May 14, 2018
No, the U.S. Economy Isn’t Overheating
Want ads for truck drivers to haul crude oil in Texas are touting salaries as high as $150,000 a year. Some nurses are getting $25,000 signing bonuses. The U.S. unemployment rate just fell to 3.9 percent, one tick away from its lowest since the 1960s. And on May 8 the Bureau of Labor Statistics reported there are 6.5 million unfilled jobs in the U.S., the most on record. Some employers say they’re feeling the squeeze. “Rising labor costs remain the primary contributing factor to our margin erosion,” Chatham Lodging Trust, a company in West Palm Beach, Fla., that owns more than 130 hotels either by itself or in joint ventures, said on May 1. Is the U.S. economy overheating? Yes and no. There are plenty of inflationary bottlenecks, and not only in the labor market. Backlogs of orders are the highest since 2004, according to the Institute for Supply Management. Transportation costs have jumped in part because of driver shortages. Strong U.S. oil and gas production has helped push up the prices of essential inputs such as steel pipe and specialty sands used in fracking.
Stock futures rise as U.S.-China trade tensions ease
U.S. stock index futures rose on Monday on signs of easing trade tensions between the world’s two largest economies after President Donald Trump pledged to help China’s ZTE Corp “get back into business, fast” following a crippling U.S. ban. Trump’s comments come ahead of talks between Chinese Vice Premier Liu He and U.S. officials to resolve trade differences, starting Tuesday. The U.S. Commerce Department last month banned American companies from selling to the Chinese tech company (000063.SZ) for violating an agreement, hurting ZTE as well as shares of some of its U.S. suppliers. Optical components maker Acacia Communications (ACIA.O) jumped 15.24 percent, while Finisar (FNSR.O) and Lumentum Holdings (LITE.O) rose about 5 percent each. China has resumed its review of U.S. chipmaker Qualcomm Inc’s (QCOM.O) proposed $44 billion takeover of NXP Semiconductors NV (NXPI.O), Bloomberg reported on Monday. NXP Semiconductor (NXPI.O) surged 10.8 percent and Qualcomm 3.1 percent. At 7:14 a.m. ET, Dow e-minis 1YMc1 were up 69 points, or 0.28 percent. S&P 500 e-minis ESc1 were up 4.75 points, or 0.17 percent and Nasdaq 100 e-minis NQc1 were up 16.5 points, or 0.24 percent. Wall Street’s main indexes posted solid gains last week, helped by a surge in oil prices, easing inflation fears and Apple’s rally that took it close to $1 trillion in market capitalization.
European yields rise on ECB comments; Italy eyed
Benchmark German 10-year bond yields climbed to a 2-1/2-week high after the European Central Bank’s Francois Villeroy de Galhau said policymakers could give new guidance on the timing of its first rate hike as the end of its bond stimulus approaches. The move higher in German debt – 10-year yields posted their biggest daily rise in three weeks – rippled across the core European bond market with French and Belgian bond yields up on the day as the comments caught markets off guard. The Bank of France governor said that whether the decision to end the European Central Bank’s net asset purchases came at its September or December meeting was “not a deep existential question”. With the U.S. Federal Reserve well into its policy-tightening cycle, investors are focusing on when will other central banks follow suit in unwinding 2008 financial-crisis era unconventional policies such as quantitative easing which have pushed bond yields to record lows. “I think the effect of quantitative easing is peaking and we see plenty of upward pressure on government bond yields globally as term premium remains very low,” said Paul O’Connor, head of Janus Henderson’s head of multi-asset investing, whose funds manage 5 billion pounds. German 10-year bond yields DE10YT=RR rose to 0.60 percent, its highest levels since April 26 and were up 4 basis points on the day. Two-year yields DE2YT=RR were up by a relatively lesser 2 basis points. Both French FR10YT=RR and Belgian BE10YT=RR ten-year bond yields were up 3 basis points respectively. Central banks have been gradually reducing their presence in the bond markets. JP Morgan data showed 2017 was the peak in quantitative easing with about $2 trillion being pumped into global markets which has had an “anesthetizing effect” on financial markets. That is expected to drop to less than half in 2018 and turn into negative territory next year at a time when the U.S. is expected to inject a large dollop of fiscal stimulus.
Euro zone economy performing within ECB projections
The euro zone economy is still performing as the European Central bank expected and more data is needed to decide whether a recent slowdown is temporary or here to stay, ECB director Sabine Lautenschlaeger said on Monday. “It (the economic slowdown) is still within our projections and you need to get more data in order to see whether it is only temporary,” Lautenschlaeger said on the sidelines of an event in Copenhagen.
Why Asia Will Come Out on Top as Emerging Markets Get Shaken Up
The turbulence seen across emerging markets is following a similar pattern to a crisis that rocked global trading more than two decades ago — it involved tequila. In the mid-1990s, U.S. interest-rate increases helped spark a Mexican peso devaluation that fueled capital flight and caused the so-called Tequila crisis. Within a few years, the sell-off had spread to Asia, which became the center stage of the emerging-market crisis, during which currencies were devalued as the region was sent into an economic tailspin. Fast forward to 2018, and history is repeating itself, with a crisis brewing in Latin America as Argentina seeks emergency funding just as the dollar and U.S. bond yields spike.
China says will work with U.S. for positive outcome in trade talks
China said on Monday it is willing to work with the United States for a positive outcome in trade negotiations this week. Foreign Ministry spokesman Lu Kang made the comment at a regular briefing. Vice Premier Liu He will attend the talks in Washington from May 15 to 19. High-level discussions in Beijing earlier this month appeared to make little progress but there have been signs recently of some easing in tensions.