As we move through trading in the last month of 2019, here is a look at Paul Volcker, China’s money supply, plus the highest level since 1989.
December 10 (King World News) – Peter Boockvar: “As many remember Paul Volcker, I loved this quote that Jim Grant posted in yesterday’s ‘Almost Daily’ from Volcker back in 2006.
“A great mantra of central bankers these days is ‘inflation targeting.’ I don’t understand that nomenclature. I didn’t think central bankers were in the business of targeting inflation. I thought we were supposed to be targeting stability. We all say we are in favor of stability. You hear these speeches, Bernanke saying, ‘We are in favor of stability. That is why we target inflation.’ There is a certain semantic problem for me in that connection.”
So to all of the current crop of central bankers around the world that are publicly reminiscing about Volcker, he didn’t believe in your obsession with 2% inflation and the scorched earth policy you’ve taken to try to get there…
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The NFIB small business optimism index for November did improve to 104.7 from 102.4 and that matches the best since May. For perspective, this figure averaged 106.7 in 2018. Plans to Hire rose 3 pts to 21%, matching the highest since December. It peaked at 26% last year. Positions Not Able to Fill rose 4 pts and is just shy of its record high pointing to still the difficulty in finding qualified workers.
This is putting further upward pressure to Net Compensation Plans which rose 4 pts m/o/m to the highest level since 1989. This is great for employees and not so for corporate profit margins. We did though see an improvement in earnings trends to back above zero. Capital spending plans rose 1 pt to match the best level of the year but at 30 it’s stayed in a pretty tight range this year between 26-30. The forward looking components were mixed. Those that said they Expect a Better Economy rose 3 pts to 13%, back at the 6 month average but those that Expect Better Sales fell 4 pts to 13% and 4 pts below the 6 month average. Those that said it’s a Good Time to Expand rose 6 pts m/o/m. Finally, those that expect to raise prices rose 2 pts to a 4 month high but is just back to its 6 month average.
Net Compensation Plans Highest Since 1989!
The NFIB continues to point to lower taxes and less regulatory pressure as the main catalysts for boosting small business confidence. With respect to the improvement in hiring, ADP said Wednesday said that for the 5th month in the past 7 small businesses with under 20 employees cut jobs so I’m not sure how small the businesses are that NFIB surveys.
China said the continued upward pressure in food prices drove a 4.5% y/o/y increase in its CPI for November vs 3.8% in October and two tenths more than expected. Food prices spiked by 19.1% y/o/y driven by an 110% rise in pork prices but taking out both food and energy has prices up just 1.4% y/o/y. Producer prices fell by 1.4% y/o/y, one tenth less than expected but off a 2.7% y/o/y comp last November. Many follow PPI because of its tight relationship to industrial profits.
Money Supply Rises 8.2% in China
More importantly in China, as the inflation stats are just a symptom of the underlying economic situation, was the loan data for November. Aggregate financing, after falling sharply in its pace in October, came in at 1.75 Trillion yuan, above the estimate of 1.485 Trillion and was mostly led by bank loan growth as the shadow side shrunk. Money supply growth, as measured by M2, rose 8.2% y/o/y, 2 tenths less than expected and just above the lowest level in decades. The PBOC has encouraged banks to lend to small and medium sized businesses but they have been very reluctant to open wide the credit spigots because Governor Yi Gang understands the need for deleveraging or at least a slowing in excessive credit growth. It’s a difficult balance as they also try to cushion the pace of economic moderation. The data came out after their markets closed and which were little changed.
Hopes for a US/China trade deal and what that would mean for the Germany economy helped to boost the ZEW investor confidence figure in the German economy in December. Expectations improved to 10.7 from -2.1 and that was well above the estimate of .3. Current conditions though remained firmly below zero at -19.9 but that was 2 pts better than expected. ZEW said the gains “rests on the hope that German exports and private consumption will develop better than previously thought…The rather unfavorable figures for industrial production and incoming orders for October, however, show that the economy is still quite fragile.” There certainly is a lot of hope out there in markets and 2020 will be a story of either realizing it or not. The ZEW is never market moving as investors focus more on the IFO which surveys actually businesses.
Meanwhile, In Germany & France
While I continue to view the UK economic news as ‘old’ because hopefully a resounding BoJo victory in coming days clears the sky’s on Brexit, the UK economy saw no growth in the 3 months ended October from the prior 3 months. This is also the first time they’ve had 3 straight months of no growth since 2009. The pound though continues to rally ahead of the election and that is weighing on the export heavy FTSE 100.
Finally with respect to the data, French industrial production in October was better than expected driven by some upside in manufacturing. French production has outperformed Germany’s because of a lesser reliance on the auto sector which we know is under major pressure in Europe.
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2nd Highest Level In History
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