Summer isn’t officially over. But for Wall Street, it might as well be. Trading desks are fully staffed for the first time in weeks now that Labor Day is behind us, and big-money investors are trying to figure out how the last few months of the year will go.
Market Roundup
The bulls didn’t get much help on that front from the Group of 20 gathering over the weekend. There was a lot of hope that the policymakers meeting in Hangzhou, China, would pledge to take concrete steps to get the global economy back on track. But the G-20’s communique was long on empty rhetoric and short on details.
Meanwhile, even as European countries slammed China for overproducing steel, the host nation largely blew them off. China and the U.S. got into a diplomatic fracas over how to deplane Air Force One. And North Korea lobbed three missiles into the air during the summit in an attempt to prove it still matters.
The other big piece of news – this time on the U.S. economy – was also hard to swallow. Specifically, we learned this morning that the ISM Services Index tanked to 51.4 in August from 55.5 in July. Not only did that miss the average forecast of 54.7 by a mile, but it was also the worst reading going all the way back to February 2010.
The new-orders sub-index plunged to 51.4 from 60.3, while the employment sub-index sank to 50.7 from 51.4. That’s very close to the sub-50 level that would indicate services firms are cutting, rather than adding, jobs.
The lousy read follows last week’s ugly ISM Manufacturing Index. The gauge sank to 49.4 in August from 52.6 in July. That was well below economist forecasts and the weakest since January. The sub-index that tracks new-orders dropped sharply, while one that measures actual production activity sank to a four-year low.
Stocks lost steam on the news before recovering, while the dollar weakened, and gold and Treasury bonds jumped. The reason? It fits with the idea that the economy is slowing even further – a thesis that gained more credence in the wake of the lackluster August jobs report we got on Friday.
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| Stocks lost steam before recovering, while the dollar weakened. |
We have a Fed meeting looming on September 20 and 21, as well as a Bank of Japan gathering at around the same time. We also have a European Central Bank meeting scheduled for this Thursday.
Given how large a role monetary policy plays in today’s markets, investors will be looking for any clues of more action. But at some point, investors are going to have to see some actual proof that some policies being implemented somewhere are actually having some impact on the real economy. The latest news on jobs, manufacturing, and services suggests we’re waiting for Godot.
My advice: If you’re looking for investment opportunities in this slowing economy and the late stage of the credit cycle, consider consumer staples, “Safe Yielders,” and select stocks identified by our Weiss Ratings as worthy of your hard-earned funds. That’s what I’m focusing on in my Safe Money Report, and you can get my favorite names there. Just click here.
Meanwhile, if you have any thoughts on the G-20, the services sector slowdown, or the U.S. economy as a whole, take a minute to share them in the comment section below.
Until next time,
Mike Larson
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I hope you had a nice Labor Day weekend, and got to spend some time with your family and friends. As you might expect in light of the jobs news we got on Friday, much of the discussion online focused on the labor market and the outlook for economic growth going forward.
Reader David C. said: “The employment numbers were ‘not too bad’ if you just take the reported number at face value. However, I read often that the seasonal adjustments, especially the ‘Birth/Death’ adjustment, is woefully inaccurate.
“Also the quality of jobs, which Mike highlighted, is another negative. Yes, it’s a job – but with compensation you can’t live on. When you look at the real numbers, our employment situation is really much worse than reported.”
Reader Thomas added: “On top of the agenda of the G-20 summit in China this past weekend was global economic growth, the lack thereof, and what to do about it. But to create real job opportunities is not easy if businesses refuse to invest or if governments do not have enough money to invest in infrastructure.
“This is the key underlying problem in almost any country worldwide today. Bad job-market stats are only a symptom of this key underlying factor. Lack of economic growth cannot be corrected by QE-voodoo economic tactics. Neither can you tax a country to prosperity.”
Reader Gordon also brought up the weekend G-20 meeting and the lack of specific news coming out of the event: “At 78, I have been listening to all this G-20, G-8, G-50 or whatever horse-pucky for years. It used to impress the heck out of me when I was younger. But now, like so much else, it’s becoming nothing but repeated, rehashed, tired-old, do-nothing rhetoric.”
Finally, Reader Andrew T. brought up the real estate market and the potential risks there: “It’s like Ireland in 2008. Real estate prices had trebled in 10 years thanks to easy credit. The banks then started tightening up on lending standards, and suddenly, prices crashed by 50% over the next two years, leading to a wave of bankruptcies.”
Thanks for weighing in. As I said earlier, the economic data continues to look “spongy” to me, confirming that we’re in a late-cycle environment for both growth and credit. That’s not an ideal time to invest in sectors like financials and cyclicals. But “Safe Yielders,” gold, and other investments could work out well – as long as you keep in mind the rising risk of significant negative shocks.
Anything else you want to add? Don’t forget to hit up the comment section and let me know what’s on your mind.
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Another day, another rumor about supposed coordinated action to stabilize oil prices. Officials from Russia and Saudi Arabia said Monday at the sidelines of the G-20 meeting in China that they could take steps to reduce oversupply in the crude market.
But after initially surging on that news, oil reversed course and faded. That’s because neither country announced actual concrete measures to curtail production. We’ll have to see if anything more substantive comes out of an energy forum later this month in Algiers, or at the next major OPEC summit in Vienna in November.
Germany’s Bayer AG (BAYRY) just raised its offer for U.S. seed and pesticide firm Monsanto Co. (MON), targeting a purchase at $127.50 per share. That would represent a price of around $65 billion including debt, but it could still prove too low to consummate a transaction.
Negative interest rates continue to spread around the world. I say that because today, a pair of European companies sold the first-ever, negative-yielding corporate bonds issued by a completely private firm.
Henkel and Sanofi, a German consumer-products company and a French pharmaceutical firm, respectively, peddled two-year and three-and-a-half-year notes at prices high enough to generate negative yields. Only state-backed European companies and sovereign European countries had done so up until today.
What do you think of the latest oil market chatter? Will anything come out of this supposed discussion about future production cuts? How about the latest mega-deal in the agriculture and chemical space? And what’s with the ongoing spread of negative interest rates in the corporate bond market? Is it a good or bad thing? Let me hear about it in the comment section below.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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“G-20 = Horse Pucky” sums it up with the addendum that it takes Horse rear ends to “produce”, and that is all they produce plus flatulence of course.
Can someone tell me why the national debt has gone up over 1.3 trillion in the last year and the deficit is only supposed to be 475 billion for fiscal 16?
The Services Industry decline scares me more than Manufacturing Services decline. We, after all, have become a services industry nation having given up our manufacturing to China and others. Hopefully this is not a trend but a outlier situation for now. Global economic decline overall has possibly effected our services industry as well.
I’m just reading here about European firms Henkel and Sanofi becoming the first two entities to issue corporate bonds earning negative yields. Despite all that has been written about negative yields, I still find myself experiencing brain freeze every time I contemplate them.
It amazes me that one party – either a government or business, can guarantee to return less money in the future than an amount borrowed today and find someone else to accept the deal. I eventually find myself wondering if it’s possible to compete in this market by borrowing a sum today, and promising to return the same smaller amount tomorrow rather than several years from now. It seems like a person with the integrity to follow through on the promise could make this work.
Yes Todd_S it has become a Wimpy world. Get your burger today and pay tomorrow. Money & Markets is the one newsletter that even comes close to the truth. I am truly amazed that suckers sorry people will lend out money and receive less money back in the future baffles me but on the other hand governments have conditioned us to accept this as the new normal. Stanley Fischer of the Fed bluntly said that the Fed is sacrificing savers us honest folk out here so that the market goes ever higher and the big boys can make off like the bandits they truly are. Since being retired and having the time to explore the history I lived through its amazing at all the disasters that happened and I paid so little attention to. I was to busy surviving. I have been replaced by millions of others experiencing the same scenario and thus they have little or no knowledge of how to vote or what important decisions to make. Like flotsam they ride the waves of life going in whatever direction the current takes them. It is sad that true wisdom comes with age. Security in investments buy gold it has been tried tested and true over 5,000 years and I made another $1500 last night how sweet it is. The shorts have been burnt and the manipulation of the precious metals market is slowly being stripped away and metals have taken the bit in their mouth and are running. How does one buy stock today? You buy stock in a company that is today’s winner and tomorrows loser due to technology changing so fast almost at warp speed much different than the slow and steady years I enjoyed. Be safe out there and be careful what of what the snake oil salesmen are peddling.
What is Godot?
Godot is a play by Samuel Beckett. Godot is a character that 2 other men are waiting on to arrive but he never does. I found this out by typing the word into Google search engine. Until your question I didn’t know or care. Through the years, waiting on Godot has morphed to a metaphor for waiting for something that may well never happen.
A play by Harold Pinter, also read the caretaker. Both fit where the Fed and Governments of the world are now.
Mike,
In reality, politicians, and governments in general, can’t right a ship, they can only take it further off-course!!!…
Most of these G-20 leaders wouldn’t know an economic boom if it smacked them upside the head, especially the guy from the U.S. These spectacles are such a farce and a waste of time. The markets, consumers and businesses know best how to run the economy…not central planners and governments using their central banks and powerful lobbies.
It seems to me that main stream media have missed two VERY important events that happened in China, only a few of the G20 delegates picked up on it. First: For the first time in decades, (since 1981) the World Bank has sold IMF Special Drawing Rights (SDR) bonds to the China interbank market, [a form of international money, created by the International Monetary Fund, and defined as a weighted average of various convertible currencies]. and Secondly: the quantum satellite technology with superior speed and capabilities was recently put into space by China. Li Chao, chief economist with Beijing-based Huatai Securities Co Ltd, said the development of the SDR-denominated bond market in China would help re- balance the world monetary system and increase the appeal of the SDR in the future, as more financial institutions are expected to follow the World Bank’s lead and issue such bonds. As far back as 2009, Mr. George Soros (at Davos) predicted a $100 Trillion new capital or liquidity would be needed to bail out the Central Banks in the same way the commercial banks were bailed out in 2008. Is this sale of SDR’s the beginning of a whole new chapter in a new world reserve currency modeled on block-chain quantum satellite technology?? After all, the yuan is part of the reserve currencies basket of the IMF effectively from 1st October 2016. The internationalization of the yuan is eminent, and with their new superior quantum communications ability, they are positioned to become the new leaders in the Global village!!
Source: http://www.china.org.cn/business/2016-09/05/content_39234979.htm
Well, what do you expect from a phantom “recovery”? This debt-fueled party, if there ever was one, is over…an illusion. Time to put aside hope based on lies, in turn based on fabricated data, face reality, and watch it unwind.
I recently read September 30, 2016 will be the demise of U. S. Currency. The world will move to a World Currency. I also read, quite sometime ago, the IMF had currency ready called SDR’s. I certainly would like to know and have access to the currency expected to replace the Dollar.
I read that in September 30,2016 our Dollar will no longer be used as the worlds reserve currency. Several doomsayers are predicting a computer full financial meltdown which will ruin our economy along with most of the civilized world plus cause massive inflation or cause a full blown depression perhaps line the one from the late 1800s. 80% declines in the securities market along with a collapse in real estate of all kinds. All that and predicting gold will rise fivefold.
Yet there is no news about the IMF doing or causing this. Are we all going down the drain unless we shirt the market and go long on gold plus sell everything to generate cash which may become worthless. Would sure like your opinion on this for sure
Two typos: computer should say complete and shirt should say short
Thank you
Print money from thin digital air to buy real stuff. What can possibly go wrong? Ultimately, everything.
HOW MANY TIMES do we hear about these oil countries say anything every two weeks to prop things up?
I don’t expect any things from G-20!!! I live in selfish world and any member of G-20 wants to receive more but give least. They are giants without hearts: No mercy!! Talk too much.
All good points and well presented Mike. The NY puntsters told us that manufacturing doesn’t count because the US is all about the service segment. Transportation has historically been a messenger of what lies ahead, and news on the transportation front has been shouting from the rooftops for some time now. Ignore news in transports at your own peril. This voice is getting louder.
David C
Your quote
“Also the quality of jobs, which Mike highlighted, is another negative. Yes, it’s a job – but with compensation you can’t live on. When you look at the real numbers, our employment situation is really much worse than reported.†unquote Another post talks of the dubious ways they arrive at the numbers. Tombstone reading comes to mind.
Your statement kind of reminds me of a great Jack Nicholson movie in which he says “Truth you want the truth well you could not stand the truth”
The oil market chatter is just that. A few weeks ago, Iran mentioned they may come to the OPEC table to curtail production and the price neared $50 per barrel.Since then it’s dropped around 10 % to the mid 40’s as reality takes hold once more. There is so much baggage between the largest producing nations that I wouldn’t bet a nickel that they would be able to cooperate to cut production.
Hi from Yorkshire (UK),
Could you inform us about SDR’s and how it will hit us wrt money in the bank or stored in some other place? What will happen to shares?
Wait until next month. With ITT technical colleges all going out of business that will dump thousands of unemployed people out into the cold. This administration is doing it’s best to control education at all levels to get their agenda through.
It is not rocket science. You can’t take the manufacturing core of the greatest consuming country in the world (along with millions of Middle Class Jobs) and expect that nation to prosper. Perhaps if the GOP spent less time worrying about how much richer it can make the 3% that contribute to them and more time worrying about how the 97% are doing, they wouldn’t so devistate our country….
Well, we gave them power in 1981 and by 2007, they bought the second Republiican Stock Market Crash and Depression in 100 years……. The first one happened after another period of Republican domination which lead to the Republican Stock Market Crash and Depression of 1929……. :(
Much new natural gas technology should emerge into the markets during ’17-18
that will increase production efficiency and satiate demand for industrial products
now in short supply.
Of particular note will be production products replacing crude oil at less cost and
pollution. Coal costs too much and has no great future.
CW
Hi Mike
When you consider the financial road we are on, how long it has taken us to get here and the success so far, it seems we are heading back to market protection and protection of jobs, lifestyle and our cultural beginnings.
Does it seem that anytime the government intervenes or interferes with society that things get messed up? a la Regan’s comment. Unreal currency produced by printing or even worse by a computer blip, distorts the market, and warps the consumers ability to make reality based decisions on what things are worth. A country that buys necessities from another country is at their mercy, or production output that they are willing to sell to us. The real problem is man himself. He is first and foremost selfish, and not immune to use devious methods to feed his own lusts, or wants.
Was Godot a film? The Wolf of Wall Street is the best film I have seen in about 5 years. The books pretty good too.