Weekly Economic Cheat Sheet 12.7.2015

Last Week

Last week had the potential for economic data and central banking announcements to cause big volatility in the markets, and they did not disappoint. But, the bottom line is that a rate hike in December is now all but certain while the dollar rally has been temporarily capped thanks to the ECB’s underwhelming actions (at least compared to the markets unrealistic expectations).

Meanwhile, actual global manufacturing activity disappointed last week, although that was generally ignored by markets. Beyond the jobs report, it’s important to note last week’s data wasn’t very good.

Starting with the jobs report, it fell right into the middle of our “Just Right” range at 211K vs (E) 190K. Not only was the headline “Just Right” but so were the details: Unemployment stayed at 5%, wages grew a modest 0.2% in November and are up 2.3% yoy (down from 2.5% in October), and U-6 Unemployment (which measures underemployment) ticked up 0.1% to 9.9%.

In total, the jobs report wasn’t that strong and there were some soft spots, but it perfectly backs the one-and-done Fed policy of a December rate hike, and then nothing until June 2016—and that’s why it ignited such a massive rally in stocks Friday. Whether that actually plays out remains to be seen, but for the short-term bulls that jobs report was borderline perfect.

Looking at other data, global manufacturing PMIs for November were generally a disappointment. First, the official Chinese PMI dropped to 49.6 vs. (E) 49.8, undermining the “stabilization” theory, although Chinese markets took it as a catalyst that would be reason for further easing. But, we challenge that notion because Chinese officials have recently unleashed a slew of stimulus measures and there is really not a whole lot more they can or are willing to do in the near term. So, last week’s soft PMIs make the Chinese data this week more important, and while China is no longer the macro risk that it was in the late summer it remains a risk to monitor.

Meanwhile, in the US ISM Manufacturing PMI fell to 48.6, the worst level since June 2009, which was a big disappointment and also undermines October data that implied the manufacturing sector was stable. But, especially in light of the good jobs report Friday, the manufacturing PMI won’t cause the Fed to delay a rate hike in December.

The ECB decision was the big catalyst of the week as the ECB unleashed more stimulus but didn’t meet the market’s quasi-unreasonable expectations, and the resulting moves in the current markets were historic. The euro rallied 3% on short covering while the dollar dropped more than 2%. Both currencies traded to respective one-month highs and lows.

Somewhat lost in the details was the fact that the ECB actually increased the total size of the QE program to 360 billion euro with the six-month extension, more than the 300 billion expectation. So, the actual decision was not as bad as the market’s reaction. We will provide a more in-depth update on the “Long Europe” thesis in tomorrow’s report, including our opinion short, medium and longer term.

This Week

It should be a pretty quiet week economically, especially in the US. As noted, there are virtually no Fed speakers this week and little data. The undisputed highlight of the data this week will be Friday’s November Retail Sales report, which will include preliminary results from the start of the holiday spending season. Also on Friday, University of Michigan Consumer Confidence will be released, and since the market gyrations in August the Fed has watched this number, so we will too. But, to be clear, Retail Sales and consumer confidence would have to be in near freefall