Stocks and bonds were a bit choppy this past week ahead of the election. October jobs were a bit lower than expected, but wages rose and September payrolls saw an upward revision. Overall, the employment report didn’t surprise or move the markets. Despite the holding pattern, there was good news in Friday’s jobs report. The US economy added 12,000 less jobs than expected, but “average hourly earnings rose 2.8% over the past year, the fastest pace since the recession (when wage growth was on the way down)” submits Yahoo Finance, November 4, 2016.
Thanks to Dent Research, provided here is our weekly information roundup ending the weekon November 4, 2016. We start each subject with what you hear in the news and finish with what that information means to you. We hope this information will help you separate the noise from the news
The U.S. Created 161,000 Jobs in October and the Unemployment Rate Remained Steady at 4.9%...The result was in line with expectations.
What it means – For the second time in as many months, employment numbers don’t matter much. Without a big surprise in either direction, investors remain laser-focused on the election. The markets feel like they are either coiled like a spring, waiting to bounce higher after Tuesday, or are teetering on the edge of a cliff, waiting for the smallest breath of wind to push them over the edge. Just a few more days and it will all be over.
But just because the markets didn’t react to the employment figures doesn’t mean there wasn’t anything interesting under the hood. The infamous birth/death adjustment added 197,000 guessed-at jobs to the report last month, which is more than the net number of jobs actually counted in the survey! Why don’t they stop the pretense of the survey and simply guess at all the jobs? It might save us a bit of money, and the results would be just as reliable.
The Federal Reserve Held Rates Steady Ahead of U.S. Election… In a widely anticipated move, the Fed held overnight rates at 0.25% to 0.50%. Their policy statement was mostly unchanged from the last meeting.
What it means – Almost no one expected a rate hike this time around. All eyes are on the December meeting. The policy statement didn’t say “we’ll raise rates next month,” but it did note strengthening employment and stronger hints of inflation, two key ingredients for a rate hike. On Wall Street, the odds of a December rate hike jumped to 80%. I’d put the odds even higher.
U.S. Oil Inventory Rose 14.4 million barrels… It was the largest weekly increase in four years, putting inventory 7% ahead of a year ago.
What it means – So much for OPEC turning off the taps. The oil ministers agreed in principle to production cuts, but couldn’t reach an agreement on specifics. So the oil still flows, as is evidenced by the growing stash in the U.S., and now the price of oil is retreating.
After topping $50 and holding for a bit, the price of oil dropped near $45, losing more than 12% from the high. It’s great for consumers at the pump, but it sure puts a dent in the bottom line of energy companies. Expect more pain in the oil patch in the months ahead.
Eurozone Third-Quarter GDP Up 0.3%… The annual rate remained flat at 1.6%.
What it means – Still. Can’t. Grow. Is your central bank printing $80 billion per month to buy corporate bonds? Who cares. Are interest rates crammed below zero? What does it matter?! The Europeans are proving in spectacular fashion that government-engineered growth is a myth.
Bank of Japan (BoJ) Leaves Monetary Policy Unchanged… After a slew of negative economic indicators, the BoJ disappointed investors by not adding to their easing policies.
What it means – The BoJ governors don’t know what to do. They buy government bonds, exchange-traded funds that mimic the main stock index, corporate bonds, REITs, and even foreign securities. They’ve pushed overnight rates below zero and set a target for the 10-year government bond. And yet, inflation is falling.
The Japanese economy is at risk of suffering another bout of deflation. They just can’t seem to turn the ship around. But they keep trying, and they can’t stop. Capitulating would mean letting go of the notion that they can control or direct the economy. Without that pretense, the yen would soar in value, exports would drop, and the economy would drop even further.
Expect more central bank intervention before the end of the year as the BoJ tries to weaken the yen ahead of 2017.
Chinese Social Security Under Pressure… The national system has a $50 billion surplus, but it is expected to fall to a deficit in just six years.
What it means – The Chinese Academy of Social Sciences estimates that by 2050, just 34 years from now, the deficit will reach $118 trillion. That’s not a typo, that’s “trillion” with a “t.” The government will most likely bump up the retirement age, which is currently 60 for men and 55 for women, and force provincial plans to merge.
Each move simply rearranges pieces on the chessboard. There’s no way to change the math. The government will cut benefits, although authorities are taking a step to grow the retirement assets by moving $60 billion from bonds to equities. This move seems particularly ill-timed.
The Pirate Party Won 10 Parliament Seats in Iceland… Even though the radical party won less of the vote than expected, it still tripled its previous membership of three seats.
What it means – The pirates want to legalize drugs, hold direct referendums instead of using representative democracy, and grant citizenship to Edward Snowden.
The country holds less than 300,000 people, so their political machinations don’t really mean much to the rest of the world. But just the fact that they can say they belong to the Pirate Party – and win parliamentary seats! – is kind of awesome. I wonder if their symbol is the Jolly Roger?
Next Week – The second week in November includes the second Tuesday of the month, which thankfully means the circus of the presidential election will come to an end. There are few economic reports slated for next week
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