iShares MSCI Ireland ETF On Economic Recovery

FactSet has published a research report on Ireland that makes a good case for going long the Ireland ETF.

FactSet writes:

Ireland has come a long way since the financial crisis of 2008-2010. Following the bursting of credit and property bubbles in 2008, the Irish government was pulled into crisis, and in 2011 entered into a financial assistance program provided by the so-called “troika” (consisting of the European Commission, European Central Bank & International Monetary Fund). This included a bailout package of €67.5 billion, as well as various measures to recapitalize banks, restore fiscal sustainability and carry out growth-enhancing reforms.
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Employment Situation Report Much Weaker Than Expected

The employment situation report for September was a big dud. Nonfarm payroll came in at 142,000, well under the low estimate for 180,000. To seal the matter, downward revisions to the two prior months total 59,000. The labor participation fell 2 tenths to a nearly 40 year low of 62.4 percent.

For readers of this blog, this is not a surprise and I think we have been well prepared for this. I even called Janet Yellen’s transitory thesis officially wrong back in August and so for us, this is not a surprise.

Weak global demand and the strong U.S. dollar has not only crashed the manufacturing sector, it’s creating ripple effects that are spreading outward as evidenced by this report.

Interesting too is that the Empire State report signaled that this was coming a month ago.

The chart looks horrible with job creation clearly falling. A rate hike in 2015 seems off the table.

Trader Alert: Q3 GDP Estimate Plunges!

In a shocking move today, the Atlanta Fed took down its forecast for Q3 GDP below 1%, citing declining net exports.

The Atlanta Fed in a stunning reversal writes:

The GDPNow model nowcast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 0.9 percent on October 1, down from 1.8 percent on September 28. The model’s nowcast for the contribution of net exports to third-quarter real GDP growth fell 0.7 percentage points to -0.9 percentage points on September 29 following the advance report on U.S. international trade in goods from the U.S. Census Bureau.

ISM New Orders Lowest Since August 2012

The ISM index has been pointing to trouble in the factory sector for some time now. The consensus range for the ISM manufacturing index was 50 – 51.5. The actual number was 50.2. Now we are beginning to understand better why the Federal Reserve held off hiking rates in September.

The 50.2 reading is the lowest since May 2013. New orders, at 50.1, are at their lowest point since August 2012. Backlog orders have fallen to a low 41.5, which is their fourth month of contraction. Export orders, at 46.5, are also in their fourth month of contraction and are a key factor behind the general weakness. The rising U.S. dollar and slowing global growth have hit exports hard.

Looking at this chart folks, I think we can begin to see that deflation is a greater threat than inflation right now. I think this pushes out the first Fed rate hike to 2016, not 2015. The Fed is far more afraid of hiking rates too quickly and putting the economy into a deflationary spiral than they are worried about the threat of an inflationary spiral in my opinion.

Stock traders track the ISM manufacturing index because it shows the health of the manufacturing sector. Since the manufacturing sector is a major driver of sector rotation in the economy, this report has a big influence on the markets. The Federal Reserve keeps a close watch on this report which helps it to determine the direction of interest rates when inflation or deflation warning signals are flashing. As a result, the bond market is highly sensitive to this report.