Equity Volatility Will Be Focus Until Friday’s Jobs Report

Oct 29, 2018
Exasperated Stock

Equity Volatility Will Be Focus Until Friday’s Jobs Report

This week will be highlighted by the October employment report and after all the recent equity selling a strong report may be needed more to stabilize those markets than anything it might do to fixed income securities and interest rates. The good news, from a stock perspective, is that the report is expected to show another solid gain in headline job growth along with a nice uptick in wages (3.2%YoY vs. 2.8% prior). Prior to that Friday release equity volatility (or hopefully, the lack thereof), will be a focus as will today’s personal income and spending figures for September. While those numbers were part of last Friday’s GDP release it will give us a sense of the income and spending momentum of the consumer heading into the fourth quarter.



Short-Term Rates

Short-term Rates

Economic Calendar

Economic Calendar


Top Events of the Week Top 5 Events for the Week

OCT 29 - NOV 2,  2018

1. October Employment Report — Friday
2. Sept. Personal Income & Spending — Monday
3. October ISM Manufacturing — Thursday
4. Third Quarter Productivity — Thursday 
5. September Trade Balance — Friday


1.  October Employment Report — Friday

The October jobs release is expected to be another solid report with monthly job growth of 193,000 versus 134,000 the prior month with the unemployment rate unchanged at 3.7%.  Recall that the September report was mostly strong other than the headline number that had some Hurricane Florence influence that held it down some.  The monthly average gain in jobs over the last year has been 211,000 so despite the expected sequential increase, October is forecasted to be moderately under the annual average.  Once again, average hourly earnings will be the key metric and it’s expected to increase 0.2% MoM versus 0.3% in September.  Year-over-year average hourly earnings are expected to lift to 3.2% as a low 2.3% October 2017 print falls out of the calculation but that will represent solid wage gains nonetheless.    The average over the past year has been 2.7%, so an above-average print is expected and one that should keep the Fed confident in staying the course in its quarterly rate-hiking regime, despite the volatility in the equity market.


2.  September Personal Income & Spending — Monday

Today’s release of the Personal Income and Spending numbers for September were incorporated as part of the third quarter GDP release from last Friday but today’s numbers gives us a look at the momentum of both metrics as we head into the fourth quarter. Personal income rose 0.2% missing the 0.4% expectation and less than the upwardly revised 0.4% August print. Personal spending rose 0.4% matching forecasts but under the upwardly revised 0.5% August gain. Real spending—adjusted for inflation— increased 0.3% matching expectations but behind the upwardly revised 0.4% rate in August.   The Core PCE (YoY) inflation measure remained at 2.0% for the fourth straight month.  In all, it was an upbeat report that reflects the solid consumption in GDP with a modest dip in September spending versus August. In sum, it doesn’t hint at a consumer getting ready to retrench, at least not yet.


3.  October ISM Manufacturing — Thursday

The October ISM Manufacturing Survey is due later this week with the manufacturing survey expected to print 59.0 versus 59.8 in September.  The average over the past year has been 59.2 so the October result should show a slight decrease versus the yearly average, but anything above 50 represents expansion so the survey is likely to show continued strength in the manufacturing sector, albeit with some slight moderation.


4.  Third Quarter Productivity — Thursday

One of the two ways to more permanently provide for GDP growth is via productivity gains and one of the ongoing conundrums in the economy has been the low productivity levels in the current expansion. The good news is that with labor markets tightening and wage gains perking up just a little we are noticing a modest increase in recent productivity prints. The third quarter productivity numbers are due Thursday and the annualized quarterly gain is expected to be 2.1% versus 2.9% the prior quarter. The quarterly numbers are subject to volatility as the YoY second quarter print was a more modest 1.3%. That YoY number will need to move closer to 2% in order for GDP to print near 3% on a long-run basis and right now that’s not in the forecasts.


Year-over-Year Nonfarm Productivity


5.  September Trade Balance — Friday

With trade war rhetoric expected to heat up again with China once again in the spotlight, the monthly look at trade deficits has become equal parts political and economic.  The trade deficit (goods and services) was -$44.9 billion in September 2017 and is expected to be –$53.5 billion in September 2018. The deficit began the quarter at  -$45.7 billion, so the expected widening to -$53.5 billion indicates the trade sector, despite the advent of tariffs, continues to be a drag on GDP.





Technicals Investment Yield Ranges Over Last Year


US Treasuries

FHLB Agency Bullets

Mortgage Backed SecuritiesMunicipals

US Corporate - Financials

US Agency Swap Rates

 Source: Bloomberg





Tom Fitzgerald Signature

Thomas R. Fitzgerald

Director, Strategy & Research




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