NEW$ & VIEW$ (3 DECEMBER 2015)

Yellen Signals Fed on Track to Raise Rates in December Fed Chairwoman Janet Yellen expressed confidence that the U.S. economy is likely to register continued modest growth and a small pickup in inflation, a sign she is ready to raise short-term interest rates later this month

(…) “On balance, economic and financial information received since our October meeting has been consistent with our expectations of continued improvement in the labor market,” Ms. Yellen said in her speech. “Continuing improvement in the labor market helps strengthen confidence that inflation will move back to our 2% objective over the medium term.” (…)

U.S. Wages Show Signs of Breaking Out Hourly compensation up 3.4% as productivity picks up

(…) On Wednesday, the Labor Department released new productivity and compensation figures showing that inflation-adjusted hourly compensation for the nonfarm business sector grew 3.4% in the third quarter compared with the same quarter a year ago, the second-largest jump since the third quarter of 2009. That comes after hourly compensation grew 3.3% in the second quarter over the same quarter of 2014.

Higher pay has also taken hold in the manufacturing sector, where real compensation climbed 3.5% in the third quarter from a year ago after a 2.5% increase in the second.

The wage growth comes as productivity also shows signs of improvement. Productivity grew at annualized rates of 2.2% in the third quarter and 3.5% in the second.

Other wage measures have also shown improvement. Average hourly earnings of private-sector employees were 2.5% higher in October than the previous year, the largest annual increase since July 2009, according to a separate Labor Department report. (…)

The WSJ failed to get to the crux, which Haver Analytics did:

As a result, unit labor cost growth last quarter was raised to 1.8% (3.0% y/y) from 1.4%, but the Q2 increase of 2.0% was lifted even more sharply from a 1.8% decline.

Manufacturing unit labor cost grew 2.3% (2.1% y/y), revised from 0.8%. That followed a 3.3% Q2 gain which was revised from -2.0%.

Global manufacturing growth remains soft in November

At 51.2 in November, the J.P.Morgan Global Manufacturing PMI™ – a composite index produced by J.P.Morgan and Markit in association with ISM and IFPSM – was broadly unchanged from the five-month high of 51.3 reached in October. The rate of expansion signalled by the headline PMI remained relatively lacklustre nonetheless, meaning that November continued the subdued run of data for the global manufacturing sector through 2015 so far.

The respective averages for the PMI sub-indices tracking output, new orders and new export orders are all around 1.0-1.5 points below the levels achieved for 2014 as a whole.

November saw growth of new orders slow from October’s recent high and employee numbers continue to rise at a soft pace. The trend in production volumes
improved, however, with output growth accelerating to an eight-month peak.

North America and Europe continued to register solid expansions of production in November. Growth in the US remained close to October’s seven-month high,
while an acceleration in Mexico more than offset the continued (but slowing) downturn in Canada. Output growth in the eurozone ticked up to its fastest in one-and-a-half years, with expansions registered in almost all of the euro area nations for which data are collected.(…)

With the exception of Japan – where production rose at the quickest pace since March 2014 – Asian economies generally reported lacklustre or decreasing
trends in output during November. India partly bucked this trend by recording a slight gain in production, although the rate of expansion was below those seen
during its current 25-month sequence of increase. Output stagnated in China and Vietnam, and declined in Taiwan, South Korea, Indonesia and Malaysia. A
marked contraction was also signalled in Brazil. (…)

Price pressures remained on the downside during November, with both input prices and output charges falling during the latest survey month. This was mainly
due to the ongoing reductions in international commodity prices, part of which manufacturers passed on to their clients.

Brazil’s Industrial Output Plunges 11.2%

THE LONELY SAUDIS:

Saudis throw down oil production cut challenge Kingdom says it will back output reductions if supported by rivals

Saudi Arabia has thrown down a challenge to big rival oil producers ahead of this week’s Opec meeting, saying it would back output cuts as long as they were supported by countries both inside and outside the cartel.

The kingdom, Opec’s de facto leader, has set a very high bar for a deal that is unlikely to be met by the time of Friday’s meeting in Vienna, but it leaves open the possibility of an agreement in 2016. (…)

“In order for there to be a cut in production non-Opec must participate, Iraq has to participate and the Iran output picture has to be clear,” the delegate said. (…)

Both countries [Irak and Iran] have argued that Saudi Arabia has taken advantage of their difficulties to increase its own market share, so any increase in production should be unhindered by output constraints. (…)

• T. Boone Pickens, Carl Icahn on the Price of Oil

EARNINGS WATCH

Thomson Reuter’s tally of pre-announcements for Q4 EPS shows 27 positives so far vs 19 at the same time last year and 83 negatives vs 90. So far so good.

Canadian banks: maple belief

(…) Direct damage from oil and gas lending has so far been limited. The energy sector represents over a tenth of the nation’s economy, but lending to oil and gas companies is just a few percentage points of the total loan book. That lending is typically secured by the commodity and so provisions, which have increased through the year, are still only around 50 basis points of total oil and gas lending. Those provisions are expected to inch up through 2017 as commodity prices remain low. But Credit Suisse estimates that even in a more stressed scenario, where provisions spike to 67 basis points, earnings would fall by just 13 per cent. And return on equity of 13 per cent would exceed most US banks. (…)

The banking sector has presented a puzzle this year — share prices have fallen while earnings per share have been moving modestly upwards. Capital markets revenue, while slowing in the fourth quarter, has otherwise been strong. Banks such as RBC and BMO also have substantial exposure to US as well as more stable wealth management units.

Optimism does not have to be about feeling great. It can also mean things not being as bad as they seem.

• TD beats forecasts as profit climbs on retail banking, trading gains
• BMO boosts dividend as quarterly profit rises 13%
• RBC profit climbs 11% to record; trading, taxes offset slower lending
• Scotiabank fourth-quarter profit climbs, beats estimates
• National Bank hikes dividend; profit climbs 5%
• Restructuring charges drag down CIBC’s profit; boosts dividend

THE RIGHT PRICE?

Dec 2 (ESPN) – Pitcher David Price reaches 7 year deal with Boston Red Sox for $217 million.