Weekly Economic Cheat Sheet 11/9/15

Last Week

Last week’s economic data was strong, and that was punctuated by Friday’s blowout jobs report—and the net result of the data was that a rate hike is now expected in December.

Starting with the jobs report, it was very clearly in our “Too Hot” scenario. Headline job adds were very strong at 271k vs. (E) 190k, U-6 Unemployment (which also measures the under employed) dropped to 9.8%, the lowest level since May 2008, monthly wage increases rose sharply at 0.4% m/m vs. (E) 0.2% and year-over-year wage increases rose to 2.5%, the highest since July 2009, and well above the Fed’s 2.2% target.

In addition to the jobs report, the ISM Non-Manufacturing (or service sector) PMI was very strong at 59.1 vs. (E ) 56.7, and the employment sub index rose to 59.2, the best level in nearly 20 years.

That reading was anecdotally confirmed in the jobs report, as service sector job growth was very strong. And, that’s an important economic positive because for all the focus on manufacturing indices in the financial media, the US economy is a service-based/consumption-driven economy, so strength in that sector is more important than anything going on in manufacturing.

Looking at manufacturing, October Manufacturing PMIs remained soft on an absolute sense, but at the same time slightly beat expectations at 50.1 vs. (E ) 50.0. Manufacturing remains sluggish generally, and that likely will continue with a surging dollar—but again that, by itself, won’t offset the strength in the service sector and consumer spending.

Looking internationally, manufacturing data from China continued to show stabilization, which is positive for the global markets. Data from Europe was mixed, as EMU manufacturing and composite October PMIs were good, but German Manufacturers Orders and Industrial Production were both soft, reflecting the specific issue Germany is having due to sluggish global demand. But, with the ECB poised to do more QE and the euro falling towards parity with the dollar, the European recovery is ongoing and we remain bullish Europe via HEDJ.

Bottom line, if strong economic growth and the Fed hiking rates is the key to materially higher stock prices, then last week was a good week for the bulls longer term. Now it just needs to continue.

This Week

It will be a quiet week domestically other than the Retail Sales report coming this Friday. That is the next critical report for whether the Fed hikes rates in December, but given a lot of the other data from October it would be a big surprise if retail sales was a disappointment.

Outside of retail sales, jobless claims is the only other notable report and people will be watching to see if last week’s pop higher in claims is reversed.

Internationally focus will be on China. The currency reserves were positive while October Trade Balance missed estimates, basically offsetting one another but still implying stabilization. Tomorrow we get retail sales and industrial production. What’s really important for this Chinese data is that it continues to show stabilization, because as long as fears of a Chinese “Hard Landing” continue to recede, global stocks can rally (helped, of course, by the greatest global monetary accommodation in history).

Finally, Europe releases Q3 flash GDP on Friday, but again with the prospect of ECB QE looming in December, the data really isn’t that important any more, because it almost certainty won’t be strong enough to make the ECB rethink QE, and even if it’s weak, it’ll just encourage more QE. Europe remains in that sweet spot where virtually all data is good, as long as it isn’t too strong. That’s why we remain Europe bulls.

Bottom line, barring any big, negative surprises from the China data or Friday’s retail sales, this week will be one of digestion and contemplation of the implications of a December rate hike.