Several Points of Interest This Friday

January 4, 2019

The U.S. Labor Department’s monthly jobs report was considerably stronger than forecast and counter evidence to the market view that the U.S. economy has slowed abruptly. Non-farm payroll jobs shot up 312K in the final month of 2018. Jobs growth in October-November got revised upward by 58K, bringing the fourth-quarter increase to more than three quarters of a million workers. Labor participation rose 0.2 percentage points in December, causing unemployment to backtrack to 3.9% from 3.7% in the prior month. But broad unemployment and underemployment stayed level at 7.6%. Moreover, the picture of a tightening labor market was underscored by average hourly earnings, which climbed 0.4% on month and 3.2% on year versus 3.1% in November and 2.8% on year in October. In a separate report, U.S. auto sales in December of 17.55 million annualized were solid.

Fed Board Chairman Powell will join his two predecessors on a discussion panel at the American Economic Association annual meetings in Atlanta. A U.S. yield curve inversion from 2.47% at six months to 2.39% at 2 years and 2.37% at five years shows that investors are no longer confident in the Fed’s forward guidance that anticipates two more rate hikes in 2019.

Cleveland Fed President Mester said that if U.S. inflation doesn’t climb, the central bank needn’t keep raising its interest rate target.

In the face of slowing Chinese demand, the People’s Bank of China cut its reserve requirement by a somewhat greater-than-anticipated full percentage points. This was the fifth such easing within the past twelve months.

More evidence emerged around the world of subsiding inflation.

  • Euroland CPI inflation fell 0.3 percentage points to 1.6% in December. Analysts were expecting 1.8%. On-year inflation crested at 2.2% in October. 1.6% is clearly under the ECB’s target and a mere 0.2 percentage points higher than at end-2017. Core CPI stayed at 1.0%, its average pace over the second half of 2018 and just 0.1 percentage point above the December 2017 level.
  • French CPI inflation slowed to an 8-month low of 1.6% in December from 1.9% in November and 2.2% in October.
  • Italian consumer prices posted a second straight month-on-month drop, and the 12-month inflation rate there slumped a half percentage point to a 7-month low of 1.1%.
  • Producer prices in the euro area fell 0.3% on month in November. On-year PPI inflation of 4.0% was down from 4.9% in October. The 12-month increase in energy producer prices dropped to 10.8% from 14.6%, while all other producer prices collectively maintained a 1.5% on-year rise for the third month in a row.
  • British shop price inflation ended 2018 at a mere +0.3%.
  • A 0.5% on-year increase in the U.K. Nationwide house price index in December constitutes its smallest 12-month advance since February 2013.
  • Service sector and composite purchasing manager surveys released today for a number of economies revealed in most cases that input price pressures are ebbing.

Shortly before the U.S. jobs data were released, the dollar showed an overnight advance of 0.5% against the yen, no change relative to the euro, Swiss franc, or kiwi, and losses of 0.6% vis-a-vis the Australian dollar, 0.3% against the loonie, peso and sterling, and 0.1% versus the yuan.

Japanese markets reopened. The Nikkei fell 2.3%, and the ten-year JGB yield dropped four basis points to -0.05%. Japan’s manufacturing purchasing managers index recovered only 0.4 points to 52.6 in December from November’s 15-month low, and business confidence slid to a 25-month low in that economy.

In other Pacific Rim stock markets, share prices rose 2.1% in China, 2.0% in Hong Kong, 1.5% in Singapore, 0.9% in Indonesia, and 0.8% in South Korea but fell 1.2% in Taiwan. In Europe, stocks had so far rebounded 1.8% in Germany, 2.3% in Italy, 1.9% in Spain and 1.4% in the U.K. and France.

In contrast to the aforementioned drop in the JGB yield, sovereign debt yields had rebounded six basis points in the U.K., 5 bps in the U.S., and 4 bps in Germany.

Likewise, WTI oil increased 1.8% to $47.95 per barrel, and copper climbed nearly 2%. Gold remained relative steady and not far shy of $1,300 per ounce.

German labor statistics reported today revealed an unchanged 5.0% jobless rate for December, a slightly greater drop in the number of unemployed workers, and on-year employment growth 1.1% in November. Germany’s jobless rate declined half a percentage point between end-2017 and end-2018. In the same span, the U.S. jobless rate slipped 0.2 percentage points.

Canadian unemployment held at 5.6% last month, unchanged from November and 0.2 percentage points less than in December 2017. After soaring 94.1K in November, employment rose another 9.3K last month, but all of that increase involved self-employed people. Canadian wages were 1.5% higher than a year earlier, which was a tad less than half the U.S. gain.

Euroland’s composite purchasing managers index (51.1) and services PMI (51.2) for December signaled the slowest growth since late 2014 and suggest that real GDP grew no faster than 0.3% last quarter, if even that. The composite PMI’s of Germany and France sunk to 66-month and 49-month lows, respectively. France’s sub-50 reading indicated outright contraction. The Irish and Spanish composite PMI scores represented 9- and 3-month lows, while Italy’s 50.0 was at a 3-month high but merely constituted neither positive nor negative growth in the month.

A reassuring report from China put the Caixin composite and service sector PMIs respectively at a 5-month high of 52.2 and a 6-month highof 53.9.

India’s composite and service sector PMIs, in contrast, dipped to 2-month lows of 53.6 and 53.2.

Britain’s services PMI bounced above November’s 28-month low of 50.4 to a 2-month high of 51.2. The U.K. composite PMI score (51.4) also constitutes a 2-month high.

Singapore’s private sector PMI slid to a 2-month low of 52.7.

Hong Kong’s private purchasing managers index rose 0.9 points to a 2-month high of 49.0, indicating contraction for a ninth straight month.

Commonwealth Bank of Australia’s services and composite PMI readings for that economy of 52.7 and 52.9 were each 2-month lows.

Lebanon’s private PMI has stayed below 50 for the past 66 straight months and fell 0.5 points to a 2-month low in December.

Standard Bank’s private South African PMI rose 0.8 points to a 5-month high of 49.0.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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