November 1, 2019
U.S. Hiring Resilient With 128,000 Gain Amid Strike, Census
“U.S. hiring was unexpectedly resilient in October and prior months saw sharp upward revisions, validating the Federal Reserve’s signal of a pause from interest-rate cuts and indicating consumers will extend the record-long expansion despite weak business investment and trade tensions. Stock futures and the dollar rose while Treasuries dropped. Payrolls rose 128,000 after an upwardly revised 180,000 advance the prior month, according to a Labor Department report Friday that exceeded the median 85,000 estimate in Bloomberg’s survey. That includes a General Motors Co. strike-driven 41,600 decline in automaker payrolls and 20,000 temporary census workers leaving their jobs. The jobless rate edged up to 3.6% from a half-century low, as black unemployment fell to a new record low of 5.4% Average hourly earnings climbed 3% from a year earlier, matching projections after an upward revision the prior month, though the 0.2% monthly gain was slightly below estimates. The report supports Fed Chairman Jerome Powell’s assessment this week that the U.S. economic outlook remains solid and the job market “strong” — allowing the central bank to take a breather after a third straight interest-rate cut — despite a persistent trade war with China and an increasingly dim global situation. With businesses pulling back on fixed investment, solid gains in hiring and wages will help drive growth and support President Donald Trump’s bid for re-election in 2020. “Overall the labor market is holding up very, very nicely,” Michael Brown, principal U.S. economist at Visa USA Inc., said by phone. “There’s no signs here the consumer is losing any momentum.” Fed policy makers are “probably on hold for a while,” Brown said. “Today’s report certainly supports the Fed view that they have provided accommodation and they’ll take a little victory lap.” Revisions added 95,000 jobs for the prior two months, bringing the three-month average to 176,000, though gains remain below 2018 levels. Minutes after the report, Trump tweeted that it was a “blowout” number and even more impressive when accounting for revisions and the GM strike. The president touted an “adjusted” employment gain of 303,000 though it wasn’t immediately clear how he got the number. The jobs data come on the heels of reports this week including third-quarter gross domestic product. The economy grew at a 1.9% annualized pace as consumer spending grew 2.9% — a step down from gangbusters growth in the prior period but exceeding last year’s average. Stocks also hit a record high, even as the figures showed business investment fell for a second straight period and the most since 2015.”
Nigel Farage Demands Johnson Ditch Brexit Deal to Forge Election Pact
“Brexit Party Leader Nigel Farage threatened to field candidates in every constituency in the Dec. 12 election if Prime Minister Boris Johnson refuses to abandon his deal with the European Union and form a “leave alliance” to deliver a clean-break Brexit. Speaking at the launch of his party’s campaign at an event in central London, Farage said the deal agreed by Johnson on Oct. 17 “isn’t Brexit” and he will make sure every voter knows that before they go to the polls. Farage said he wants to agree a “non-aggression pact” with Johnson in which Conservative candidates would stand down in 150 seats where the Brexit Party is well placed to beat Jeremy Corbyn’s Labour Party and he would do the same in return. “There are around 150 seats in this country that are Labour-held constituencies that the Conservative Party have never ever won in their history,” Farage said. “The only way to solve this is to build a leave alliance across the country.” There are concerns among some Conservative activists that the Brexit Party will split the anti-EU vote in some parts of the country, costing them seats they could otherwise win. But the party has so far rejected Farage’s overtures in favor of selling Johnson as the man to “get Brexit done.” Farage compared Johnson’s deal with the EU to a used car with a shiny hood but a failing engine. It’s just Theresa May’s deal with a new coat of paint, he said. “This is Mrs May’s appalling surrender deal. This is not Brexit,” he said. If Johnson refuses to ditch it, “by the time Dec. 12 comes along the country will understand what’s in it, they’ll understand it’s not Brexit. We’ll make sure of that,” he said.”
Don’t Call It Stagflation, But China Assets Flash Economic Worry
“A rare, simultaneous bout of weakness is hitting Chinese bonds and stocks, exposing growing unease about the dual brunt of slowing output growth and rising prices in the world’s second-largest economy. Up until recently, stock investors could take a measure of solace from weakening economic growth, confident that policy makers would respond with expanded stimulus measures — even if they weren’t the same scale as in years past. But now, a jump in inflation is cementing the view that the People’s Bank of China isn’t likely to roll out large-scale stimulus soon. It’s not the same magnitude of stagflation that walloped stocks and bonds alike in the U.S. in the 1970s and early 1980s. But the nervous undercurrents in Chinese markets are drawing attention to Beijing’s policy dilemma, one that is complicated by the trade tensions and elevated debt levels. “A weak economy is well expected, but the problem is that inflation has reduced space for the central bank to ease policy,” said Amy Lin, a Shanghai-based analyst at Capital Securities. There were some signs of a respite on Friday, with the Shanghai Composite Index up 0.9% as of 2:06 p.m. local time, following an unexpected gain in a manufacturing gauge that cut against the run of recent data. Yet it’s still down about 4% since the end of April, while the MSCI World Index of developed stocks is up 2.6% in that time. And it’s 10% off of its high for the year. On the bond side, Chinese government securities have under-performed their peers this year, more than doubling the 10-year yield premium over Treasuries to about 157 basis points. Ten-year bonds are heading for fourth straight week of declines. The latest disappointment: the People’s Bank of China’s decision to drain a net 590 billion yuan ($84 billion) from the financial system this week by allowing money market loans previously issued to financial institutions to mature. The PBOC has also held off on using a one-year targeted lending tool, which was widely expected among central bank watchers since last week. Even before recent price rises, the central bank was wary of cutting actual lending rates out of concern for high debt levels and the stability of the financial system. Higher inflation now on balance makes it even less likely that dramatic easing is on the cards. Consumer prices rose 3% in September from a year earlier, propelled by a 69% surge in pork prices thanks to the outbreak of swine fever that’s ravaged hog production in the world’s biggest consumer of the meat. Deutsche Bank AG doesn’t rule out a further climb to 4% inflation.”
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