Market participants, assuming they can somehow tune out what promises to be incessant political noise, will focus on a bevy of key data due this week in the US, including ISM manufacturing and September payrolls.
There’s reason to fret, even as it’s equally plausible to suggest that the US economy is likely to retain its teflon coating for a least another couple of months thanks to a still resilient consumer and a solid services sector (top pane in the visual).
Of course, ISM manufacturing fell into contraction territory in August (red in the bottom pane), and in light of a better-than-expected print on IHS Markit’s factory gauge last week, market participants will be looking for a bounce. “We expect some stabilization in the manufacturing ISM (Tuesday) and forecast a mild rebound to 49.9 after trade tensions eased in September”, Barclays said over the weekend. Some desks are looking for a jump back above the 50 line that separates expansion from contraction.
As for payrolls, note in the bottom pane that the trend is not your friend. That’s the 6-month moving average in yellow.
Below is the 3-month average (again in yellow) along with the monthly numbers and the unemployment rate. You’ll recall that the August print (130k on the headline) was a disappointment and revisions lopped 15k from June’s headline and 5k from July’s.
Although last week’s IHS Markit manufacturing PMI was an upside surprise, the non-manufacturing gauge missed, and the employment index both for services and for the composite index printed in contraction territory.
At 49.4, the Markit composite employment index suggests the labor market may have decelerated below the breakeven growth rate of 100k per month.
That’s the setup this week on the data front, and the numbers will be set against an exceptionally fraught domestic political backdrop, which has implications for assets. “Political pressure might increase the assertiveness of the President, which increases the risks of increased use of tariffs and unconventional tools to attain other policy goals (on currency, immigration etc.), and could bring a broadening and escalation of the trade wars”, Barclays warned on Sunday. “However, if equities volatility/downside were to increase, Trump might instead opt to keep his conciliatory tone toward China, in a bid to support markets”.
The list of Fed speakers is comically long. The market will hear from Evans, Clarida, Bowman (Tuesday), Barkin, Harker, Williams (Wednesday), Quarles, Mester, Kaplan, Clarida (Thursday) and Rosengren, Bostic (Friday).
As if that wouldn’t be enough Fedspeak, Powell will deliver the opening remarks at a “Fed Listens” event in Washington. Brainard will apparently be there for that, as will Quarles.
Everyone will be listening for any hint as to what the Fed plans to do to permanently address the funding squeeze that showed up in September. As detailed here on Sunday morning in “The Funding Storm Has Passed. Now What?“, the resumption of POMOs in November is all but certain. It’s just a question of the details and there’s still room for more discussion on a standing repo facility.
What can we say other than “Feel the market! Don’t just go by meaningless numbers. Good luck!”
I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake. Also, don’t let the market become any more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t just go by meaningless numbers. Good luck!
— Donald J. Trump (@realDonaldTrump) December 18, 2018