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Count the Days, but Look at Earnings

What’s Ahead: The market doesn’t like the politics but keep your eyes on earnings.

We’lldive right in this week. There is not much of a preamble except that stocks were quiet and nervy… (but, wow, if the market doesn’t think a deal will go through, stocks get crushed….sorry, TWTR holders). There was a tantrum in Europe. Another Fed Governor warned on the risk of low rates. And sterling fell to a 30-year low.  But first…

1. Non-Farm Payrolls: We’re writing this the day before the September payroll numbers. Here’s what they look like with the latest (disappointing) GDP numbers.

non farm payrolls

We expect around 170,000 but these are the most wildly revised numbers around. Any month can have a revision of 50,000. That’s because the way the BLS surveys respondents is outmoded. Better to look at claims and here they are:

weekly job claims

Claims are at their lowest level since April and one of the lowest levels ever, adjusted for population. With these numbers, we’re optimistic about the labor market. And yes, we don’t like the long-term unemployed rate and labor participation is a problem. But overall, the Fed will look at these numbers favorably.

2. The European Taper Tantrum. The Fed started it. In mid-2013, the then-Chairman talked about ending QE purchases. The 10-Year Bond yield promptly rose from 1.9% to over 3.0%. This week a rumor (trial balloon) went up that the ECB would cut back its QE buying in early 2017. It was not as an extreme reaction but Bunds (German), OATs (French) and Italian bond yields all backed up by 10bps. Italy had just issued its first 50-Year bond at a coupon of 2.8%. Its price promptly fell 3% or so. Here is how low yields are:

European rates are probably too low. But are kept so because of i) extreme risk aversion ii) low supply and iii) ECB buying. They are unlikely to stay that way.  This week showed some raw nerves in the market. One reason why we don’t heavily invest in international developed markets.

Bottom Line:  Overall, markets feel soft. Clearly top of mind is the Fed. Oh and the election. Markets don’t know how to respond to political uncertainty and there will be plenty in 2016. But we expect the earnings season will be strong.



About those clowns you’re hearing about

Another financial crisis story that runs and runs

Good reminder of the Wicksellian rule


–Christian ThwaitesBrouwer & Janachowski, LLC


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