Mortgages are rallying and stocks are lower worldwide this morning after mixed U.S. economic data combined with disappointing Chinese industrial profits data has investors seeking safe haven. This comes as a surprise after Federal Reserve Chairwoman Janet Yellen’s speech on Thursday evening regarding the Fed’s intention to raise rates before the end of the year sent 10-year treasury yields back up to 2.2%.
Chinese industrial profits dropped 8.8% year-over-year, the lowest reading since this has been tracked, setting off a global equity selloff. Japanese stocks were down 1.5% overnight, and Eurozone stocks are down just under 2%. U.S. stocks are also feeling the pain of the risk-off trade, and the DJIA has declined almost 200 points to start the morning. If today’s sentiment holds true through the end of the month, U.S. equities will finish the quarter with the largest single quarter fall in stock prices since the financial crisis in 2010. The Dow has declined almost 10% since the end of June.
Busy Week for Economic Data
Today is the start of a busy week in economic data, highlighted by Friday’s Non-Farm Payrolls (NFP) report for September. We had mixed data releases so far today, with personal income and spending data for August showing beats above estimates, but the August report on pending home sales missed the mark.
Personal income rose 0.3% in August, slightly below the +0.4% estimate, but July was revised higher by almost 0.2%, netting out to a small increase. Spending data came in even better, as personal spending rose 0.4% vs. +0.3% estimate, with July also revised higher by an additional 0.1%. Both reports are consistent with a stable and improving consumer. Core personal consumption was also higher by 0.1% month-over-month and 1.3% year-over-year, right in line with estimates.
On the housing front, pending home sales were surprisingly lower, down 1.4% vs. an expected +0.4% increase, and year over year pending home sales dropped to 6.7% from 7.2%. At this point, however, investors don’t appear to be too concerned on this print as pending sales have been solid year to date.
Fed Officials Appear to Support Rate Hike for Later This Year
Moving back to the Fed and Yellen’s commentary last Thursday, Fed officials clearly appear to be lining up in support of a rate hike later this year. This morning, New York Federal Reserve Bank President William Dudley, well known as being an influential FOMC member with dovish sentiment, stated that he too expects a Fed rate hike before the end of the year. There will be additional speeches by Fed officials Evans and Williams later today, and it will be interesting to see if they provide the same sentiment in what is clearly playing out as a FOMC “heads up” to markets.
Economic data for the rest of the week continues with data on home prices Tuesday from the Case Shiller index, as well as the ADP employment change data and the Chicago PMI print Wednesday. On Thursday, we start the fourth quarter with data on ISM manufacturing and construction spending (in addition to the weekly jobless claims data), and we close with NFP on Friday.
The current consensus estimate for Friday is that U.S. employers added 202,000 new jobs last month after they added 173,000 in August. The unemployment rate is expected to hold at 5.1%, and average hourly earnings are expected to jump to +2.4% year-over-year. Considering that the August NFP print last month was noted as likely to have been light due to delays in reporting, many will expect that there will also be strong net revisions to the July and August readings.
Economic Calendar below (courtesy of the FNMA trading desk):
|09/28/2015 08:30||Personal Income||Aug||0.40%||—||0.40%||—|
|09/28/2015 08:30||Personal Spending||Aug||0.30%||—||0.30%||—|
|09/28/2015 08:30||Real Personal Spending||Aug||0.40%||—||0.20%||—|
|09/28/2015 08:30||PCE Deflator MoM||Aug||0.00%||—||0.10%||—|
|09/28/2015 08:30||PCE Deflator YoY||Aug||0.30%||—||0.30%||—|
|09/28/2015 08:30||PCE Core MoM||Aug||0.10%||—||0.10%||—|
|09/28/2015 08:30||PCE Core YoY||Aug||1.30%||—||1.20%||—|
|09/28/2015 10:00||Pending Home Sales MoM||Aug||0.40%||—||0.50%||—|
|09/28/2015 10:00||Pending Home Sales NSA YoY||Aug||8.00%||—||7.20%||—|
|09/28/2015 10:30||Dallas Fed Manf. Activity||Sep||-10||—||-15.8||—|
|09/29/2015 09:00||S&P/CS 20 City MoM SA||Jul||0.10%||—||-0.12%||—|
|09/29/2015 09:00||S&P/CS Composite-20 YoY||Jul||5.15%||—||4.97%||—|
|09/29/2015 09:00||S&P/CaseShiller 20-City Index NSA||Jul||182.22||—||180.88||—|
|09/29/2015 09:00||S&P/Case-Shiller US HPI MoM||Jul||—||—||0.09%||—|
|09/29/2015 09:00||S&P/Case-Shiller US HPI YoY||Jul||—||—||4.49%||—|
|09/29/2015 09:00||S&P/Case-Shiller US HPI NSA||Jul||—||—||173.84||—|
|09/29/2015 10:00||Consumer Confidence Index||Sep||96||—||101.5||—|
|09/30/2015 07:00||MBA Mortgage Applications||25-Sep||—||—||13.90%||—|
|09/30/2015 08:15||ADP Employment Change||Sep||190k||—||190k||—|
|09/30/2015 09:00||ISM Milwaukee||Sep||48.5||—||47.67||—|
|09/30/2015 09:45||Chicago Purchasing Manager||Sep||53||—||54.4||—|
|10/01/2015 07:30||Challenger Job Cuts YoY||Sep||—||—||2.90%||—|
|10/01/2015 08:30||Initial Jobless Claims||25-Sep||272k||—||267k||—|
|10/01/2015 08:30||Continuing Claims||18-Sep||2230k||—||2242k||—|
|10/01/2015 09:45||Markit US Manufacturing PMI||Sep F||53||—||53||—|
|10/01/2015 09:45||Bloomberg Consumer Comfort||27-Sep||—||—||41.9||—|
|10/01/2015 10:00||Construction Spending MoM||Aug||0.60%||—||0.70%||—|
|10/01/2015 10:00||ISM Manufacturing||Sep||50.6||—||51.1||—|
|10/01/2015 10:00||ISM Prices Paid||Sep||40||—||39||—|
|10/01/2015||Wards Domestic Vehicle Sales||Sep||13.80m||—||13.80m||—|
|10/01/2015||Wards Total Vehicle Sales||Sep||17.50m||—||17.72m||—|
|10/02/2015 08:30||Change in Nonfarm Payrolls||Sep||202k||—||173k||—|
|10/02/2015 08:30||Two-Month Payroll Net Revision||Sep||—||—||—||—|
|10/02/2015 08:30||Change in Private Payrolls||Sep||197k||—||140k||—|
|10/02/2015 08:30||Change in Manufact. Payrolls||Sep||0k||—||-17k||—|
|10/02/2015 08:30||Unemployment Rate||Sep||5.10%||—||5.10%||—|
|10/02/2015 08:30||Average Hourly Earnings MoM||Sep||0.20%||—||0.30%||—|
|10/02/2015 08:30||Average Hourly Earnings YoY||Sep||2.40%||—||2.20%||—|
|10/02/2015 08:30||Average Weekly Hours All Employees||Sep||34.6||—||34.6||—|
|10/02/2015 08:30||Underemployment Rate||Sep||—||—||10.30%||—|
|10/02/2015 08:30||Change in Household Employment||Sep||—||—||196||—|
|10/02/2015 08:30||Labor Force Participation Rate||Sep||—||—||62.60%||—|
|10/02/2015 09:45||ISM New York||Sep||—||—||51.1||—|
|10/02/2015 10:00||Factory Orders||Aug||-1.30%||—||0.40%||—|
|10/02/2015 10:00||Factory Orders Ex Trans||Aug||—||—||-0.60%||—|