Date: December 05, 2019
U.S. Labor Market Is Helping Trump and Fed Be More Patient
“The Federal Reserve and President Donald Trump may be at loggerheads over interest rates, but they have one thing in common right now: the resilient U.S. labor market is helping both be more patient. For the Fed, the November employment data due Friday should signal that jobs and consumers remain buoyant enough to sustain the expansion, validating Chairman Jerome Powell’s view that rates can stay on hold following three cuts. For Trump, it likely reduces the urgency for a trade deal with China even with investors fretting about a possible tariff increase on Dec. 15, given that escalating levies have so far failed to significantly dent the U.S. labor market. The Labor Department figures are set to show that 185,000 workers were added to nonfarm payrolls last month — one of the highest estimates this year ahead of a jobs report. While that reflects a temporary boost from returning General Motors Co. autoworkers and gains have broadly moderated from their strong 2018 pace, it’s nowhere near signaling recession — a fear that gripped financial markets earlier this year. “This is still one of the strongest parts of the economy — there seems to just be this pent-up demand for workers,” said Ethan Harris, head of global economics research at Bank of America Corp. “What gets a deal on the table and the Trump administration to make a compromise is concerns about the economy. You’ve actually seen labor markets holding up better than expected and equity markets near record levels, so the pressure to get a deal done has abated.” Most recent indicators point to stability in hiring: filings for unemployment benefits remain near historic lows and job openings are still relatively high, signaling that businesses are both growing and reluctant to fire workers. A report Wednesday showed that a measure of services employment, the largest sector of the labor market, rose to a four-month high in November. On the other hand, data this week from the ADP Research Institute were weaker, showing private-sector jobs rising in November at the slowest pace in six months. That spurred several economists to lower estimates for Friday’s payroll figures. Also, gains for the 12 months through March 2019 are set to be reduced when annual revisions are released in February.”
Pound Rally Before Election Leaves Investors Wary of an Upset
“The higher the pound rises, the more nervous options traders become. Even as sterling enjoys its longest winning streak since June on optimism Tories will win a majority in next week’s vote, a barometer of sentiment and positioning shows options traders are the most bearish on the pound in eight months. The moves suggest traders are balancing confidence about a win for Prime Minister Boris Johnson against doubts about opinion polls, which broadly failed to predict the 2016 Brexit vote and the 2017 general election result that stripped the Tories’ of their majority. Some may also view the Conservatives’ victory as fully priced in. Pound bulls prefer the ruling Tories both for the prospect of moving on to the next stage of Brexit talks and for their market-friendly policies, in contrast to Labour’s pledges to nationalize industries and overhaul the economy. “The central case seems to be a comfortable Tory win that could keep the GBP/USD supported, moving toward $1.34 and higher,” said Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA. “Investors are hedging their bets ahead of the vote, exploiting the relative cheapness of out-of-the-money dollar calls.” The pound’s rally has come at such pace that momentum indicators signal the currency has been overbought. And two-week risk reversals widened to 155 basis points, puts over calls, the most among peers. Sterling traded 0.2% higher Thursday at $1.3132. Key resistance is seen at $1.3168-$1.3185, the midpoint of cable’s losses since April 2018 and the high on May 6.”
China in Close Contact with U.S. on Trade, Urges Tariffs Cut
“Chinese officials are in “close contact” with U.S. counterparts on trade negotiations, Ministry of Commerce spokesman Gao Feng said, while reiterating that tariffs should be reduced proportionately as part of a phase-one accord. Gao declined to give further details on the talks at a regular briefing in Beijing on Thursday. Stocks rose in Asia and Europe, and U.S. equity futures gained, as the world’s two largest economies try to reach a truce in a 20-month-long trade war that’s led to the largest volley of tariffs since the 1930s — hitting some $500 billion in shipments going in both directions. The U.S. has pledged to slap tariffs on more Chinese imports if a deal isn’t struck by Dec. 15, and many economists are pinning forecasts for a global economic rebound next year on a cease-fire that avoids such an escalation. President Donald Trump, speaking Wednesday at a meeting in London with German Chancellor Angela Merkel, said the discussions with China are going very well. “We will make a lot of progress,” he said. Almost eight weeks ago Trump announced the preliminary accord and predicted it would take three to five weeks to put on paper. Despite heated rhetoric over issues including Hong Kong’s protests and alleged human rights abuses in Xinjiang, negotiators are moving closer to agreeing on the amount of tariffs that would be rolled back in a phase-one trade deal, Bloomberg reported on Wednesday. U.S. negotiators expect a phase-one deal with China to be completed before the mid-month deadline, people familiar with the matter said. Outstanding issues in the talks include how to guarantee China’s purchases of U.S. agricultural goods and exactly which duties to roll back, they added.”
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