"So we gave them a hearty cheer, me boys,
It was greeted with a smile
Singing here's to the boys who feared no noise." -- The Fighting 69th
Take this job and ... Not a lot of people tear apart secondary and tertiary macroeconomic data just for the pleasure of it. Doing so can lend some insight though, that an investor might not otherwise have in his or her arsenal. One more arrow in the quiver. Sarge, enough already. Out with it, man! I'm talking confidence. We all know that the consumer surveys, the regional manufacturing surveys and the homebuilder survey have all been red hot. We don't all follow the JOLTS report for job openings very closely, for good reason. The data there is dated, and there has long been a mismatch between the skill sets desired by employers and those available.
Let's take a look at the "quit rate", though, which is included in the JOLTS data. You have to go to table 4, after running through table A through G, so it's not easy to find. Yesterday, the BLS released the January data. Headline job openings reached 5.63 million, the highest since June. January was the same month that headline unemployment ticked up to 4.8% on increased participation. Well, the quit rate also ticked higher that month, to 2.2%, equaling the highest level since prior to the Great Recession. Fed Chair Janet Yellen, who we know follows the JOLTS report, even gave this developing increase in voluntary termination a shout-out in her press conference on Wednesday as evidence of expanding confidence in the economy. The evidence that confidence is playing a role here is undeniable. Construction has been hot, and construction workers are showing the most willingness to leave their employers.
That leads us to homebuilder optimism. The NAHB print screamed all the way up to 71 on Wednesday. That survey was for March, but is clearly supportive of the confidence suddenly found by those within the industry two months earlier. The evidence when taken on a regional level is both confirming, and damning. The quit rates in the West (2.2% to 2.5%), and the Midwest (2.1% to 2.3%) are both moving higher. Those two regions also happen to be the strongest regions within the NAHB's homebuilder survey. The Northeast? Way below the national average in both homebuilder confidence, and the quit rate as well.
Perhaps this weekend's most interesting developments will come out of the G20 meetings that begin today in Baden-Baden, Germany. The new U.S. Secretary of the Treasury will have two obvious missions. One will be to press other member nations to abide by existing exchange rate agreements. Nations within the G20 have all agreed to avoid competitive devaluation, which targets currency valuations in order to gain advantage in trade. China, Germany and South Korea have all been on the U.S. Treasury Department's list of nations whose exchange rate policies are harmful to U.S. industry since long before Steve Mnuchin got here. The second mission will be to press for open and fair trade, a broader subject that exchange rate policy is only part of.
I would not envy Mr. Mnuchin this weekend. He has a tough job ahead of him. On currency valuations, the evidence is that in recent years, China has worked to strengthen its currency in order to avoid outflows. As far as the euro goes, just last week ECB president Mario Draghi referred to the U.S. dollar as overvalued not to the euro as undervalued, which means that Germany may not see it Steve Mnuchin's way. That comes on a day that Chancellor Merkel and President Trump are scheduled to get together.
Then there is the possible discrepancy between the president and the secretary. As recently as yesterday Secretary Mnuchin sounded as if he preferred a stronger dollar, while the president has openly jawboned about weakening the home currency. Either position could be taken as fodder for negotiation. Let's not forget that neither one of these men are career bureaucrats. They have both been around the block before.
When it comes to open and fair trade, most G20 nations seem to fear the U.S. is capable of starting a trade war. I may be speaking as an American, but it's hard to see how responding to tariffs and currency valuations that are heavily slanted in the favor of the trading partner could possibly be referred to as "starting" a trade war. Seems more like the trade war was started long ago, and not by the U.S. Consider that the average tariff on U.S. goods sold in China is over 19%, and the average tariff on Chinese goods sold in the US is just above 2%. Hard to blame someone who doesn't like getting hit in the teeth for not liking it.
My colleague at TheStreet, Douglas Borthwick (Currency Honcho over at Chapdelaine) called for the possibility of groundwork being laid for a new global exchange rate accord at these meetings. That idea is starting to catch some fire, but I'll tell you this. Borthwick came up with this idea first. He has a point. The U.S. does have one valuable export that everyone wants: Protection. There are a lot of bad guys in this world, and there's only one kid on the block tougher than they are.
09:15 - Industrial Production (February): Expecting 0.2%, January -0.3% m/m.
09:15 - Capacity Utilization (February): Expecting 75.5%, January 75.3%. Industrial production printed in the hole for January due to an utter collapse in utilities. Still, given the strength that we have seen in the ISM data and the regional Fed surveys, one might have expected more from manufacturing production than the minor increase in that sub-component that we did see. We do expect to growth in overall production today for only the third month in the last seven. Capacity utilization is at least off of the lows, although well below the significantly higher level that we saw just 18 months ago.
10:00 - University of Michigan Consumer Sentiment (March-adv): Expecting 97.1, February 96.3. Sentiment came a bit off its post-election peak in February, yet remains at the highest levels since early 2015. I find it interesting to note that the similar consumer confidence survey (released by the Conference Board) has continued to rise precipitously since election day without pause. This item, like all consumer-based data, does have the potential to move the marketplace upon its release.
10:00 - Leading Indicators (February): Expecting 0.4%, January 0.6% m/m. January brought us the strongest month over month print in this space since April of last year, showing that in aggregate, the month was a bit better than what had become accustomed to. The expectation for today is that to some degree, the momentum will be sustained. However, the markets do not respond to this release, as it is simply a composite of other data-points that have already been priced in.
13:00 - Baker Hughes Rig Count (Weekly): Last Week total 768, oil 617. It has now been about 10 days since crude prices rolled off of the table. Since falling below $50 a barrel, that level has become resistance. It will be very interesting to see how the ring count responds this week. Those in the Permian may still pump, but elsewhere... probably not as likely.
Sarge's Trading Levels
These are my levels to watch today for where I think that the S&P 500, and the Russell 2000 might either pause or turn.
SPX: 2398, 2389, 2383, 2375, 2365, 2359
RUT: 1405, 1398, 1390, 1383, 1371, 1361
Friday's Earnings Highlight (Consensus EPS Expectations)
You're Invited ...
Wall Street Goes to Washington. In the first of a series of conversations with President Trump's economic advisers, acclaimed author and columnist Michael Wolff will sit down with Trump insider Anthony Scaramucci, co-founder of private-equity firm Skybridge Capital. They'll discuss the Trump administration, Scaramucci's thoughts on the policies and regulations under debate and his outlook for the next four years. Join us for this cocktail party on Monday, March 27, at The Metropolitan Club in New York. The event is free, but seating is limited and reservations are required. For more information or to RSVP, email firstname.lastname@example.org.