October 14, 2019
U.S. Payrolls Revisions Are More Reliable, Fed Study Shows
“Revisions to monthly U.S. payrolls figures have become more reliable over the short term while those on industrial production have become less so, according to a Federal Reserve study that finds that policy makers could build such evolutions into their real-time assessments of the economy. The volatility of the Labor Department’s revisions to its payrolls count is down by almost by half since the early 1980s — to about 50,000 currently from 100,000, Cleveland Fed research economist Mark Bognanni wrote in a report released Thursday. Thus, the data provide a more reliable read on real-time changes in employment than in the past. Meanwhile, the typical size of revisions to industrial output figures has trended up over time. “Revisions to many monthly economic indicators display systematic behaviors that policy makers could build into their real-time assessments,” Bognanni wrote. “Some indicators’ revision series have varied substantially over time, suggesting that these indicators may now be less useful in real time than they once were.” The analysis coincides with Fed Chairman Jerome Powell’s recent comment that the central bank is using big data to improve its grasp of the job market after some major revisions, citing Labor’s announcement in August that payroll gains over the year through March were likely a half-million smaller than previously reported. “Thus, the currently reported job gains of 157,000 per month on average over the past three months may well be revised somewhat lower,” Powell said Tuesday in a speech in Denver. Each jobs report includes revisions for the prior two months. For example, last week’s report showed nonfarm employment rose by 136,000 in September while July’s tally was revised up by 7,000 and August’s by 38,000. Bognanni examined the real-time reliability of six important monthly economic indicators over time by studying short- and long-term revisions. The analysis included industrial production and manufacturing data from the Fed, personal consumption and housing starts from the Commerce Department, and Labor Department data on payroll employment and aggregate weekly hours worked. Each of those has a first, second, and third release, with the versions coming at one-month intervals that Bognanni considered short-term revisions. “Substantial revisions tend to occur indefinitely after the initial data release, a result which suggests a certain degree of caution is in order when using even thrice-revised monthly data in policy making,” said Bognanni, whose research focuses on the macroeconomic effects of monetary and fiscal policies.”
Pound Drops From Three-Month High on Brexit Deal Reality Check
“The pound pulled back from a three-month high and U.K. government bonds rallied as traders reassessed the prospect of the U.K. securing a Brexit deal this week. Sterling dropped as much as 1.1% against the dollar after surging 3.8% during the previous two days amid optimism the two sides would reach an agreement to avoid a no-deal. The European Union’s chief Brexit negotiator Michel Barnier told envoys on Sunday that U.K. Prime Minister Boris Johnson’s proposals for breaking a deadlock over the Irish border risked leaving the bloc’s single market vulnerable to fraud, officials said. “After the best two-day rally in 10 years, sterling euphoria as regards the prospects of an imminent deal is wearing off,” said Jeremy Stretch, head of Group-of-10 currency strategy at Canadian Imperial Bank of Commerce. “The prospects of a deal have dimmed from the extremes seen on Friday.” The pound was 1% weaker at $1.2541 as of 1:11 p.m. in London, after climbing as high as $1.2707 on Friday. U.K. government bond yields fell eight basis points to 0.63%, as money markets priced in 20 basis points of Bank of England interest-rate cuts in December 2020 versus 17 basis points on Friday. The currency is still down about 15% since the day before the Brexit referendum in June 2016. The recent rally could have much further to run if a Brexit deal is secured but the pound has far to fall without one, according to Mizuho Bank Ltd. Gains could extend as far as $1.30 if a divorce agreement emerges, and if Johnson’s plan fails it could slump to $1.22. Talks are continuing to resolve the impasse over customs checks, but the U.K. isn’t sure the EU will change its position, a government official said on Monday. Negotiators are now in a race against time to reach an accord for EU leaders to endorse at a summit that starts on Thursday. “We should know today or tomorrow whether it’s going to be possible to have a deal together before the EU Leaders’ Summit at the end of the week,” TD Securities’ strategists including Richard Kelly wrote in a note. “Boris Johnson has a very tough balancing act ahead in trying to keep the Democratic Unionist Party onside, but also come up with something that works for the EU.” The market remains overwhelmingly short sterling, though both leveraged funds and asset managers have lowered their short positions, according to the latest data from the Commodity Futures Trading Commission. Options traders are betting on gains in the short term. The so-called “tunnel” negotiations between the U.K. and the EU over Brexit could sustain the pound’s rally, according to Goldman Sachs Group Inc. The world’s best-performing currency last week might strengthen another 2.6%, the Wall Street bank said in a note to clients on Friday. “If the two sides do make more progress toward a deal, continued short-covering from real money investors should prolong the rally,” said analysts including New York-based Zach Pandl, Goldman’s co-head of global foreign-exchange and emerging-market strategy. “We think sterling has further to run, and reiterate our trade recommendation to go long pound-dollar with an initial target of $1.30.” ”
China Wants More Talks Before Signing Trade Deal With Trump
“China wants to hold more talks this month to hammer out the details of the “phase one” trade deal touted by Donald Trump before Xi Jinping agrees to sign it, according to people familiar with the matter. Beijing may send a delegation led by Vice Premier Liu He, China’s top negotiator, to finalize a written deal that could be signed by the presidents at the Asia-Pacific Economic Cooperation summit next month in Chile, one of the people said. Another person said China also wants Trump to scrap a planned tariff hike in December in addition to the hike scheduled for this week, something the administration hasn’t yet endorsed. The people asked not to be named discussing the private negotiations. S&P 500 futures extended losses, Europe’s Stoxx 600 fell and the yen rose as investors grew pessimistic on the handshake deal. The yuan pared much of its earlier gains offshore. The U.S. and China have emerged from last week’s talks with different takes on what’s in the accord and how close they are to signing a document. Trump said “we’ve come to a deal, pretty much, subject to getting it written” and indicated it might take several more weeks of negotiation. China’s Ministry of Commerce merely said that “the two sides have made substantial progress” and “agreed to work together in the direction of a final agreement.” The state-run Xinhua news agency didn’t mention a deal either. Treasury Secretary Steven Mnuchin, speaking in an interview Monday on CNBC, said he expects officials to work in coming weeks to get the first stage ready for both sides to sign. If that doesn’t happen, the new U.S. import taxes on Chinese products will be imposed starting Dec. 15, he said. Taoran Notes, a state-affiliated blog that focuses on the trade talks, said that the difference in tone struck by Chinese media was due to “cultural and language” differences and both sides are in consensus over the deal. China’s Ministry of Commerce did not immediately respond to a request for comment on further talks. Geng Shuang, a foreign ministry spokesman, reiterated on Monday that both sides had made progress and said he hoped “the U.S. will work with China and meet each other halfway.” Investors have struggled to determine whether the U.S. and China reached a breakthrough in an 18-month trade war. Worse-than-expected September trade figures in China underscored the growing pressure on both Trump and Xi to reach a deal to avert a wider slowdown in the global economy. China has become increasingly wary of any statements from Trump. Trust between the two sides suffered a big blow in May 2018, when Trump put a stop to a deal for China to buy more energy and agricultural goods to narrow the trade deficit. The U.S. president further sowed distrust in August when he claimed that Chinese officials had called and requested to restart trade talks.”
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