The Market Today

TODAY’S CALENDAR

Thursday’s Data Disappoints: Thursday labor market indications came up short of estimates and a wider-than-expected trade deficit showed that category of the GDP calculation continued to drag early in 4Q. ADP reported headcount at private U.S. companies rose 179k, 16k fewer than expected (195k) and a 28k shy of the previous 12-month average (207k.) Nine of the eleven underlying industries fell short of their respective 12-month averages, with the biggest gaps seen in manufacturing and trade, transportation, and utilities companies. Offsetting those disappointments were above-trend gains in professional and business services and education and health services. Both small (<50 employees, +46k in November) and medium-sized (50-499, +119k) companies increased their activity while big business hired just 13.5k, the fewest since April 2017. Economists expect Friday’s payroll growth of 198k to be supported by 200k new private payrolls.

 

Initial jobless claims were lower than in the week before, but the total of 231k was slightly higher than the 225k expected. As the trend has softened in recent weeks, the four-week average has risen in 10 of the last 11 weeks to 228k, the highest since April. Continuing claims, however, declined to 1631k which is just 1k above their lowest level since 1973 reached five weeks ago.

 

Nonfarm productivity was revised up 0.1%  to 2.3% for 3Q in final revisions while unit labor costs were lowered from 1.2% to 0.9%. In the trade data, October’s deficit widened $0.9b to $55.5B, $0.5B more than economists were expecting. Exports fell slightly compared with September as nominal imports reached a new record. Net external trade dragged 1.9% from growth in 3Q.

 

TRADING ACTIVITY

Yesterday – Risk Sell-Off Resumes as U.S.-China Headlines Seen Complicating Trade Negotiations: Tuesday’s equity sell-off resumed Thursday as trading in U.S. restarted after closing Wednesday to celebrate the life of President George H.W. Bush. U.S. futures plunged when Asia opened as Chinese shares slump over 2%, sparking another day of weakness globally. Already-antsy investors are focused on any headlines that could affect the odds of China and the U.S. settling steep economic and trade differences within the 90-day truce window agreed to over the weekend. Thursday’s selling started after news broke that the CFO of a major Chinese tech company, Huawei Technologies, had been arrested in Canada on behalf of the U.S. for potentially violating sanctions it had placed on Iran. China’s embassy in Canada said there were no laws broke and called for the U.S. and Canada to “rectify wrongdoings” by releasing Ms. Meng. Less covered, but aggravating those anxieties, were separate reports of evidence that the massive data breach at Marriot International, a U.S. multinational, was carried out by individuals working for the Chinese government. European markets are even worse off than those in Asia with the Stoxx 600 trading down 2.3% and the materials, a bellwether for trade tensions, and technology sectors leading losses. Contracts on the S&P 500 were down 1.5% and Treasurys strengthened as investors pared back risk in their portfolios. The 2-year yield was down 2.9 bps to 2.766%, the 5-year yield was 2.5 bps lower at 2.762%, and the 10-year yield dropped 2.7 bps to 2.886%. All were new lows since early September.

 

NOTEWORTHY NEWS

Beige Book Showed Activity and Inflation Pressures to Be a Little Softer: Compared with the October edition, the Fed’s December Beige Book described slightly softer economic activity and inflation, but signaled further tightening of the labor market may be placing firmer upward pressure on wages. “Most” Districts described growth as “modest or moderate” compared to a “majority” back in October. Dallas and Philadelphia said growth slowed while St. Louis and Kansas described activity as “slight.” Consumer spending “held steady” and “tariffs remained a concern.” A “few Districts noted some slowing” in loan growth. Looking ahead, “optimism has waned” in some Districts thanks to “tariffs, rising interest rates, and labor market constraints.” Inflation was “modest” versus “modest to moderate” in October but there are signs wage growth is picking up. More than half of the Districts said businesses have been “constrained” by worker shortages, which was in part why hiring “leaned to the slower side of a modest to moderate pace,” and wage growth “tended to the higher side of a modest to moderate pace.”