Overseas Headlines- May 3, 2019

United States:

U.S. Jobs Top Forecast at 263,000 Gain; Wages Miss Estimates

The U.S. economy accelerated its rebound from a recent soft patch as unemployment unexpectedly fell to a fresh 49-year low amid surprisingly strong hiring and cooler-than-projected wage gains, suggesting the hot labor market can extend its run. Payrolls climbed by 263,000 in April after a downwardly revised 189,000 advance the prior month, according to a Labor Department report Friday that exceeded all estimates in a Bloomberg survey. The jobless rate unexpectedly fell to 3.6 percent while average hourly earnings growth was unchanged at 3.2 percent, below projections. U.S. stock futures extended gains after the report. The fed funds futures market briefly showed a slight reduction in odds for a Federal Reserve rate cut this year, before returning to where it was prior to the data, following calls from President Donald Trump and others for a reduction to support the expansion. Policy makers reiterated their patient stance this week as Chairman Jerome Powell cited “very strong job creation’’ while noting weaker inflation. “It’s clearly telling you this economy is still chugging along very nicely,” Torsten Slok, chief economist at Deutsche Bank Securities, said on Bloomberg Television. “It is inflationary in the sense that wages did go up but they didn’t go up as much as we had expected.” The surprising overall robustness — which didn’t reflect any surge in temporary hires for the 2020 Census, as some analysts had flagged — follows months of broad labor market strength. While the expansion is poised to become the nation’s longest on record at midyear, economists expect a deceleration this year even after a strong first quarter. However, the lower unemployment reading was due in part to a factor economists don’t always see as a healthy sign: The participation rate, or share of working-age people in the labor force, decreased to 62.8 percent from 63 percent. Revisions for February and March added 16,000 more jobs than previously reported, while the three-month average fell to 169,000. Friday’s data follow a Federal Open Market Committee statement Wednesday saying “the labor market remains strong.” Officials in March forecast a 3.7 percent unemployment rate at year end. The payroll gains were somewhat uneven, with construction, health care, and professional and business services posting gains while retail employment fell by 12,000 for a third- straight decline.



Draghi’s Successor as ECB President Won’t Be Like Mark Carney

Mario Draghi’s successor as European Central Bank chief is probably going to be someone he already works with. Choosing from among current policy makers can deliver a qualified president who doesn’t need time to get to know colleagues, or the way they take decisions. But it also restricts the ECB’s talent pool to a cadre dominated by white, male officials who are often products of their respective national administrative classes — and shuts off an avenue to import fresh thinking. Defaulting to an insider contrasts with the approach of the U.K., which selected Canada’s Mark Carney to lead the Bank of England, and of Israel, where U.S. citizen Stanley Fischer previously served as governor. Ireland followed suit this week by hiring Gabriel Makhlouf, a former British official advising New Zealand’s government, as its central bank chief. “Ideally, new appointments in Frankfurt and the ECB board should be outsiders,” said Lex Hoogduin, a professor at the University of Groningen in the Netherlands, a former chief economist at the Dutch central bank. “That’s the natural way to refresh the views and not get bogged down in dogma.” Such an approach is improbable for the ECB, where the selection process is already limited to European Union nationals. While the official description for candidates isn’t too restrictive, calling for “persons of recognized standing and professional experience in monetary or banking matters,” the bloc’s complex political bargaining, likely to kick off after EU elections in late May, may favor applicants from specific countries who are proximate to the institution. European Commission President Jean-Claude Juncker provided an illustration of the political issues at stake in an interview with Handelsblatt this week, when asked about the candidacy of Bundesbank President Jens Weidmann. “Weidmann is a convinced European and an experienced central banker and therefore suitable,” Juncker said. “I don’t share the opinion heard in some parts of southern Europe that a German shouldn’t be allowed to become ECB president.” All the leading ECB contenders cited by economists to replace Draghi in November have served on the Governing Council. They include the chiefs of central banks in France and Germany — Weidmann — the current and former governors of the Bank of Finland, and a member of the ECB’s Executive Board.



Even Hollywood Knows a Happy Ending to China Talks Is No Guarantee

For evidence of how tricky it will be to conclude sweeping trade talks between the U.S. and China, look to Hollywood. With a deal potentially days away, demands by American film studios remain the subject of intense haggling. The U.S. film industry currently receives about 25 percent of the ticket sales for movies that play in China and the Trump administration is pushing Beijing to increase that number to roughly 40 percent, in line with other countries, according to people briefed on the talks. American industry is framing a concession in this area as a win that would help boost U.S. service exports at a time when President Donald Trump is trying to reduce the trade deficit with China, according to the people. Beijing has shown a willingness to make concessions on the issue, but it hasn’t yet committed to a firm offer. The issue of movie revenue-sharing underscores the hurdles the U.S. and China still face as they work toward announcing a final trade agreement by about May 10 to end a months-long trade conflict between the world’s two-largest economies. Trump and Chinese President Xi Jinping will decide after negotiations next week whether they’ll meet to finish the trade deal, White House spokeswoman Sarah Sanders said Thursday, adding that the U.S. sees such a meeting as likely. “At the end of the day you’re going to have to see the two leaders sit down and finalize some of the details of any major trade deal like this,” Sanders said. “We continue to see progress.” Concluding a deal will hinge on the two sides resolving the stickiest issues in their trade dispute. Some of the biggest issues remaining include an enforcement mechanism to police the agreement and a decision over whether tariffs will be removed or stay in place, according to the people, who spoke on the condition of anonymity. The nations have been engaged in intense negotiations since a Dec. 1 tariff truce between Trump and Xi, after imposing duties on $360 billion worth of each other’s goods last year. The decision on what tariffs will be lifted and which stay in place and for how long might be punted to the two leaders for a final decision, the people said. U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He have been discussing tariff options in recent months but they’ve not been able to agree on a solution, they said.


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