The Market Today

Small Business Struggle Finding Workers, but Confidence Remains Good


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

Small Business Optimism Ticks Lower but Remains Resilient: The NFIB’s Small Business Optimism index pulled back more than expected in August, down 1.6 points on a 5-point drop in the sales expectations sub-index and an 8-point drop in the general business outlook.  While the outlook for sales is on the weak side of its 2017-to-current range, the general business conditions index has weakened more notably.  While uncertainty continues to weigh on small businesses, their overall outlook remains strong versus historical norms. According to NFIB’s CEO Juanita Duggan, “Small business owners continue to invest, grow, and hire at historically high levels, and we see no indication of a coming recession.” Finding quality labor continues to be a challenge for small businesses, with a record number of respondents saying they were unable to fill open jobs last month because of the tight labor supply.  According to the NFIB’s press release, “In fact, the main impediment to more growth is the record level of no qualified workers.”

JOLTS Report: At 9:00 a.m. CT, the July Job Openings and Labor Turnover Survey is expected to show another small pullback in job openings.


YESTERDAY’S TRADING ACTIVITY

Global Bond Market Was Monday’s Focus: Equities erased morning-session gains just before lunch, only to recover and close nearly unchanged in a wobbly weekly start for Wall Street. However, moves across the global bond market garnered greater attention on Monday. Forces in Europe added to upward pressure created last week by hopes of trade progress and signs of U.S. economic stability. The U.K.’s 10-year gilt yield rose 8.5 bps to start the week while Germany’s ended 5.3 bps higher.

European Forces Added To Upward Pressure From Trade Hopes And Stable U.S. Data: Treasury yields jumped late last week on news that the U.S. and China had agreed to meet and discuss trade in early October. Additionally, the ISM’s services survey rose more than expected in August and hourly earnings momentum ramped up. On Monday, a slate of U.K. economic data was stronger than expected and separate reports showed the German government was pondering ways to loosen its fiscal purse strings. Analysts also pointed to markets repricing for an increased chance that the ECB opts to wait on a restart of its quantitative easing program on Thursday, although a rate cut remains well priced in.

Banks Buoyed Equity Indices As Global Yields Moved Higher: The S&P 500 fell an imperceptible 0.01% as losses for health care and tech companies offset solid gains for energy and financials. Financial companies rose as banks responded to the jump in yields with their third-largest daily rally of the year. By the close, the 2-year yield had risen 5.3 bps to 1.59% and the 10-year yield had added 8.4 bps to 1.64%, both four-week highs.


OVERNIGHT TRADING ACTIVITY

Markets Meander Near Monday’s Close: Global equities were mixed Tuesday while bond yields inched up, although neither asset class moved very far from where it finished Monday. The week’s major events come later in the week, starting Thursday with U.S inflation data and the ECB’s decision on how much stimulus to add to the flagging Eurozone economy. As they wait, markets will likely wander and ponder last week’s developments on trade and the U.S. economic outlook.

Chinese Producer Prices Fell And U.K. Parliament Is On Break: Chinese stocks slipped 0.3% after producer prices in the country dropped 0.8% YoY in August, the largest decline in three years. Producer prices are seen as an indicator for the health of and pace of activity in the world’s second largest economy, as well as a gauge of corporate profitability. In Europe, industrial production data from France and Italy was softer than expected and British parliament was suspended until October 14. The Stoxx Europe 600 slipped 0.2% while the U.K.’s FTSE 100 edged up 0.1%.

No New Debt Yet In Germany, But “Many Billions” Are Available: For a second day, Treasury yields lagged higher yields in Europe, despite Germany’s Finance Minister presenting a budget that was void of new debt funding spending. Speculation that Germany would loosen its fiscal policy has grown in recent weeks and was one force of pressure behind higher yields on Monday. While there is not “new debt” in the current budget, the government is “in a position…to respond with many, many billions, if indeed an economic crisis erupts in Germany and Europe.” Germany’s 10-year yield was 2.7 bps higher at 7:30 a.m. CT while the 10-year Treasury yield had edged up 0.9 bps. U.S. stock futures had declined just under 0.2%.


NOTEWORTHY NEWS

Consumers Borrowed More In July: Data from the Federal Reserve showed total consumer credit, excluding mortgage-related debts, grew by $23.3B in July, or at an annualized 6.8% rate. The pace of overall credit growth, one of the firmest since late 2017, was driven by an 11.3% annualized gain in revolving credit and a 5.3% annualized increase in non-revolving categories. The big jump in revolving credit, largely reflecting consumers’ credit card balances, will reinvigorate debate around if consumers are borrowing out of necessity or increased confidence. Last Friday’s August payroll report showed the slowest pace of annual job growth in eight years but one of the firmest readings of the cycle for wage momentum. The July credit report also corresponds with one of the stronger months for core retail sales in recent years.


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