Positives
1)The BLS said 1.76mm jobs were added in July with 1.46mm of this in the private sector. This is above the estimates of 1.48mm and 1.20mm respectively. Revisions were modest in the two prior months, with a net combined add of 17k. This also compares with the 4.79mm headline and 4.74mm private sector added in the prior month. The household survey added 1.35mm jobs vs 4.9mm in June and when combined with a decline of 62k in the labor force drove a drop in the unemployment rate to 10.2% from 11.1%. The all in U6 fell to 16.5% from 18%. Here’s the bottom line from the BLS, “These improvements in the labor market reflected the continued resumption of economic activity that had been curtailed due to the Covid 19 pandemic and efforts to contain it. In July, notable job gains occurred in leisure and hospitality, government, retail trade, professional and business services, other services and health care.” Looking at just the private sector, 21.2mm jobs were lost in March and April and over the past 3 months 9.4mm have been added back.
2)Initial jobless claims totaled 1.19mm, below the estimate of exactly 1.4mm and down from 1.43mm last week. Also, continuing claims, delayed by a week, were below expectations at 16.1mm, 800k less than expected and down from 16.95mm in the week prior. There was also a reduction in those claiming PUA as this non seasonally adjusted number totaled 656k vs 909k last week and vs 960k in the week before that.
3)The big company focused July ISM services index rose 1 pt m/o/m to 58.1 and that was 3.1 pts better than expected. That’s the highest since February 2019 but again, it is ONLY measuring the direction of improvement, not the degree. In terms of breadth, 15 of 18 industries saw growth vs 14 in June. Three saw contraction, the same number as seen in June. ISM said “Respondents remain concerned about the pandemic; however, they are mostly optimistic about business conditions and the economy as businesses continue to reopen. Sentiment varies across industries, as they are impacted differently.”
4)Also only focusing on large companies, the July ISM manufacturing index rose to 54.2 from 52.6 and that was a bit above the estimate of 53.6. The breadth of the growth was similar to that seen in June as 13 of 18 industries surveyed saw growth. Three saw contraction vs 4 in June. ISM said succinctly, “In July, manufacturing continued its recovery after the disruption caused by the Covid pandemic. Panel sentiment was generally optimistic (two positive comments for every one cautious comment), continuing a trend from June.”
5)Chinese exports jumped by 7.2% y/o/y in July, well better than the estimate of down .6% and helped by medical supplies.
6)China’s private sector weighted manufacturing PMI rose to 52.8 from 51.2 and that was better than the estimate of 51.1. Caixin said “supporting the higher PMI figure was a steeper increase in production across Chinese manufacturing firms. Output expanded for the 5th month in a row and at the fastest rate for 9 1/2 years, with many companies citing greater client demand amid a further recovery in market conditions following the Covid-19 outbreak.” Employment though did fall and inflationary pressures increased. Also, much of the manufacturing improvement was for domestic uses as “the gauge for new export orders remained in contraction territory for the 7th consecutive month. Although the pace of the contraction slowed, overseas demand remained a drag on overall demand.”
7)Taiwan’s July manufacturing PMI rose to 50.6 from 46.2, Japan’s increased to 45.2 from 40.1, Australia’s at 54 vs 51.2, Thailand’s went to 45.9 from 43.5, South Korea improved to 46.9 from 43.4, Indonesia to 46.9 from 39.1.
8)The July Eurozone manufacturing PMI was revised to 51.8 from 51.1 and that was better than the estimate of no change. It’s also up from 47.4 and the first time above 50 since January 2019 as more businesses reopened. The labor market was also the caveat here as Markit said “The job numbers remain a major concern, however, especially as the labor market is likely to be key to determining the economy’s recovery path. Although the rate of job losses eased to the lowest since March, it remained greater than at any time since 2009, reflecting widespread cost cutting in many firms where profits have been hit hard by the virus outbreak. Increased unemployment, job insecurity, 2nd waves of virus infections and ongoing social distancing measures will inevitably restrain the recovery.”
9)German and France both reported better than expected June industrial production figures with Germany also reported an upside to factory orders.
10)Unemployment in Spain in July fell by 89.8k, well better than the estimate of an expected rise of 20k.
Negatives
1)We still await another fiscal package out of DC.
2)Soon after USMCA we’re slapping tariffs on Canadian aluminum whose taxes are paid by American companies?
3)The Fed’s quarterly senior loan officer survey saw both a tightening of lending standards and lessened demand for loans almost across the board. Respondents said they tightened standards on C&I loans to firms of all sizes and “banks reported weaker demand for C&I loans from firms of all sizes.” “Meanwhile, banks tightened standards and reported weaker demand across all three major commercial real estate categories.” “For loans to households, banks tightened standards across all categories of residential real estate loans and across all three consumer loan categories – credit cards, auto loans and other consumer loans…Banks reported stronger demand for all categories of residential real estate loans and weaker demand for all categories of consumer loans.” You can bring a horse to water via ultra cheap money, but you can’t make it drink.
4)Rooting for a higher cost of living which would negatively impact those that can least afford it, Chicago Fed President Charlie Evans this week said “Unless inflation starts heading up to like 2.5%, I’m not going to really see a need for the funds rate to be increasing as long as we can still drive unemployment lower.”
5)Markit’s measure of US services, which includes businesses of all sizes, was only 50 in July. Their bottom line, “The service sector is showing welcome signs of stabilizing after the unprecedented downturn seen during the 2nd quarter, but many companies continue to struggle with virus related constraints, especially in states where social distancing restrictions have been tightened again.”
6)The Markit manufacturing index, which also includes small and medium sized companies in addition to large, was also more subdued when compared to ISM. This index was revised to 50.9, barely above 50, from the 1st print of 51.3 and up 1.1 pts m/o/m. Markit said “Although indicating the strongest expansion of the manufacturing sector since January, the Markit PMI remains worryingly weak. Much of the recent improvement in output appears to be driven merely by factories restarting work rather than reflecting an upswing in demand. Growth of new orders remains lackluster and backlogs of work continue to fall, hinting strongly at the build up of excess capacity. Many firms and their customers remain cautious in relation to spending in the face of re-imposed lockdowns in some states and worries about further disruptions from the pandemic.” Positively, “business optimism about the year ahead has revived to levels last seen in February.”
7)For a 2nd straight week, mortgage apps took a breather after a great run. Purchase applications fell by 1.8% and are now down for the 3rd week in the past 4. They still though remain up a solid 21.5% and we know why. Refi’s dropped by 6.8% w/o/w and the y/o/y gain slowed to 84%.
8)Chinese imports, many of which end up in exports, fell by 1.4% y/o/y vs the forecast of up .9%. The appetite for commodities though were strong. Oil imports rose 12.1% y/o/y, steel products by 49%, iron ore up by 12%, soybeans higher by 17.7% and copper by 34%.
9)China’s private sector weighted Caixin services index weakened to 54.1 from 58.4. The estimate was for a more modest slip to 58. Notwithstanding the m/o/m drop, Caixin said “growth rates of new business and activity remained strong which helped to support business confidence. Sentiment about the forthcoming 12 months was the highest in over five years.” The caveat, “However, less positive, was another fall in employment as firms sought to boost productivity at a time of mildly rising costs but further falls in output charges.”
10)Japan, saw CPI rise .6% y/o/y in Tokyo in July. Not much but double the estimate and up from .4% in July. That is also ex food and energy.
11)Hong Kong’s July PMI weakened to 44.5 from 49.6, Singapore’s rose but to only 45.6 from 43.2 and Japan’s was 45.4 vs 45 in June. It was January the last time it was above 50 in Japan but “the rates of contraction eased since June and remained much less severe than those seen in April.” Conditions softened in Hong Kong “with rising concerns over the adverse impact of a new wave of coronavirus cases on the economy.” In Singapore, “While business activity rose for the 1st time in six months, the expansion was largely driven by a rebound in construction and wholesale and retail activities as businesses return to work rather than any real increase in demand. Manufacturing and services both reported a decline in activity. Demand conditions meanwhile weakened further despite a renewed (but marginal) growth in export sales.”
12)Vietnam’s fell to 47.6 from 51.1, Malaysia dropped to 50 from 51, India’s PMI fell to 46 from 47.2 and the Philippines declined to 48.4 from 49.7.
13)In the Eurozone, the July services PMI was revised slightly lower to 54.7 from the first print of 55.1 and vs the estimate of 55.1. That still is up from 48.3 in June and the 1st time above 50 since February. Markit said “despite increasing for the 1st time in five months, levels of incoming new business rose at a relatively modest pace. Moreover, growth was primarily driven by domestic markets as export trade remained weak.” With respect to the coming months, coincident with the reopenings “Confidence picked up across the euro area region, with positive sentiment the highest amongst Italian services providers.”
14)The UK manufacturing PMI was revised a touch lower to 53.3 from its first print of 53.6 but that is still up from 50.1 in June. Markit said what we know, “The recovery strengthened as a loosening of lockdown restrictions allowed manufacturers to restart or raise production. July also saw signs of furloughed employees returning to work and customers resuming spending. Business optimism also rose to its highest for over 2 years as companies grew more hopeful that the future has brightened.”
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.