Positives
1) December payrolls grew by 312k, well above the estimate of 184k while net revisions to the 2 previous months were up by 58k. The household survey showed job growth of 142k which combined with an increase of 419k in the size of the labor force brought up the unemployment rate by 2 tenths to 3.9%. The all in U6 rate though held at 7.6%. The participation rate did increase by 2 tenths to 63.1%, matching the highest since September 2013. Hours worked totaled 34.5 vs 34.4 in November and 34.5 in October. Combine this with a .4% m/o/m and 3.2% y/o/y increase in average hourly earnings (one tenth better than expected) and average weekly earnings grew by 3.2% y/o/y, similar to the trend seen in 2018. Smoothing out the monthly volatility has the 3 month job gain average at 254k, the 6 month at 222k, and the full year at 220k. This compares to last year’s average of 182k, the 2016 average of 195k and the 2015 average of 226k.
2) Jay Powell now says he’s flexible with both the fed funds rate and the balance sheet after saying the latter was on auto pilot.
3) December vehicle sales totaled 17.5mm at a SAAR, above the estimate of 17.24mm but the trend is no different than what was seen from 2015 thru 2017.
4) To help lift the economy, the PBOC cut reserve requirement ratios by 100 bps with half to go into effect on January 15th and the other half on January 25th. The PBOC said this would equate to 800b yuan (about $115b) of freed up cash to all bank lenders as opposed to the more scattered bank approach the PBOC has taken over the past few years.
5) China’s Caixin private sector services PMI for December which was 53.9 vs 53.8 in November and that was above the estimate of 53. This level does match the best print since February 2018. Caixin said “Among the gauges included in the survey, the one for new business dipped slightly in December after a rebound the month before, suggesting steady demand across the services sector. The employment measure stayed in positive territory but edged down further, indicating that the employment absorption capacity of the services industry weakened mildly…The measure for business expectations also rose, reflecting service providers’ strengthening confidence in their prospects.”
6) China’s state sector weighted services PMI in December rose to 53.8 from 53.4. That’s above the estimate of 53.2.
7) Hong Kong’s December PMI was 48 vs 47.1 in November. That though does mark the 9th month in a row below 50. Markit said “With soft demand conditions, as indicated by another decline in new business inflows, particularly from China, firms were pessimistic about the business outlook, citing increasing uncertainty in the economic environment as well as greater competition.” Markit equates this level of activity to below 3% growth in Q4 and they have a 2.6% growth estimate for 2019.
8) Japan’s final manufacturing figure was 52.6 from 52.2 in November and vs 52.9 in October. PMI’s elsewhere in Asia: Thailand 50.3 vs 49.8, South Korea 49.8 vs 48.6 and Indonesia 51.2 vs 50.4.
9) The UK services PMI did improve by .8 pts to 51.2 but “The final two months of 2018 saw the weakest back to back expansions of business activity since late 2012” according to Markit.
10) The UK manufacturing PMI rose to 54.2 from 53.6, above the estimate of 52.5. But, Markit said this was due to “short term boosts to inventory holdings and inflows of new business as companies stepped up their preparations for a potentially disruptive Brexit.”
11) While economic activity has clearly slowed in Germany, it hasn’t yet led to any deterioration at all in their labor market as companies just sit tight waiting to see how things play out from here. The number of unemployed fell by 14k in December as expected and their unemployment rate held at 5%, the lowest since reunification.
12) December CPI in the Eurozone rose 1.6% y/o/y, one tenth less than expected and down from 2% in November. The collapse in oil prices helped out. The core rate held at 1% as expected.
13) The ECB said corporate lending grew by 4% y/o/y in November vs 3.9% in October while loans to households grew by 3.3%, up 10 bps from October. That loan growth to households is actually the best since 2009 but keep in mind that these are all nominal figures, highlighting still ordinary growth. Money supply growth was higher by 3.7% y/o/y, down from 3.9% in the month prior and one tenth less than expected.
14) The combined balance sheets of the Fed, ECB and BoJ will start to contract in Q1. Price discovery now more driven by markets?
Negatives
1) Is the Fed going to get stuck with a fed funds rate of only 2.50% and still a very fat balance sheet going into the next downturn because we can’t handle any further tightening? We already know the BoJ, ECB, BoE, SNB, etc… have no options left to deal with challenges that will come their way.
2) The December ISM manufacturing index fell to 54.1 from 59.3 and that was 3.4 pts below expectations. It’s also the weakest print since November 2016, the month of the presidential election. New orders fell a sharp 11 pts to just 51.1, barely above the breakeven of 50. Backlogs dropped by 6.4 pts to exactly 50. Of the 18 industries surveyed, just 11 saw growth from 13 in November and 6 reported a contraction vs 3 in the month prior. Only 6 industries saw growth in new orders from 11 in November. The ISM said “Comments from the panel reflect continued expanding business strength, but at much lower levels.”
3) Initial jobless claims were 11k more than expected at 231k and up from 221k last week (revised up by 5k). Holidays are big influence on the seasonals however.
4) The MBA said purchases fell 7.6% w/o/w and refi’s were lower by almost 11% as everyone is focused on the holidays and the MBA doesn’t do good job with seasonal adjustments this time of the year.
5) China with its RRR cut is just back to the same playbook of encouraging excessive credit growth.
6) China’s private sector weighted manufacturing PMI for December fell by .5 pt to below 50 at 49.7. The estimate was for no change and it’s the first time it’s in contraction since May 2017. Caixin said “In general, China’s manufacturing sector faced weakening domestic demand and subdued external demand in December. Companies had a stronger intention to destock and prices of industrial products were declining, which could further drag on production.”
7) China’s state sector weighted manufacturing PMI in December fell below 50 at 49.4 from 50. The estimate was for no change.
8) Singapore’s PMI fell to 52.7 from 53.8 after last month’s 1.2 pt rise. India’s services PMI was .5 pt lower m/o/m to 53.2. Other manufacturing PMI’s out of Asia: Taiwan 47.7 vs 48.4, Malaysia 46.8 vs 48.2, Philippines 53.2 vs 54.2, India 53.2 vs 54 and Vietnam 53.8 vs 56.5.
9) The services PMI from the Eurozone for December was revised down to 51.2 from the first print of 51.4. That’s the weakest level in over 4 years and is getting close to the flat line. This brings the manufacturing and services composite index to 51.1 from 52.7 in November. Markit said “While a drop in business activity in France could be partly blamed on the ‘yellow vest’ protests, the rest of the region lacks any such mitigating factors, albeit with the recent weakness of the autos sector hopefully a temporary set back. Importantly, with expectations of output dropping to the lowest for over 4 years, companies are not anticipating any imminent revival in demand. Worries reflect multiple headwinds from trade wars, Brexit, heightened political uncertainty, financial market volatility and slower global economic growth.”
10) Hong Kong retail sales rose 1.4% y/o/y in November vs the estimate of up 4.5%. That’s the slowest pace of gain since June 2017. A government spokesman said “Consumer sentiment could be affected by weaker asset prices and the external uncertainties.”
11) South Korea said its December exports fell 1.2% y/o/y, well worse than the forecast of up 2.5%.
12) The Australian housing bubble continues to deflate. Australian house prices continue to fall, dropping 1.3% m/o/m in December and that is the 14th straight month of declines.
13) Singapore reported a softer than expected GDP report for Q4 as its economy grew by 2.2% y/o/y, below the forecast of up 2.5%. That’s the slowest pace of gain since Q3 2016.
14) The combined balance sheets of the Fed, ECB and BoJ will start to contract in Q1. The increase was mostly meant to artificially goose asset prices.
15) Apple but I do think most of their challenges are company specific.