Friday, January 10, 2020

This Week's Message: Spot-On Macro Assessment, Fundamentals vs Trade Talk, And Sorry Sentiment Among Execs

December jobs numbers missed expectations, which to us comes as no surprise given our overall macro assessment. What was particularly unsurprising was the 12k decline in manufacturing jobs. 

Year-on-year employment growth continues to decelerate notably, per below. Unemployment rate held at 3.5%.

Click each insert below to enlarge...


Grey shaded areas below denote past recessions...


Wage growth decelerated, which questions the tight-labor narrative a bit -- and it’s not a pretty look in terms of economic transitions historically, per below:


Above charts courtesy of Hedgeye Risk Management.


There’s more to dissect, but the bottom line in terms of employment trends is that our current US macro assessment appears to be spot on.

Overnight data worth noting; Japan’s leading indicators index came in lower than previous, but still exceeded expectations. French and Spanish industrial production both beat expectations, while Italy’s contracted year-on-year. India’s industrial production surprised nicely to the upside. Brazil CPI jumped notably to 4.31%. Russia’s CPI met expectations at 3.0%.

As for immediate reaction in equities (at 7:45am pt): The S&P 500 is up 0.1% so far on the morning. As for our core positions, Brazil (EWZ), Russia (RSX) and Emerging mkts index (VWO) are the top three; up 1.1%, .75% and .75% respectively. Our bottom three are industrials (XLI), financials (XLF) and banks (KBE); down 0.35%, 0.39% and 0.88% respectively . The weakness in financials and banks reflects the negative jobs number, and, thus, the odds of interest rates remaining low.

As for the near-term outlook in stocks, the Jan 15th phase-one signing should keep traders engaged; there's no reason given the latest action to think that that won’t inspire further buying. However, if it doesn’t, look out! Plus, I suspect immediately upon signing we'll hear promises of jumping right to phase-two negotiations, which, if the market runs true to form, could keep stocks buoyed for the time being.

That last part said, there’s high likelihood that this rosy talk around trade will have to compete with the reality of continued waning fundamentals (our macro index reads red [albeit slightly]). To drive that point home, here -- via slides I’m preparing for our next macro video -- are highlights of this week’s CEO and CFO survey releases:


Lastly, take a look at the typical transition into recession (grey shaded areas), via CEO and consumer sentiment:


If -- in the face of ever-rising stock prices -- this week's message concerns you, well, it should.

Thanks for reading.
Have a Nice Weekend!
Marty










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