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December 7, 2018 By Peter Boockvar

Succinct Summation of the Week’s Events – 12/7


Positives

1) The November ISM services index rose .4 pts to 60.7 and that was 1.7 pts better than expected. For comparison, the 6 month average is 59.3. The breadth of the growth remained good as 17 of 18 industries surveyed saw growth, the same level for a 3rd month. This said, 15 of 18 saw growth in new orders, the least in 4 months. Also, all 18 industries said they are paying higher prices from 14 in October, 13 in September and 12 in August. The ISM summed up by saying “The non manufacturing sector continued to reflect strong growth in November. However, concerns persist about employment resources and the impact of tariffs. Respondents remain positive about current business conditions and the direction of the economy.”

2) The November ISM manufacturing index rose to 59.3 from 57.7 and that was better than the expected decline to 57.5. The index reached a high this year in August at 61.3 and was at 59.8 in September. Export orders held at 52.2, the lowest since November 2016, reflecting the slowdown in global trade. Notwithstanding the headline improvement in the survey, the number of industries reporting growth remained at 13 of the 18 industries asked. The ISM didn’t say much in summary other than the obvious, “The manufacturing community continues to expand.” The issues of tariffs, front loading activity and supply constraints were apparent in the comments section.

3) There did seem to be a friendly dinner between Trump and Xi that hopefully lays the groundwork for some deal within three months.

4) With the 4 bps drop in the average 30 yr mortgage rate, the MBA said purchase applications rose a touch w/o/w, by .8% and is flat y/o/y. Refi’s were up by 6.2% w/o/w but remain down 36% y/o/y.

5) The preliminary December UoM consumer confidence index was left unchanged at 97.5 but that was .5 pt above the estimate. The internals were mixed as the Current Conditions component rose almost 3 pts, offsetting a 2 pt drop in Expectations. One year inflation expectations did tick down one tenth to 2.7% with the range this year being 2.7-3%. Further underneath the hood, the internals were very mixed. There was a 2 pt downtick in the number of those expecting Higher Income to the least since January, almost confirming the payroll data. The employment component fell a large 11 pts m/o/m to the least since October 2016. UoM said “consumers did mention hearing much more negative news about future job prospects.” Business expectations over the last few months fell a sharp 23 pts to the lowest level since July 2016. Spending decisions were mixed. There was a 6 pt rise in those planning on buying a major household item but little change to those expecting to buy a vehicle and a home. Those that said it’s a good time to sell a house fell 10 pts. Lastly, those that expect an increase in the stock market in the coming 12 months fell to 56%, the least since November 2016. It peaked at 66.7% in January in this cycle and was at 50.2% in January 2016. Before that is bottomed at 34% in March 2009 (buy high, sell low).

6) After moderation seen in September, wage growth in Japan in October bounced back. Regular pay was higher by 1.3% y/o/y. It’s one tenth from matching the quickest wage increase since 1997.

7) China said its FX reserves in November did rise by about $9b m/o/m to $3.062 Trillion, above the estimate of $3.044 Trillion. It’s the first increase in 4 months. This is mostly due to valuation marks in their US Treasury portfolio.

8) The China private sector weighted Caixin manufacturing November index was little changed at 50.2 from 50.1 in October, hovering around the flat line. Softness remains in export orders. Caixin said “Data indicated that weaker external demand continued to weigh on overall sales, as export orders declined further midway through the final quarter. New business from abroad has now fallen in each of the past 8 months.” Also, “business confidence picked up from October’s 11 month low, but remained relatively weak in the context of the series history.” The services index jumped 3 pts to 53.8 and that was well better than the estimate of 50.7.

9) Australia’s manufacturing PMI was up .1 to the best level in 5 months.

10) PMI’s rose in Vietnam, likely benefiting from supply chain shifts and in India and the Philippines too. The Singapore PMI rose 1.2 pts to 53.8. India’s services PMI was up by 1.5 pts to 53.7.

11) The final read of the Eurozone manufacturing PMI for November at 51.8 was slightly better than the initial of 51.5. That is still down from 52 in October and is the lowest level since August 2016. Markit said “The darker outlook is linked to trade wars and tariffs as well as intensifying political uncertainty and has led to increased risk aversion and a commensurate cutting back on expenditure, notably for investment. Producers of investment goods such as plant and machinery reported the steepest drop in demand in November, with reduced capital spending by companies compounded by on going disruption of business in the autos sector.” Optimism is no better as “prospects for the year ahead remaining among the gloomiest seen since the sovereign debt crisis in 2012.”

12) The Eurozone services PMI was revised up to 53.4 from 53.1 initially but still down from 53.7 in October and it’s the lowest since October 2016.

13) France surprised to the upside with its IP figure led by manufacturing. That of course is a pre protest figure.

14) French PM Macron has backed off from the stupid idea of implementing a higher fuel tax.

15) Germany said that labor costs rose 2.7% y/o/y in Q3 and that is the best in a year,

16) In Germany, October factory orders rose .3% m/o/m, better than the forecast of down .4% but partially offset by a two tenths downward revision to September. Driving the gain was a pick up in orders to other Eurozone countries as foreign orders rose only slightly and they fell within Germany. On a y/o/y basis however, overall orders have fallen for 5 straight months.

17) The UK manufacturing PMI did improve in November by 2 pts to 53.1. That was better than the estimate of 51.7 and comes off the lowest level since July 2016. Notwithstanding the headline rise, the global trade slowdown was evident as “The level of new export business dropped for the 2nd straight month in November, the first back to back contractions since early 2016.”

18) The unemployment rate in Greece fell to 18.6% in September, the lowest since July 2011 but still way too high. It peaked at 27.9% in July 2013 but was as low as 7.3% in May 2008.

19) Italian bond yields fall another 10 bps on the week on the belief that the Italian government is bending to the EU request of a below 2% 2019 budget deficit.

 


Negatives

1) Payrolls grew just 155k in November, well below the estimate of 198k and the two prior months were revised down by 12k. The household survey saw a job gain of 233k which was more than the increase in the size of the labor force of 133k but the U3 unemployment rate held at 3.7%. U6 though did rise two tenths to 7.6%. With respect to wages, average hourly earnings grew by .2% m/o/m, one tenth less than expected and October was revised down by one tenth. Disappointing. Also disappointing was the one tenth downtick to hours worked to 34.4. This slowed average weekly earnings to 2.8%, the least since October 2017. The participation rate did hold at 62.9% as did the employment to population ratio at 60.6%. The job leaver percentage to fall one tenth to 11.8% which is the least since February as job hopping seems to have taken a breather. Smoothing out the monthly noise has the 3 month job growth average at 170k vs the 6 month average of 195k, the 12 month average of 204k and vs the average of 182k in 2017.

2) Along with the selloff in stocks this week, there was a sharp narrowing of the yield curve with the 2s/10s spread as of this writing at 13 bps vs 20 last Friday. The 3 month/10 yr spread is below 50 bps at 49.5 from 64 last Friday.

3) We arrest the CFO of the largest telecom company in Asia and the daughter of its founder the same day of what seemed to have been an amicable dinner between Trump and Xi?

4) The US October trade deficit was $55.5b, a touch above the forecast of $55b and up from $54.6b in September. This is the largest trade deficit since October 2008 as exports fell .1% m/o/m while imports were higher by .2%. Both come after 1.5% gains in the month prior.

5) Better wages in Japan didn’t help household spending as it fell .3% y/o/y in October vs the estimate of up 1%.

6) Germany reported a weaker than expected industrial production figure for October, falling by .5% m/o/m instead of rising by .3% as forecasted. The Economic Ministry is still blaming the effects of the auto emissions changes but it’s more than just that. It’s also the slowdown in global trade too as consumer goods production fell 3.2% m/o/m.

7) With the sharp drop in crude oil, this should reverse in November but for now the October PPI report from the Eurozone saw a gain of 4.9% y/o/y, more than the estimate of up 4.5%. That is the quickest pace in 7 years but take out energy and it was up just 1.5%, in line with the recent trend.

8) The UK services PMI fell to 50.4 from 52.2 and that’s the slowest since right after the Brexit vote. Markit said “Both the slowdown in current business activity and the deterioration in business optimism were primarily caused by an intensification of anxieties over Brexit.”

9) Taiwan, a great proxy on technology (especially semi’s), said exports in November dropped 3.4% y/o/y, well worse than the estimate of up 1.3%. Also, imports grew by just 1.1%, much below the expectation of a 12% rise.

10) The Bank of Canada is close to getting trapped with a benchmark rate of 1.75%. They want to continue to raise at some point but the current data and plunge in oil prices are putting them hold. The same is said for the Reserve Bank of Australia who kept rates at 1.5%.

11) BoJ Governor Wakatabe expressed concerns with not getting inflation higher and even said they “shouldn’t hesitate to add stimulus if needed” as “there is room for further stimulus if necessary.” Really?

12) South Korea’s manufacturing November PMI fell back below 50, dropping to 48.6 from 51 and with business confidence falling to the weakest level since August 2016 and manufacturing exports dropping “at the sharpest rate in over 5 years.”

13) Taiwan and Malaysia manufacturing PMI’s fell m/o/m, further below 50. Indonesia fell a touch to 50.4. The Hong Kong PMI fell to the weakest level since June 2016 at 47.1, below 50 for the 8th straight month.

Filed Under: Free Access, Weekly Summary

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About Peter

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.

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Disclaimer - Peter Boockvar is an independent economist and market strategist. The Boock Report is independently produced by Peter Boockvar. Peter Boockvar is also the Chief Investment Officer of Bleakley Financial Group, LLC a Registered Investment Adviser. The Boock Report and Bleakley Financial Group, LLC are separate entities. Content contained in The Boock Report newsletters should not be construed as investment advice offered by Bleakley Financial Group, LLC or Peter Boockvar. This market commentary is for informational purposes only and is not meant to constitute a recommendation of any particular investment, security, portfolio of securities, transaction or investment strategy. The views expressed in this commentary should not be taken as advice to buy, sell or hold any security. To the extent any of the content published as part of this commentary may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. No chart, graph, or other figure provided should be used to determine which securities to buy or sell. Consult your advisor about what is best for you.

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