The Market Today
Job Openings Record High, Job Quitters Highest in 17 Years
by Craig Dismuke, Dudley Carter
Produce Prices Show Weaker Inflation Pressure from Production Pipeline: Producer prices were weaker than expected at almost every level in August. Headline prices fell 0.1% versus expectations of a 0.2% increase. Part of the weakness came from food and energy prices. Energy prices rose just 0.4% MoM versus the 12-month average rate of +1.1%, and food prices fell a fairly sharp 0.6% MoM. Even excluding these categories, core producer prices fell 0.1% versus their 12-month average rate of +0.2%. Apart from a 40% increase in egg prices, there was little evidence in the August report of accelerating production costs. At the very least, this should assuage concerns that consumer inflation will rise materially above 2.0% in the near term.
Fed News in Build-up to September 26 Meeting: St. Louis Fed Bank President Bullard is scheduled to speak at 8:40 a.m. CT in Chicago and Fed Governor Brainard is scheduled at 11:45 a.m. from Detroit. Bullard has been a vocal critic of continuing to hike rates when the Phillips Curve (the relationship between falling unemployment and rising inflation) has proven ineffective. Brainard has long been seen as reflective of the middle of the FOMC, a good indicator of what the median official expects. In anticipation of the September 26 FOMC meeting, the Fed will release its Beige Book report at 1:00 p.m. Analysts are likely to key in on comments regarding hiring, difficulty in hiring, and wage pressures.
Yesterday – Treasury Yields Pushed Higher as Stocks Strengthened, Economic Data Impressed: Stocks’ doldrums didn’t last long Tuesday as the S&P 500 quickly erased an opening jump on its way to a 0.4% daily gain. The Dow added an even-greater 0.4% and the Nasdaq led with a 0.6% rally. Tech companies were the fourth best performing sector within the S&P, outpaced by gains in telecom, energy, and consumer discretionary companies. During equity trading, the price of both U.S. WTI and gasoline rose more than 3% as signs emerged that U.S. sanctions on Iranian oil might be talking hold and Hurricane Florence continued to strengthen with its sights set on the East Coast. The storm also gave home improvement retailers a boost, with both Home Depot and Lowe’s up another 1.5% after a more-than-2% gain on Monday. Those companies would likely benefit from a bad situation as storm damage could drive higher rebuilding revenues. Treasury yields were already under pressure overnight, added to those gains after record reports on small business confidence and job openings, and continued to climb as stocks trekked higher. The 2-year yield added 3.3 to 2.74%, a new high for the cycle. The 10-year yield closed 4.4 bps at 2.98%, its highest level since August 2. Both are now up roughly 11 bps since the day before last Friday’s payroll report.
Overnight – Stocks Mixed, Treasury Yields Pull Back: U.S. equity futures were little changed overnight and longer Treasury yields had edged lower to undo a small portion of the previous three days’ rise. Asian markets, which were closed at the time of yesterday’s original announcement, responded negatively to the news that China had asked the WTO for permission to retaliate against certain unfair U.S. trade practices. China’s CSI 300 fell 0.7% to a more-than-two-year low. More broadly, the MSCI Asia Pacific Index dropped for a 10th consecutive session, its longest losing streak since another 10-day drop in June 2002. In Europe, stocks were being led higher by energy companies as crude prices tacked on more upside to yesterday’s strong gains. U.S. WTI was creeping back towards $70 per barrel while Brent prices were re-approaching the $80 mark. In addition to negative supply news tied to the Iran sanctions, and to a lesser degree Hurricane Florence, an industry report estimated U.S. crude inventories shrank 8.64MM barrels last week. In the sovereign debt markets, European yield curves were flattening lower with the 10-year yields for the major economies down just over 2 bps. Those yields dropped to their lows of the day after Bloomberg reported the ECB was expected to lower its growth forecast as a result trade tensions weighing on external demand. After this morning’s softer-than-expected PPI inflation report, the 2-year yield had moved 0.8 bps lower with the 10-year yield down 1.7 bps, both representing their daily lows.
JOLTS Openings Jump to New All-Time High: Job openings soared to a new record high 6.939MM in July and June’s initial estimate of 6.662MM was revised higher to 6.822MM. The openings rate, which puts the number of openings in context of total employment, held at a record high 4.4%. The overall monthly increase of 117k in new openings was the net result of 133k more private-sector openings offsetting a 16k contraction in government job postings. Within the private sector, leisure and hospitality openings surged an impressive 72k to a new all-time high while professional business services added 48k. Manufacturers increased their search for workers for a fifth month in a row to a series’ record 506k. Finance and insurance companies, a subsector of the financial activities sector, also posted a strong 46k monthly increase. On the downside, retail trade dropped 85k open positions after reaching its second strongest level on record the month before. Education and health services also posted a 46k decline. Within the other metrics, hires were essentially flat from June but a modestly changed number of separations hid strength in the underlying components. Total quits rose 106k which pushed the quits rate up to a new series high of 2.4%. Total layoffs dropped 50k which left the layoffs rate at 1.1%, 0.1% above its record low. The labor market continues to strengthen, with the number of unemployed per open position (0.91x) at a new cycle low and below 1.0x for a fifth consecutive month.