Sovereign Debt Yields Settle Somewhat Back

December 2, 2016

U.S. and Canadian labor statistics for November were released today.

U.S. labor market data were mixed. Fed officials remain virtually certain to raise the fed funds target this month, but the size of the increase won’t exceed 25 basis points. The data do not suggest that the Fed has fallen far behind the curve and must tighten from here in a hasty fashion.

  • The U.S. jobless rate declined 0.3 percentage points to 4.6%, lowest since the start of the financial crisis in August 2007 and down from a subsequent peak of 10.0% in October 2009.
  • The broad unemployment and under-employment rate fell 0.2 percentage points to 9.3%.
  • A 178K rise in non-farm payroll jobs was roughly in line with street expectations. Employment grew 1.6% over the last twelve months. The net revision to September and October employment was minuscule.
  • But average hourly earnings, whose on-year advance had accelerated from 2.4% in August to 2.8% in October, fell back to 2.5% in November. Such actually dipped 0.1% between October and November.
  • Also, labor participation slipped to 62.7% in November from 62.8% the month before and 62.9% in September.
  • And the ratio of workers to the total population stagnated at a low 59.7%, not much better than 59.4% in November 2015. Likewise, the average work week remained unchanged at 34.4 hours.

The Canadian labor statistics were softer than assumed and showed

  1. A 0.2 percentage point drop in unemployment to 6.8%
  2. A much slower 10.7K rise in jobs than the increases in either September or October.
  3. A second consecutive slide in full-time workers, this time of 8.7K after October’s 23.1K decline. Full-time workers were even lower than their year-earlier level.
  4. A softer labor participation rate of 65.6% in November versus 65.8% the month before.
  5. A much better 1.2% increase in labor productivity last quarter but only a 1.4% advance from a year earlier.
  6. A quarterly 0.7% drop and 0.6% on-year rise in unit labor costs during the third quarter.

U.S. stocks opened slightly lower. Share prices in the Pacific Rim declined by 1.2% in Hong Kong and India, 0.9% in Indonesia and China, 1.0% in Australia, 0.7% in South Korea and 0.5% in Japan. European stock markets also weakened on this final day of the week, with losses so far of 1.1% in France, 0.8% in the U.K., and Italy where a key referendum this weekend on fiscal reforms threatens to topple the Renzi government, 0.7% in Spain, and 0.6% in Germany and Switzerland.

The dollar depreciated today so far by 0.7% against the Mexican peso, 0.5% versus the yen, kiwi and sterling, 0.4% vis-a-vis the Aussie dollar, and 0.3% relative to the loonie. The dollar gains 0.1% against the euro but slid 0.1% against the Swissie.

Ten-year sovereign debt yields are down 7 basis points in the U.K. and Italy, 5 bps in Germany, 4 bps in Spain and France, 3 bps in Canada and the United States, and 2 bps in Switzerland. The 10-year Japanese JGB is steady.

Producer prices in Euroland jumped 0.8% on month in October, twice expectations, due to a 2.6% leap in energy prices. Non-energy producer prices only edged 0.1% higher but posted the first positive on-year change in a long time, albeit of just 0.2%. Total producer prices were 0.4% below a year ago compared to a 3.8% 12-month slide recorded as recently as May.

The British construction purchasing managers index rose 0.2 points to a 7-month high of 52.8 in November.

Australian retail sales increased 0.5% on month in October, similar to the rises in the prior two months. Sales were 3.5% greater than in October 2015.

South Korean real GDP grew 0.6% last quarter. The on-year increase slowed to 2.6% from 3.3% in the second quarter.

Czech real GDP growth last quarter was revised down 0.1 percentage point to 0.2%, with net exports exerting a drag. On-year growth was 1.9%.

Swiss GDP, which had been expected to record growth in 3Q of around 0.3%, instead remained unchanged. This depressed on-year growth to 1.3% from 2.0% recorded in the prior quarter. Government spending and net exports made negative contributions to GDP expansion.

Growth in Japan’s monetary base slowed further last month to 21.5% on year from 22.1% in October, 25.8% in 3Q, 27.3% in the first half of 2016, 34.0% in 2015, and 43.2% in 2014.

Irish industrial output in October was 7% lower than a year earlier. Brazilian industrial production tumbled 7.3% in the same 12-month time interval.

Sweden’s SEK 56.7 billion trade surplus last quarter was marginally smaller than a year earlier.

With the dollar falling, gold recovered 0.5% to $1174.80 per ounce. WTI oil went up 0.3% to $51.20 per barrel in continuing reaction to the OPEC accord on cutting production.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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