August 22, 2019
U.S. Jobless Claims Hit Four-Week Low, Underscoring Strength
“ Filings for U.S. unemployment benefits dropped to a four-week low, offering the latest sign of labor-market strength. Jobless claims decreased by 12,000 to 209,000 in the week ended Aug. 17, according to Labor Department figures released Thursday that fell below all estimates in Bloomberg’s survey of economists. The four-week average, a less-volatile measure, ticked up by 500 to 214,500. The drop in claims bodes well for the August jobs report as the period encompasses the reporting week that the Labor Department surveys for the tally. Jobless claims remain near historically low levels, evidence of tightness that may help ease recession fears. Employment remains a bright spot for the economy, even as cracks begin to show in the manufacturing sector and business investment. Still, government data released Wednesday showed payrolls in the year through March will probably be revised down by 501,000, or almost 42,000 jobs per month. The August payrolls report due Sept. 6 will shed light on whether the latest escalation of the trade war with China has impacted hiring at American businesses. Economists surveyed by Bloomberg had forecast that claims would ease to 216,000. The prior week’s reading was revised up by 1,000 to 221,000. Continuing claims, reported with a one-week lag, fell by 54,000, the steepest drop since April, to 1.674 million in the week ended Aug. 10. The unemployment rate among people eligible for benefits held at 1.2%, a level it has maintained for more than a year.”
Europe’s Banks Eye Breaking Last Taboo With Negative Interest Rates
“Five years after Mario Draghi turned the world of European banking upside down, lenders are considering breaking a last taboo: Negative interest rates for the masses. Banks have long tried to pass on the cost of negative rates to corporations and wealthy individuals, but they’ve shied away from making regular folks pay to have money in the bank. Yet after Draghi, the European Central Bank’s president, signaled that rates could go even lower, executives at Banco Sabadell SA and Commerzbank AG are saying they can’t rule out charging retail clients for deposits. Some bankers are even more sanguine in private. “With a change of paradigm like the one we’re experiencing, you could say that it could be contemplated,” Jaime Guardiola, Sabadell’s chief executive officer, said of negative rates for retail clients. “There’s still some margin for error before this happens, but it could be envisioned.” The question is, who will go first? Banks fear that whoever breaks that last taboo will suffer reputational damage and a large-scale client exodus. In a sign of just how contentious the issue is, particularly in a country of savers like Germany, the issue of negative rates on deposits has exploded onto the front pages of the country’s largest tabloid, and at least one top politician is calling for a ban. Negative rates are a double whammy for banks, costing them more than 7 billion euros ($7.8 billion) a year for depositing funds overnight with their central bank, while at the same time eroding income from lending. That has pushed the share prices of many European lenders to record lows, and has left firms such as Deutsche Bank AG and Commerzbank reeling from falling revenue and shrinking profitability. Until now, banks have responded by slashing costs and seeking to bolster fees from services other than lending. They’re also trying to hedge the cost of holding cash, but such moves carry the risk of creating a feedback loop that leads to still lower bond yields.”
Bears Beware, Yuan Slide May End Soon as China Anniversary Looms
“A six-day slide that sent the yuan to a decade low will probably be short-lived. That’s because a key political event — the 70th anniversary of the People’s Republic of China’s founding — is on Oct. 1, giving officials a reason to stabilize the exchange rate in the next few weeks. Traders are pricing in muted swings in the yuan, with a gauge of expected volatility touching the lowest in more than two weeks on Thursday. The yuan has tumbled 0.9% over the past six sessions, the worst performance in Asia, as uncertainty over the trade dispute with the U.S. lingers. To boost sentiment, the central bank has set stronger-than-expected fixings for two straight days. The yuan’s funding costs spiked in Hong Kong recently, stoking bets China is tightening liquidity to squeeze bears. “The yuan won’t be highly volatile in the near term,” said Ken Peng, a Hong Kong-based investment strategist at Citigroup Inc., who cited the coming anniversary as a key reason. “Policy makers have made their stance very clear by issuing stronger-than-expected fixings, so traders won’t want to stick their heads out as the authorities may just cut them off.” China has a history of supporting the yuan before major political events, such as leaders’ visits to the U.S. and the annual meeting of the National People’s Congress. Sustained declines risk creating a vicious cycle of capital outflows and even sharper drops in the currency — a scenario policy makers want to avoid because it could destabilize financial markets and derail talks with the U.S. A worsening of China-U.S. tensions between now and Oct. 1 would likely send the yuan lower — and at this point neither side appears to be backing down. On Wednesday, President Donald Trump said he was the “chosen one” to wage a trade war with China and asserted that he’s winning. Commerce Ministry spokesman Gao Feng said China will be forced to retaliate if the U.S. follows through with new tariffs. The back-and-forth has investors worried. The onshore yuan was down 0.41% to 7.0927 per dollar as of 5:19 p.m. in Shanghai. The currency weakened past 7 for the first time since the financial crisis on Aug. 5. Still, factors including steady fixings have “prompted the market to believe that China does not favor a rapid depreciation of the yuan,” said Mitul Kotecha, senior emerging-markets strategist at TD Securities in Singapore, who said he expects the currency to end the year at 7.1. “The fear of intervention is a key factor,” Kotecha said.”
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