Wednesday, October 31, 2018

Higher markets on the last day of a tough month for stocks

Dow soared 378, advancers over decliners about 5-2 & NAZ shot up 178.  The MLP index recovered 5+ to the 255s & the REIT index added 4 to the 346s.  Junk bond funds crawled higher & Treasuries declined in price, bringing higher yields.  Oil was flattish in the 66s & gold lost 10 to 1214 while stocks were rising.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil65.88

GC=FGold   1,213.80

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Stocks climbed, boosted by the latest earnings reports & economic data.  A handful of big names posted their quarterly results today.  Traders also digested the ADP payrolls report, which showed the US economy added 227K jobs versus the estimate for 189K.  On Friday the gov monthly jobs report will be released.  Stocks were higher yesterday following losses on Mon as investors assessed the latest economic data & corp earnings reports.  The Dow rallied 431 (1.8%) to 28,874 & the S&P 500 jumped 41 (1.5%) to 2682.  The NAZ was up 111 (1.6%) to 7161.  Traders also digested the latest Case-Shiller report on home prices, which showed prices experienced their slowest annual growth in Aug since Dec 2016. T his was just the latest piece of data supporting a slowing housing market as rising rates & climbing prices are starting to dent demand.   In yesterday's trading in Asia, China's Shanghai Composite finished the day higher by 1.4% & Hong Kong's Hang Seng rose 1.2%.  Japan's Nikkei average ended the day up 2.2%%.  In Europe, London's FTSE traded up 1.5%, Germany's DAX gained 1.3% & France's CAC added 2.2%.

Stocks rebound on last trading day of a volatile October

Hiring remains strong across the US with private sector employment increasing by 227K jobs in Oct, according to the ADP National Employment Report.  Analysts were expecting 189K jobs would be added during the month.  The most jobs were trade/transportation/utilities where 61K positions were added.  40K jobs were created in the leisure/hospitality category & 36K jobs were added in professional/business services.  The US Oct payroll increase was the highest since last Feb.  ADP revised the Sep payroll additions to 218K from 230K.  Despite a significant shortage in skilled talent, the labor market continues to grow," said ADP Research Institute.  "We saw significant gains across all industries with trade and leisure and hospitality leading the way.  We continue to see larger employers benefit in this environment as they are more apt to provide the competitive wages and strong benefits employees desire."  On Fri, the gov will release its Oct payrolls report, which will offer an in-depth look at the labor market, including job additions, the unemployment rate, the labor participation rate & wage growth.

ADP job growth of 227,000 highest in eight months

Employment costs rose more than expected in Q3 in a sign that more inflation could be brewing in the US economy.  The Labor Dept's employment cost index rose 0.8% for the period, ahead of the estimate of 0.7%.  Wages & salaries rose 0.9%, well ahead of expectations for 0.5% & benefit costs were up 0.4%.  On a yearly basis, wages & salaries jumped 3.1%, the biggest increase in 10 years.  Wage increases have been the missing link in the economy since the recovery began in mid-2008.  Average hourly earnings have been rising steadily but have stayed below the 3% level as slack has remained in the labor market.  However the unemployment rate is now at 3.7%, the lowest since 1969, & wage pressures have begun to build.  The Federal Reserve has been raising interest rates in an effort to stave off future inflationary pressures, though the central bank's preferred gauge of inflation rose just 2.5% in Q3, including a 1.9% increase for health benefits.  The wage data came the same day that ADP & Moody's reported private payroll growth of 227K in Oct.  The combination of news sent Treasury yields higher in morning trading.  Overall compensation costs for civilian workers rose 2.8%, tamped down in part by the small rise in benefit costs, which rose 1.9% for the 12-month period ending in Sep.  Employers have been looking for non-salary measures to retain workers, but may have to start increasing wages to attract & retain talent.  In addition to the tighter job market, various states, communities & private companies have passed minimum wage increases, adding to inflation pressures.  At an occupational level, compensation costs increased 4.8% for information technology & 3.5% for sales & office & service occupations.  State & local gov compensation costs rose just 2.5%, just one-tenth of a point more than the increase for the same period a year ago.

Wages and salaries jump by 3.1%, highest level in a decade

China reported slower manufacturing growth in Oct for the 2nd straight month as the country's traded war dispute with the US continues.  Official manufacturing Purchasing Managers' Index (PMI) was 50.2 — lower than the 50.6 that was expected.  The official manufacturing PMI was 50.8 in Sep.  The official PMI reading for Oct was the lowest since Jul 2016, with the production & new orders sub-indices also falling from a month ago.  New export orders contracted for the 5th straight month.  A reading above 50 indicates expansion, while a reading below that signals contraction.  Oct is the first full month after the latest US tariffs went into effect.  DC & Beijing slapped additional tariffs on each other's goods on Sep 24.  Economic data from China is being closely watched amid a trade war between the 2 economic giants.  The Chinese statistics bureau said an analysis of the data that manufacturing shows activity in Oct was hit by long national public holidays & a “complex and variable external environment” that caused “fluctuations” in demand & supply.  Official services PMI also fell to of 53.9 in Oct from 54.9 in Sep.  Although economic data out of China has held up so far this year even amid the trade dispute with the US, analysts said many exporters were rushing to ship products before American tariffs on the goods hit.  Already, China reported slower than expected growth of 6.5% in Q3, its weakest pace since the Q1-2009.  Even before the escalation in trade tensions with the US this year, Beijing was already trying to manage a slowdown in its economy after 3 decades of breakneck growth.  The trade war with the US is now complicating those efforts, with analysts expecting Beijing to boost policy easing measures to manage the threats from the bilateral dispute that may derail growth.  Results of another private manufacturing survey focused on small & mid-sized firms will be released on tomorrow.  China’s official PMI gauge focuses on large companies & state-owned enterprises, while the private survey by Caixin & IHS Markit focus on small & medium-sized enterprises.

China reports lower-than-expected manufacturing growth 

Th sellers have had a good month & are taking a day off today.  Buyers are looking for bargains after all the selling this month & are in command, at least for today.  Meanwhile macro economic issues have not gone away.  Trade wars are worrisome, interest rates are rising & the oil market is rocky with sanctions on Iran beginning in a couple of days.  The Dow is still down 1.2K in Oct making for one dreary month.

Dow Jones Industrials

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