Overseas Headlines- February 27, 2019

United States:

America’s Job Market Has Some Upside as Disabled Workers Return

Whether would-be workers linger on the U.S. labor market’s sidelines is a key question: it will determine how fast the country’s economy can grow, how fast wages might rise, and, potentially, how patient the Federal Reserve can afford to be with rate increases. Some commentators take in America’s 4 percent unemployment, elevated job openings and gradually rising wage gains and declare victory over labor slack. Others observe a prime-age employment rate that is lingering well below historical highs and see further room for improvement. Fed Chairman Jerome Powell talked about the dynamics extensively while speaking before the Senate Banking Committee Tuesday, saying at one point that as people return to — or stay in — the job market, “we have learned this year that there’s more slack.” Still, Powell warned again and again that monetary policy and a strong economy can do only so much to bring potential workers back. At some point, policy changes are needed to eliminate disincentives and drive people to punch the clock. Goldman Sachs Group Inc. economists could offer the Fed Chair some comfort. David Choi and his colleagues dig into a recent increase in labor force participation — the share of people working or looking out of the working age population has marched up 0.5 percentage points to 63.2 percent over the past year — and find that about 40 percent of it came from a decline in workers saying that they are disabled.



German Companies Have a Brexit Plan: Send the Bill to the Brits

As U.K. Prime Minister Theresa May struggles to secure a Brexit deal her parliament can accept, business leaders in Germany’s heartland are moving ahead with preparations to pass the pain on to British customers. In the picturesque northern town of Lueneburg, several dozen executives packed into a 470-year-old former brewery this week for an in-depth briefing on how to brace for Brexit. The gathering was the latest of more than 150 such events to help businesses get ready for the fifth-largest importer of German goods quitting the EU. In addition to the briefings, which have been attended by more than 10,000 people, Germany’s chambers of industry and commerce set up a checklist so that companies can prepare for the change in the U.K.’s status. With or without a deal, German businesses aren’t planning to foot the bill. “Our company didn’t cause Brexit, so why should we suffer for it,” Axel Kiehne, sales manager at Dr. Kaiser Diamantwerkzeuge GmbH & Co. KG — a maker of machine tools for high-precision grinding — said at the event. “It might sound harsh, but the costs should be borne by the British companies.” iehne’s attitude isn’t isolated. The local chamber of commerce, which includes the region around Volkswagen AG’s headquarters in Wolfsburg, lists price adjustments as one of its top five Brexit tips, because of the increased expense of exporting to the U.K. due to potential customs duties. Another executive for a food exporter at the event worried that tariffs could wipe out profit margins and destroy its business in the U.K., where the company ships over 600 tons of cheese annually.



Earliest Gauges Show China’s Economy Seeing First Signs of Pickup

China’s economy is showing the first signs of recovery after months of slowdown, as stock and commodity rallies lift confidence. That’s the message from a Bloomberg Economics gauge aggregating the earliest available indicators on market sentiment and business conditions. Key stocks and commodities led gains, and smaller firms became more confident. At the same time, gauges of inflation, trade and sales-manager sentiment signal that it may still be too early to say China has bottomed out. Markets were boosted by the People’s Bank of China’s monetary easing and the breathing room offered by the now extended trade truce with the U.S., according to David Qu, an economist at Bloomberg Economics in Hong Kong. This week, Chinese shares surged and the offshore yuan strengthened after President Trump announced he was pushing back a deadline on additional tariffs on Chinese goods. Those developments help dispel some of the gloom that’s been cast over the global economy in recent months. World output may already have bottomed out, according to Goldman Sachs Group Inc. Chief Economist Jan Hatzius. In turn, that could strengthen the China outlook. The China stock rally “may strengthen consumer confidence, but it is still too early to say it would benefit economic activity significantly,” Qu said. Stimulus measures including channeling credit to private firms and boosting infrastructure construction have started to work, with new loans hitting a record and exports perking up in January.


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