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.
|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,
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.
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,