ROW slows to a grind, U.S. youth employment gets better, commodity prices drop and don’t worry about rising anxiety.
Youth Summer Employment Hits Six-Year High The number of Americans age 16 to 24 employed topped 20 million this summer for the first time in six years, the Labor Department said Wednesday. But the share of those in their teens and early 20s with jobs remains historically low, raising concerns about the productivity of the country’s future workforce.
Wednesday’s report showed the youth unemployment rate fell in July to 14.3% from 16.3% in 2013. That’s largely because the number of young people with jobs increased 2% from a year earlier to 20.1 million.
The fraction of those age 16 to 24 with jobs, the employment-to-population ratio, edged up to 51.9% in July from 50.7% a year earlier. The July figure is down from 59% recorded a decade earlier and well below the 69% peak touched in 1989. (…)
MORE NOISE FOR MRS. YELLEN
(…) the Fed and other central banks have so dramatically distorted the fixed-income market through their unprecedented buying of notes and bonds that it is impossible to interpret what Treasuries are actually saying about anything. More than 90% of the new issuance of U.S. marketable debt this year has been absorbed onto the balance sheets of the Fed, PBOC and the BOJ (…).
(…) with job openings at their highest levels since February 2001, hiring activity at a six-year high (voluntary quits too), the level of layoffs lower now than it was at any time in the 2002 to 2007 leveraged cycle when the unemployment rate approached 4%, and both NFIB and Manpower hiring intentions at cycle highs, it is getting tougher to make the case that zero is the appropriate policy rate for the economy at present.
I mean, just to get to neutral, not tight, would mean at least 200 basis points of rate moves.
200 bps just to get neutral! These are big steps for the old adage: Three steps and a tumble…
Speaking of tumble:
Prices have gradually ticked lower since mid-June, retreating more than 9%. The drop has helped bring relief at the pump for U.S. drivers, who are paying an average $3.47 for a gallon of regular gasoline, down from $3.62 a month ago, according to AAA.
Investors are concerned that if demand doesn’t pick up, the market will be swimming in crude. U.S. oil production hit a 27-year high in July, the Energy Information Administration reported Tuesday.
On Wednesday, the first oil shipment left Libya’s Ras Lanuf terminal since the port was blockaded last year. The supply threats that drove prices higher earlier this year haven’t materialized, either. Fighting in Iraq remains far from the country’s oil fields, while Western sanctions against Russia have largely steered clear of punishing the oil sector. (…)
Money managers, including hedge funds, in June placed record bets on rising U.S. and Brent oil prices, but many traders have unwound those wagers since.
As of Aug. 5, their cumulative bets on rising prices on the Nymex fell to the lowest level since January, while speculative wagers on higher prices for Brent hit the lowest level since February. (…)
To be sure, many analysts think the market is underestimating the risk of a supply disruption somewhere in the world. A loss of supplies from Iraq, the fifth-largest net oil exporter in 2013, or Russia, the second-largest net exporter, could send prices shooting higher. (…)
But others say that barring a surprise drop in oil supplies, prices could keep drifting lower. Rising U.S. and Canadian production should keep the market well supplied, reducing the impact of disruptions elsewhere, oil bears say.
The Bloomberg Commodity Index of 22 raw materials dropped 0.2 percent to 126.001 by 12:11 p.m. in London, after falling to the lowest since Feb. 3 and trimming this year’s advance to 0.2 percent.
Euro-Zone Economy Fails to Grow The euro-zone economy stalled last quarter after 12 months of weak growth, underscoring concerns that the region is mired in a deep rut of high joblessness and weak consumer prices. German GDP shrank 0.2%, a bigger drop than economists had expected.
Gross domestic product in the 18-member currency bloc was flat in the second quarter compared with the first, the European Union’s statistics office said Thursday. That translated into 0.2% growth in annualized terms, down from the first quarter’s 0.8% pace.
The euro zone’s three largest economies, which account for two-thirds of the region’s €9.6 trillion ($12.8 trillion) GDP, failed to grow. German GDP shrank 0.2% from the first quarter—a bigger drop than economists had expected—and Italy’s output fell at a similar pace. The French economy, the bloc’s second largest behind Germany, stagnated for a second straight quarter.
The region’s next largest economies, Spain and the Netherlands, posted some growth but not enough to offset weakness in their larger peers. (…)
Japan on Wednesday reported itseconomy contracted at an annualized rate of 6.8% in the second quarter following a strong first quarter inspired by an impending increase in the sales tax.
Wal-Mart Cuts Outlook Wal-Mart slashed its earnings guidance for the year as the retail giant posted yet another decline in traffic and flat same-store sales.
U.S. store traffic slipped 1.1%, its seventh consecutive quarterly decline. Sales at U.S. Wal-Mart stores, excluding recently opened and closed locations, were flat, in line with company expectations. Sales by that metric had fallen five straight quarters.
WMT is clearly losing market share, even while TGT has its own problems.
Worried? Great, this is good:
Anxiety Can Be Healthy for Stocks E.S. Browning: With stock prices high and the globe unsettled, investors are feeling unusually anxious. Paradoxically, that could be a fine thing for markets, say strategists at Bank of America Merrill Lynch.
“When everyone thinks things look bad, that is when you want to buy,” said Savita Subramanian, chief U.S. stock strategist at Bank of America Merrill Lynch. “It is when everyone is positive that you want to sell.” (…)
Professional investors such as pension funds, insurance companies and hedge funds have reduced stock ownership since the spring of 2013, according to government data. Investors have shifted toward Treasury bonds. (…)
To protect themselves from declines, people are buying options at higher rates than at any time this year, said Phil Roth, an independent market analyst. These are signs of caution, not euphoria.
His conclusion: The stock market “doesn’t show significant vulnerability right now.”
Merrill’s strongest indicator in this domain is one it has been tracking since 1984. When the indicator has been at its current level, stocks have risen 98% of the time, Ms. Subramanian said.
The indicator is based on the advice offered by Wall Street strategists like Ms. Subramanian. In fact, it includes her recommendations. Embarrassingly, Wall Street advice is a contrarian indicator.
Wall Street strategists today are bearish. They recommend that investors hold just 51% of their money in stocks, far below the average recommendation of 60% over the past 15 years. That is well below the peak of 66% before stocks started to crumble in 2007. For Merrill, any average recommendation below 54% is a buy signal.
This indicator currently forecasts a 22% stock gain in the next 12 months.
Merrill also tracks the exuberance of money managers, who also are bearish. Its surveys show money managers holding 5% of assets in cash, the most since June 2012. That is up from 4.5% a month ago.
Mutual-fund data, meanwhile, indicate the same pessimism. Mutual-fund holdings of stocks whose performance depends on strong economic growth are the lowest since 2009, Merrill said.
“They are basically in the bunkers from a positioning standpoint,” Ms. Subramanian said. (…)
Once again, here’s the Investors Intelligence chart, courtesy of Ed Yardeni. See much anxiety there?
See also INVESTOR SENTIMENT SURVEYS: DON’T BE TOO SENTIMENTAL! and, if you missed it, THREE-STARRED EQUITIES.
Global Gold Demand Down 16% Global demand for gold slumped in the second quarter as Chinese and Indian buying returned to more stable levels following a record-breaking quarter a year earlier, the World Gold Council said Thursday.
Rosneft Calls for State Aid Russia’s largest oil company is seeking $42 billion from the government to weather Western sanctions.
The U.S. has banned its citizens from providing loans to Rosneft with a maturity longer than 90 days. Large European banks have followed suit.