Morning Report: Business sentiment strong

Vital Statistics:

 

Last Change
S&P futures 2881 -13
Eurostoxx index 370.66 -1.75
Oil (WTI) 74.94 ..67
10 year government bond yield 3.25%
30 year fixed rate mortgage 4.97%

 

 

Stocks are down this morning as the global sell-off continues. Bonds and MBS are down after taking yesterday off.

 

Small business optimism hit its third highest reading in September. This survey goes back 45 years, so that is an impressive data point. “This is the longest streak of small business optimism in history, evidence that tax cuts and regulatory rollbacks are paying off for the economy as a whole,” said NFIB President and CEO Juanita D. Duggan. “Our members say that business is booming and prospects continue to look bright.” We are also seeing plans translate into actual spending, especially in capital expenditures. For a long time, businesses were saying they planned to increase investment in their businesses, but they weren’t actually doing it at the moment. That has changed.

 

NFIB

 

While the sell-off in US stocks is gaining some attention, Asian markets are at 17 month lows, driven by emerging markets and trade fears. The IMF just downgraded global growth for the first time in two years, based on the same issues. Chinese market weakness is encouraging more selling. This weakness is putting additional pressure on the Chinese currency, which only adds to the trade tensions between the US and China.

 

The higher interest rate bet (short Treasuries) is the biggest trade on the Street right now, and many hedge funds rang the register last week when rates spiked. The net speculative short position fell to 740k from 756k the week before. Implied volatility in bond options also increased, which means the market is expecting further big moves. Volatility tends to beget volatility, so we could have a bumpy road ahead. Be careful floating.

 

Fun fact: There have only been 4 years where bonds had a negative yearly return in the past 50 years: 1994, 1999, 2009 and 2013. This year is looking like it could be another. That said, the bond bear market was already well underway in the late 60s, having begun about 10 years earlier, when the ultra – low interest rate environment from the Great Depression and WWII ended. In other words, the most relevant comparison to the current economic climate is the the 1950s and 1960, which this data range ignored.

 

The Conference Board’s Employment Trends Index declined in September. “The US economy is very strong now. Demand for workers is likely to continue growing rapidly in the coming quarters, but with the unemployment rate now at 3.7 percent, recruiters have their work cut out for them. They will have to bring more people off the sidelines faster. In the meantime, businesses will have to squeeze more out of their current workers, either by increasing working hours or raising labor productivity. Labor market tightness varies across occupations and geographies. However, for the nation we expect the unemployment rate to go down to 3.5 percent or even lower in 2019. We also expect labor force participation and productivity to gradually increase, and wages to further accelerate” said Gad Levanon, Chief Economist, North America, at The Conference Board.

 

Hurricane Michael is threatening the Florida Panhandle and Georgia, and will probably dump a lot of rain on the Eastern Seaboard this week.

 

hurricane track

10 Responses

  1. This ain’t gonna help Kagan.

    The 53-year-old Kavanaugh occasionally chatted privately with Justice Elena Kagan from his seat at the end of the bench to the far left of Roberts

    https://apnews.com/fd3bd5a68e744e5594c2b44d3c96bbea

    Like

    • Yep.

      “Kavanaugh’s Disturbingly Normal First Day
      Mark Joseph Stern

      He chatted amiably with Elena Kagan; they whispered and laughed like old friends.

      Democrats hoping for the liberal bloc to disregard or ostracize the new Supreme Court justice will be sorely disappointed.”

      https://slate.com/news-and-politics/2018/10/brett-kavanaugh-supreme-court-first-day-2018.html

      Liked by 1 person

      • Only Justice Clarence Thomas, a friend of the Trump administration, heartily applauded each politician, clapping with special vigor for Mitch McConnell.

        I would suspect that could be because Thomas recalls his own senate hearings.

        I understand that salted earth strategy of trying to prevent Kavanaugh from getting confirmed, given the possibility of winning enough seats to prevent any further Trump nominees from getting the nod by straight out vote, but I think it ends up actually politicizing the court more than anything Trump could do.

        There was always a chance Kavanaugh might “grow” on the SCOTUS and become another Kennedy or Bryer. But I think that was before the confirmation circus. After one party accuses you of sexual assault and maybe even gang rape and goes raiding your yearbook trying to make stupid kid stuff into evidence of deviant sexual practices, and also suggest you are an alcoholic in a super-public forum . . . eh, I just think it’s human nature to look at things through the filter of “whatever they want, it’s wrong, so let me reason this case as to why it’s wrong because they are obviously wrong”.

        Like

  2. So I guess Central Command issued the edict to declare the word “mob” to be NPC, to declare the Senate “undemocratic” and to continue to complain about the electoral college…

    Like

    • Brent:

      to declare the Senate “undemocratic”

      It’s just more confirmation of what we’ve already known for a long time….the left is indifferent, if not fundamentally opposed, to the Constitution and the values/principles which inspired it.

      Like

      • There’s a way to change the constitution. They just need to get 2/3rds of the states to agree their change is a good idea.

        What they really don’t like is that the regular folks would have to be consulted and that they’d have to get their approval before deciding how everybody should be forced to live.

        Like

        • They can’t change how the Senate’s constituted without getting consent from every individual state. I’m guessing to change that it would require a complete constitutional rewrite, essentially a revolution.

          Given that, can we recommend an amicable divorce? Those states that want a new constitution can leave and form a new Union(s). Why is this beyond the pale? Why must every knee bend?

          Liked by 1 person

        • Why must every knee bend?

          Because, that is what progressivism is about.

          Liked by 1 person

        • When it comes to representation, the senate is not supposed to be proportional. But senators are elected by the people and have to be responsive in some way to the people … given how much government is imposed upon us by unelected bureaucracy, why aren’t they complaining about the undemocratic, unrepresentative nature of the EPA and OSHA and the CFPB and the FBI and CIA for that matter?

          Representation is not really an issue for these people.

          Like

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