Morning Report: The markets and the Fed are on different pages 10/5/15

Posted on October 5, 2015 by Brent Nyitray

Markets are higher this morning on overseas strength. Bonds and MBS are down.

The Labor Market Conditions Index fell from a downward-revised 1.2 to zero. This has been the average since 2000.

The Markit US Composite PMI came in at 55, while the services PMI came in at 55.1. The ISM Non-Manufacturing Composite fell from 59 to 56.9.

Aftermath of the weak jobs report on Friday: Fed fund futures assign a 10% probability of an Oct hike, 30% probability of a December hike and 50% probability of a March hike. The markets are increasingly out of sync with what the Fed members are actually saying in the press. Note we get the FOMC minutes this Thursday. That will be the highlight of the week.

The Bernank weighs in on raising rates. His Rx: don’t. Separately, DoubleLine’s Jeffrey Gundlach thinks we have further downside in risk assets like junk bonds, US equities and emerging markets stocks and bonds. His point: people are holding and hoping these assets rebound. That isn’t the psychology of a bottoming process. That happens when people throw in the towel and sell.

It is looking like the Trans-Pacific Partnership free trade deal is pretty much done. It still has to get through Congress, although he did get fast-track approval. I suspect it won’t move the needle that much for the US economically. It is mainly about intellectual property protection for US firms.

Sometimes bad ideas get implemented, fail, become forgotten, and then come back, like Freddy Kreuger. One such idea is the financial transactions tax, also known as the Robin Hood tax. It is back in vogue in Europe, and Bernie Sander wants a 50 basis point tax on all stock trades, a 11 basis points on bonds and 5 on derivatives will be able to fund a slew of new government benefits. Don’t believe it. While leftist politicians love to promote ideas like this as new, they aren’t. They have been tried and discarded. Sweden implemented on in the 1980s, only to see most stock trading in Swedish stocks flee to London. The UK in fact did implement one for stock trades, and all it did was drive institutional investors to use swaps to sidestep it and retail investors to go to betting parlors like City Index. They will sell it as raising a lot of revenue – it won’t simply because it will kill high frequency trading, and volume will dry up. They will sell it as reducing volatility – some (not all, but some) of HFT is actually market-making which is stabilizing. We don’t really have market-makers or specialists on the floor of the New York Stock Exchange like we used to. You could make the argument that it will increase, not decrease volatility. Anyway, #FeelTheBern is big on this idea – he should take a look at how it has (not) worked in the past.

Filed under: Morning Report | 15 Comments »

Morning Report: Terrible jobs report 10/2/15

Posted on October 2, 2015 by Brent Nyitray

Stocks are lower after the jobs report disappointed. Bonds and MBS are up big

Jobs report data dump:

  • Change in nonfarm payrolls +142k vs. +201k expected
  • Two month revision -59k
  • Unemployment rate 5.1% (in line with expectations)
  • Average Hourly earnings 0% month over month +2.2% YOY
  • Labor force participation rate falls to 62.4%

Very disappointing jobs report. No wage growth, and the labor force participation rate has fallen all the way back to Oct 1977 levels, which was the time when Reggie Jackson earned his nickname Mr October.

Stock index futures reversed a strong rally on the news. The 10 year bond yield dropped 12 basis points as well. It certainly looks like the decision to stand pat in September was the right one. For all the Fed’s discussion of October being a “live” FOMC meeting, consider it dead.

In other economic news, factory orders fell 1.7% in August and the ISM New York index fell to 44.5 from 51.1.

Yesterday, the House Financial Services Committee passed a bill to bring a bit of accountability and control to the CFPB. The director will be replaced with a 5 member commission, and there will be an inspector general. The CFPB is currently under the Fed, and gets its funding there. Congress has no say over their operations. This was intentional, to prevent a more conservative Congress from de-fanging the agency.

Finally, it looks like Hurricane Joaquin is going to miss the East Coast.

Filed under: Morning Report | 28 Comments »

Morning Report: Slew of economic data this morning 10/1/15

Posted on October 1, 2015 by Brent Nyitray

Stocks are higher after yesterday’s rally. Given that yesterday was the end of a pretty lousy month (and quarter) it looked like people gunned the market a little to make their quarterly returns look a little better. Bond yields continue to grind lower.

The next two days are going to have a lot of economic data.

The ISM Manufacturing Index fell to 50.2 in September from 51.1 in August. 7 industries reported expansion, while 11 reported contraction. The slowdown in China and the strong US dollar are weighing on business confidence. A 50.2 reading would correspond to about a 2.2% GDP growth rate.

Construction spending rose 0.7% in August, which was better than the 0.5% Street estimate. Residential construction is up 1.3% for the month and 16% for the year.

Initial Jobless Claims rose to 277k last week. We continue to bounce around the lows with this number. That said….

Jobless Claims may be increasing in the future, as Challenger and Gray announced job cuts increased 93%. This indicator combs the newswires for companies making announcements for job cuts. Something like 58,000 job cut announcements were made in September, with the 30,000 cuts at HP accounting for most of it.

The Bloomberg Consumer Comfort index rose to 43 from 41.9 last week.

Auto sales numbers are looking strong. Fiat Chrysler jeep sales are up 40%. Amazing what cheap gasoline can do.

Filed under: Morning Report | 26 Comments »

« Previous Page