Tags: investors | excited | trade | deal

Investors Unlikely to Get Excited by Any Trade Deal

(Prasit Rodphan/Dreamstime)

By    |   Monday, 11 March 2019 11:37 AM

Over the weekend, Federal Rreserve Chairman Jerome Powell said that current Fed policy is appropriate.

Powell’s comments stressed that inflation was muted, which does rather return the emphasis to the strength of the labor market. Patience means the Fed is in no hurry to change rates.

Powell told CBS' "60 Minutes" that he thinks the U.S. outlook is a positive one and the Fed’s rate policy is "in a very good place right now".

Advance estimates of U.S. retail and food services sales (adjusted) in January increased 0.2 percent (±0.5 percent) from December, and 2.3 percent (±0.7 percent) above January 2018. Total sales for the November 2018 through January 2019 period were up 2.6 percent (±0.5 percent) from the same period a year ago. Retail trade sales were up 0.2 percent (±0.5 percent) from December 2018, and 1.9 percent (±0.5 percent) above last year. Building material and garden equipment and supplies dealers were up 8.7 percent (±2.3 percent) year-on-year, while non-store retailers were up 7.3 percent (±2.1 percent) from last year.

The December number was surprisingly and inconsistently weak in December. So, this is a case for revisions. For example, an increase in online sales that have not been properly captured, will not be repaired in the revision process.    

The employment report on Friday was viewed as something “weak” by the markets, but in fact was generally a “strong” report.

The broadest unemployment measure, the U-6 measure, is now at an 18-year low. The unemployment rate declined by 0.2 percentage point to 3.8 percent in February, and the number of unemployed persons decreased by 300,000 to 6.2 million.

The fact that total nonfarm payroll employment changed little in February (+20,000), is probably more symptomatic of a lack of people to hire rather than a lack of jobs available. This then keeps the focus on wage increases and any inflation pressures building in the United States.

Remember that the U.S. labor cost numbers were stronger than expected recently. Unit labor costs in the nonfarm business sector increased 2.0 percent in the fourth quarter of 2018 while they increased 1.0 percent year-over-year. Unit labor costs in manufacturing increased 2.2 percent in Q4 and rose 0.8 percent year-over-year.

For now, the dollar index DXY remains stable/firm around 97.30

German industrial production data, which is important when one looks at industrial production in the global context, is starting to show the end of the negative special factors that contributed to the weakness of those numbers in the third and fourth quarter of last year.

The January data was weaker than expected but the December number was revised nicely higher.

In December, industry production was down by 0.4 percent from November on a price, seasonally and calendar adjusted basis. The revised figure shows a decrease of 1.3 percent (primary -1.9 percent) from November. In December, production in industry excluding energy and construction was up by 0.2 percent.

German trade also showed stronger export and import growth.

Globally, industrial production and exports were held back, not by the consumer, but by weak investment spending.

As trade disputes start to fade, because of that, we should see improvement in both trade and industrial production data.

There was some noise over trade over the weekend with both the United States and China continuing to make positive sounds on the prospects of doing a trade deal.

The People’s Bank of China’s Governor was saying that China wouldn’t use the Chinese currency, the Renminbi or Yuan (CNY) for competitive advantage. China has not used its currency for competitive advantage for some time of course, and instead has been focused on trying to stop the Renminbi or Yuan (CNY) from weakening too rapidly, the Wall Street Journal said.

Financial markets are betting on a trade deal, but it would have to be something rather special to get financial markets to become really excited about the prospect now. That doesn’t seem very likely, the New York Times explained.

Besides all that, there was also noise over the UK–European Union divorce process because there is always noise over the UK-European Union divorce process.

Anyway, what is noteworthy for investors is that the Bank of England (BOE) has told some UK lenders to triple their holdings of easy-to-sell assets in the run-up to Brexit to cope with the market meltdown forecast if the UK crashes out of the European Union without a deal later this month, the Financial Times reported.

For now, the British pound quotes close to $1.30. Of course, if there would be a “No-deal” Brexit, the British pound would move substantially lower.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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Financial markets are betting on a trade deal, but it would have to be something rather special to get financial markets to become really excited about the prospect now. That doesn’t seem very likely.
investors, excited, trade, deal
Monday, 11 March 2019 11:37 AM
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