Morning Note: All Eyes On The September Jobs Report
Today’s Big Picture
US market futures point to a modestly lower open Friday morning. After the disappointing manufacturing and services data this week, all eyes will be on today’s Nonfarm Payrolls report, which is expected to see 145,000 jobs added in September, up from 130,000 in August with the unemployment rate holding at 3.7% and wages gaining +0.2%. Keep in mind that the General Motors (GM) strike will add some confusion to the data as striking workers aren’t counted in payrolls.
We’ll also be looking for any updates on the previous downward revisions to payrolls. In August the BLS cut job gain estimates for 2018 and early 2019 by about 500,000, the largest such downward revision in the past decade. Overall we’ve seen downward revisions for around 17 months - a sure sign that labor market dynamics have shifted and assumptions used for prior estimates have been erroneous.
We may see more fireworks coming out of the beltway, (par for the course at this point) as today is the subpoena deadline for Secretary of State Mike Pompeo to deliver documents to multiple House committees investing the now-famous call between President Trump and Ukrainian President Volodymyr Zelensky. The House has warned that a refusal would amount to evidence of obstruction.
Equity indices in Asia were mixed and mostly directionless, save for Hong Kong where the Hang Seng Index fell 1.1% amid the city's deepening political crisis. Chief Executive Carrie Lam invoked emergency powers to ban protestors from wearing face masks. We are keeping an eye on this region as it could have an impact on the US-China trade talks. Markets in China were closed.
As of mid-day, European markets were mostly higher. WTI and Brent Crude are up a smidgen (technical term), and while silver has given up some of yesterday’s gains but gold is continuing to strengthen. Agricultural commodities are mostly lower, save for coffee, cocoa, and cotton.
Data to Watch
Today in the US, aside from the Non-Farm Payrolls report, we’ll be looking at the following:
- The Balance of Trade, Imports, and Exports for August - What is the impact of ongoing trade wars, particularly in light of the dollar liquidity crunch we are seeing the repo markets? As imports decline, so does the outflow of US dollars.
- Hourly and Weekly Earnings report - We'll focus on wage gains for the non-supervisor segment in particular as that comprises roughly 80% of the labor pool and changes to the workweek. Employers tend to cut hours before they cut employees.
- Labor Participation Rate - Can we break through the January and August high of 63.2%?
- Baker Hughes Oil Rig Count for the week - Oil prices have been falling as the economic data has been weakening and the data will indicate if and how industry capacity is adjusting.
After such a disappointing data week and in light of the market’s rising expectations for a rate cut this month, speeches by Federal Reserve Boston President Rosengren (FOMC Voter), Atlanta President Bostic (FOMC Voter), Kansas City President George (FOMC Voter) and Minneapolis President Kashkari (FOMC Voter) will be of particular interest. Odds are the market will focus on the comments to be had from Fed Chair Jerome Powell when he delivers opening remarks at a “Fed Listens: Perspectives on Maximum Employment and Price Stability” event in Washington, D.C today at 2 PM ET.
With Heiko Maas, Germany's foreign minister, saying the European Union will take retaliatory measures in reaction to new U.S. tariffs on European goods announced earlier this week, investors should expect yet another shoe to drop on this latest addition to the current trade war.
On the Brexit front, Irish Foreign Minister Simon Coveney said Prime Minister Boris Johnson’s proposals are a “step forward,” but contain “significant” problems and can’t be supported. Coveney followed up by saying the U.K. needs to present an improved offer within 10 days but offered “We’re still quite far apart but hope we can close that gap.”
In the rest of the world today….
Australia’s retail sales were weaker than expected in August, rising just +0.4% month-over-month versus expectations for +0.5%. New home sales rebounded less than expected as well, up just +7.3% month-over-month versus the 33.7% expected after July’s -7.2% drop.
Earlier today India joined the ranks of the disappointed with its Markit Service PMI for September falling into contraction territory at 48.7 versus expectations for 52.1 and declining from 52.4. The nation’s central bank also joined the monetary easing party, lowering its benchmark repo rate by 25 basis points to 5.15%, as was expected - the fifth consecutive cut in 2019. It also lowered its GDP growth forecast to 6.1% from 6.9%.
We got a bit of positive news out of the otherwise glum data parade out of Germany with Markit Construction PMI rising to 50.1 in September from 46.2 (contraction) in August.
Stocks to Watch
After yesterday’s close shares of Costco (COST) lost 1% when the company reported sales that missed expectations for the fourth quarter despite delivering comparable sales that rose 5.2% in the U.S., 4.7% in Canada and 5.0% in international markets and e-commerce sales up 21.9%.
Hewlett Packard Inc. (HPE) has announced plans to cut between 7,000 and 9,000 jobs, which translates to between 13% and 16% of its workforce, in a preview of just how incoming CEO Enrique Lores plans to get the company back on track.
MGM Resorts International (MGM) has agreed to pay victims of the October 1, 2017, mass shooting at Mandalay Bay Resort & Casino in Las Vegas up to $800 billion without an admission of liability by the company.
Data published by Reis showed vacancies in U.S. shopping malls hit an eight-year high with 9.4% of units unoccupied in the September quarter, tying the post-financial crisis high reached in 2011. Stocks in focus on this news will be Simon Property Group (SPG), Tanger Factory Outlet (SKT) and Macerich Company (MAC).
Shares of key Apple (AAPL) suppliers including Broadcom (AVGO), Qualcomm (QCOM), Qorvo (QRVO), Skyworks (SWKS), and Lumentum (LITE) should catch investor attention following a Nikkei report that Apple has told suppliers to boost production of the iPhone 11 series by up to 10%.
Heron Therapeutics (HRTX) priced an offering of 8.57 million common shares at $17.50 per share. Proceeds froth offering are expected to be used for the commercial launch of HTX-011 (if approved) as well as Sustol and Cinvati and future clinical trials.
Yesterday the National Retail Federation announced that it estimates holiday retail sales will grow between 3.8% and 4.2% this year compared to the 3.7% average over the past five years. The bright spot in retail, online and other non-store sales is expected to grow between 11% and 14% and is like to boost shares of companies such as Amazon (AMZN), Shopify (SHOP), and United Parcel Service (UPS) that are poised to benefit from the accelerating shift to digital shopping.
On the Horizon
- October 10-11: US-China trade talks resume in Washington, DC
- October 29-30: Federal Reserve FOMC meeting
- A key House committee has invited Facebook (FB) Chief Operating Officer Sheryl Sandberg to testify on Oct. 29 about the company's plan to roll out a global cryptocurrency, but only on the condition that CEO Mark Zuckerberg agreed to appear before the committee before January.
Yesterday US equity markets opened in the red and continued falling, with most of the major indices down at least 1%, until the release of ISM Non-Manufacturing report which missed expectations and showed that the slowing we’d seen earlier in the manufacturing sector has expanded into the previously seemingly immune service sector. The major indices rebounded on the disappointing data, closing up over 0.5%. Wait, what?
The S&P 500 had lost almost 4% in three days, the Stoxx 600 fell below its 200-day moving average and the Russell 2000 tested the floor that’s held it up multiple times since the end of last year before equities staged a new rally. Some market analysts are claiming the rebound was thanks to major indices hitting technical support levels. Others are claiming we are back to bad-news-is-good news as the grim ISM Non-Manufacturing report boosted market pricing of another rate cut in October to 87.1% on the CME Group’s FedWatch.
Either way what we are seeing is the 2-year Treasury recently hitting new 52-week lows while the longer end is steepening - suggesting further easing that is pushing up inflation expectations on the longer-end of the curve.
In the commodities space, crude oil fell for the 8th consecutive day on concerns of slowing global growth while gold and silver rose for the day.
That awful ISM Non-Manufacturing report found that the US services sector grew at the slowest pace since August 2016. On a more positive note, revised data from the Census found new orders for durable goods have risen 3 months in a row and durable goods sales have risen in 3 of the past 4 months. Inventories continue to out-pace sales (not good), but the delta between the two is shrinking (better).
Thought for the Day
“Never argue with stupid people, they will drag you down to their level and then beat you with experience.” - Mark Twain
“Have you ever noticed that anybody driving slower than you is an idiot, and anyone going faster than you is a maniac?” - George Carlin
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