October 17 – The market gets a plethora of data to work through today, with hot retail sales and manufacturing data highlighting the early morning releases, along with a mixed view of labor market conditions. More manufacturing, housing, and energy data is due later this morning. Stock futures are pointing to a higher open this morning, with a rebound in the tech sector after Taiwan Semiconductor Manufacturing Co (TSMC) beat earnings expectations soundly and returned calm after ASML brought fear into the market for the last two days. Meanwhile, the VIX looks to cool below the 19.3 level to start the day. The dollar is looking to extend its rally as it touched fresh two-and-a-half month highs near 103.6 and trades around 103.54 at the time of writing. Treasuries are firming to start the day as well, with 10-year yields trading at 4.08% and 2-year yields within a tick of the 4% level again. Crude oil looks to start the day roughly flat, with nearby WTI hovering around $70.4, while the ags are mostly lower.
U.S. retail sales came in hotter than expected in September, climbing 0.4% month-on-month, well above the 0.1% rise in August and above market expectations of a 0.3% rise. The decline in year-on-year terms continued, however, coming in at 1.7% versus 2.1% in the month prior and falling to the lowest level since January. Sales at miscellaneous store retailers led the increase with a massive 4.0% month-on-month increase, followed by clothing at 1.5%, and personal care stores at 1.1%. The biggest decline was seen at electronics and appliance stores, falling 3.3% month-on-month, followed by gas stations with a 1.6% decline, and furniture stores at 1.4%. Excluding gasoline and autos, U.S. retail sales were up a strong 0.7% month-on-month, while August was revised higher to 0.3% as well.
Initial jobless claims fell to 241K in the week ending October 12th, down from an upwardly revised 260K in the week prior and well below market estimates. Continuing jobless claims in the U.S. rose slightly, however, to 1.867M from a downwardly revised 1.858M in the week prior though also coming in a tick below the average analyst estimate of 1.870M. This morning’s data pushed the four-week average jobless claims to 236.25K, up from 231.5K the week before and marking the highest print seen since mid-August. We saw average jobless claims trend lower throughout August and September, relieving much concern of a softening labor market, but this is now back-to-back weeks of increases to start October. To be fair, recent hurricanes and strikes do make these numbers much more ambiguous, meaning we need to see more data before any knee-jerk reaction to these numbers, as we won’t have a clear view of conditions until normalcy is returned post-storm recovery.
Negativity was added to the labor market picture with the employment portion of this morning’s Philadelphia Fed Manufacturing Index dipping back into negative territory at -2.2 in October, however, a sharp drop from the 10.7 reading seen in September. The rest of the reading brought positivity though, with the headline reading spiking to 10.3, up from 1.7 in September and marking the eighth positive reading in the last nine months. The new orders portion of the index came in at a robust 14.2, a big jump from -1.5 in the month prior and signaling positivity regarding demand. Sentiment regarding overall business conditions soared as well, climbing to 36.7 in October from 15.8 in September as outlooks improved. Improvement was seen on the inflation side of things as well, with the prices paid for inputs portion of the imports falling to 29.7 from the surprise spike to 34 in September that raised red flags about potential re-inflation. Despite the improvement, it is worth keeping in mind that this is still a very high reading; excluding September, this would’ve been the highest reading for input prices paid since December 2022, meaning we may not be out of the woods just yet.
China’s housing market press conference failed to impress, with the announced support measures not bringing any fresh ideas and overall numbers being seen as underwhelming by traders, especially given the enormous inventory levels of unsold homes to be worked through. As such, Chinese markets have weakened, with property stocks bearing the brunt despite the announcement of additional bailout. The overall negativity regarding the Chinese economy remains, adding additional headwinds to the commodity markets on demand concerns. Now, the market will turn its attention to China’s third quarter GDP numbers set to be released tomorrow.
