Today

When looking at today’s jobs data it will be important to average the October and November prints as it will smooth out the impact of the GM strike. In October 41.6k jobs were ‘lost’ in the motor vehicle/parts industry and we’ll of course get that back in November.

Wage data in Japan, a key missing link in their economy, saw regular base pay rise .6% y/o/y. It doesn’t sound like much but it’s the best since January and follows a pretty disappointing run since notwithstanding the tight market in labor. With another increase in the value added tax too in October, higher wages are thus needed in order to offset it. Reflecting that VAT hike saw household spending in October fall 5.1% y/o/y after the 9.5% pre tax buying jump in September.

We’re also hearing about a pretty large fiscal stimulus package that the Japanese government is looking to unveil, totaling about $240b spread out over a few years. Whenever I hear about a fiscal stimulus plan out of Japan I think, oh no, not again because we’ve had about 20 over the past 30 years. Not all fiscal stimulus is created equal and Japan’s extremely high debt to GDP ratio and the economic result is clear evidence of this. On one hand, which Japan has experimented and has pretty much solely relied on with since the early 90’s, is the Keynesian kind and I’m sure Japan has a lot of beautiful roads and bridges. That stimulus always flames out though once the projects are finished. The other is the supply side where taxes are cut and more money is left in the private sector which should be more self sustaining. With a corporate tax rate still above 30% and high individual income taxes, Japan could use more of the latter than the former.

The hopes for this stimulus and its impact has the 10 yr JGB yield higher by 2.2 bps and is just about back to zero at -.006% to be exact. That’s the first time since April it’s at basically zero again. Also, the BoJ is just about done with monetary stimulus, that policy is fully exhausted. We can say the same about the ECB.

As for the ECB, we heard this from the Bank of Italy Governor and ECB member Ignazio Visco this week, one who has been supportive of ECB policy. “The longer they remain negative and the lower they go, the higher is the likelihood of significant negative side effects. I’m not encouraging this.” As negative rates continue to gain growing skepticism within the halls of those that implemented it, I’ll argue again that the August lows in global bond yields are the absolute lows that we’ll see, if ever, for a very long time.

JGB 10 yr yield

After another disappointing German factory order number seen yesterday for October, today’s industrial production figure was weak too. It fell 1.7% m/o/m vs the estimate of up .1% and the y/o/y decline was 5.3%. That’s 14 out of the last 15 months with negative prints y/o/y. The German Economy Ministry acknowledged the weakness but expressed hopes for a bottom, “The economic weakness in industry remains. However, the latest development in new orders and business expectations indicate that a stabilizing trend could emerge in the coming months.” Let’s hope. The euro is little changed while the German 10 yr yield on the weak data is down by 1 bp.