US July Payrolls Report

The Labor Department will provide us with the July payrolls report at 8:30 a.m. (EDT) and that should be good.

For investors, it could be helpful to have a quick look back for a moment at a really interesting detail in the FOMC’s (Federal Open Market Committee) statement the Fed released on Wednesday.

The Federal Reserve described economic activity as “strong” in Wednesday’s statement, which was the first time it’s done so since it called it “quite strong” in May 2006 when we were in the late stages of the last economic expansion and shortly before the housing market drove the U.S. economy into a meltdown.

In this week’s FOMC statement we read the word “strong” 5 times:

• Economic activity has been rising at a strong rate.
• Job gains have been strong.
• Household spending and business fixed investment have grown strongly.
• The federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term.
• The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

By the way, I’m personally quite sure that the Fed will further raise rates in September, and also in December.

Now, applications for unemployment benefits, which fell earlier last month to their lowest level since December 1969, have been trending down in the 10th year of the economic expansion.

That’s consistent with a falling jobless rate and solid gains in hiring, which the July payrolls report is projected to show today.

US Dispute with Iran

The U.S. has been unable to persuade China to cut Iranian oil imports, which represents a blow to President Donald Trump’s efforts to isolate the Islamic Republic of Iran after his withdrawal from the 2015 nuclear accord.

However, Beijing has agreed, at least for the time being, not to ramp up purchases of Iranian crude, which should ease concerns that China would work to undermine U.S. efforts to isolate Iran by purchasing excess oil.

The oil market has been speculating about how much of Iran’s exports could be eroded by the U.S. sanctions, taking into consideration that China might boost its imports of cheap supplies from Iran and offset cuts by other nations.

Investors could do well not overlooking the fact that China is the world’s top crude buyer as well as Iran’s top customer. China has also said that it opposed unilateral sanctions and lifted monthly oil imports from Iran by 26 percent in July. According to ship-tracking data, China accounted for 35 percent of the Iranian crude exports last month.

The Organization of Petroleum Exporting Countries (OPEC), led by Saudi Arabia, has at the beginning of June pledged to fill any supply gaps in the market after Trump had at the end of April publicly complained about OPEC policy and rising oil prices on Twitter.

Emerging Markets: Turkey

In July, annual inflation in Turkey increased to 15.85 percent, up from 15.35 percent in June. It was the highest inflation rate since January of 2004.

Core inflation, which excludes volatile items such as food, energy and gold, was 15.1 percent, up from 14.6 percent and is now at its highest since Turkstat began this index 14 years ago.

Producer’s price index (PPI) rose 25 percent year-over-year, up from 23.7 percent and is at its highest reading since July 2003.

The sell-off in the Turkish lira continued this morning with the currency hitting a fresh record low against the dollar following U.S. sanctions on two senior government ministers announced earlier in the week.

Turkey’s currency fell to a new record low of 5.1125 to the dollar in the European morning. The Turkish lira is now 34.5 percent weaker against the dollar for the year to date.

The Financial Times comments: “Going forward, the sharp depreciation of the Turkish lira will continue to fuel increases in import costs, while the lack of timely and robust action from the central bank will further impact inflation expectations. This cycle should ultimate force the Central Bank of the Republic of Turkey to take action, but it is unclear how much more the environment needs to deteriorate before it steps in.

In my view, it's not wise to invest in Turkey, at least for the time being.

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