Upbeat U.S. economic news continued; U.K. joined the rising-rate club; China helped the interbank market; Swiss central bank made money by making money.
“The global upswing in economic activity is strengthening."
U.S. growth: Still solid Despite the miss on a headline figure in Friday’s October employment report (non-farm payrolls up 261k vs. 313k expected), good news was just below the surface. First, the report contained 90k of upward revisions for the previous 2 months, more than making up for the October shortfall. Second, the “underemployed” figure of 7.9%, though still uncomfortably high for those it counts, was the lowest in 11 years, since before the Global Financial Crisis of 2007-8. Third, the overall unemployment rate of 4.1% was the lowest on record since January 2001. None of which appears to have flowed through to wages, at least for the time being.
The week saw other signs of strength. The National Association of Realtors reported the typical home spent just 3 weeks on the market as of the end of June, according to the group’s annual report. That’s the smallest wait in 30 years. At the same time, 42% of buyers paid the listing price or higher, the highest percentage since the series started in 2007. And according to the National Association of Independent Businesses, a small-business group, 35% of business owners surveyed said they had jobs to fill, the second highest on record since 1973. Other anecdata included a rise in auto sales, particularly in pick-up trucks – possibly the aftermath of the severe weather earlier in the year.
Add this week’s data to the Fed’s strong hints after the week’s FOMC meeting that they will raise rates at least 25 basis points in December – and the result is a Fed Funds futures market trading as if the odds of a December rate hike stand at 97.1%.1
U.K. rates: One and done? The Bank of England (BoE) raised its benchmark rate 25 basis points to 0.5% on Thursday, driving the British pound down some 2.3% vs the euro to €1.126; and down 2.1% vs. the dollar to $1.304 – before rebounding somewhat. With that move the BoE joins the Fed and the European Central Bank in starting to tighten, or promising to do so. With negotiations over Brexit stalled for now, some observers believe there won’t be another upward move until the economic landscape clears.
China’s bond market: Supported Toward the end of a week that saw some unwelcome volatility in the country’s bond market, the People’s Bank of China offered 404 billion yuan (about $60.8 billion) of one-year funds under its Medium Term Lending Facility, compared with 207 billion yuan of maturing securities, according to the central bank. By some accounts, that makes the week’s support add up to just over 1 trillion yuan, a slight surplus over the total of maturing securities for the week.
Swiss National Bank: Now what? Though not in the business of generating gains, the country’s central bank reported on Tuesday that its profit for Q3 was a record-high 32.5 billion Swiss francs ($32.7 billion). That’s for a country with about 8.5 million persons, and amounts to 5% of the country’s Gross Domestic Product (GDP). The profits were the result of the bank’s enormous campaign to hold down the value of the Swiss franc during the various European and global financial crises over the past few years. The next challenge is how to benefit from these profits, since that would involve selling assets and buying back a very large amount of the country’s own currency, and possibly driving the Swiss franc back up.
1 Source: Bloomberg, Friday November 3,2017, 12:20 PM ET