Jobs Day Recon

Good Morning,
                     Just how important is this morning’s Non-Farm Payrolls number? Every Fed speaker that crosses our path proclaims the committee’s data dependence, and there is hardly any data in our macro universe that is more focused upon than this item. That said, this print is not the beginning and the end of decision making, and if those who make these decisions need to find cause for inaction, there will always be something that they can point to. Yesterday, the ISM printed their Manufacturing Index for August. It wasn’t pretty. Almost every sub-component suffered, including the most important item… New Orders. Four of five regional Fed districts also printed their manufacturing data in a state of contraction for the month. Clearly, the pop that we saw in the July Industrial Production data is in danger of being a one month run.
                    Then there’s also the ugly Auto sales numbers that we saw from the individual manufacturers yesterday. That information could certainly put the hurt on headline August Retail Sales. If you recall, July Retail Sales were awful, after a second quarter where Personal Consumption Expenditures were the only bright spot in the GDP. You get two months of a less than active consumer, and you’re on your way to another lousy quarter. August Industrial Production, and August Retail Sales will hit the tape before the open on Thursday 15 September, not to mention August CPI the next day. By the time of the FOMC announcement on the 21st, the committee will have seen all of this data, and have heard from the ECB, the BOE, and the BOJ (earlier that morning). They’ll have an excuse for anything they decide.
                    I’ve hit you with a lot here, this morning. The NFP number for job creation is still likely the most impactful item we have as an impetus to either change policy or leave it be. There is no doubt that the Fed Funds Futures projected probability of an increase will change after 08:30 ET from the 34% for September, and the 58% for December where those probabilities now stand. Every market that you saw turn on yesterday’s numbers are again at risk today. Know your trades from your investments, and make sure your investments are protected.
                    Have a great weekend everyone. Be safe. Treat everyone as if today is your last, because you never know when it will be. Sarge out.
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08:30 – Employment Situation (August)
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Non-Farm Payrolls: Expecting 181K, July 255K.  This number, as already mentioned is probably the most highly focused upon macro-economic data-point in this country for economists, for traders, and for investors. While job creation has never been unimportant, the implications for monetary policy changes have made this, and Core Consumer inflation the two most important economic conditions that we study on a monthly basis. What will this print likely move today? Yesterday, the US Dollar, Gold, Treasury Yields, and the Financial Sector all made u-turns based on a disappointing ISM Manufacturing number. This is that… only on steroids. This item has been strong in back to back months since that debacle in May. That said, August is usually a tough month for payrolls, and yesterday, whisper numbers in the 150k’s were rampant on Wall Street. We shall see.
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Average Hourly Earnings: Expecting 0.2%, July 0.3% m/m. This data-point is the second most focused on number within the Employment Situation report.  Wage growth has been a sticking point throughout this long, slow economic recovery. Last month’s strong payroll print brought with it some respectable growth in this space too. This is a game of inches, where a repeat of July’s 0.3% would seem robust, and a print that lands right on consensus (0.2%) would appear to disappoint.
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Average Workweek: Expecting 34.5, July 34.5 hours.  The workweek is not the first thing that traders will look at, but they will get to it. A precursor to future hiring trends, and a backdoor to wage growth, this number contributes to the health of the overall report, and to market impact as well.  This too, strengthened in July’s report.
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Unemployment Rate: Expecting 4.8%, July 4.9%. Due lack of participation, and the large number of part-time laborers in the modern US economy, markets no longer consider headline Unemployment to be a meaningful data-point. Only an economist with an agenda would try to label an economy as being at full employment when that economy is running at multi-decade lows in terms of labor force participation. For comparison’s sake, Gallup’s US Unadjusted Unemployment Rate hit the tape at 5.4% yesterday afternoon, which was unfortunately, an uptick.
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Underemployment Rate: July 9.7%.  A tertiary item to be sure, but one that many consider to be the true, or somewhat truer Unemployment Rate. This item has printed below 10% for ten consecutive months, which has been considered a positive. Gallup also showed an increase in their Unadjusted Underemployment Rate. In this case, Gallup, and the BLS are not even close, with Gallup at 13.2%.
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Participation Rate: Expecting 62.8%, July 62.8%. Participation has been trudging along for a coupe of years at 40 year lows, or basically since both genders started sharing the workplace more equally. The actual low for the series came last September (62.4%), and this data-point has struggled to lift it’s head ever since.
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Other Macro
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08:30 – Trade Balance (July): Expecting $-42.5B, June $-44.5B. Last week, the Trade Balance for Goods came in a little narrower than expected due to a sizable increase in food exports, and a slight decrease for imports. For that reason we also expect to see a slight narrowing in this number for today. This print will not immediately impact the marketplace.
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10:00 -Factory Orders (July): Expecting 2.0%, June -1.5% m/m. Factory orders have been trending the wrong way over the last couple of months, sporting negative numbers for May and June. The street is expecting a return to growth here today, but this is not a high profile event.
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13:00 – Baker Hughes Rig Count (Weekly): Last Week 489 total, 406 oil. Oil Rigs, which are what traders are watching in this report, hit the tape unchanged last week from the week prior. With Crude battling it’s own fundamental problems, the count may stagnate, or even start to contract at this point. Crude prices will react to this print, and subsequently so will the sectors closely associated with it.
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13:00 – Fed Speaker: Richmond Fed Pres. Jeffrey Lacker will speak on interest rates from Richmond. Lacker, who is not a voting member of the FOMC this year, is considered to be quite hawkish. He voted to dissent in favor of an increase of the Fed Funds Rate twice in 2015, and was a proponent of an increase ahead of the June meeting this year prior to the UK’s Brexit referendum.

Market Recon Thursday

Good Morning,
                    Today is August manufacturing PMI day around the globe, and there are some results that just were not expected by very many people. What stands out so far has to be the UK print of 53.3. That number not only crushed expectations, but it’s the best manufacturing number put up by the UK in all of 2016. What Brexit? Right? Actually, this benefit to British manufacturers is due to the Brexit referendum. The morning of that vote, a Pound bought you 1.48 in US currency. Even with today’s pop, that Pound only buys you 1.32. On Monday, we’ll see the Service sector PMI for the UK, which in all likelihood did not benefit from a weaker home currency as much as those producing goods. For today at least, the belief is that Mark Carney will not have to ease policy on the 15th, which is why, the FTSE 100 is the only major European equity index in the red early this morning. Funny how that works.
                   As for the rest of the planet, the CLFP (Chinese government) number rebounded back above 50 unexpectedly, also making immediate policy decisions less of an emergency for the PBOC.  The Shanghai Composite is lagging well behind the rest of Asia this morning. Most European nations came close enough to their individual expectations to not cause any kind of alarm. The Euro-Zone in aggregate missed by a smidge at 51.7, which happens to be a 3 month low. Enough for Mario Draghi to get nervous? We’ll find out on the 8th. European equities are quite strong this morning.
                 September has a bad reputation. You’ll see that all over the media today. Is there something to it? Did you sell in May, and go away? Actually that one worked if you sold at the end of May, and came back just after the Brexit referendum. Otherwise, it’s an old wives’ tale. September though, has some reason behind it. On an national level, the government (and the military’s) fiscal year ends on September 30th. Hence, there is a lot less money to spend followed immediately by a lot more money to spend on 1 October. Many businesses, in fact align their fiscal year with the government’s, so the impact is quite broad. On top of that, there’s the prohibitive tuition costs faced by many families across every region of the country at this time of year. Not eligible for much aid? Not looking to go deeply into long-term debt while facing mediocre prospects for landing a well-paying job? Fortunate enough to have some resources? That money’s coming from somebody’s portfolio.
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Macro
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08:30 – Initial Jobless Claims (Weekly): Expecting 265K, Last Week 261K. The four week moving average, which is how this item is intended to be viewed, now stands at 264K. There is no reason to expect Jobless Claims to break out their now 77 week (below 300K) trend, or is there? After many weeks of very tight spans for consensus range, the top end today is up at 285K. We have not seen a number that high in this space since May. Markets, for obvious reasons, have learned to ignore this data-point.
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08:30 – Non-Farm Productivity (Q2-rev): Expecting -0.6%, Prior -0.5% q/q SAAR.
08:30 – Unit Labor Costs (Q2-rev): Expecting 2.1%, Prior 2.0% q/q SAAR. This is a revision to the original releases for second quarter Productivity, and Labor Costs. We already know that the third consecutive quarter of much faster growing costs for Labor than for the actual Productivity of that Labor has put recent job growth (and the entire economic recovery, as that goes) on an unsustainable trend. This needs to change for the better, and soon. With that out of the way, we expect the disparity between the two to actually be worse than previously thought for the quarter.
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09:45 – Markit Manufacturing PMI (August-F): Expecting 52.1, Flashed 52.1. This is the one item on today’s docket that nobody would notice if were never released. Market participants will wait for the ISM number before casting judgement on the Manufacturing sector.
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10:00 – ISM Manufacturing Index (August): Expecting 52.0, July 52.6. We look for a slight fade in the pace of growth in this space, but still growth. Export orders were a strength in July. If that’s not there, things could get a little sticky, especially with four of five regional Fed districts with manufacturing data-points printing in contraction this month.
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10:00 – Construction Spending (July): Expecting 0.6%, June -0.6% m/m. With all of the other macro-economic data-points being released today, and this one being the most dated…. Construction Spending will likely get lost in the shuffle. However, it is not insignificant that after three consecutive months of contraction, this item is actually expected to show growth for July. Don’t forget, Housing Starts saw a nice pop for that month.
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10:00 – Natural Gas Inventories (Weekly): Expecting 30B, Last Week 11B cf. Interest in this number really is limited to those directly trading the space. That said, this item looks to be headed for it’s 19th inventory build in the last 20 weeks.
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12:25 – Fed Speaker: Cleveland Fed Pres. Loretta Mester will speak on community development from Lexington, Kentucky. Odds are that she will not stray very far off topic during her speech, but she is a voting member of the FOMC, and there will be a Q&A session with the audience afterward. Mester has been supportive of raising the Fed Funds Rate in her recent appearances.
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All Day – Total Vehicle Sales (August): Expecting 17.2M, July 17.9M annualized.  Although July printed at a robust 17.9M annualized, this item is trending well below the record setting months of last Winter. In fact today’s expectation really is simply an average of the last five months, and a number close to it will reflect that current trend. The auto stocks will react when numbers reflecting their individual sales are announced, but the general marketplace will not.
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Thursday’s Earnings Highlights
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Before the Open: CPB (.50), GCO (.29), LE (-.02), LULU (.38), NAV (.13)
 After the Close: AVGO (2.78), COO (2.29) SWHC (.54), PAY (.41)