Markets greeted President Trump and President Xi’s decision to re-start trade talks with jubilation. But as we’ve been saying from the beginning, this doesn’t mean a trade deal is a given – quite the opposite, actually.
That’s because Beijing and Washington have already begun to parrot some of their demands from before talks collapsed. And with Washington still unwilling to roll back all of the trade war tariffs, something that Beijing sees as non-negotiable, it could be a long time before the market gets the trade deal it so desperately seeks.
In the latest sign that suspicions among senior Chinese officials continue to simmer, and that the hastily cobbled G-20 ceasefire is suddenly on the rocks (again), the South China Morning Post reported on statements from a government spokesman and state-run media claiming that the commentary on Taoran Notes, a popular economic news source on the mainland, said Beijing would reneg on its promise to buy tons of agricultural goods from the US if Washington “flip flops” again, and that talks would “go backward again” unless Washington is willing to remove all trade-war tariffs.
“If the US flip-flops again in the negotiations, the promises to buy American agriculture products will also be overturned,” Taoran Notes said.
It added that China would have to consider its domestic demand and the opinions of domestic companies before buying US agricultural products.
SCMP’s sources confirmed that American negotiators would return to Beijing next week for what would be the 11th round of talks between the two sides since the trade spat first erupted more than one year ago.
If the issue of the US lifting its tariffs on Chinese goods can’t be resolved (which it almost certainly won’t be), talks could “break down immediately,” one source warned, leaving Washington to slap tariffs on another $300 billion+ of Chinese goods
If the negotiators are unable to resolve the issues, the talks could “break down immediately,” with Washington going ahead with new tariffs on US$300 billion of Chinese products, the source warned.
A Chinese source also confirmed that American negotiators would return to Beijing next week to iron out the details of what was discussed.
In any event, before moving ahead with promised purchases of American soybeans and other ag products, Beijing has been playing coy, insisting that they want to see Washington formally remove Huawei from the ‘blacklist’ as Trump promised.
Then, Gao Feng, the influential spokesman for the Chinese Ministry of Commerce, said a trade deal would be “impossible” without the complete removal of US sanctions˜on China.
On Thursday, Chinese Ministry of Commerce spokesman Gao Feng said a trade deal would only be possible if the US called off all tariffs on Chinese imports.
Such a move would require the Trump administration to give up its insistence that some levies remained in place to ensure Beijing honoured the deal. The US had argued that these levies should be lifted only when China made progress on certain agreed-to goals/
“If both sides are able to reach an agreement, the tariffs that have been imposed have to be removed completely. China’s attitude on the issue is clear and consistent,” Gao said, adding that both countries’ trade teams had been in touch about resuming talks.
Global Times editor Hu Xijin put it another way: China will only fulfill its commitments once the two sides reach a deal.
Once China and the US reach a deal, China will fulfill its commitments. The US shouldn’t set unfair conditions to prevent China breaking promises. Beijing will certainly reject those conditions.
Before promising to remove Huawei from the blacklist, a decision that the Commerce Department appears to be resisting, Trump said the issue of the Chinese telecoms giant was a “tough one” that would be left “until the end” to deal with.
Apparently, Beijing has a very different idea of how these talks will go down. But any anxious investors can find solace in this: If talks collapse again in the coming days, it would virtually guarantee that the Fed will cut the Fed funds rate by 50 bps later this month, and therefore, would be bullish for equities, since both bad and good news is bullish now.
via ZeroHedge News https://ift.tt/2XqFCKj Tyler Durden
Free-market economists love to talk about “creative destruction.” Brilliant new ideas flourish and creative entrepreneurs find better ways to serve customers. Encrusted, poor-performing businesses recognize that if the new “thing” takes off, their old cash cow might be destroyed. Rather than play fair and up their game, the Old School folks turn to government, courts, or even violence to crush the emerging competition.
Think of that age-old battle between new ideas and established industries as a cat-and-mouse game, or that Looney Tunes cartoon where a determined Wile E. Coyote tries to ensnare Road Runner. We always assume that the forces of creation ultimately will evade the predators. We’ve all become accustomed to an immeasurable number of innovations, after all. But what happens when cat catches mouse or coyote grabs the bird? We are about to see.
Because of the far-reaching California Supreme Court decision last year known as Dynamex, and legislation now winding its way through the state capitol, some of the newest and most innovative businesses are facing an existential threat from shrieking violets who tremble at the sight of competitors. The case involved a same-delivery service that turned its drivers from employees into contractors, but it applies to many of the state’s most-popular companies.
Basically, California unions have unparalleled political power and are about to force companies with business models based entirely on using contract labor to replace those workers with full-time, benefited employees—and to follow a labor code designed more for a 1950s-era factory workforce rather than a modern, flexible one.
Web-based entrepreneurs have dramatically improved our lives and done so with a quickness that’s quite astounding. Remember when the only way to get to the downtown area from an airport was to wait in a queue for an expensive and uncomfortable taxicab—or hop on a crammed shuttle that crawled from stop to stop? Now you type a destination on your phone, a friendly driver in a late-model car picks you up and the trip is billed automatically.
This is life-changing stuff. My 84-year-old mom gave up driving after Uber and Lyft solved her mobility problems. When she needs groceries, she uses an app that delivers them to her door. My daughter needed to move to a new apartment. “I don’t need your truck, Dad.” She used the Lugg app, which dispatched a team of contract haulers. I rarely go to the store. I order everything from cat litter to car parts on Amazon Prime. The order shows up at my door the next day.
Those conveniences might be going away—or getting far more expensive—here in innovation-loving California. In that Dynamex decision, California’s high-court justices crafted a strict “ABC test” to determine when a company may use contractors rather than workers on the full-time payroll.
The only way a company can use contract labor is if a) the company doesn’t direct the worker’s performance; b) the worker provides work that’s not central to the company’s business (i.e., a transportation company that contracts with a plumber); and c) the worker intends to operate an independent contracting firm. Few of these newfangled companies can meet all three standards.
These businesses exist because they figured a way around poorly designed systems that have crushed creativity and competition. Don’t give me any nonsense about the unfairness of letting upstarts evade the rules. The rules were never created to be fair. Taxi companies, for instance, back the medallion system, whereby government limits the number of cabs that can legally drive on city streets.
They do so to limit competition and enrich themselves despite the blather about protecting public safety and workers’ rights. In San Diego, a report showed that the medallion cost was so high that cabbies spent dangerously long periods of time on the road and averaged only $5 an hour. These app-based companies have opened up a new world of flexible hours and unlimited opportunities.
The Legislature could fix the Dynamex problem but instead is embracing a union-backed measure (Assembly Bill 5) that would codify the decision and apply it to all businesses. Many emergent tech companies are not yet profitable, so adding massive new employee costs could spell doom. The big question is if their lobbyists can secure exemptions that let them hobble along. But think of all the unknown innovators that will never get off the ground if this retrograde measure passes.
I’d like to think that the fresh breeze of innovation will always win out over the dark forces of protectionism and decay. But that’s not necessarily going to happen. With Dynamex and A.B. 5, Wile E. Coyote really does have Road Runner by the throat. Soon enough we’ll see if the bird can wriggle out from his latest jam or will end up like the rest of us – waiting in a long line for a dirty and expensive cab that can’t figure out how to take our credit card.
This column was first published by the Orange County Register.
Steven Greenhut is Western region director for the R Street Institute. He was a Register editorial writer from 1998-2009. Write to him at sgreenhut@rstreet.org.
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As per Markit, manufacturing weakness has spread to services manifesting in weaker business activity and order trends compared to earlier this year; Markit’s job growth rate is at a two-year low while expectations for future growth slid to a seven-year low
ADP reports small business hiring has fallen by 76,000 over the past two months, the first back-to-back decline since 2008; in June, small businesses shed 37,000 jobs, nearly half of which were in construction which helps explain the burgeoning softening in truck sales
While the consensus expects the unemployment rate to hold steady at 3.6%, the rise in QI’s self-employed unemployment rate coupled withJune’s surge in the Conference Board’s ‘Jobs Hard to Get’ series suggest upside to the unemployment rate forecast
When only the best brass reeds for discriminating toy trumpets will do, call on Paul Bruder. Or at least that’ll how we romantics envision the humble beginning of that monument to one happy but noisy kids’ toy. Founded in Furth, Germany in 1926, Bruder’s factory combined meticulousness and precision to manufacture those teensy brass trumpet reeds, and it was that very attention to detail that laid the foundation for the success of today’s favorite toy truck manufacturer. If you’ve never gotten down on the ground and played with one of these feats of engineering, we highly recommend you add it to your bucket list. Consider that the 1997 addition of model-sized profile tires to Bruder’s truck line required the construction of a four-story, 15,000 square meter facility and the addition of 120 employees. Yes, they’re as real as it gets.
As for full-size trucks with engines that roar, it’s likely Ford and General Motors are breaking a sweat after the latest slate of economic data hit the wires. Though its overall truck sales held up, those of Ford’s signature F-Series pickup truck fell over last year in June. GM was not as fortunate with sales of its Silverado and Sierra trucks down, especially on the heavy-duty side of the line-up. With the caveat that fleet sales can indeed be trucks and comprised 24% of Fiat Chrysler’s June sales, Ram pickups were nonetheless the standout as a fresh redesign and fat incentives drove sales up over 2018.
The popular Ram aside, we dare say there’s more to come in the disappointing truck sales department. As we’ve been warning, the stakes rise appreciably when weakness in manufacturing bleeds into services. A tip of our hats to QI compadre Peter Boockvar for catching this comment out of Markit amidst Wednesday morning’s economic data deluge: “A major change since the first quarter has been the broadening out of the slowdown beyond manufacturing, with the service sector now also reporting much weaker business activity and orders trends than earlier in the year.”
Overall, Markit reported job growth at a two-year low and expectations for future growth at a seven-year low. The ADP release helped us drill down even deeper, which brings us to those falling truck sales. As you can see above, small business hiring has sunk by 76,000 over the past two months, the first back-to-back declines since February and March of 2008. As a friendly reminder, we entered recession in December 2007.
While remarkable, what does that have to do with trucks? Don’t you know? Small businesses are dominated by contractors, you know those folks who make you crazy whether you’re building a whole house or redoing a powder room. Of course, they drive trucks but it’s likely they wish they were logging more miles. Of the 37,000 small business jobs losses reported in June by ADP, 18,000 were in construction — a non-manufacturing industry.
If you’re reading this, you’ve likely dragged yourself away from the beach, interrupting your long weekend for long enough to catch today’s jobs data for June. To honor your dedication, we’ve created a metric that enhances the household survey’s unemployment rate (U3) expected to hold steady at 3.6% this morning (we’d take the over on that, by the way). Consider augmenting your forecasting with said ADP data and QI’s self-employed unemployment rate — a marriage of nonfarm self-employed workers and all self-employed unemployed workers.
You may note shingle-hangers have had an even better run than the general labor force in the current expansion. We’d add that the self-employed rate tends to bottom before the U3 in past cycles. The current episode is no exception — it troughed last November at 2.250%, both below and before the U3 did at 3.585% this April. You may recall quite a bit of labor market data also began to weaken last fall, so we do not count this as a coincidence (we never do).
As to the why, it’s always easiest to cut workers at the fringe, which is who the self-employed are. Combine the jagged bottoming in the self-employed rate with June’s surge in the Conference Board’s ‘Jobs Hard to Get’ series, the magnitude of which has only occurred six other times and preceded average increases in the U3 of 0.4%. Starting to sense upside to the forecast?
We’d add that the self-employed are generally unincorporated businesses that fly under the radar and are not picked up by the payroll survey that generates the headline jobs figure. To gauge start-ups, the payroll survey uses the notoriously disputed ‘birth/death’ model, which we’ll let you Google if you’re unfamiliar.
To recap: Fewer heavy truck sales. Rising small business construction job losses. An increasing self-employed unemployment rate. A spike in perceived job market weakness. Hopefully you can now appreciate why we’re focused on the Bruder truck precision of the household survey over that of the Tonka truck payrolls survey today. We suggest you do the same.
via ZeroHedge News https://ift.tt/2YyZfRH Tyler Durden
Amid non-existent volumes as many US traders are taking an extended holiday weekend, this week’s rally fizzled with global markets and US equity futures drifting into the red ahead of today’s U.S. jobs data which could either boost or temper market expectations about aggressive policy easing by the Federal Reserve.
European bourses suffered with the pan-region STOXX 600 slipping 0.3%, dragged lower by the basic resource and industrial goods & services sectors which both fell more than 1.5%. A sharp drop in China iron ore futures hit miners. Tech shares retreated 0.9% after Samsung’s dour forecast showed the impact of U.S.-China trade war on global chip and smartphone markets, sending Infineon, STMicroelectronics and Siltronic as much as 1.5% lower.
Losses accelerated after the latest German data showed Europe’s largest economy was still stuck in pre-recessionary limbo with industrial orders falling far more than expected in May, and a warning from the economy ministry this sector of Europe’s largest economy was likely to remain weak in the coming months.
“Devastating new orders data just undermined any hopes for an industrial rebound. We are starting to lose our optimism,” said Carsten Brzeski, chief economist at ING Germany. “Combined with the weakest June performance of the labour market since 2002 and disappointing retail sales, today’s new orders wrap up a week to forget for the German economy. The fear factor is back.”
Europe’s losses followed gains in Asia, where MSCI’s index of Asia-Pacific shares ex-Japan was set for its fifth straight weekly rise. S&P futures and Shanghai Composite index both hovered near 3,000-mark in muted post-holiday trade. Asian stocks traded sideways, heading for the fifth week of gains, their longest winning streak since January 2018, as traders assessed India’s federal budget and awaited U.S. payroll data. Consumer staples companies rallied, countering declines in material firms. Markets in the region were mixed, with Australia climbing and India dropping. The Topix gauge closed 0.2% higher, capping its best week since January, as electronics makers offered the biggest boost. The Shanghai Composite Index gained 0.2%, driven by Kweichow Moutai and China Life Insurance. Chinese equities should post gains this quarter despite uncertainty over trade disputes, according to a Bloomberg survey of analysts and fund managers.
The S&P BSE Sensex Index fell 1% as a lack of stimulus from the government in its annual spending plan unveiled Friday and additional tax on high income spooked investors. Meanwhile, jewelers tumbled after the government announced a proposal to raise import tax on gold to 12.5% from 10%. Shares of Indian shadow lenders rose after Finance Minister Nirmala Sitharaman proposed to provide a partial guarantee to state-run banks with exposure to pooled assets of financially-sound non-bank lenders.
A rebound in emerging-market stocks and currencies paused as ahead of the June payrolls report. The MSCI Emerging Markets Index fell on Friday, still heading for its sixth week of gains, the longest winning streak in five months. The currency gauge was little changed for the week, with currencies in Latin America largely outperforming those in eastern Europe and Asia. The risk premium on sovereign dollar bonds narrowed.
“Following the strong performance more recently, markets are looking for what next,” said Trieu Pham, a London-based strategist at ING Bank NV. “U.S. job market data will certainly be closely watched in view of the July 31 Fed meeting. Lastly, a bit of caution as well as the trade truce is holding but the matter is far from resolved.”
In rates, Treasury futures dipped, lifting the 10-year yield fractionally to 1.958% after hitting the lowest since November 2016 at 1.941%; Aussie curve little changed. JGB futures edge higher, supported by buying in ultra long-end, despite strongest Japanese spending pace in four years. Germany’s 10-year government bund yield, fell to minus 0.4% and breached the European Central Bank’s deposit rate for the first time – a level analysts say acts as a psychological barrier even though shorter-dated German bond yields trade well below it.
World stocks and bonds have rallied at a feverish pace since the start of June on hopes global central banks will keep policy easy to support growth. A ceasefire in the protracted Sino-U.S. trade war has also bolstered sentiment.
All eyes were now on U.S. non-farm payrolls – which we previewed earlier – due later in the day, and which are expected to have jumped by 160,000 in June compared with 75,000 in May.
“This will be the last employment report before the FOMC meeting at the end of this month for which markets are pricing in 33 basis points of cuts as of this morning,” Deutsche Bank’s Craig Nicol wrote in a note to clients. Fed futures are fully pricing in a 25-basis-point cut when the Fed meets on July 30-31. Investors also see a 25% chance of a 50-basis-point reduction.
“What today’s report says about the trends in hiring and income growth could meaningfully impact market expectations so expect there to be just as much focus on hours and wages as the headline payrolls reading.”
In FX, the easing bund yields dragged the euro lower to $1.1273 with the common currency on track for the biggest weekly drop in three weeks. The Bloomberg dollar index beat its Group-of-10 peers amid thin flows ahead of Friday’s U.S. labor data, which could signal whether the Fed will cut interest rates this month; it was on track for a ~1% gain this week. Against the Japanese yen the dollar gained 0.2% to 108.04.
Worries about the health of the global economy also weighed on commodity markets. Oil prices eased with Brent crude futures , the international benchmark for oil prices, off 30 cents at $63.00 per barrel while U.S. crude slipped 85 cents to $56.49. Crude markets shrugging off tensions around Iran and a decision by OPEC and its allies to extend a supply cut deal until next year was an ominous sign to market watchers.
“When bullish signals fail to lift the oil market’s spirits, we should be very concerned this downtrend could run much further than expected,” said Stephen Innes, managing partner at Vanguard Markets.
Bitcoin rebounded from a loss on Thursday, while China iron ore futures racked up sharp losses after hitting a record on Wednesday. China’s most-active September iron ore contract on the Dalian Commodity Exchange fell as much as 4.9% to 838 yuan ($121.89) a tonne.
Market Snapshot
S&P 500 futures down 0.09% to 2,997.50
STOXX Europe 600 down 0.3% to 391.97
MXAP down 0.04% to 162.18
MXAPJ down 0.08% to 532.39
Nikkei up 0.2% to 21,746.38
Topix up 0.2% to 1,592.58
Hang Seng Index down 0.07% to 28,774.83
Shanghai Composite up 0.2% to 3,011.06
Sensex down 0.6% to 39,666.60
Australia S&P/ASX 200 up 0.5% to 6,751.28
Kospi up 0.09% to 2,110.59
German 10Y yield rose 0.3 bps to -0.396%
Euro down 0.2% to $1.1265
Brent Futures up 0.1% to $63.38/bbl
Italian 10Y yield rose 9.0 bps to 1.322%
Spanish 10Y yield rose 0.5 bps to 0.253%
Brent Futures up 0.1% to $63.38/bbl
Gold spot down 0.1% to $1,414.14
U.S. Dollar Index up 0.1% to 96.91
Top Overnight News from Bloomberg
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
German factory orders slumped in May as trade uncertainty continued to weigh on global manufacturers and drive a slowdown in Europe’s largest economy. The continued gloom is pushing a growing number of economists to predict the ECB will add more monetary stimulus as soon as this month
Deutsche Bank AG’s job cuts across the U.S. will probably go far beyond equities and interest-rate derivatives trading, which have been marked as major targets, according to people with knowledge of the matter
Investors are so keen to find a safe home for their cash that they’re paying the German government to take it, and that makes the nation’s reluctance to borrow increasingly puzzling. Yields are now below zero for 85% of German sovereign debt, right out to bonds that don’t mature for another 20 years
Boris Johnson, the front-runner to replace Theresa May as British prime minister, said delivering Brexit would be key to keeping the U.K. together, just hours after May warned her successor not to put the union at risk with a no-deal Brexit
Asian equity markets were mixed following the non-existent lead from Wall Street where markets were shut due to Independence Day and with the region tentative heading into the key US Non-Farm Payrolls data. ASX 200 (+0.5%) was positive with the index led higher by strength in financials and real estate after APRA effectively relaxed guidance on mortgage lending in which banks will be able to review and set their own minimum rate floor in assessing serviceability, although gains were capped for most the session by weakness in the commodity-related sectors. Elsewhere, Nikkei 225 (+0.2%) was choppy as it failed to find inspiration from the highest growth in Household Spending since 2015, due to a humdrum tone in the currency and the KOSPI (+0.1%) traded cautious amid losses in index heavyweight Samsung Electronics which beat expectations in its preliminary earnings for Q2 but still showed oper. profit slipped by 56% Y/Y. Elsewhere, Hang Seng (U/C) and Shanghai Comp. (+0.2%) were initially subdued after further PBoC inaction resulted to a net weekly liquidity drain of CNY 340bln, while there were also recent mixed comments from China’s MOFCOM which confirmed US-China trade teams are in communication but also suggested that tariffs must be removed for a trade deal to occur. Finally, 10yr JGBs were marginally higher and briefly reclaimed the 154.00 level with mild support seen amid the lacklustre risk tone in Japan and BoJ’s presence in the market for JPY 555bln of JGBs.
Top Asian News
India to Narrow Budget Gap Target, Sell First Global Bond
India Sees Economy Rebounding This Year as Growth Risks Balanced
India to Inject Another $10.2 Billion Into State-Run Banks
Call Center Nation to Lose Shine on Duterte’s Manila Ecozone Ban
European indices are little changed/modestly into negative territory this morning [Euro Stoxx 50 -0.2%] as bourses lack any firm direction due to the US market holiday and the relatively quiet newsflow ahead of the US Jobs Report later on in the session. Sectors are largely negative, with some underperformance seen in tech names as Samsung Electronics reported earnings last night where Q2 operating profit fell by 56% Y/Y. Separately, mining names are suffering on the pullback in iron ore prices and amidst reports that Chinese regulators are to examine the drivers behind the metal’s recent price surge; as such, Rio Tinto (-2.4%) and Anglo American (-2.6%) are towards the bottom of the Stoxx 600. Elsewhere, at the bottom of the Stoxx 600 are Hexagon (-14.0%) after the Co. stated that they have been impacted due to a China slowdown in July, stemming from the ongoing US-China trade dispute. Finally, Osram Licht (+1.8%) are firmer this morning after confirming that they support the Bain & Carlyle takeover for EUR 35.00 per share.
Top European News
Brevan Howard Main Hedge Fund Posts Best First Half in a Decade
German Factory Orders Slump as Europe Economic Slowdown Worsens
South African Stocks Fall as Iron Ore Producers, Aspen Slump
Euro Hopeful Croatia Sets Sights on Adoption as Early as 2023
Saudi Arabia, Kuwait Make Breakthrough in Neutral Zone Oil Talks
In FX, the Dollar is edging higher ahead of US jobs data, albeit not independently or directly as G10 and EM rivals weaken further or retreat in advance of the big release. The DXY has inched back up towards 97.000 and into a marginally firmer range, but may be capped by resistance seen between the big figure and 97.010 awaiting the latest BLS report and return of US markets after yesterday’s market holiday.
CHF/NZD – The major underperformers, though not by much, as the Franc and Kiwi hover around 0.9875 and 0.6670 respectively vs the Greenback and both still within recent trading parameters awaiting further direction from the aforementioned NFP metrics.
JPY/EUR/SEK – The Yen has slipped back to around 108.00 from safe-haven highs circa 107.50 earlier this week, but may derive some support from decent option expiry interest at the 108.00 strike (1 bn), or heavy supply said to be stacked from 108.50 if the US labour data is strong. Meanwhile, the single currency is testing key downside technical levels in wake of yet more poor German data, like converged DMAs and a Fib in the 1.1259-62 region, but outpacing the Swedish Krona amidst a sharp slide in Hexagon shares (due to the IT firm flagging weakness in China). Indeed, Eur/Sek has rebounded firmly from sub-10.5000 levels towards 10.5500.
AUD/CAD/GBP – The Aussie is holding up better than its G10 peers and forming base above 0.7000/1.0500 vs the Usd and Nzd as post-RBA short covering continues, while the Loonie has lost some ground after a trade data-related boost as the focus switches to Canadian jobs data alongside NFP. However, Usd/Cad remains closer to weekly lows between 1.3045-70, and Cable is also nearer the bottom end of a 1.2550-87 range after this week’s bleak UK PMIs and further survey evidence of Brexit uncertainty weighing on the economy (BDO retail activity weak and IoD business morale worse).
In commodities, WTI and Brent futures have lost some ground in early trade, but have recently picked back up with the former just below the USD 57.00/bbl mark whilst the latter is around the USD 63.50/bbl mark. While newsflow remains light, it’s worth keeping in mind that WTI prices did not settle yesterday amid the US Independence Day holiday, thus a divergence in prices is observed. Elsewhere, gold is tentative, as usually the case in the run-up to NFP data with the yellow metal still above the USD 1300/oz level, having traded in a wide weekly 1382-1437 range. Meanwhile, copper prices are heading for the first weekly drop in a month as the red metal is pressured by a sluggish demand outlook and an increase in supplies. Finally, Dalian iron ore futures fell over 7% after China Iron & Steel Association urged the government to maintain order amid rising iron ore prices and wants prices to return to a reasonable level, while it was also reported that China regulators are to examine the drivers for the increase in iron ore prices. China Iron & Steel Association urged the government to maintain order amid rising iron ore prices and wants prices to return to a reasonable level, while it was also reported that China regulators are to examine the drivers for the increase in iron ore prices.
US Event Calendar
8:30am: Change in Nonfarm Payrolls, est. 160,000, prior 75,000
8:30am: Change in Private Payrolls, est. 150,000, prior 90,000
8:30am: Change in Manufact. Payrolls, est. 3,000, prior 3,000
8:30am: Unemployment Rate, est. 3.6%, prior 3.6%
8:30am: Average Hourly Earnings MoM, est. 0.3%, prior 0.2%; YoY, est. 3.2%, prior 3.1%
8:30am: Average Weekly Hours All Employees, est. 34.4, prior 34.4
8:30am: Underemployment Rate, prior 7.1%
DB’s Jim Reid concludes the overnight wrap
It may have lost some steam but no prizes for guessing what happened to core bond yields yesterday. On an unsurprisingly light day for news it was yet another move lower for yields outside of the periphery which was the only real talking point here in Europe however before we get to that let’s look forward as we’ve got a much anticipated US employment report due out this afternoon.
Indeed, this will be the last employment report before the FOMC meeting at the end of this month for which markets are pricing in 33bps of cuts as of this morning. As our economists noted in their preview, what today’s report says about the trends in hiring and income growth could meaningfully impact market expectations so expect there to be just as much focus on hours and wages as the headline payrolls reading.
In terms of expectations both our economists and the consensus peg payrolls at 160k. As a reminder, the May print was a much softer than expected 75k which dragged down the three-month trailing average to 151k. Our colleagues note that from the Fed’s perspective, the year-over-year trend in private employment is more important as this needs to outpace the trend in labor force growth in order to keep downward pressure on the unemployment rate. As Cleveland Fed President Mester reminded us recently, monthly payroll gains in the 75k – 120k range would still be consistent with the underlying trend in overall output growth. As for the rest of the report, the consensus expects the unemployment rate to hold steady at 3.6%, earnings to rise +0.3% mom and hours to hold at 34.4. Our economists also expect earnings to rise +0.3% which should result in a one-tenth increase in the year-over-year rate to +3.2%, however they do expect hours to tick up to 34.5. All that to look forward to at 1.30pm BST.
Back to markets where, as mentioned at the top, it was the move lower for bond yields which got the most attention on an otherwise quiet day. The headline grabber was 10y Bunds falling below the ECB deposit rate for the first time ever. They eventually closed at -0.402% which was -1.3bps on the day and the sixth successive day that yields have dropped. In fact, out of the 45 trading days back to May 3rd, 10y Bund yields have fallen on 32 of those days. The most that we can find over 45 days based on data back to 1991 is 34 days that yields have dropped so this is up there with the most days ever over a 45-day run. Similar maturity yields in France (-2.9bps) and Netherlands (-1.8bps) also nudged lower while Gilts fell -1.5bps. The exception was the periphery where BTPs rose +9.0bps. There wasn’t any specific news and instead it just appeared to be a bit of profit taking following a six-day rally which had seen yields fall -57.6bps. Also tentatively bucking the trend was the EUR 5y5y inflation swap which rose 1.9bps to 1.160%. Meanwhile, equity markets were open however there really wasn’t much to report with the STOXX 600 rising +0.09% in an intraday range of just 0.25%.
Anyway, yesterday’s bond moves mean the Bund curve is now negative at all maturities out to 2040. In fact, we count 49 outstanding Bunds with a maturity of at least 12 months and all but 4 now have a negative yield. That’s around 90% by market value which is fairly staggering. Across Europe we’ve now got negative 2y and 5y yields in 17 different countries. At the 10y maturity we’ve got negative yields in 9 different countries including Switzerland, Germany, Denmark, Netherlands, Austria, Finland, France, Belgium and Sweden. To be fair Slovakia, Ireland, Slovenia and Latvia are within a sneeze of dropping into negative territory too. For 30y bonds it’s still only Switzerland which has a negative yield with Germany (0.194%) and Netherlands (0.204%) the closest after that. If you were also wondering what the longest dated government bond was yielding in Europe, well the Austrian 2117 bond – with 98 years to maturity – is now down to 1.061%. The duration on that is fairly eye watering at 52.7 and at a cash price now of 163.2, the bond is up nearly 47pts this year alone. Anyway, when it was all said and done the global stack of negative yielding debt held at the record high of $13.4tn yesterday.
Of course, JGBs are a big part of the global negative yielding debt stack too with yields negative at all maturities out to 2033. This morning 10y JGBs are little changed at -0.165% and the Treasury market has reopened with 10y yields down a modest -0.7bps to 1.943%. There’s not much movement in equity markets this morning either with the Nikkei flat and Hang Seng (+0.08%), Kospi (-0.04%) and Shanghai Comp (-0.18%) all failing to move with much conviction. That said futures on the S&P 500 have crept over the 3,000 level this morning which suggests we could be in for a record start on Wall Street. Elsewhere, news that British military forces had seized a supertanker near Gibraltar carrying Iranian oil to Syria in violation of sanctions against the country hasn’t caused much of a reaction in the oil market with WTI actually down -1.01% as we go to print.
In other news, the South China Morning Post reported last night that US trade negotiators will be in China next week to restart trade discussions. The report also suggested that China has still not confirmed to the US that it would immediately restart soybean purchases with China wanting clarity on how President Trump would ease sanctions on Huawei. It goes on to say that US officials are still debating between extending a 90-day reprieve on the export ban beyond August 13 or establishing a special approval process for Huawei and that the White House may elaborate in “next couple of days” on conditions for lifting export restrictions.
In other news, while it was a very quiet session yesterday we did hear from one of the ECB Governing Council members. Indeed Rehn told Boersen-Zeitung that “growth in the euro area has slowed significantly recently” and that “we cannot deny that there are doubts among market participants and the public about the ability of the central bank to achieve the price stability target”. He added “we have a number of instruments which are very effective and which, as a package, have even greater effects than isolated”. Perhaps most significant was his reference “if we really want to live up to our mandate, further monetary stimulus is now needed until there is improvement in economic and inflation prospects”. All-in-all the tone leant dovish and followed a similar rhetoric from Lane earlier this week.
As for data, it was very quiet with weak May retail sales numbers for the Euro Area (-0.3% mom vs. +0.3% expected) and a further decline in new car registrations in the UK in June (-4.9% yoy) the only readings of any substance.
Finally, the day ahead will be dominated by the aforementioned June employment report in the US this afternoon. Prior to that the only data due out this morning in Europe is the May factory orders reading in Germany and May trade balance reading in France. Away from that the ECB’s Guindos is due to make comments at a conference in Madrid.
via ZeroHedge News https://ift.tt/2FQTqrm Tyler Durden
Ari Aster’s new movie—the follow-up to his hair-raising debut, Hereditary—cries out for someold-school encapsulation. “Freaky” was one term I heard after a recent screening. “Head trip,” believe it or not, was another. “Mindfuck” is the one that occurred to me.
These archaic locutions fit the movie’s vivid psychedelia. We see a remote forest undulating restlessly in the sun (recalling a similar effect in last year’s Annihilation) and platters of meat on a table squirming in anticipation of the impending meal. Hallucinatory fluids are rashly gulped down, and inebriating vapors unwisely inhaled. There are also echoes of Francis Bacon’s paintings, the necro-photography of Joel-Peter Witkin, and, most plainly, the 1973 horror film The Wicker Man, whose protagonist, like the central characters here, thought himself to be only an observer, but turned out to be woefully mistaken.
Midsommar isn’t a by-the-numbers horror movie (although it apparently started out as a for-hire assignment along those lines); but it has horrific elements, among them jolts of ghastly violence. It is also surprisingly funny, playing the mixed signals of normal human interactions like love and trust for unexpected laughs.
Although most of the movie is set in blazing, round-the-clock Swedish sunlight, it begins in the dark snowy night of American suburbia, where, as the movie opens, something terrible is happening to a young grad student named Dani Ardor (Florence Pugh, of Fighting with My Family). This grim event, which the director lays out at unhurried length, convulses Dani’s inner world and rocks her already wobbly relationship with her limp-fish boyfriend Christian (Jack Reynor, of On the Basis of Sex). Dani is convinced that Christian wants to dump her (she’s right), and her romantic paranoia spikes when she learns that he and three of his friends—callow wiseass Mark (Will Poulter, of Black Mirror: Bandersnatch), earnest Ph.D. candidate Josh (William Jackson Harper, of The Good Place), and an expatriate Swede named Pelle (Vilhelm Blomgren)—have quietly made plans to fly to Sweden for an epic midsummer celebration at the isolated commune north of Stockholm where Pelle was raised.
Dani has not been told about this trip. Now Christian feels guilted into inviting her along. He hopes she’ll decline, then is bummed when she doesn’t and agrees to come. Christian’s friends, to whom Dani is already a pain, are resentful of her presence. A feeling of very lifelike unease seeps into the movie, and never recedes.
Soon after arriving in Sweden, the group begins tripping on mushrooms; then it’s off to Hårga, where the commune’s nine-day celebration—which comes around only once every 90 years—is about to get underway. Hårga turns out to be a quaint yet very strange place, basically a large field with a few buildings (including some sort of “temple”) and a flower-bedecked maypole. The residents, all dressed in white, are inclined toward long, wordless embraces; children play a game called Skin the Fool; the favored drink is “spring water with special qualities”; and you can never predict where a magical pubic hair will turn up. Interestingly, all the locals are very happy to see that Dani has made it.
I’ll say no more about this ambitious but not entirely successful movie. Aster once again displays a bold willingness to push violence—the brutal abuse of flesh and bone—to new artistic extremes without descending into torture porn. He has also worked up a feverish sex ritual that’s unlikely to be equaled anytime soon. And there’s a ravishing soundtrack, which is filled with pastoral flutes, fiddles and hurdy gurdys, and should definitely stir interest in the work of English experimentalist Bobby Krlic, who scored the film under his professional moniker, The Haxan Cloak.
Unfortunately, the movie lacks the narrative depth and visceral horror of Hereditary; and while Pugh and Reynor have memorable moments (especially Pugh, in an opening monologue delivered in an unsparingly tight close-up), there’s nothing here to equal the primal fireworks that Toni Collette brought to that earlier film. There are also some scenes in this two hour and 20-minute movie—especially an endless whirl of hysterical maypole dancing—that might have benefitted from trimming. And while the fiery action toward the end of the film effectively suggests an ancient evil that doesn’t know its own name, the final shot struck me as ridiculous, which kills the effect.
Midsommar is a movie that’s definitely worth seeing. If you haven’t seen Hereditary, though, that one’s even more so.
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Ari Aster’s new movie—the follow-up to his hair-raising debut, Hereditary—cries out for someold-school encapsulation. “Freaky” was one term I heard after a recent screening. “Head trip,” believe it or not, was another. “Mindfuck” is the one that occurred to me.
These archaic locutions fit the movie’s vivid psychedelia. We see a remote forest undulating restlessly in the sun (recalling a similar effect in last year’s Annihilation) and platters of meat on a table squirming in anticipation of the impending meal. Hallucinatory fluids are rashly gulped down, and inebriating vapors unwisely inhaled. There are also echoes of Francis Bacon’s paintings, the necro-photography of Joel-Peter Witkin, and, most plainly, the 1973 horror film The Wicker Man, whose protagonist, like the central characters here, thought himself to be only an observer, but turned out to be woefully mistaken.
Midsommar isn’t a by-the-numbers horror movie (although it apparently started out as a for-hire assignment along those lines); but it has horrific elements, among them jolts of ghastly violence. It is also surprisingly funny, playing the mixed signals of normal human interactions like love and trust for unexpected laughs.
Although most of the movie is set in blazing, round-the-clock Swedish sunlight, it begins in the dark snowy night of American suburbia, where, as the movie opens, something terrible is happening to a young grad student named Dani Ardor (Florence Pugh, of Fighting with My Family). This grim event, which the director lays out at unhurried length, convulses Dani’s inner world and rocks her already wobbly relationship with her limp-fish boyfriend Christian (Jack Reynor, of On the Basis of Sex). Dani is convinced that Christian wants to dump her (she’s right), and her romantic paranoia spikes when she learns that he and three of his friends—callow wiseass Mark (Will Poulter, of Black Mirror: Bandersnatch), earnest Ph.D. candidate Josh (William Jackson Harper, of The Good Place), and an expatriate Swede named Pelle (Vilhelm Blomgren)—have quietly made plans to fly to Sweden for an epic midsummer celebration at the isolated commune north of Stockholm where Pelle was raised.
Dani has not been told about this trip. Now Christian feels guilted into inviting her along. He hopes she’ll decline, then is bummed when she doesn’t and agrees to come. Christian’s friends, to whom Dani is already a pain, are resentful of her presence. A feeling of very lifelike unease seeps into the movie, and never recedes.
Soon after arriving in Sweden, the group begins tripping on mushrooms; then it’s off to Hårga, where the commune’s nine-day celebration—which comes around only once every 90 years—is about to get underway. Hårga turns out to be a quaint yet very strange place, basically a large field with a few buildings (including some sort of “temple”) and a flower-bedecked maypole. The residents, all dressed in white, are inclined toward long, wordless embraces; children play a game called Skin the Fool; the favored drink is “spring water with special qualities”; and you can never predict where a magical pubic hair will turn up. Interestingly, all the locals are very happy to see that Dani has made it.
I’ll say no more about this ambitious but not entirely successful movie. Aster once again displays a bold willingness to push violence—the brutal abuse of flesh and bone—to new artistic extremes without descending into torture porn. He has also worked up a feverish sex ritual that’s unlikely to be equaled anytime soon. And there’s a ravishing soundtrack, which is filled with pastoral flutes, fiddles and hurdy gurdys, and should definitely stir interest in the work of English experimentalist Bobby Krlic, who scored the film under his professional moniker, The Haxan Cloak.
Unfortunately, the movie lacks the narrative depth and visceral horror of Hereditary; and while Pugh and Reynor have memorable moments (especially Pugh, in an opening monologue delivered in an unsparingly tight close-up), there’s nothing here to equal the primal fireworks that Toni Collette brought to that earlier film. There are also some scenes in this two hour and 20-minute movie—especially an endless whirl of hysterical maypole dancing—that might have benefitted from trimming. And while the fiery action toward the end of the film effectively suggests an ancient evil that doesn’t know its own name, the final shot struck me as ridiculous, which kills the effect.
Midsommar is a movie that’s definitely worth seeing. If you haven’t seen Hereditary, though, that one’s even more so.
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If AOC’s claim that migrant children were forced to drink ‘toilet water’ at detention facilities along the border sounded unrealistic, that’s because it was, as the Arizona Border Patrol proved in a video tour of one facility.
After a visit to the border, AOC mocked border patrol members by tweeting that they “sexually threatened her” – referring to a private Facebook group where members made disparaging jokes about her (again, in private) – and insisted that the conditions in migrant detention facilities were as bad as WWII-era concentration camps.
CBP Arizona Chief Patrol Agent Roy Villareal said the video was intended “to dispel some of the misinformation that’s out there.”He then carefully pointed out many of the things AOC and other Democratic lawmakers had claimed detainees did not have, such as clean diapers, clean clothing, snacks and toothbrushes. All of that was in the video.
Democrats who joined the trip whipped up hysteria with their exaggerated accounts of conditions inside the tents, inspiring some Americans to stage ‘close the camp’ marches across the US.
via ZeroHedge News https://ift.tt/2Jo6aqz Tyler Durden
In a shocking holiday tragedy and the most sudden death to rock the energy industry since the demise of Aubrey McClendon, billionaire coal mining tycoon and noted philanthropist Chris Cline died on Thursday in a helicopter accident while traveling back from the Bahamas.
Several other people, including Cline’s daughter, were aboard the helicopter when it crashed, according to Cline’s church, which told CNN that it had confirmed the information with family members. Cline became one of the first charter members of the church – the Brenton Southern Baptist Church – when it was first starting out. Other reports claimed his daughter had died in the crash.
“Our thoughts and prayers are with his family. We will post more as it develops,” the church said.
CBS reported that all seven people aboard the helicopter, which was carrying Cline and an entourage from the Bahamas to Fort Lauderdale crashed off of Florida’s Grand Cay, have died.
Chris Cline
Condolences from W.Va. state officials started pouring in late Thursday.
“His selfless and generous support for programs and projects throughout the state improved the lives of countless West Virginians,” said West Virginia Supreme Court Justice Evan Jenkins said. “His life’s story was one of hard work, love of family and caring support for others. My deepest condolences go out to his family.”
Though he largely kept a low profile, Cline earned some notoriety for dating Tiger Woods’ ex-wife Elin Nordegren, a former super model.
According to Forbes, Cline had a net worth of $1.8 billion.
West Virginia Gov. Jim Justice tweeted his condolences and said his state had lost a “superstar” and he had lost “a very close friend.” Cline was “built an empire” and was “always there to give.”
Today we lost a WV superstar and I lost a very close friend. Our families go back to the beginning of the Cline empire – Pioneer Fuel. Chris Cline built an empire and on every occasion was always there to give. What a wonderful, loving, and giving man.
According to CNN, Cline “grew up in a coal family” where his father and grandfather worked in the mines. He himself eventually took a job working in the mines at the age of 22, a decade before he started his first energy exploration company, Cline Group.
By “capitalizing on opportunities” others missed, Cline Group soon grew into a thriving mining business, operating underground mines across the country. Later, Cline founded Foresight Energy to focus on mining in the state of Illinois.
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All eyes will be on today’s payroll report for clues about what it means for the Fed’s next move. Indeed, the payroll report will be the most important US economic data point between now and the Fed’s next meeting at the end of July, so the stakes are high and expectations have been set. In this post we’ll highlight how this payroll report could either beat or miss expectations and what each case could mean for bonds, stocks, the USD and gold.
Market participants will likely focus on four key data points in the payroll report with the first two in the list below being by far the most relevant for the possible market reaction.
Change in non-farm employment between May and June (market expects 160K)
Average hourly earnings (market expects 3.2%)
Unemployment rate (market expects 3.6%)
Average weekly hours worked (market expects 34.4)
An employment number below ~140 could be considered a miss while a number above ~170 could be considered a beat. Earnings growth at ~3% or below could be considered a miss while a number ~3.3% or higher could be considered a beat.
When considering how a beat or miss could impact financial markets, it’s important to understand current factors affecting pricing of the various asset classes including market odds of rate cuts, foreign central bank policy, and geopolitics.
The bond market is currently pricing a 100% probability of at least a 25bps cut in the Fed Funds rate and a 25% probability of a 50bps cut in rates. That said, Fed members themselves seem to be leaning toward either no cut or a 25bps cut at the most for July. Therefore, it may take quite a large miss to trigger bonds, stocks and gold to price in further cuts by rallying (yields falling), but a relatively small beat for the market to start pricing out a 50bps cut. Needless to say, equities and gold have been rallying in large part due to expectations of a July cut or two, so a big payroll beat would initially be bearish most asset classes except for the USD.
Foreign central banks including the European Central Bank, Reserve Bank of Australia, and Bank of China are either already easing or signaling more easing ahead. Therefore, the Fed desperately needs to get with the program and start easing policy if it doesn’t wish for the USD to blow higher. Here again, payrolls will be key, with a miss keeping the Fed on track to ease (supporting bonds, equities and gold) while a beat would be quite bullish for the USD and bearish most other asset classes.
For now, it appears as if the US and China have come to a “trade-truce” and immediate new tariffs seem off the table for the time being. Removing this risk factor will allow the Fed to more acutely focus on Friday’s report for signs of employment or wage growth weakness or strength. As of now, the Fed (outwardly at least) seems most focused on their inability to hit inflation targets. Therefore, the wage growth figure could have out-sized significance on Friday. Here again, good news is bad news with a beat most likely causing stocks, bonds and gold to fall and the USD to rise.
Given market expectations, foreign central bank action and a calming down of the trade war, it could require a fairly significant payroll miss to induce more of the same in July – that being a large rally in stocks, bonds and gold. However, we must also consider that growth has been slowing significantly and is likely to continue to slow for the remainder of the year as we have highlighted here and here. Employment, being the lagging indicator it is, is not likely to provide much information about future growth. Therefore, the kind of report that causes the Fed to not act when in fact they should – we’ll call it a “weak beat” employment report – is likely to keep the long end of the curve anchored while the short end rises.
A flattening/further inversion of the yield curve on Friday and into next week could be viewed as the market beginning to price a policy mistake by the Fed and would be the most bearish intermediate-term outcome for equities in particular.
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New inclusivity guidelines for the University of New South Wales, a public university in Australia, warns teachers not to make any references to aboriginal peoples coming to Australia about 40,000 years ago. The document warns this may offend aboriginal people because it conflicts with their oral traditions that they have always lived in Australia. The guidelines suggest lecturers instead say aboriginal peoples have been in Australia “since the beginning of the Dreaming/s” to conform to aboriginal belief.
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