The coming days in the U.S. will be dominated by politics. The so-called November midterm elections take place next Tuesday.

Aboard Air Force One, President Trump expressed confidence that Republican candidates for the House of Representatives will “do well” in the November midterms, while the majority in the Senate will be preserved.

President Trump also restated his promise for a 10 percent tax cut for the middle class, now saying it will come next year, rather than ahead of the vote.

U.S. Productivity Data and Labor Costs

Nonfarm business sector labor productivity increased 2.2 percent during the third quarter of 2018, the U.S. Bureau of Labor Statistics reported today, as output increased 4.1 percent and hours worked increased 1.8 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.)

From the third quarter of 2017 to the third quarter of 2018, productivity increased 1.3 percent, reflecting a 3.7-percent increase in output and a 2.4-percent increase in hours worked.

Unit labor costs in the U.S. nonfarm business sector increased an annualized 1.2 percent in the third quarter, rebounding from a 1 percent drop in the previous quarter. It mainly reflects a 3.5 percent rise in hourly compensation and a 2.2 percent gain in labor productivity. It confirms market expectations of a smaller 1 percent increase.

After the employment cost data yesterday reinforced the idea that a sensible Federal Reserve would indeed continue to raise interest rates.

Brexit “Might” Have an End-Date in Sight

The interminably tedious process of separating the European Union (EU) from the United Kingdom (UK) “might” have an end in sight, at least according to the United Kingdom. A deal was always likely at the last possible moment and now that yesterday a letter by chief Brexit negotiator Dominic Raab was published in which he said he expected to reach a deal with the European Union by the 21st of November.

Markets likes the news, which was positively amplified when this morning we got reports that UK banks may have continued access to European Union markets after the United Kingdom leaves the European Union (EU), which is of course important to investors.

The ICE Dollar Index DXY is down about 0.8 percent, largely due to losses against the British pound (Sterling).

The problem is that this whole process is a bit like Groundhog Day although Brexit is perhaps a little bit more entertaining than the Bill Murray film that is occasionally used to describe a recurring situation in government and military arenas.

Sources from Brussels downplayed mentioning of the 21st of November as an end-date, and so we go back to the beginning again…

China’s Economy Remains Subdued

China’s Communist Leadership, the Politburo, signaled yesterday that further stimulus measures are being planned, as disappointing economic data showed that the current piecemeal approach isn’t working.

The signal of increasing urgency came just hours after purchasing manager (PMI) reports, which includes the overnight published Caixin China General Manufacturing PMI that shows an across-the-board deterioration that, and this is important to investors, risks spilling into a broader drag on global growth.

The Caixin China General Manufacturing PMI finished its press release stating: “… sentiment dipped to an 11-month low amid concerns over current subdued market conditions and the impact of the ongoing China-US trade dispute.”

A director of Caixin commented: “Overall, expansion across the manufacturing sector was still weak. Production and business confidence continued to cool despite stable demand. The pressure on production costs didn’t ease. China’s economy has not seen obvious improvement.”

China does need to slow. This is widely recognized, including by the Politburo, but the Communist Party leadership is clearly concerned about the “pace” at which the Chinese economy slows.

Guidance on infrastructure funding was given and the leadership is paying, quote, great attention to the economy and looking to conduct, quote, preemptive policy measures.

JPMorgan CEO Jamie Dimon said escalating trade tensions between the U.S. and China are increasingly starting to resemble a trade war, rather than just a “skirmish.”

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