fell 2.1% m/o/m, well worse than the estimate of down just .2%. Part of this for sure was issues surrounding the new auto emissions regulations that hopefully have been dealt with by now.
5) In September Japanese machinery orders fell by 18.3% m/o/m, double the estimate of down 9%. This happens to be the biggest monthly drop ever in data I have back to 1987. There were certainly natural disasters that impacted the data but analysts knew that already.
6) Wage growth moderated in September in Japan after a much better run this year. Regular base pay was up by .8% y/o/y vs 1.3% growth in August and 1% in July.
7) Japanese household spending in September fell 1.6% y/o/y instead of the 1.5% rise that was expected.
8) China’s FX stash in October shrunk more than expected. They totaled $3.053T, down from $3.087T in September and below the forecast of $3.058T. This is the smallest level of reserves since April 2017.
9) China’s private sector focused Caixin services PMI for October did drop to 50.8 from 53.1 and that is below the estimate of 52.8. It’s also the weakest since September 2017. Caixin said “The softer increase in services activity coincided with the first stagnation of new business for nearly ten years in October.” The optimism for the coming 12 months fell to the lowest since July.
10) More signs are showing that the air is coming out of the Hong Kong property bubble. The South China Morning Post is reporting that according to the government, “The number of new private homes approved for sale in Hong Kong in the last quarter hit a 14 year record high after market cooling measure took effect in June.”
11) A proxy on global trade, German exports in September fell by .8% m/o/m. The estimate was for a rise of .4%.
12) The Markit German construction index for October did dip below 50 at 49.8 from 50.2. That is the first print less than 50 since March. Markit said this reflects a reduction “in work on both housing and commercial building projects.” Also, the “latest data showed a weakening of constructors’ confidence towards the outlook for activity over the next 12 months. Reports from surveyed firms highlighted concerns over a slowing manufacturing sector.”
13) In the UK, its services PMI in October softened by 1.7 pts to 52.2 and that is 1.1 pts less than expected. It’s the weakest since March with new orders at the lowest since July 2016. Markit cited “mounting evidence that Brexit worries are taking an increasing toll on the economy.” It’s not just Brexit however as “the survey responses also suggest that the economy is facing other headwinds, including a broader global slowdown, trade wars, heightened geopolitical uncertainty and tightening financial market conditions.”
14) Rising energy prices (they of course have now since fell) in September helped to lift PPI in the Eurozone to a 4.5% rise, two tenths more than expected and up from 4.3% in August. That is the quickest since November 2011. Ex energy though, prices were up a much more modest 1.5% y/o/y, a similar trend to the previous few months.
15) I saw this stat from Deutsche Bank this week: 89% of assets in dollar terms are down on the year, the highest percentage since 1901.
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.