MARKETWATCH
"U.S. factory orders rise in October"
By Greg Robb
Published: Dec 5, 2019 10:10 a.m. ET
Factory orders rose 0.3% in October, the Commerce Department said Thursday.
This is the first gain in three months.
Orders in September were revised to a 0.8% drop compared with the previous estimate of a 0.6% fall.
Economists were expecting a 0.2% rise.
Durable goods orders rose a revised 0.5%, down slightly from last week's initial estimate of a 0.6% rise.
Orders for nondurable goods were flat in the month.
T.J. Connelly, head of research at Contingent Macro, noted that the growth rate in factory orders is down 1.2% year-over-year.
"Overall, the factory sector showed only hints of stabilization amid a continued downtrend," Connelly said, in a note to clients.
https://www.marketwatch.com/story/us-fa ... 2019-12-05
THE ECONOMY
Re: THE ECONOMY
MARKETWATCH
"October consumer credit expands at second strongest monthly rate this year"
By Greg Robb
Published: Dec 6, 2019 3:01 p.m. ET
The numbers:
Consumer borrowing accelerated in October by the second highest rate this year, according to Federal Reserve data released Friday.
Total consumer credit increased $18.9 billion, up from $9.6 billion in the prior month.
That’s an annual growth rate of 5.5%, which was surpassed only by July’s 6.9% gain, which was boosted by Amazon’s Prime Day promotion.
Economists had been expecting a $15 billion gain in October, according to Econoday.
What happened:
Revolving credit, like credit cards, rose at a 8.8% rate in October.
And credit-card use in September was also revised higher.
Nonrevolving credit, typically auto and student loans, rose 4.3% in October.
Nonrevolving credit is much less volatile than credit-card use.
The Fed’s data does not include mortgage loans.
Big picture:
Consumers remain the key to the economic outlook given the sluggish business spending.
Economists will be watching closely to see if the improvement in the labor markets in November coincided with increased spending.
The government will release retail sales data for November next Friday.
Economists at Credit Suisse are forecasting a solid 0.6% gain in retail sales after a several lackluster months.
Preliminary reports on holiday shopping have been optimistic.
Michelle Meyer, chief U.S. economist at Bank of America, said early sales appear to be the strongest in six years.
Market reaction:
Stocks were up sharply Friday after the unexpectedly strong job data.
The Dow Jones Industrial Average was up over 300 points in afternoon trading.
https://www.marketwatch.com/story/octob ... 2019-12-06
"October consumer credit expands at second strongest monthly rate this year"
By Greg Robb
Published: Dec 6, 2019 3:01 p.m. ET
The numbers:
Consumer borrowing accelerated in October by the second highest rate this year, according to Federal Reserve data released Friday.
Total consumer credit increased $18.9 billion, up from $9.6 billion in the prior month.
That’s an annual growth rate of 5.5%, which was surpassed only by July’s 6.9% gain, which was boosted by Amazon’s Prime Day promotion.
Economists had been expecting a $15 billion gain in October, according to Econoday.
What happened:
Revolving credit, like credit cards, rose at a 8.8% rate in October.
And credit-card use in September was also revised higher.
Nonrevolving credit, typically auto and student loans, rose 4.3% in October.
Nonrevolving credit is much less volatile than credit-card use.
The Fed’s data does not include mortgage loans.
Big picture:
Consumers remain the key to the economic outlook given the sluggish business spending.
Economists will be watching closely to see if the improvement in the labor markets in November coincided with increased spending.
The government will release retail sales data for November next Friday.
Economists at Credit Suisse are forecasting a solid 0.6% gain in retail sales after a several lackluster months.
Preliminary reports on holiday shopping have been optimistic.
Michelle Meyer, chief U.S. economist at Bank of America, said early sales appear to be the strongest in six years.
Market reaction:
Stocks were up sharply Friday after the unexpectedly strong job data.
The Dow Jones Industrial Average was up over 300 points in afternoon trading.
https://www.marketwatch.com/story/octob ... 2019-12-06
Re: THE ECONOMY
MARKETWATCH
"U.S. sees hiring surge in November as economy adds 266,000 new jobs"
By Jeffry Bartash
Published: Dec 6, 2019 10:13 a.m. ET
The numbers:
The economy produced a robust 266,000 new jobs in November and the unemployment rate returned to a 50-year low, reflecting the resilience of the U.S. labor market.
The increase in employment — the biggest since January — was partly inflated by the return of nearly 50,000 striking auto workers at General Motors.
Yet it was still a surprisingly strong report.
Economists surveyed by MarketWatch had predicted a more modest 180,000 gain.
Hiring was strong almost across the board, with health care, hospitality and professional occupations leading the way.
The unemployment rate dipped to 3.5% from 3.6% to match the lowest level since the end of 1969.
The stock market soared in early Friday trades after the jobs report.
What happened:
Health-care providers hired 45,000 people, hotels and restaurants boosted staff by 45,000 and white-collar professional firms added 38,000 workers.
Employment in manufacturing jumped by 54,000, but almost all of the gains stemmed from General Motors employees returning to work after a month-long strike.
Manufacturers have added virtually no jobs this year, hurt by a slowing global economy and by the U.S. trade war with China.
Also lagging behind were retailers, construction firms and energy producers.
Retailers added just 2,000 new jobs a month before the holiday shopping season.
Builders filled just 1,000 positions.
And oil-and-gas companies shed 7,000 jobs, reflecting lower energy prices.
The amount of money the average worker earns, meanwhile, rose 7 cents to $28.29 an hour.
The increase in pay in the past 12 months slowed to 3.1% from 3.2%, however, indicating that many of the newly created jobs are likely lower-paying ones.
Wage gains climbed steadily from 2014 until early this year before leveling out at just over 3% a year.
Adding to the positive tone of the November jobs report, the government revised up employment gains for October and September by a combined 41,000.
Over the past three months, the economy had added an average of 205,000 new jobs.
That’s down from a 223,000 average in 2018, but still quite vigorous more than a decade into an economic recovery.
Most economists don’t think it can last, though.
The slowing economy has caused some companies to scale back hiring while skilled and even unskilled labor has become hard to find in the tightest labor market in decades.
Many firms say they have had to leave positions unfilled because of a lack of talent.
Big picture:
Businesses are still hiring at a healthy pace and laying off very few workers.
New applications for unemployment benefits fell again at the end of November, leaving them just slightly above a half-century low.
The strong labor market has given consumers the confidence to keep spending and extend a U.S. economic expansion now in a record 11th straight year.
What they are saying?:
“This was a strong report, with a solid rise in payrolls, another drop in the unemployment rate, and decent growth in hourly earnings,” said chief economist Chris Low of FHN FInancial.
“All these new jobs will only put an extra spring in the step of holiday shoppers,” said senior economist Sal Guatieri of BMO Capital Markets.
“Over 10 years since the official end of the Great Recession, the labor market continues to add more jobs than needed to keep up with population growth and the growth of the labor force,” said research director Nick Bunker of Indeed Hiring Lab.
“As we start the new year, maybe our resolution should be to not count out this labor market.”
Market reaction:
The Dow Jones Industrial Average and S&P 500 both rose sharply, with the Dow gaining as much as 300 points.
The 10-year Treasury yield jumped 1.86%.
https://www.marketwatch.com/story/us-se ... 2019-12-06
"U.S. sees hiring surge in November as economy adds 266,000 new jobs"
By Jeffry Bartash
Published: Dec 6, 2019 10:13 a.m. ET
The numbers:
The economy produced a robust 266,000 new jobs in November and the unemployment rate returned to a 50-year low, reflecting the resilience of the U.S. labor market.
The increase in employment — the biggest since January — was partly inflated by the return of nearly 50,000 striking auto workers at General Motors.
Yet it was still a surprisingly strong report.
Economists surveyed by MarketWatch had predicted a more modest 180,000 gain.
Hiring was strong almost across the board, with health care, hospitality and professional occupations leading the way.
The unemployment rate dipped to 3.5% from 3.6% to match the lowest level since the end of 1969.
The stock market soared in early Friday trades after the jobs report.
What happened:
Health-care providers hired 45,000 people, hotels and restaurants boosted staff by 45,000 and white-collar professional firms added 38,000 workers.
Employment in manufacturing jumped by 54,000, but almost all of the gains stemmed from General Motors employees returning to work after a month-long strike.
Manufacturers have added virtually no jobs this year, hurt by a slowing global economy and by the U.S. trade war with China.
Also lagging behind were retailers, construction firms and energy producers.
Retailers added just 2,000 new jobs a month before the holiday shopping season.
Builders filled just 1,000 positions.
And oil-and-gas companies shed 7,000 jobs, reflecting lower energy prices.
The amount of money the average worker earns, meanwhile, rose 7 cents to $28.29 an hour.
The increase in pay in the past 12 months slowed to 3.1% from 3.2%, however, indicating that many of the newly created jobs are likely lower-paying ones.
Wage gains climbed steadily from 2014 until early this year before leveling out at just over 3% a year.
Adding to the positive tone of the November jobs report, the government revised up employment gains for October and September by a combined 41,000.
Over the past three months, the economy had added an average of 205,000 new jobs.
That’s down from a 223,000 average in 2018, but still quite vigorous more than a decade into an economic recovery.
Most economists don’t think it can last, though.
The slowing economy has caused some companies to scale back hiring while skilled and even unskilled labor has become hard to find in the tightest labor market in decades.
Many firms say they have had to leave positions unfilled because of a lack of talent.
Big picture:
Businesses are still hiring at a healthy pace and laying off very few workers.
New applications for unemployment benefits fell again at the end of November, leaving them just slightly above a half-century low.
The strong labor market has given consumers the confidence to keep spending and extend a U.S. economic expansion now in a record 11th straight year.
What they are saying?:
“This was a strong report, with a solid rise in payrolls, another drop in the unemployment rate, and decent growth in hourly earnings,” said chief economist Chris Low of FHN FInancial.
“All these new jobs will only put an extra spring in the step of holiday shoppers,” said senior economist Sal Guatieri of BMO Capital Markets.
“Over 10 years since the official end of the Great Recession, the labor market continues to add more jobs than needed to keep up with population growth and the growth of the labor force,” said research director Nick Bunker of Indeed Hiring Lab.
“As we start the new year, maybe our resolution should be to not count out this labor market.”
Market reaction:
The Dow Jones Industrial Average and S&P 500 both rose sharply, with the Dow gaining as much as 300 points.
The 10-year Treasury yield jumped 1.86%.
https://www.marketwatch.com/story/us-se ... 2019-12-06
Re: THE ECONOMY
MARKETWATCH
"U.S. consumer sentiment improves markedly in December"
By Greg Robb
Published: Dec 6, 2019 10:17 a.m. ET
The numbers:
American consumer attitudes improved markedly in December, the University of Michigan said Friday in a preliminary estimate.
The University of Michigan’s gauge of consumer sentiment rose to a preliminary December reading of 99.2 from a final November reading of 96.8.
Economists polled by MarketWatch has expected a December reading of 96.9.
What happened:
According to the report, a gauge of consumers’ views on current conditions rose to 115.2 in December from 111.6 in November, while a barometer of their expectations rose to 88.9 from 87.3.
Big picture:
Combined with the strong November jobs report published Friday, rising confidence eases some worries about the near-term economic outlook.
For context, the consumer-sentiment gauge has averaged 97 over the past three years.
Economists follow readings on confidence to look for clues about consumer spending, the backbone of the economy.
Next week the government will report on retail sales for November.
Spending has been lackluster in the past few months.
Market reaction:
Stocks jumped after the November job report handily beat expectations.
The Dow Jones Industrial Average was up over 275 points in early trading.
https://www.marketwatch.com/story/consu ... 2019-12-06
"U.S. consumer sentiment improves markedly in December"
By Greg Robb
Published: Dec 6, 2019 10:17 a.m. ET
The numbers:
American consumer attitudes improved markedly in December, the University of Michigan said Friday in a preliminary estimate.
The University of Michigan’s gauge of consumer sentiment rose to a preliminary December reading of 99.2 from a final November reading of 96.8.
Economists polled by MarketWatch has expected a December reading of 96.9.
What happened:
According to the report, a gauge of consumers’ views on current conditions rose to 115.2 in December from 111.6 in November, while a barometer of their expectations rose to 88.9 from 87.3.
Big picture:
Combined with the strong November jobs report published Friday, rising confidence eases some worries about the near-term economic outlook.
For context, the consumer-sentiment gauge has averaged 97 over the past three years.
Economists follow readings on confidence to look for clues about consumer spending, the backbone of the economy.
Next week the government will report on retail sales for November.
Spending has been lackluster in the past few months.
Market reaction:
Stocks jumped after the November job report handily beat expectations.
The Dow Jones Industrial Average was up over 275 points in early trading.
https://www.marketwatch.com/story/consu ... 2019-12-06
Re: THE ECONOMY
MARKETWATCH
"U.S. trade deficit falls 7.6% in October to 16-month low on decline in Chinese imports"
By Jeffry Bartash
Published: Dec 5, 2019 11:29 a.m. ET
The U.S. trade deficit fell in October largely because of lower imports from China, but the decline is unlikely to last.
The numbers:
The nation’s trade deficit dropped almost 8% in October to a 16-month low, largely because of lower imports from China tied to the ongoing U.S. trade dispute with the Asian giant.
The deficit slid to $47.2 billion from a revised $51.1 billion in the prior month, the government said Thursday.
If it persists through December, the smaller gap could give a boost to gross domestic product in the fourth quarter.
Economists polled by MarketWatch had forecast a $48.5 billion gap.
What happened:
Imports fell 1.7% to $254.3 billion.
The U.S. imported fewer drugs, cell phones, electronics, clothing and toys and other goods, much of it from China.
Imports of Chinese goods shrank by $1.8 billion to $35.3 billion.
Auto imports also fell, hurt in part by a month-long General Motors strike that limited production.
The decline in imports largely reflects a recent up-and-down pattern depending on the timing of new U.S. tariffs on China.
Companies rushed to import consumer goods from China in August before scheduled U.S. tariffs went into effect.
Exports dipped a smaller 0.2% to $207.1 billion.
Shipments of drugs, airplane engines and autos all decreased.
For the second month in a row the U.S. posted a record surplus in petroleum, showcasing the country’s reemergence as an energy superpower.
Still, the U.S. trade deficit added up to $520.1 billion in the first 10 months of this year, compared to $513 billion in the same span in 2018.
Although tariffs have caused a record trade deficit with China to tumble in 2019, the gap has grown with other countries and left the U.S. in no better position.
Big picture:
The U.S. is on track to record the biggest annual trade deficit in 11 years.
The deficit has grown in 2019 partly because the economy is doing better than in most other countries.
Americans can afford to buy more imports.
Weaker economic performance around the world has also led to softer demand for U.S. exports.
A bigger trade deficit subtracts from gross domestic product, but the U.S. has run large deficits for so long it’s had virtually no influence on how consumers and businesses behave.
What the are saying?:
“The sharp narrowing of the trade deficit, to a 16-month low in October, was partly driven by a GM-strike related drop in auto imports and the unwinding of stockpiling ahead of the September tariffs,” said senior economist Michael Pearce of Capital Economics.
Market reaction:
The Dow Jones Industrial Average and S&P 500 fell slightly in Thursday trades.
They rose on Wednesday for the first time in four days.
The 10-year Treasury yield rose several basis points to 1.80%.
One year ago the yield was around 3.2%.
https://www.marketwatch.com/story/us-tr ... 2019-12-05
"U.S. trade deficit falls 7.6% in October to 16-month low on decline in Chinese imports"
By Jeffry Bartash
Published: Dec 5, 2019 11:29 a.m. ET
The U.S. trade deficit fell in October largely because of lower imports from China, but the decline is unlikely to last.
The numbers:
The nation’s trade deficit dropped almost 8% in October to a 16-month low, largely because of lower imports from China tied to the ongoing U.S. trade dispute with the Asian giant.
The deficit slid to $47.2 billion from a revised $51.1 billion in the prior month, the government said Thursday.
If it persists through December, the smaller gap could give a boost to gross domestic product in the fourth quarter.
Economists polled by MarketWatch had forecast a $48.5 billion gap.
What happened:
Imports fell 1.7% to $254.3 billion.
The U.S. imported fewer drugs, cell phones, electronics, clothing and toys and other goods, much of it from China.
Imports of Chinese goods shrank by $1.8 billion to $35.3 billion.
Auto imports also fell, hurt in part by a month-long General Motors strike that limited production.
The decline in imports largely reflects a recent up-and-down pattern depending on the timing of new U.S. tariffs on China.
Companies rushed to import consumer goods from China in August before scheduled U.S. tariffs went into effect.
Exports dipped a smaller 0.2% to $207.1 billion.
Shipments of drugs, airplane engines and autos all decreased.
For the second month in a row the U.S. posted a record surplus in petroleum, showcasing the country’s reemergence as an energy superpower.
Still, the U.S. trade deficit added up to $520.1 billion in the first 10 months of this year, compared to $513 billion in the same span in 2018.
Although tariffs have caused a record trade deficit with China to tumble in 2019, the gap has grown with other countries and left the U.S. in no better position.
Big picture:
The U.S. is on track to record the biggest annual trade deficit in 11 years.
The deficit has grown in 2019 partly because the economy is doing better than in most other countries.
Americans can afford to buy more imports.
Weaker economic performance around the world has also led to softer demand for U.S. exports.
A bigger trade deficit subtracts from gross domestic product, but the U.S. has run large deficits for so long it’s had virtually no influence on how consumers and businesses behave.
What the are saying?:
“The sharp narrowing of the trade deficit, to a 16-month low in October, was partly driven by a GM-strike related drop in auto imports and the unwinding of stockpiling ahead of the September tariffs,” said senior economist Michael Pearce of Capital Economics.
Market reaction:
The Dow Jones Industrial Average and S&P 500 fell slightly in Thursday trades.
They rose on Wednesday for the first time in four days.
The 10-year Treasury yield rose several basis points to 1.80%.
One year ago the yield was around 3.2%.
https://www.marketwatch.com/story/us-tr ... 2019-12-05
Re: THE ECONOMY
MARKETWATCH
"U.S. jobless claims tumble again to 203,000 and return to near a 50-year low"
By Jeffry Bartash
Published: Dec 5, 2019 11:34 a.m. ET
The numbers:
The number of Americans who applied for unemployment benefits at the end of November fell to the lowest level in seven months and returned close to a 50-year low, but the sharp decline in jobless claims likely stems in part from the Thanksgiving holiday.
Initial jobless claims, a rough way to measure layoffs, dropped 10,000 to 203,000 in the seven days ended Nov. 30, the government said Thursday.
That’s the lowest level since mid-April, when new claims fell to a 50-year low of 193,000, and a sign that the U.S. labor market remains rock solid.
Economists polled by MarketWatch estimated new claims would total a seasonally adjusted 215,000.
What happened:
Raw or unadjusted jobless claims posted unusually large declines in California and Texas and fell in many other large states.
Jobless claims sometimes swing sharply during the long holiday season that starts after Thanksgiving and extends through Martin Luther King Day in late January.
Laid-off workers often wait longer to file claims and many companies add and drop temporary workers.
The U.S. Thanksgiving holiday, always on a Thursday, also falls in different weeks each year, making it harder for government economists to adjust the numbers for seasonal changes in employment.
The more stable monthly average of new claims fell by 2,000 to 217,750.
The four-week average gives a more accurate read into labor-market conditions than the more volatile weekly number.
The number of people already collecting unemployment benefits, known as continuing claims, increased by 51,000 to a still-low 1.69 million.
Looking ahead, volatility in claims will likely remain elevated as December and January are the biggest months for labor market turnover for the year.
We expect that claims will continue to hover around 215K on average, but there will be deviations above and below.
Big picture:
A slowing economy is not producing as many new jobs, but it’s not leading to higher layoffs, either.
Most companies still find enough demand for their goods and services to maintain current staffing levels.
The low unemployment rate has also given businesses incentive to avoid layoffs.
Companies worry they won’t be able to replace workers they let go if the economy speeds up.
Slower U.S. growth is largely a result of a U.S. trade war with China that could end or be dialed back in the near future.
What the are saying?:
“Looking ahead, volatility in claims will likely remain elevated as December and January are the biggest months for labor market turnover for the year,” senior money market economist Thomas Simons of Jefferies LLC told clients in a note.
“We expect that claims will continue to hover around 215,000 on average, but there will be deviations above and below.”
Market reaction:
The Dow Jones Industrial Average and S&P 500 fell slightly in Thursday trades.
They rose on Wednesday for the first time in four days.
The 10-year Treasury yield rose several basis points to 1.80%.
One year ago the yield was around 3.2%.
https://www.marketwatch.com/story/us-jo ... 2019-12-05
"U.S. jobless claims tumble again to 203,000 and return to near a 50-year low"
By Jeffry Bartash
Published: Dec 5, 2019 11:34 a.m. ET
The numbers:
The number of Americans who applied for unemployment benefits at the end of November fell to the lowest level in seven months and returned close to a 50-year low, but the sharp decline in jobless claims likely stems in part from the Thanksgiving holiday.
Initial jobless claims, a rough way to measure layoffs, dropped 10,000 to 203,000 in the seven days ended Nov. 30, the government said Thursday.
That’s the lowest level since mid-April, when new claims fell to a 50-year low of 193,000, and a sign that the U.S. labor market remains rock solid.
Economists polled by MarketWatch estimated new claims would total a seasonally adjusted 215,000.
What happened:
Raw or unadjusted jobless claims posted unusually large declines in California and Texas and fell in many other large states.
Jobless claims sometimes swing sharply during the long holiday season that starts after Thanksgiving and extends through Martin Luther King Day in late January.
Laid-off workers often wait longer to file claims and many companies add and drop temporary workers.
The U.S. Thanksgiving holiday, always on a Thursday, also falls in different weeks each year, making it harder for government economists to adjust the numbers for seasonal changes in employment.
The more stable monthly average of new claims fell by 2,000 to 217,750.
The four-week average gives a more accurate read into labor-market conditions than the more volatile weekly number.
The number of people already collecting unemployment benefits, known as continuing claims, increased by 51,000 to a still-low 1.69 million.
Looking ahead, volatility in claims will likely remain elevated as December and January are the biggest months for labor market turnover for the year.
We expect that claims will continue to hover around 215K on average, but there will be deviations above and below.
Big picture:
A slowing economy is not producing as many new jobs, but it’s not leading to higher layoffs, either.
Most companies still find enough demand for their goods and services to maintain current staffing levels.
The low unemployment rate has also given businesses incentive to avoid layoffs.
Companies worry they won’t be able to replace workers they let go if the economy speeds up.
Slower U.S. growth is largely a result of a U.S. trade war with China that could end or be dialed back in the near future.
What the are saying?:
“Looking ahead, volatility in claims will likely remain elevated as December and January are the biggest months for labor market turnover for the year,” senior money market economist Thomas Simons of Jefferies LLC told clients in a note.
“We expect that claims will continue to hover around 215,000 on average, but there will be deviations above and below.”
Market reaction:
The Dow Jones Industrial Average and S&P 500 fell slightly in Thursday trades.
They rose on Wednesday for the first time in four days.
The 10-year Treasury yield rose several basis points to 1.80%.
One year ago the yield was around 3.2%.
https://www.marketwatch.com/story/us-jo ... 2019-12-05
Re: THE ECONOMY
MARKETWATCH
"The repo market is ‘broken’ and Fed injections are not a lasting solution, market pros warn"
By Joy Wiltermuth
Published: Dec 4, 2019 2:09 p.m. ET
The Federal Reserve’s ongoing efforts to shore up the short-term “repo” lending markets have begun to rattle some market experts.
The New York Federal Reserve has spent hundreds of billions of dollars to keep credit flowing through short term money markets since mid-September when a shortage of liquidity caused a spike in overnight borrowing rates.
But as the Fed’s interventions have entered a third month, concerns about the market’s dependence on its daily doses of liquidity have grown.
“The big picture answer is that the repo market is broken,” said James Bianco, founder of Bianco Research in Chicago, in an interview with MarketWatch.
“They are essentially medicating the market into submission,” he said.
“But this is not a long-term solution.”
Initially, the central bank rolled out roughly $75 billion in daily lending facilities to arm Wall Street’s core set of primary dealers with low-cost overnight loans to keep the roughly $1 trillion daily U.S. Treasury repo market running.
The facilities allow banks to snap up loans by pledging safe-haven U.S. Treasurys or agency mortgage-backed securities with the New York Fed, but crucially without the typical risk-based pricing that lenders regularly charge when funding each other.
The goal was to keep banks flush as they deal with month-end funding issues, corporate tax payments, and the deluge of Treasury debt being sold by the federal government to fund its deficit.
Shortly thereafter, former New York Fed markets group head Brian Sack, now director of global economics at hedge fund D.E. Shaw Group, coauthored an article saying that the Fed could get a better control of overnight rates if it were to boost banking system reserves by purchasing $250 billion of Treasury debt.
But the Fed’s total support already has eclipsed that threshold with the expansion of daily operations, the introduction of longer-term loans, and its balance sheet expansion through monthly T-bill purchases.
“This is now far bigger than anyone thought this was going to be,” Bianco said.
“I think they’re hoping the market will magically fix itself."
"I don’t see why it would.”
Amid sustained clamor for Fed funding, the central bank in the last two weeks said it would increase two longer-term facilities to help carry borrowers through any year-end turbulence.
The changes came as U.S. stocks fell from November’s all-time records with the Dow Jones Industrial Average, S&P 500 index, and Nasdaq Composite Index retreating on fading hopes for a U.S. - China trade dea.
“The Fed really hasn’t figured out the problem,” said Bryce Doty, a senior portfolio manager at Sit Fixed Income in Minneapolis.
“But they kind of have created their own problem.”
By that, Doty meant the Fed’s rescue operations have worked in terms of supplying banks with quick and cheap funding, but less so when it comes to luring them back to funding each other.
“The big banks are just hoarding cash,” he said.
“They told the Fed they have more than enough cash in excess reserves to meet regulatory issues, but they prefer having money at the Fed where they can still earn 1.55%, rather than in the repo market.”
J.P. Morgan Chase CEO Jamie Dimon said bank regulations were a factor in September’s repo crisis while speaking on the bank’s third-quarter earnings conference call, and in other recent forums he warned that short-term lending rates could again soar without more “permanent fixes,” while avoiding an express call for rule changes.
In Congressional testimony on Wednesday, Randal Quarles, the Federal Reserve’s point man on banking supervision appeared to side with Dimon, saying the existing regulatory framework “may have created some incentives” that contributed to recent repo funding stress.
To be sure, not everyone sees the Fed’s tight grip on repo operations as problematic.
“I do think the Fed’s intervention has helped calm the markets,” said Paresh Upadhyaya, director of U.S. currency strategy at Amundi Pioneer.
But Upadhyaya also sees potential knock-on effects from the Fed’s stabilization efforts, including short term yields being pressured lower and investors taking advantage of the liquidity to rotate to riskier assets, as the central bank’s share of the T-bill market expands to an estimated 20% of the market by mid-2020 from 1% currently.
“We’re very much on track for that,” he said.
https://www.marketwatch.com/story/the-r ... 2019-12-04
"The repo market is ‘broken’ and Fed injections are not a lasting solution, market pros warn"
By Joy Wiltermuth
Published: Dec 4, 2019 2:09 p.m. ET
The Federal Reserve’s ongoing efforts to shore up the short-term “repo” lending markets have begun to rattle some market experts.
The New York Federal Reserve has spent hundreds of billions of dollars to keep credit flowing through short term money markets since mid-September when a shortage of liquidity caused a spike in overnight borrowing rates.
But as the Fed’s interventions have entered a third month, concerns about the market’s dependence on its daily doses of liquidity have grown.
“The big picture answer is that the repo market is broken,” said James Bianco, founder of Bianco Research in Chicago, in an interview with MarketWatch.
“They are essentially medicating the market into submission,” he said.
“But this is not a long-term solution.”
Initially, the central bank rolled out roughly $75 billion in daily lending facilities to arm Wall Street’s core set of primary dealers with low-cost overnight loans to keep the roughly $1 trillion daily U.S. Treasury repo market running.
The facilities allow banks to snap up loans by pledging safe-haven U.S. Treasurys or agency mortgage-backed securities with the New York Fed, but crucially without the typical risk-based pricing that lenders regularly charge when funding each other.
The goal was to keep banks flush as they deal with month-end funding issues, corporate tax payments, and the deluge of Treasury debt being sold by the federal government to fund its deficit.
Shortly thereafter, former New York Fed markets group head Brian Sack, now director of global economics at hedge fund D.E. Shaw Group, coauthored an article saying that the Fed could get a better control of overnight rates if it were to boost banking system reserves by purchasing $250 billion of Treasury debt.
But the Fed’s total support already has eclipsed that threshold with the expansion of daily operations, the introduction of longer-term loans, and its balance sheet expansion through monthly T-bill purchases.
“This is now far bigger than anyone thought this was going to be,” Bianco said.
“I think they’re hoping the market will magically fix itself."
"I don’t see why it would.”
Amid sustained clamor for Fed funding, the central bank in the last two weeks said it would increase two longer-term facilities to help carry borrowers through any year-end turbulence.
The changes came as U.S. stocks fell from November’s all-time records with the Dow Jones Industrial Average, S&P 500 index, and Nasdaq Composite Index retreating on fading hopes for a U.S. - China trade dea.
“The Fed really hasn’t figured out the problem,” said Bryce Doty, a senior portfolio manager at Sit Fixed Income in Minneapolis.
“But they kind of have created their own problem.”
By that, Doty meant the Fed’s rescue operations have worked in terms of supplying banks with quick and cheap funding, but less so when it comes to luring them back to funding each other.
“The big banks are just hoarding cash,” he said.
“They told the Fed they have more than enough cash in excess reserves to meet regulatory issues, but they prefer having money at the Fed where they can still earn 1.55%, rather than in the repo market.”
J.P. Morgan Chase CEO Jamie Dimon said bank regulations were a factor in September’s repo crisis while speaking on the bank’s third-quarter earnings conference call, and in other recent forums he warned that short-term lending rates could again soar without more “permanent fixes,” while avoiding an express call for rule changes.
In Congressional testimony on Wednesday, Randal Quarles, the Federal Reserve’s point man on banking supervision appeared to side with Dimon, saying the existing regulatory framework “may have created some incentives” that contributed to recent repo funding stress.
To be sure, not everyone sees the Fed’s tight grip on repo operations as problematic.
“I do think the Fed’s intervention has helped calm the markets,” said Paresh Upadhyaya, director of U.S. currency strategy at Amundi Pioneer.
But Upadhyaya also sees potential knock-on effects from the Fed’s stabilization efforts, including short term yields being pressured lower and investors taking advantage of the liquidity to rotate to riskier assets, as the central bank’s share of the T-bill market expands to an estimated 20% of the market by mid-2020 from 1% currently.
“We’re very much on track for that,” he said.
https://www.marketwatch.com/story/the-r ... 2019-12-04
Re: THE ECONOMY
MARKETWATCH
"NFIB small-business index jumps in November"
By Kimberly Chin
Published: Dec 10, 2019 6:42 a.m. ET
Small-business owners' confidence in the U.S. economy rose in November, its largest month-over-month gain since May 2018, as owners continued to invest, hire and increase wages, according to the National Federation of Independent Business.
The NFIB Small Business Optimism Index had a November reading of 104.7, up 2.3 points from the prior month.
Overall, seven of the 10 components in the index advanced in November.
The NFIB survey is a monthly snapshot of small businesses in the U.S., which account for nearly half of private-sector jobs.
Economists look to the report for a read on domestic demand and to extrapolate hiring and wage trends in the broader economy.
Much of the index's positive advance in November was led by a 10-point improvement in earnings, or owners who reported positive profit trends, the NFIB said.
The NFIB survey results -- based on responses from 500 small-business owners last month -- showed that owners who believe it's a good time to expand jumped by six points from a month earlier while those who expect better business conditions increased by three points.
The Uncertainty Index dropped six points in November to 72, as fears of a possible economic recession subsided.
"Owners are aggressively moving forward with their business plans, proving that when they're given relief from the government, they put their money where their mouth is, and they invest, hire, and increase wages," NFIB Chief Economist William Dunkelberg said in prepared remarks, referring to the U.S. government's supportive tax and regulatory environment.
Around 30% of small business owners said they had raised compensation in November, unchanged from a month ago, while 26% of participants said they planned to do so in the months ahead.
Small-business owners added an average of 0.29 workers per firm, the highest level since May.
Write to Kimberly Chin at kimberly.chin@wsj.com
https://www.marketwatch.com/story/nfib- ... 2019-12-10
"NFIB small-business index jumps in November"
By Kimberly Chin
Published: Dec 10, 2019 6:42 a.m. ET
Small-business owners' confidence in the U.S. economy rose in November, its largest month-over-month gain since May 2018, as owners continued to invest, hire and increase wages, according to the National Federation of Independent Business.
The NFIB Small Business Optimism Index had a November reading of 104.7, up 2.3 points from the prior month.
Overall, seven of the 10 components in the index advanced in November.
The NFIB survey is a monthly snapshot of small businesses in the U.S., which account for nearly half of private-sector jobs.
Economists look to the report for a read on domestic demand and to extrapolate hiring and wage trends in the broader economy.
Much of the index's positive advance in November was led by a 10-point improvement in earnings, or owners who reported positive profit trends, the NFIB said.
The NFIB survey results -- based on responses from 500 small-business owners last month -- showed that owners who believe it's a good time to expand jumped by six points from a month earlier while those who expect better business conditions increased by three points.
The Uncertainty Index dropped six points in November to 72, as fears of a possible economic recession subsided.
"Owners are aggressively moving forward with their business plans, proving that when they're given relief from the government, they put their money where their mouth is, and they invest, hire, and increase wages," NFIB Chief Economist William Dunkelberg said in prepared remarks, referring to the U.S. government's supportive tax and regulatory environment.
Around 30% of small business owners said they had raised compensation in November, unchanged from a month ago, while 26% of participants said they planned to do so in the months ahead.
Small-business owners added an average of 0.29 workers per firm, the highest level since May.
Write to Kimberly Chin at kimberly.chin@wsj.com
https://www.marketwatch.com/story/nfib- ... 2019-12-10
Re: THE ECONOMY
MARKETWATCH - The Fed
"Powell says changes to Fed’s inflation-fighting framework will be meaningful"
By Greg Robb
Published: Dec 11, 2019 5:49 p.m. ET
Federal Reserve Chairman Jerome Powell on Wednesday defended the central bank’s review of long-term policy strategy and said the results would be “meaningful.”
“I’d like for this review to come out with a set of positive results, meaningful improvements,” Powell said at his news conference.
The review is set to be completed in the middle of next year.
Some economists are worried that the Fed is only going to tweak its framework, which includes a 2% inflation target.
“This will be evolution, not a revolution,” said Thomas Simons, senior money market economist at Jefferies, in a note to clients prior to the Fed meeting.
Former Minneapolis Fed President Narayana Kocherlakota said it would be “completely absurd” for the Fed to not make major overhauls to its strategy.
Kocherlakota noted that inflation has been below the Fed’s 2% target most of the time since it was adopted in 2012.
At its meeting Wednesday, the Fed kept rates steady and signaled it was more upbeat about the outlook
Speculation among Fed watchers has been that the central bank will agree to adopt a “makeup” strategy on inflation.
Under that policy, if inflation runs below 2%, the Fed will tolerate inflation running above 2% for an equivalent period.
Joe Gagnon, a former Fed staff member and now a fellow at the Peterson Institute for International Economics, called an average inflation target a relatively “small change” in the Fed’s current practice.
Gagnon and other prominent economists are calling for the Fed to take a bolder step and raise its inflation target closer to 4%.
They argue this would give the Fed room to cut rates in a recession without hitting zero as happened after the financial crisis.
Asked about a 4% inflation target at his news conference, Powell balked.
“If you said we are raising the inflation target to 4%, what would be the effect of that?"
"Where is the credibility in that, really?"
"You haven’t been able to get it to 2%,” he said.
Last month, Chicago Fed President Charles Evans said that some Fed officials get nervous even when inflation goes slightly above 2%.
Investors appear content the Fed will tolerate some inflation overshoot going forward.
Yields on the 10-year Treasury note slipped slightly to 1.8% on Wednesday after Powell’s news conference.
The Fed chairman left open the door that 4% inflation might be considered in future reviews down the road.
“It doesn’t mean [this review] has to solve every problem going forward."
"These things don’t tend to move in a lurch-y way, they tend to evolve,” he said.
“But, and if we do this, in a few years again and again, things like that, then at least we are moving in a good direction and I think we will be."
"I’m confident we will be,” Powell added.
https://www.marketwatch.com/story/powel ... latestnews
"Powell says changes to Fed’s inflation-fighting framework will be meaningful"
By Greg Robb
Published: Dec 11, 2019 5:49 p.m. ET
Federal Reserve Chairman Jerome Powell on Wednesday defended the central bank’s review of long-term policy strategy and said the results would be “meaningful.”
“I’d like for this review to come out with a set of positive results, meaningful improvements,” Powell said at his news conference.
The review is set to be completed in the middle of next year.
Some economists are worried that the Fed is only going to tweak its framework, which includes a 2% inflation target.
“This will be evolution, not a revolution,” said Thomas Simons, senior money market economist at Jefferies, in a note to clients prior to the Fed meeting.
Former Minneapolis Fed President Narayana Kocherlakota said it would be “completely absurd” for the Fed to not make major overhauls to its strategy.
Kocherlakota noted that inflation has been below the Fed’s 2% target most of the time since it was adopted in 2012.
At its meeting Wednesday, the Fed kept rates steady and signaled it was more upbeat about the outlook
Speculation among Fed watchers has been that the central bank will agree to adopt a “makeup” strategy on inflation.
Under that policy, if inflation runs below 2%, the Fed will tolerate inflation running above 2% for an equivalent period.
Joe Gagnon, a former Fed staff member and now a fellow at the Peterson Institute for International Economics, called an average inflation target a relatively “small change” in the Fed’s current practice.
Gagnon and other prominent economists are calling for the Fed to take a bolder step and raise its inflation target closer to 4%.
They argue this would give the Fed room to cut rates in a recession without hitting zero as happened after the financial crisis.
Asked about a 4% inflation target at his news conference, Powell balked.
“If you said we are raising the inflation target to 4%, what would be the effect of that?"
"Where is the credibility in that, really?"
"You haven’t been able to get it to 2%,” he said.
Last month, Chicago Fed President Charles Evans said that some Fed officials get nervous even when inflation goes slightly above 2%.
Investors appear content the Fed will tolerate some inflation overshoot going forward.
Yields on the 10-year Treasury note slipped slightly to 1.8% on Wednesday after Powell’s news conference.
The Fed chairman left open the door that 4% inflation might be considered in future reviews down the road.
“It doesn’t mean [this review] has to solve every problem going forward."
"These things don’t tend to move in a lurch-y way, they tend to evolve,” he said.
“But, and if we do this, in a few years again and again, things like that, then at least we are moving in a good direction and I think we will be."
"I’m confident we will be,” Powell added.
https://www.marketwatch.com/story/powel ... latestnews
Re: THE ECONOMY
MARKETWATCH
"Consumer inflation rises again as 12-month rate hits one-year high, CPI shows"
By Jeffry Bartash
Published: Dec 11, 2019 10:47 a.m. ET
The numbers:
U.S. households paid more for energy, health care and rent in November, pushing the rate of inflation up to the highest level in a year.
The consumer price index rose 0.3% last month following an even bigger increase in October, the government said Wednesday.
Economists polled by MarketWatch had forecast a 0.2% advance.
The recent spike lifted the increase in the cost of living over the past 12 months to 2.1% from 1.8%.
That’s the highest level since November 2018.
Yet even though consumer prices have been bubbling up, inflation in the U.S. is still low by historical standards.
What happened:
Gasoline prices actually fell in November, but not as much as they normally do at this time of year.
As a result, the government’s seasonal adjustments showed a 1.1% increase.
The cost of rent and medical care both increased again, up 0.3% each.
Prices also rose slightly for food, clothes, education and used vehicles.
Prices for new cars and trucks fell for the fifth month in a row.
Airfares also declined.
Meanwhile, another closely watched measure of inflation that strips out food and energy rose 0.2% last month.
The yearly increase in the so-called core rate was unchanged at 2.3%.
Real or inflation-adjusted hourly wages were flat in November.
They’ve risen a modest 1.1% in the past year.
Big picture:
The pace of consumer inflation slowed earlier this year after touching a six-year peak of 2.9% in mid-2018, giving the Federal Reserve the leeway to cut interest rates to shore up the economy amid a tense trade dispute with China.
Consumer prices could continue to creep higher if the economy speeds up, but the Fed doesn’t expect inflation to sharply exceed its 2% goal anytime soon.
The Fed’s preferred inflation gauge known as the PCE is also significantly weaker.
The PCE index rose just 1.3% in the 12 months ended in October.
Even if prices rise faster than expected, the central bank is prepared to let inflation hover above 2% for a while after years of undershooting its target.
The Fed is expected to leave interest rates unchanged on Wednesday after its latest meeting to evaluate the economy.
What they are saying?
The Fed has signaled it “will be comfortable letting inflation run ahead of their target, which means it will be even longer before inflation again becomes a material concern,” said chief economist Richard Moody of Regions Financial.
Market reaction:
The Dow Jones Industrial Average fell slightly and the S&P 500 edged higher in Wednesday trades.
Investors are watching closely to see if the U.S. and China complete what they are calling “phase one” of a broader trade compromise.
The 10-year Treasury yield slipped to 1.82%.
https://www.marketwatch.com/story/consu ... 2019-12-11
"Consumer inflation rises again as 12-month rate hits one-year high, CPI shows"
By Jeffry Bartash
Published: Dec 11, 2019 10:47 a.m. ET
The numbers:
U.S. households paid more for energy, health care and rent in November, pushing the rate of inflation up to the highest level in a year.
The consumer price index rose 0.3% last month following an even bigger increase in October, the government said Wednesday.
Economists polled by MarketWatch had forecast a 0.2% advance.
The recent spike lifted the increase in the cost of living over the past 12 months to 2.1% from 1.8%.
That’s the highest level since November 2018.
Yet even though consumer prices have been bubbling up, inflation in the U.S. is still low by historical standards.
What happened:
Gasoline prices actually fell in November, but not as much as they normally do at this time of year.
As a result, the government’s seasonal adjustments showed a 1.1% increase.
The cost of rent and medical care both increased again, up 0.3% each.
Prices also rose slightly for food, clothes, education and used vehicles.
Prices for new cars and trucks fell for the fifth month in a row.
Airfares also declined.
Meanwhile, another closely watched measure of inflation that strips out food and energy rose 0.2% last month.
The yearly increase in the so-called core rate was unchanged at 2.3%.
Real or inflation-adjusted hourly wages were flat in November.
They’ve risen a modest 1.1% in the past year.
Big picture:
The pace of consumer inflation slowed earlier this year after touching a six-year peak of 2.9% in mid-2018, giving the Federal Reserve the leeway to cut interest rates to shore up the economy amid a tense trade dispute with China.
Consumer prices could continue to creep higher if the economy speeds up, but the Fed doesn’t expect inflation to sharply exceed its 2% goal anytime soon.
The Fed’s preferred inflation gauge known as the PCE is also significantly weaker.
The PCE index rose just 1.3% in the 12 months ended in October.
Even if prices rise faster than expected, the central bank is prepared to let inflation hover above 2% for a while after years of undershooting its target.
The Fed is expected to leave interest rates unchanged on Wednesday after its latest meeting to evaluate the economy.
What they are saying?
The Fed has signaled it “will be comfortable letting inflation run ahead of their target, which means it will be even longer before inflation again becomes a material concern,” said chief economist Richard Moody of Regions Financial.
Market reaction:
The Dow Jones Industrial Average fell slightly and the S&P 500 edged higher in Wednesday trades.
Investors are watching closely to see if the U.S. and China complete what they are calling “phase one” of a broader trade compromise.
The 10-year Treasury yield slipped to 1.82%.
https://www.marketwatch.com/story/consu ... 2019-12-11