US jobless claims continue to cast a positive glow on the outlook for the labor market. Today’s weekly update shows that new filings for unemployment benefits fell a solid 13,000 to a seasonally adjusted 263,000 for the week through Oct. 3. That leaves claims only modestly higher than the four-decade low of 255,000 that was touched back in July. In short, this leading indicator is effectively telling us that the recent worries about the macro trend are excessive.
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Foreign equities have had a strong run over the past week (5 trading days), with most of the major regional markets besting US stocks, based on a set of ETFs in unhedged US-dollar terms. Is this a sign that the ex-US equity space is due to outperform? Maybe, although there’s still plenty of ground to cover to catch up with the long-dominant American stock market. There’s also the macro factor lurking–slower global growth.
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● US consumer borrowing in Aug rises at slowest pace in 6 mos. | Bloomberg
● Gallup’s US Job Creation Index unchanged at 7-year high in Sep | Gallup
● Strong demand for US 10yr Note auction | Reuters
● US mortgage applications soar on regulation worry | CNBC
● German exports tumble in August | Bloomberg
● BoJ Monthly Report: Japan’s moderate recovery will continue | RTT

Gallup’s US Job Creation Index remained at a seven-year high in today’s update for September. Is that a clue for thinking that last week’s disappointing employment report for September is only a temporary setback?
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If it wasn’t already obvious, two updates this week warn that a slowdown in global economic growth is underway. It’s still debatable if the weaker trend will continue and unleash a new worldwide recession. The US economy is certainly vulnerable, but it’s premature to say that an NBER-defined contraction is fate for the world’s biggest economy. But one thing is clear: macro risk has ticked higher, as new reports from Markit Economics and Fulcrum Asset Management remind.
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Is the Federal Reserve still pondering a rate hike in 2015? Possibly, but the recent weakness in employment growth and industrial activity suggest that keeping the Fed funds rate close to zero may persist for “much longer, well into 2016 or potentially even beyond,” counsels Jan Hatzius, Goldman Sachs’ chief economist, in a note to clients.
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● US trade gap widens in Aug as exports slump | LA Times
● Gallup’s US Economic Confidence Index flat in Sep vs. Aug | Gallup
● Redbook: US store sales fell 1.6% in Sep vs. Aug | DJ
● German industrial output slides in August–biggest drop in a year | Reuters
● UK industrial output up more than forecast in Aug | RTT
● Spain’s industrial output tumbles 1.4% in August | INE

How Do Investors Measure Risk?
Jonathan Berk and Jules H. Van Binsbergen
October 1, 2015
We infer which risk model investors use by looking at their capital allocation decisions. We find that investors adjust for risk using the beta of the Capital Asset Pricing Model (CAPM). Extensions to the CAPM perform poorly, implying that they do not help explain how investors measure risk.
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Last month I tested random rebalancing strategies based on dates and found that searching for optimal points through time to reset asset allocation may not be terribly productive after all. Let’s continue to probe this line of analysis by reviewing the results of randomly changing asset weights for testing rebalancing strategies.
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● US ISM Services Index growth rate eases in September | MarketWatch
● US Labor Mkt Conditions Index falls to zero in September | St Louis Fed
● Global economic growth dips to 9-month low in September | Markit
● World Bank cuts growth forecast for East Asia | Reuters
● Former Fed Chair Bernanke blames Congress for weak recovery | NY Times
● PMI: Eurozone retail sales growth ticks up in September | Markit
● German factory orders slide in August | Bloomberg
● Australia’s central bank maintains record low rate | RTT
● PMI: India’s growth rate weakens further in September | Markit