DATA DIVE - Pivot Busting

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Welcome to the latest edition of Data Dive.

This will be a slightly shorter, more blunt, article as I am recovering from a pretty brutal cold and I am feeling less suffering than usual towards all the noise.And today the market is once again ripe with it.

Initial jobless claims for the US came in at 219K, above the expected 203K.

US INITIAL JOBLESS CLAIMS

Oh my Oh my, the Fed will surely have to pivot now.

Especially given the 1.1M decline in Job openings which were just reported for August.

US JOLs JOB OPENINGS

Now look at the image below, despite that 1M drop in job openings, has that trend mean reverted yet?

US JOB OPENINGS

Despite a small rise continuing jobless claims remain at pretty much all-time lows and the labour market imbalance is historically wide so while these early signs of deterioration may be welcomed by the Fed, I doubt they are sufficient.

US CONTINUING JOBLESS CLAIMS

So while everyone is chasing the narrative that the Fed will pivot, and that bad data is good because wait for it, it means the Fed will pivot, I remain squarely in the camp that although they will soon have to start hiking less aggressively, this does not mean they are about to start easing any time soon.

But if they were to pivot what would happen?

The dollar would come down and commodities would reflate, just like this week showed us it would equate to taking a huge hammer and knocking down the dollar.

DXY

This would be like pouring fuel on the inflation fire, as we saw this last week with the CRB index up 6% on the latest pivot narrative.

CRB INDEX

But enough on inflation, let us move on to another narrative which I keep on hearing and despite being almost more ridiculous, I hear it repeated ad nauseam,"the consumer is in great shape".

For new subscribers, I would point you to an article I wrote a few weeks ago where we looked at consumer confidence metrics in Europe to see how the consumer felt.NO BUENO would be the answer to that question.

Consumer confidence in almost every country we looked at had been declining for months and was making new all-time lows. Click here to read my previous article about it >

The fact that 30% of S&P earnings come from abroad seems irrelevant to many because they would have you believe the US Consumer is still strong and will support S&P earnings growth in perpetuity. While I will not deny that the US consumer is arguably the most important in the world and for the world, let us see how he/she is faring.

The Personal Savings rate is almost at all-time lows and well below its recent average.

US PERSONAL SAVINGS RATE

And it is well below its longer-term historical average as well, although this is in large part a function of the perverse impact low-interest rates for so long have had on many aspects of finance and is a discussion for another day.

US PERSONAL SAVINGS RATE

Consumer Credit Card loans are at all-time highs, as people need to borrow more to maintain their current standard of living - Yes inflation is eating away at their disposable income.

US CREDIT CARD LOANS

This is with Credit Card Interest rates at multi-decade highs

US CREDIT CARD INTEREST RATES

No wonder Delinquencies are on the rise.

US CREDIT CARD DELINQUENCY

Do you really think the US consumer can fill the gap left by the European and keep S&P earnings above 200$. I doubt it.Most analysts are still forecasting earnings growth for the S&P next year, how they achieve those numbers is beyond me. IMO we are more likely to see a double digit decline.

So now that a few myths have been busted let me share with you a handful of other data points which were released this week.

Euro Area Composite PMI came in at 48.1, the 6th straight month of decline and the 3rd month of contraction. NOTE: Any read below 50 indicates a contraction in activity, and a read above 50 an expansion.

EU COMPOSITE PMI

German Manufacturing PMI has declined 10 out of the last 12 months and has been in full-on contraction territory for the last 3, and recently made a new low at 47.8

Not all is well in the manufacturing stronghold of Europe

GERMAN MANUFACTURING PMI

It is also interesting that the German Composite PMI at 45.7 is one of the lowest in Europe, lower than France, Italy, Spain etc.

I wonder if the following two charts have anything to do with it!

Inflation in Germany ripped higher in Sept to 10% YoY

GERMAN INFLATION YoY

And more importantly, German Producer Prices rose 45% YoY

GERMAN PPI YoY

You can be as productive as you want, but it’s hard to stay competitive with such levels of inflation.

Lastly, I will share with you two more US Data points.

US Manufacturing PMI has been declining for a year now and is approaching contraction.

US MANUFACTURING PMI

While US ISM Manufacturing New-Orders have been contracting for the better part of this summer. Such contractions have typically anticipated a recession.

US MANUFACTURING NEW ORDERS

Thank you for reading,

Antonio C. Nobile

I am not a Financial Advisor & this is not financial advice

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