Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

THE DAILY EDGE: 23 OCTOBER 2020

Jobless Claims for Month So Far Fell to Lowest Levels Since March Filings for jobless benefits fell to 787,000 last week, a sign of a pickup in the labor market. The report includes revisions from California that reduced the number of claims in October, with claims for the week ended Oct. 3—767,000—marking the lowest since mid-March

(…) The number of people collecting unemployment benefits through regular state programs, which cover most workers, decreased by 1 million to about 8.4 million for the week ended Oct. 10, also the lowest since March. (…) A separate program offering extended benefits to those affected by the pandemic exceeded 3 million this month, the highest since the program started in March. (…)

The largest of those [pandemic-specific] programs—available to the self-employed, gig workers and others not typically eligible for unemployment aid—paid benefits to 10.2 million workers in the Oct. 3 week, according to the Labor Department. The pandemic figures aren’t adjusted for seasonality and reported with a delay. That number exceeded those receiving benefits from state programs, 9 million on an unadjusted basis that week, which cover more than 140 million workers. (…)

While the number of posted jobs have increased from this spring, they remain 15.3% lower than a year earlier, as of Oct. 16, according to job search site Indeed.com. (…)

The total number of impacted workers peaked at 32.4 million on June 20. It is down 9.2M or 28% to 23.2M in 12 weeks. The ultimate goal is 2.0M. We have now passed the 26-week mark from the peak of job losses in March. Traditional unemployment benefits are being replaced by Congress-approved (?) pandemic-specific assistance. Uncomfortable to say the least.

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FLASH PMIs

Note: the U.S. flash PMI is out later this morning.

EUROZONE: Flash PMI signals renewed economic downturn at start of fourth quarter

Business activity fell back into decline across the eurozone in October as accelerating growth of manufacturing output was overwhelmed by a steepening deterioration in the service sector amid rising COVID-19 worries. Germany was the only bright spot, as France and the rest of the region as a whole fell deeper into decline.

The rate of job losses eased, but forward-looking indicators deteriorated: inflows of new business showed a renewed decline and business optimism for the year ahead slipped to the lowest since May. Deflationary pressures meanwhile eased as business costs rose at a faster rate.

The flash IHS Markit Eurozone Composite PMI fell for a third consecutive month in October, dropping from to 50.4 in September to 49.4 to register the first contraction of business activity since June. Although the index remains well above the all-time lows seen during the height of the pandemic in the second quarter, the renewed decline raises the possibility that the region could see the economy contract again in the fourth quarter.

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The survey also revealed increasingly divergent trends by sector. Manufacturing output growth accelerated to the fastest since February 2018, supported by inflows of new orders surging at the quickest rate since January 2018. Conversely, service sector output fell for a second successive month, deteriorating at the sharpest rate since May. If the March to May period at the height of COVID-19 lockdowns is excluded, the latest drop in service sector output was the steepest for eight years. Inflows of new business into the service sector also fell at an accelerated rate.

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Divergent trends were also seen across the region.

Germany continued to report steady growth, the flash composite index merely dipping from 54.7 to 54.5 to register a solid expansion for the fourth month running. Although manufacturing output grew at a rate surpassed only twice in the survey’s history since 1996, service sector activity fell for the first time since June.

France meanwhile saw business activity deteriorate for the second month running, the composite flash PMI down from 48.5 to 47.3 to signal an increased rate of contraction. A second month of services decline was accompanied by a weakening in the rate of factory output growth.

Elsewhere, business activity fell for a third month in a row, with the pace of decline running at the fastest since early-2013 barring the height of the pandemic. A solid expansion in manufacturing output was more than offset by an increased rate of contraction in services.

Employment was meanwhile cut across the eurozone as a whole for an eighth successive month, though the rate of job losses moderated further from April’s record peak to the weakest since jobs began to be cut in March. The pace of job cuts nonetheless remained higher than at any time since June 2013 prior to the pandemic.

Job losses were seen across manufacturing and services, with the former recording the steeper rate of decline. Reduced employment was seen in Germany, France and the rest of the region as a whole, but the former showed encouraging signs of the labour market nearing stabilisation.

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The ongoing need to cut employment was in part linked to companies reporting excess capacity, as indicated by a further reduction in backlogs of work. The decline in backlogs was limited to the service sector, with manufacturing reporting the largest increase since February 2018 (led in turn by Germany), underscoring the increasingly divergent trends by sector.

Looking at price trends, deflationary pressures moderated during October. Average prices charged for goods and services fell for an eighth month running, but the rate of decline eased to the slowest seen over this period. Average prices charged in manufacturing edged higher, up for the first time since June 2019, though service sector charges continued to fall. Germany saw the largest upturn in price pressures, with average selling prices up for the first time since February.

Signs of underlying price pressures building were evident via the largest rise in input costs since February. Increases were reported in both manufacturing and services.

Looking ahead, business expectations about the coming 12 months slumped to the lowest since May, deteriorating in both manufacturing and services, with the latter seeing a particularly steep drop in sentiment. Optimism was also especially subdued in France.

JAPAN: DOWNTURN PERSISTS IN OCTOBER
  • Flash Composite Output Index, Oct: 46.7 (Sep Final: 46.6)
  • Flash Services Business Activity Index, Oct: 46.6 (Sep Final: 46.9)
  • Flash Manufacturing Output Index, Oct: 47.0 (Sep Final: 46.0)

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The Japanese private sector started the fourth quarter on a weak footing, with business activity shrinking further in October, according to flash PMI survey data. New business inflows continued to fall in October, though the rate of decline was the slowest in the current sequence of contraction. External demand continued to weaken.

The survey also revealed some bright spots. The labour market stabilised in October, with employment broadly unchanged from September. Business sentiment also improved to the strongest for over two years as firms highlighted expectations of economic recovery as well as planned business investment. Anecdotal evidence showed that the government’s ‘Go to Campaign’ provided a boost to tourism services.

That said, the recovery is slow-going and could remain so in the coming months as a global resurgence of COVID-19 cases could weigh on Japanese economic activity, particularly in the external-facing sectors.

U.S. Existing-Home Sales Rose 9.4% in September

Existing-home sales rose 9.4% in September from August to a seasonally adjusted annual rate of 6.54 million, the highest rate since May 2006, the National Association of Realtors said Thursday. The September sales marked a 20.9% increase from a year earlier.

The latest figures for existing-home sales, which make up most of the housing market, marked the fourth straight monthly increase and one of the best stretches for the housing market in years. (…)

The median existing-home price rose 14.8% from a year earlier to $311,800, a record high nominally and adjusted for inflation, NAR said, and the highest annual median price increase in 15 years. (…)

There were 1.47 million homes for sale at the end of September, down 19.2% from a year ago, according to NAR. At the current sales pace, there was a 2.7-month supply of homes on the market at the end of September, the lowest level on record in data going back to 1982. (…)

Home sales increased most strongly in September for homes priced at $750,000 and above, according to NAR. “Home sales are occurring where there is inventory—on the upper-end market,” Mr. Yun said. (…)

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(Haver Analytics)

(…) “The pandemic continues to accelerate trends that were already apparent in the South Florida market, including affluent buyers from high-tax and high-density states purchasing in South Florida,” Jorge L. Guerra Jr., chairman of the Miami Association of Realtors, said in the report. (…)

Sure helps boost median prices.

U.S. Leading Indicators: Growth Decelerating

Growth of the leading index is slowing while the coincident index is stalling well below normal…Strength in housing is not enough.

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New U.S. Coronavirus-Case Count Breaks 70,000, Highest Since July The daily number of Covid-19 cases reported in the U.S. rose to 71,671 on Thursday, the most in a single day since July 24 and the third-highest single-day total overall.

(…) Some of this is attributable to a significant expansion of testing, which rose to a record Monday when more than 1.2 million tests were performed, according to data for the Covid Tracking Project. On Thursday, more than 1.1 million tests were recorded. Widespread availability of testing helps detect more mild or asymptomatic cases.

However, the percentage of those tests that are positive, known as the positivity rate, has also been rising, climbing to 5.6% Wednesday from 4.6% about a month ago. That figure is expected to fall as testing expands.

The number of Covid-19 patients hospitalized, climbing since Sept. 20, is now 41,010, according to the Covid Tracking Project. That is the highest since Sept. 20, up 33% since Oct. 1. (…)

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Covid-19 Drug Remdesivir Fully Approved by FDA Agency fully approves the antiviral for hospitalized Covid-19 patients 12 years and older; It has shown modest effectiveness in clinical trials but has become the standard of care in hospitalized patients because of the dearth of other treatments.
EARNINGS WATCH

We have 126 reports in, a 84% beat rate and a +17.4% surprise factor.

Q3 estimates: -17.2% (vs -21.4% on Oct.1). Q4: -12.6% vs -13.6%.

Trailing EPS are now $137.39, potentially reaching $131.90 at the end of 2020 and potentially rising to $166.41 in 2021, still shy of 2019’s $162.93.

TECHNICALS WATCH

The 13/34–Week EMA Trend (CMG Wealth): still quite positive but watch that gap developing.

The U.S. vs. China: The High Cost of the Technology Cold War The conflict has disrupted the telecom and semiconductor industries in both countries. But the consequences have already begun to spread well beyond those companies.

(…) But the effects go far beyond tech companies’ bottom lines. U.S. chip makers worry that the loss of sales to China will mean less money for research and development, making it hard to continue producing the cutting-edge chips that have made the U.S. the global leader in the semiconductor industry. (…)

Uber and Lyft Must Classify Drivers as Employees, Appeals Court Says The ride-hailing companies must comply with an order that requires them to reclassify their drivers as employees, a California appeals court said, siding with a lower-court ruling that threatened to upend the business models.