US Jobless Claims Fall to 201,000, Lowest Level Since January Continuing claims dropped to the lowest since start of 2023
The BLS Job Openings declined 3.7% between June and July but Indeed’s Job Postings flattened in August and perked up through September 15.
Meanwhile, loan demand is volatile but OK so far.
CB Leading Economic Index Declines, Deepening Recession Fears
With August’s decline, the US Leading Economic Index has now fallen for nearly a year and a half straight, indicating the economy is heading into a challenging growth period and possible recession over the next year,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board.
“The leading index continued to be negatively impacted in August by weak new orders, deteriorating consumer expectations of business conditions, high interest rates, and tight credit conditions.
All these factors suggest that going forward economic activity probably will decelerate and experience a brief but mild contraction. The Conference Board forecasts real GDP will grow by 2.2 percent in 2023, and then fall to 0.8 percent in 2024.”
The CB LEI is highly goods sensitive. Spending on goods, boosted by helicopter money and the wealth effect, remains strong while services are back on trend.
August Home Sales Declined to Slowest Pace Since January Prices were up from year earlier with a limited number of houses on the market
Existing-home sales, which make up most of the housing market, decreased 0.7% in August from the prior month to a seasonally adjusted annual rate of 4.04 million, the National Association of Realtors said Thursday. August sales fell 15.3% from a year earlier.
Home sales have tumbled by about 36% from January 2022, and activity could slow further in the months ahead. August sales reflected contracts signed earlier in the summer when borrowing rates were lower than today. (…)
Only 1.1 million homes were for sale or under contract in August, the lowest level for that month in data going back to 1999. (…)
The national median existing-home price rose 3.9% in August from a year earlier to $407,100, the fourth-highest level on record in data going back to 1999, NAR said. (…)
The share of first-time buyers in the market was 29% in August, unchanged from a year earlier. About 27% of August existing-home sales were purchased in cash, up from 24% in the same month a year ago, NAR said.
House Republicans Are Charging Toward a Government Shutdown Republicans struggle to unite around a plan to avert shutdown.
FLASH PMIs
Eurozone companies see sharpest drop in new orders for almost three years
The seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index, based on approximately 85% of usual survey responses, posted 47.1 in September, up marginally from 46.7 in August but still signalling a solid monthly decline in business activity as the third quarter drew to a close. Output has now fallen in four consecutive months.
For the second successive survey period, declines in output were seen across both monitored sectors as services activity decreased again. That said, the rate of contraction in services eased slightly from August and was still much softer than that seen in manufacturing.
The reduction in manufacturing production was unchanged from the rapid pace seen in the previous month. Barring a brief period of growth during the opening quarter of the year, euro area manufacturing output has decreased continuously since the middle of 2022.
Central to the latest reduction in business activity was a further deterioration in customer demand, as highlighted by a fourth successive monthly decrease in new orders. Moreover, the fall in September was marked and the most pronounced since November 2020.
Manufacturing new orders contracted rapidly again, but the acceleration in the overall rate of decline was centred on the service sector, where the drop in new business was the sharpest since the pandemic. In fact, excluding months affected by COVID-19 restrictions, the fall in services new orders was the largest since May 2013. New export orders declined even more quickly than total new business in September.
Sharp falls in new orders meant that companies often turned to work on outstanding business in order to maintain activity levels. As such, backlogs of work decreased markedly again during September, with the latest depletion the most pronounced since June 2020.
Eurozone businesses also signalled a waning of confidence in the year-ahead outlook at the end of the third quarter. Although on balance firms continued to predict a rise in activity over the coming 12 months, sentiment dipped to the lowest since November last year. Optimism waned across both monitored sectors, with manufacturing sentiment only just in positive territory.
The combination of spare capacity and reduced confidence in the outlook meant that companies were again cautious in their approach to hiring. Although employment rose marginally in September, the rate of job creation was the joint-second slowest in the current 32-month sequence of growth. A fourth successive monthly reduction in manufacturing workforce numbers compared with a slight increase in services employment.
As well as scaling back staffing levels, manufacturers in the eurozone also cut their purchasing activity sharply and reduced their holdings of both purchases and finished goods. The fall in stocks of finished goods was the most marked in two years. Reduced demand for inputs meant that suppliers were able to speed up deliveries, with vendor lead times shortening for the eighth consecutive month. The rate at which deliveries quickened was marked, albeit the least pronounced since February.
There were differing trends in terms of inflation in September as a sharper rise in input costs contrasted with a softer pace of output price inflation.
Input costs increased at the fastest pace in four months, albeit at a pace that remained well below the average seen over the past three years. Inflation was driven by the service sector, where prices were up sharply amid higher wages and rising fuel costs. Manufacturing, on the other hand, posted a seventh successive monthly drop in input costs.
Despite the steeper pace of input cost inflation, a weakening demand environment meant that companies increased their selling prices to a lesser extent than in August. In fact, the latest rise in charges was only modest and the softest since February 2021. Manufacturing output prices fell at a marked and accelerated pace, while services charge inflation eased to a 25-month low.
Japan: Slowest rise in private sector activity since February
The Japanese private sector economy signalled a further loss of growth momentum at the end of the third quarter of 2023, as signalled by a softer expansion in output during September. The rate of growth was only modest and the slowest recorded since February.
Service providers continued to lead the way with a sustained increase in business activity, though the rate of growth slowed to an eight-month low. Manufacturers meanwhile signalled a fourth consecutive deterioration in operating conditions that was the steepest seen for seven months.
Forward-looking indicators from the survey suggest the potential for softening demand and activity over the coming months. Composite new order growth came close to stalling, as private sector firms noted the weakest expansion since February. While there was a further rise among services firms, Japanese manufacturers indicated that new orders fell at the strongest pace in seven months.
Firms took the opportunity provided by slower expansions in orders to work through outstanding business to the greatest extent since February 2022
As pressure on capacity eased, there was a renewed reduction in employment levels that was the first since the start of the year and the quickest since August 2020. Private sector companies often noted the non-replacement of voluntary leavers, partly as part of cost-saving efforts amid elevated cost burdens.
- Japanese car imports surge
Japanese automobile exports to the U.S. have surged this year, Axios Markets’ Matt Phillips reports. They were 50% higher, in yen terms, this past August compared with the same month last year — and they posted the seventh straight month of double-digit gains.
The yen has weakened by nearly 13% against the dollar this year, as the Fed’s interest rate hikes helped strengthen the greenback. A weaker yen makes Japanese exports cheaper for American buyers.
With workers now striking at American carmakers, Japanese auto giants may see an opportunity to make deeper inroads in the U.S.
How China Could Veto $100 Oil Strong Chinese demand looks unlikely as oil prices soar
(…) First, China has moved aggressively into discounted Russian oil in recent months. Second, Chinese crude oil imports still appear to be running well ahead of fundamental demand—and its exports of refined products, particularly diesel, are rising sharply.
China has, from the beginning of Ukraine war, made it clear it considers Western sanctions on Russia to be illegitimate—and continues to import large quantities of Russian oil. But since December 2022, when the U.S. and Europe agreed to enforce a cap on Russian oil prices by leveraging their control of the global shipping insurance business, Chinese purchases have skyrocketed.
Total Chinese crude imports were the second highest on record in August, according to figures from data provider CEIC. But excluding imports from Russia, they were only up about 2% from December 2022 levels. Imports from Russia were up about 60% over that same period, and are now over 30% larger than those from Saudi Arabia, China’s number two supplier. (…)
China is importing Russian oil at a discount of $28 per metric ton to its average crude import price overall, according to data from CEIC—far down from its $61 discount in May, but still substantial. And as long as that gap persists, it will keep acting as something of a shock absorber for Brent and other global price benchmarks.
Moreover, there is no guarantee that Chinese imports will keep rising rapidly in any case. For most of 2023, China appears to have been aggressively filling its oil reserves, taking advantage of lower prices. China doesn’t release regular data on its crude reserves like the U.S., but in the second quarter the nation produced and imported about 14 million more metric tons of crude than it refined, according to CEIC data.
And production of refined products such as diesel has also been suspiciously fast in 2023 relative to traditional drivers of demand like the property sector and heavy industry. With global fuel prices back up again, those products are leaking back out into world markets with a vengeance: China’s net petroleum product exports nearly tripled in August to 2.4 million metric tons, CEIC data shows. In June, when prices were much lower, China only exported 109,000 tons of product on net. (…)
Two of China’s Strongest Developers Face Ratings Cuts by Moody’s Vanke, Jinmao on watch for downgrade after sector view lowered
The downgrade reviews “reflect high uncertainties” about their ability to recover weakened credit metrics and financials “amid uncertain recovery prospects for China’s property market,” according to the ratings firm. (…)
Moody’s lowered its sector outlook to negative on Sept. 14 “amid weaker economic growth prospects and homebuyers’ concerns over timely project completion and delivery, which dampen property sales despite government support measures.”
In addition to the Vanke and Jinmao downgrade reviews, the ratings firm on Thursday lowered its outlook to negative on seven other builders. (…)
Bank of England Holds Rates for First Time in Nearly Two Years The central bank left its key interest rate unchanged after 14 consecutive increases, as U.K. inflation shows signs of cooling.
Ed Yardeni: Bond Yield Climbs to 4.50% As Yield Curve Is Disinverting.
The Fed’s hawkish pause, announced on Wednesday afternoon, has lifted the 10-year US Treasury yield to 4.50% this evening. We think it might consolidate here for a while consistent with our view that the yield has normalized back to where it was from 2003-2007, i.e., before the Great Financial Crisis (GFC). Back then, the 10-year TIPS yield and the expected inflation spread hovered around 2.00% and 2.50%, respectively. Currently, the TIPS yield is 2.11% and the expected inflation spread is 2.38%. (…)
(BTW: It’s interesting to observe that the expected inflation spread is very highly correlated with the price of copper, which remains under $4.00 per pound despite recent attempts by the Chinese government to stimulate growth.)
The S&P 500 is down 5.6% from its July 31 bull market peak. That’s mostly because the bond yield has been climbing above 4.00% since then. The forward P/E is inversely correlated with the 10-year TIPS yield, suggesting that there is still more downside for the S&P 500.
Now that the S&P 500 is back below its 50-day moving average, it should find support at its 200-day moving average, which also happens to coincide with the lower end of the bull market’s channel. For that to happen (perhaps in October), the market will need evidence that the economy is slowing and inflation is still moderating. A drop in oil prices would help too. A yearend rally is still likely back to 4600, in our opinion.
The S&P 500 closed through its 100dma (4375).
The conventional forward P/E is at 18.6. Ex-IT: 16.9 (red line).
Taking inflation into account, the Rule of 20 P/E is 24.3 on trailing EPS and 22.9 on forward EPS. Ex-IT: 20.3x forward EPS.
