The Market Today
Small Business Confidence Slips to Eight-Month Lows, Market Sentiment Up on Trade Hopes
by Craig Dismuke, Dudley Carter
Small Business Slides to Eight-Month Low: The NFIB reported a third monthly decline in its often-cited Small Business Optimism Index, which fell 2.6 points in November to match its lowest level since March. Each of the key subindices released along with the headline was softer. The biggest decline occurred in the net number of respondents expecting further improvement in the economy, which fell 11 points and is now at its lowest level since the 2016 presidential election. The net share expecting better sales activity dropped 3 points to its lowest level since April. While the percentage planning to hire was flat and the number with positions they couldn’t fill was down, those planning to raise compensation rose to a net 25%, the highest in nearly 30 years. While still elevated in an historical context, like several other economic metrics recently small business confidence has cooled some since a string of strong readings from the summer.
Producer Price Inflation Firmer Than Expected: Producer price inflation was firmer than expected in November, rising 0.1% MoM (+0.6% in October ) and 2.5% YoY (2.9%). Food prices were firmer for a second month while energy prices dropped 5.0% compared with October, the biggest monthly decline since 2015. U.S. WTI fell more than 22% in November. Adjusting those effects out of producer prices, core prices were up 0.3% MoM (expected 0.1%) and 2.7% YoY (2.5%), both the quickest since July. Prices pressures from retailers and wholesalers cooled after an unusually strong October while the cost of transportation strengthened for a third month. Despite the firmer month, the broader implications for consumer price inflation remain unconcerning.
Yesterday – Stocks and Yields Whipsawed Early but Recovered on Tech Turnaround: U.S. equities stumbled out of the gates Monday, extending last Friday’s steep sell-off that capped the worst week for the major indices since March. However, stocks found their footing a couple of hours in as a positive reversal in tech led the major indices on a gradual climb higher and into positive territory before the close. Shares of Apple sank in pre-market trading and pulled the major indices lower at the open following news that chipmaker Qualcomm had been handed a victory in a Chinese court that would prevent certain iPhones from being sold in China. The ruling was related to an alleged patent violation. However, shares of Apple jumped around the lunch hour and gave a leg up to sentiment more broadly. Tech was the top performing sector within the S&P 500 and led the broader index to a daily gain of 0.2%. The index had fallen as much as 1.9% early in the session. Capping gains, however, were greater-than-1% drags from energy and financials. Crude prices tumbled more than 3% Monday as several U.S. drillers announced plans to increase spending in the New Year, helping to offset some of the price support from a larger-than-expected production cut delivered Friday from OPEC and friends. After turning lower on the day in the midst of equities’ early retreat, but ended higher by more than 1 bps on the day. The 2-year yield rose 1.8 bps to 2.73%, the 5-year yield added 2.5 bps to 2.71%, and the 10-year yield ticked up 1.2 bps to 2.86%. Elsewhere, the Dollar had its best day in a month as PM May’s delaying of a key Brexit vote in Parliament punished the British Pound and weighed on the Euro.
Overnight – Global Stocks Firm Up on Trade Hopes: Yesterday’s intraday reversal higher by U.S. stocks stoked a sense of optimism overnight with equities across Asia and Europe moving mostly higher on Tuesday. It took a while to get going, as several Asian indices struggled for direction, but Europe’s Stoxx 600 is trading near its daily highs at up 1.9%. U.S. futures have firmed up in response with tech in the lead for a second day. A couple of positive headlines on the U.S.-China trade saga have supported the move higher. China’s top trade negotiator had a phone call with U.S. Treasury Secretary Mnuchin and USTR Lighthizer to discuss “views on implementing the consensus reached at the meeting between the two heads of state and promoting the next step of economic and trade consultations through a timeline and road map,” according to a Statement from China’s Ministry of Commerce. A later headline indicated China was in the process of cutting back the tariffs on U.S. auto imports from 40% to 15%. The rate was increased in July in retaliation to U.S. tariffs on Chinese goods. Automakers were near the top of European equity indices. As equities have strengthened, sovereign yields have moved higher though the most recent levels were well off their overnight highs. The 2-year (2.75%) and 10-year (2.87%) Treasury yields were both earlier up 1.6 bps.
JOLTS Openings Still Solid as Other Metrics Level Off: There were fewer job openings in October than economists had expected, but the 7.079MM figure still represented the second highest level since the series started back in 2000. Sliding oil prices may have driven another down month for mining openings but other goods producers, construction and manufacturing, snapped back from big declines in September. In the services industries, IT and financial services also posted solid recoveries. The trend of too few workers, a theme echoed in the anecdotal evidence as of late, continued in the latest report. For a seventh month, there weren’t enough workers (0.858x) to fill all the open positions. Hires also rebounded to their second strongest level and layoffs declined. Although the layoffs rate remained near its lowest level of the cycle, some softness recently in the more timely jobless claims data will likely offset that optimism somewhat. Also on the softer side, the quits rate edged down but remained near their best readings of the cycle. The labor market remains strong but, similar to other more indicators, JOLTS metrics indicates some leveling off.