Date: July 5, 2019
U.S. Jobs Top Forecast as 224,000 Gain Dilutes Case for Fed Cut
“U.S. hiring rebounded in June and topped all estimates of economists, a sign of labor-market strength that may ease calls for a Federal Reserve interest-rate cut. Payrolls climbed 224,000 after a downwardly revised 72,000 advance the prior month, according to a Labor Department report Friday. The jobless rate ticked up to 3.7% from a half-century low of 3.6% while average hourly earnings increased 3.1% from a year earlier, slightly less than projected. The report may offer President Donald Trump another chance to boast that the world’s largest economy is in the best shape ever. Despite that, he’s made repeated calls for Fed Chairman Jerome Powell to cut interest rates as the record expansion shows other signs of slowing just as the 2020 campaign begins. The job gains signal the labor market remains firm. Though the economy still faces trade tensions and below-target inflation, signs that economic growth remains intact may challenge calls for the Fed to cut rates this month — especially those for a half-point reduction. Revisions subtracted 11,000 jobs for the prior two months, though the three-month average rose to 171,000, the highest since March. The job gains were broad-based across industries and included rebounds in manufacturing, which added 17,000 jobs, the most since January, and construction payrolls rising by 21,000. The weakness in retail persisted with a fifth straight drop in employment. Average hourly earnings rose 0.2% from the prior month, missing estimates, following an upwardly revised 0.3% gain, while annual wage gains held at 3.1%. The participation rate, or share of working-age people in the labor force, increased to 62.9% following 62.8% as steady wage gains pulled more Americans from the sidelines and into the workforce. The average workweek was unchanged at 34.4 hours.”
German Factory Orders Plunge Across Industries
“German factory orders slumped in May in the latest sign that global trade uncertainty is turning Europe’s temporary slowdown into a more serious downturn. The economy ministry reported huge declines in export orders and investment goods, just days after a survey showed factory activity shrank for a sixth month in June. The continued gloom is increasing concern at the European Central Bank, and a growing number of economists are predicting it will add more monetary stimulus as soon as this month. While orders data can be volatile, there’s little doubt the numbers are disappointing. The 2.2% overall drop on the month was far worse than the 0.2% fall predicted by economists in a Bloomberg survey. The year-on-year decline of 8.6% was the biggest in almost a decade. ING said the report “wraps up a week to forget,” and JPMorgan now predicts that Germany may have contracted in the second quarter. If that happens, it would be the third time in a year that Europe’s largest economy posted no growth at all. Germany’s troubles, some of which are linked to the car industry, have weighed on the euro region. Governing Council member Olli Rehn summed up the mood on Thursday, saying that growth has “slowed significantly” and it’s no longer possible to consider the downturn as temporary. On Friday, Commerzbank changed its forecast on ECB stimulus, predicting a 20 basis-point cut in the deposit rate this month, larger than previously anticipated. The outlook for the economy — and anticipation of another round of monetary policy easing — has pushed bond yields lower. Germany’s 10-year this week fell below the ECB’s minus 0.4% deposit rate for the first time, while both Spain and France are also enjoying record-low borrowing costs. “The eagerly expected economic recovery in Germany is still nowhere to be seen,” said Commerzbank’s Peter Dixon and Joerg Kraemer. “In addition to the weakness of the auto sector, this is attributable to weak demand from China, where the extensive stimulus measures have not yet had any effect.” ”
China Reiterates Demand That U.S. Must Lift All Tariffs
“China continues to stress that the U.S. must remove all the tariffs placed on Chinese goods as a condition for reaching a trade deal. On Friday, an influential blog connected to state media said the talks will “go backward again” without that step, echoing the line from Ministry of Commerce’s weekly briefing on Thursday. While President Donald Trump and President Xi Jinping agreed last month to re-start talks and the U.S. suspended the application of fresh tariffs, no plan for face-to-face negotiations has yet been announced. “If the two sides are to reach a deal, all imposed tariffs must be removed,” Ministry of Commerce Spokesman Gao Feng said on Thursday. “China’s attitude on that is clear and consistent.” Scrapping all the punitive tariffs the U.S. imposed is the “most important” request and that won’t change during the trade talks, according to a commentary by Taoran Notes, a blog run by the Economic Daily under a pseudonym on the WeChat platform. Some U.S. officials have insisted that some tariffs will stay even after a deal, as a means to enforce it. China laid out three red lines for a trade deal when the talks collapsed in May. As well as the removal of all the tariffs, any purchases must be in line with the country’s real demand and the deal must be based on equality and mutual respect. Chinese purchases of U.S. agricultural products is the country’s “special chip” in the negotiation, and any imports will depend on whether the talks will be equal and mutually respectful, according to the Taoran Notes commentary. China is apparently considering buying some agricultural goods from the U.S. as a gesture of goodwill, but so far, there has been no sign of the “tremendous” purchases that President Donald Trump said China had promised to make.”
Analyst Certification -The views expressed in this research report accurately reflect the personal views of Mayberry Investments Limited Research Department about those issuer (s) or securities as at the date of this report. Each research analyst (s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation (s) or view (s) expressed by that research analyst in this research report.
Company Disclosure -The information contained herein has been obtained from sources believed to be reliable, however its accuracy and completeness cannot be guaranteed. You are hereby notified that any disclosure, copying, distribution or taking any action in reliance on the contents of this information is strictly prohibited and may be unlawful. Mayberry may effect transactions or have positions in securities mentioned herein. In addition, employees of Mayberry may have positions and effect transactions in the securities mentioned herein.