This Week In the Economy
Last week closed off with a surprise jump in producer prices, the Producer Price Index (PPI) rising 0.6% sequentially, 3x faster than the expected print of 0.2%. Producer prices are still rising at just below 3% annually, excluding food and energy. This week those numbers will be reinforced with Consumer Price Index to be published on Wednesday. On Thursday, we’ll have numbers for the 30Y mortgage rate which is now at 5.15%. A jump higher could spur further sluggishness in the real estate market, which has seen significant weakness over the past few months along with stocks. On Thursday we’ll have a retail sales print, but watch for a surprise jump which could simply indicate higher prices and not necessarily better sales. On Friday we’ll have statistics on foreign buying of T-bonds for a peak into the bond market, which has also been rather ill of late.
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JP Morgan Says Worst Yet to Come for General Electric
The epic collapse of General Electric (NYSE:GE) continues. Shares were down over 6% on Friday, closing down just over 5.7% and hitting new 52 week lows at $8.15 a share. Technically, the long term chart looks very similar to 2008, which GE only survived because it received a bailout. This time it probably won’t get another one. Analysts at JPMorgan Chase (NYSE:JPM) have slashed price targets to $6 a share from $10, right around 2008 lows. “We are taking aggressive action to strengthen our balance sheet through accelerated deleveraging and position our businesses for success,” it said, similar to what it said of itself in 2008, such as, “We also believe that the disposition of our less strategic businesses, our restructuring actions and our investment in businesses with strong growth potential have positioned us well for the future.” Bailouts also help.
No Slowdown For Alibaba, but Is It Growth Or Inflation?
Is it a sign of growth or just more inflation that Alibaba (NYSE:BABA) has set a new record for Singles Day, AKA Armistice Day, AKA November 11? In the opening minutes of China’s competition for Black Friday, the retail giant logged about $1.44 billion in sales, a new record. This could be a sign of strength, but it could also be a sign of consumer price gains or even just people squeezing their consumption into mega sales days because they intend on spending less throughout the rest of the year, which recent surveys of Chinese millennials have attested to. Last year’s singles day haul was 168 billion yuan and the company expects to surpass that this year. Despite the good news, Alibaba shares are still down 16% year-to-date.
All Eyes On Oil
Oil (NYSEARCA:USO) has had its worst losing streak in 34 years, and the December futures contract has had its worst day-to-day losing streak in its history, and the precise time that Iranian exports are being shut down globally. Fears of a supply glut are once again coming into vogue with murmurs out of Saudi Arabia running simulations of an OPEC breakup and what would happen to the oil markets in the event of such a crisis. The main reason for the decline is the beginning of signs of a sluggish economy which could be putting the clamps on oil demand, and record production figures from the United States, Saudi Arabia, and Russia, the world’s three biggest oil producers. Despite the fall, energy stocks (NYSEARCA:XLE) aren’t doing as bad, having bounced off their lows on October 22. Whether they are leading the sector out of the slump or just in denial remains to be seen.
Even More All Eyes On Italy
A budget showdown will take place between Italy and Brussels on Tuesday, with the former intent on spending way more money than it has, and the latter intent on stopping the former from spending way more money than it has in favor of having it spend only a little more money than it has. Italy is unlikely to back down immediately, and will probably play chicken with the European Central Bank, which could sell some Italian bonds and scare Italian bond markets as a way of twisting Rome’s arm. In the end the ECB will win because economics always trumps politics, even populist politics. The question is how high will Italian yields have to go before the politicians over there cave in, and even if they cave in, how much time does that buy them? (NYSEARCA:EWI)