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It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

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THE DAILY EDGE: 5 JULY 2019: No Economic Fireworks

Payroll employment increases by 224,000 in June; unemployment rate changes little at 3.7%

Total nonfarm payroll employment increased by 224,000 in June. Employment growth has averaged 172,000 per month thus far this year, compared with an average monthly gain of 223,000 in 2018. After revisions, job gains have averaged 171,000 per month over the last 3 months.

The change in total nonfarm payroll employment for April was revised down from +224,000 to +216,000, and the change for May was revised down from +75,000 to +72,000. With these revisions, employment gains in April and May combined were 11,000 less than previously reported.

The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in June. In manufacturing, the average workweek edged up 0.1 hour to 40.7 hours, while overtime was unchanged at 3.4 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls held at 33.6 hours.

In June, average hourly earnings for all employees on private nonfarm payrolls rose by 6 cents to $27.90, following a 9-cent gain in May. Over the past 12 months, average hourly earnings have increased by 3.1 percent. Average hourly earnings of private-sector production and nonsupervisory employees increased by 4 cents to $23.43 in June [+3.4%].

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Weak Factory Orders and Shipments Data

Manufacturers’ orders declined a greater-than-expected 0.7% (-1.2% year-on-year) in May following a slightly downwardly-revised 1.2% drop in April (was -0.8%). The Action Economics Forecast survey looked for a 0.5% decrease. Factory shipments edged up 0.1% (1.4% y/y) after contracting 0.6% in April (revised from -0.5%). Shipments of nondefense capital goods excluding aircraft, also known as core durable goods, which is one of the key inputs into nonresidential equipment investment in GDP, rose 0.6% in May (+4.0% y/y) and is currently growing at 1.5% annual rate for the quarter.

Orders in the volatile durable goods sector fell 1.3% (-2.8% y/y) after dropping 2.8% in April. This decline was driven by a 4.6% collapse in orders for transportation equipment (-8.4% y/y) as civilian aircraft orders plummeted 28.2% in May. While notoriously volatile on a monthly basis, these orders have fallen 56% over two months and 66% from a year ago. Total factory orders excluding transportation edged up 0.1% (0.4% y/y). (…)

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Strangely, after pointing out the growth in the important non-def cap goods ex-air series, Haver omits to signal the poor trend in new orders in same series, up only 1.4% YoY in May from +9.1% in July 2018, and up a puny 0.3% annualized in the last 4 months (down 0.8% annualized in the last 3).

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Weakening new orders in the less volatile part of manufacturing is confirmed by the PMIs and Haver illustrates how this eventually feeds in economic growth:

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Purchasing managers worldwide are extremely gloomy based on what they see in their daily activities managing inputs vs outputs:

June’s soft manufacturing surveys drove Goldman Sachs’ CAI to 0.7%:

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High five Surprised smile Wait, wait! Morgan Stanley will not be outdone by GS as Zero Hedge revealed last week:

Morgan Stanley’s Business Conditions Index, which captures turning points in the economy, fell by 32 points in June, to a level of 13 from a level of 45 in May. This drop is the largest one-month decline on record and the lowest level since December 2008 during the financial crisis, according to the firm.

(…) the MSBCI suggests the Mfg PMI New Orders component will fall to 40 over the next few months, which would be down approximately 25% on a y/y basis. Another way of putting it – if Morgan Stanley’s indicator is right, the world is already in a recession.

German Factory Orders Plunge Across Industries

(…) The 2.2% overall drop on the month was far worse than the 0.2% fall predicted by economists in a Bloomberg survey. The year-on-year decline of 8.6% was the biggest in almost a decade. (…) JPMorgan now predicts that Germany may have contracted in the second quarter. If that happens, it would be the third time in a year that Europe’s largest economy posted no growth at all.

Germany’s troubles, some of which are linked to the car industry, have weighed on the euro region. Governing Council member Olli Rehn summed up the mood on Thursday, saying saying that growth has “slowed significantly” and it’s no longer possible to consider the downturn as temporary. (…)

ING adds:

(…) In particular, foreign orders dropped sharply: -5.7% MoM from non-Eurozone countries and -1.7% MoM from Eurozone countries, reflecting continued global uncertainties. After four disappointing months, domestic orders increased by 0.7% MoM. Still, domestic orders have been an even bigger disappointment than foreign orders this year, having dropped by an average of 1.5% MoM since the beginning of the year. (…)

The last two times order books shrank with a similar magnitude was in 2011/12 and 2008/9. While the former fall ended mildly with a decent rebound, the latter continued and we all know how it ended. Back to the current situation, a strong inventory build-up in the automotive industry also does not bode well for the coming months and brings back the not so distant memories of last Fall. 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.

From Markit’s June German PMI:

(…) Overall employment in Germany is now in a lower growth phase, with the service sector providing the bulk of new jobs. In a similar vein, the PMI data have shown the strongest quarterly growth performance from the service sector for almost five years, but thanks to falling manufacturing production, overall economic output looks to be expanding at only a moderate pace. (…)

Rising inflows of new work continued to form the basis for growth across the services economy. June saw new business increase at a solid rate that was quicker than that recorded in May, albeit slightly slower than April’s seven-month high. Continuing the theme of recent months, the main driver of the increase in new business was stronger demand from domestic sources. New work from abroad fell for the eleventh time in the past 12 months and at the quickest rate since January 2015. Surveyed firms partly attributed this to delayed decision-making among European clients. (…)

But the survey’s forward-looking indicator – the only one based on sentiment – raises question marks over how long the service sector can continue growing at such a pace and keep compensating for the weakness in manufacturing. Slowdown fears have weighed on service sector optimism, which is now the lowest since October 2015.

And the subsequent German Construction PMI:

(…) The latest figures show that the construction sector has lost all of its growth momentum, with the PMI slipping for the third month in a row in June to register in line with the 50 ‘no change’ mark. Only commercial activity increased, with the previously strong housing activity component having its first setback in eight months. (…)

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Germany is but a microcosm of the Eurozone’s cyclical industries as Markit shows:

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Markit’s Eurozone Nowcaster is pointing down:

China Reiterates Demand That U.S. Must Lift All Tariffs

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. (…) “If the two sides are to reach a deal, all imposed tariffs must be removed,” Ministry of Commerce Spokesman Gao Feng said on Thursday. “China’s attitude on that is clear and consistent.” (…)

China laid out three red lines for a trade deal when the talks collapsed in May. As well as the removal of all the tariffs, any purchases must be in line with the country’s real demand and the deal must be based on equality and mutual respect.

Chinese purchases of U.S. agricultural products is the country’s “special chip” in the negotiation, and any imports will depend on whether the talks will be equal and mutually respectful, according to the Taoran Notes commentary.

China is apparently considering buying some agricultural goods from the U.S. as a gesture of goodwill, but so far, there has been no sign of the “tremendous” purchases that President Donald Trump said China had promised to make.

Crunch Time Looms for Trump’s New Nafta

(…) Next Tuesday is the first day Trump can send the USMCA implementing legislation to Congress, starting the clock for lawmakers to take it up. (…)

U.S. Trade Gap Widened in May Despite Tariff Moves Trade deficit in goods and services jumped 8.4% in May from a month earlier

(…) The gap widened because of the biggest monthly rise in imports in more than four years along with moderate growth in exports amid a cooling global economy.

The monthly trade figures provide a window into how U.S. trade is affecting the economy. Sarah House, a senior economist at Wells Fargo , said that a bigger trade deficit appears likely to shave around half a percentage point off economic growth in the second quarter after adding almost twice that much in the first.

Regarding U.S. trade with China, the bilateral goods deficit widened in May by 12% from the prior month to $30.2 billion, as both imports and exports rose sharply. (…)

Capital Economics said it expects gross domestic product growth in the second quarter to come in around 1.5% in annual terms, down from 3.1% in the first quarter. (…)

How the trade balance performs going forward, she said, will in part depend on whenBoeing Co. is able to resume exports of its best-selling 737 MAX aircraft, which has been grounded since March due to safety questions. Civilian-aircraft exports rose in May from April but were down 12% in the first five months of 2019 compared with a year earlier. Many economists expect aircraft shipments to decline further in the months ahead.

Imports rose 3.3% in May from April, the fastest monthly growth since March 2015, to $266.16 billion, the Commerce Department said Wednesday. The increase was led by a 7.5% rise in automotive imports, to a record $33.23 billion, as well as an 11% jump in crude-oil imports, to $13.02 billion.

Exports, meanwhile, increased 2% to $210.64 billion, the biggest monthly increase in a year. Outbound shipments were boosted by a 41% jump in exports of soybeans, which have been volatile in the past year after being targeted by China for retaliatory tariffs. (…)

Many suggest that beat-the-tariffs imports played a big role in May’s trade numbers. Perhaps, but Canada’s exports to the U.S. jumped 8.1% YoY in May without any tariff issues.

Canada Posts Unexpected Trade Surplus on Record Exports to U.S.

(…) The country ran a rare trade surplus of C$762 million ($582 million) in May, from a deficit of C$1.1 billion previously. It’s only the fourth surplus for the country since oil prices began declining in 2014, driven by a 4.6% increase in exports. (…)

Exports to the U.S. increased 3.7% [MoM] to a record C$39.3 billion, widening Canada’s trade surplus with its biggest trading partner to C$5.9 billion — the largest since October 2008.

May’s export jump comes on the heels of other strong gains, bringing the increase in merchandise shipments to 15% since December. That’s the biggest five-month gain in Canadian exports in more than a decade.

Export volumes — the variable that goes into calculations of real growth — were up 4% in May, the most since August 2016. (…) Nine of 11 sectors tracked by Statistics Canada recorded an increase in exports in May, led by a 12.4% jump in motor vehicle shipments. Non-energy exports are up 6.3% since December. (…)

Some economists now anticipate annualized growth could come in closer to 3% in the second quarter, well above Bank of Canada expectations for 1.3%.

Canada non-energy export volumes strengthen

The Peterson Institute takes a global view of trade:

Trump Has Gotten China to Lower Its Tariffs. Just Toward Everyone Else.

China increased its retaliatory tariffs hitting US exports on June 1 in response to President Donald Trump’s latest escalation of his trade war. Yet, this action is only half of the bad news for US exporters. The other half is that China has begun rolling out the red carpet for the rest of the world. Everyone else is enjoying much improved access to China’s 1.4 billion consumers, a fact that has been little noticed or reported in accounts of the US-China economic confrontation. (…)

Figure 1: China’s average tariff rate is climbing on US goods and falling for the rest of the worldAs China’s economic growth has slowed during the trade war, its imports from both the United States and the rest of the world have also fallen (figure 4). China’s tariff reductions toward the rest of the world are likely to have helped stem the decline in imports from those countries. Nevertheless, the drop in US exports to China—due to slowing domestic demand, the retaliatory tariffs, as well as the incentive to switch to other foreign sources—is much more severe. (…)Figure 4: China’s imports from the United States have declined much more rapidly than imports from elsewhere during the trade war

This is not good news for US exporters. China’s retaliatory tariffs put them at a disadvantage relative to local firms, which obviously don’t have to pay any border taxes. But reducing tariffs on imports from other countries means US exporters also face an increasing disadvantage relative to competitors in Canada, Japan, Europe, and elsewhere. (…)

THERE WILL BE BLOOD
Farmers Built a Soybean Export Empire Around China. Now They’re Fighting to Save It. Trade tensions have hammered sales of soybeans to the Chinese, a major export market it took U.S. agriculture decades to create. Growers are traveling to Beijing and Washington to plead their case. “Farmers can’t say, I’ll just grow broccoli this year.”

The customer is China and the export is soybeans, of which the U.S. shipped $21 billion abroad in 2017, far more than anything else farmers grow. That marked a tripling in two decades, the fruit of a sweeping effort, by nearly every arm of U.S. agriculture, to build a once-obscure crop into a blockbuster.

Then last year, sunk by a bitter trade dispute, American soybean exports to China plunged 74% by volume. Brazil raced to fill the gap, while prices paid to U.S. farmers recently slid to a seven-year low. (…)

Last year, U.S. farmers planted soybeans on more than 89 million acres, an area roughly the size of Montana. That was more than the land planted to corn, long Midwestern farmers’ crop of choice.

Seed companies, grain traders, railroads and other businesses have all been part of the soybean-industry buildup—investing heavily, rolling out new varieties and adding rail capacity to ferry crops to market. (…)

Joe Steinkamp, an Indiana farmer and a director of the American Soybean Association, brought such a message to a recent meeting with Gregg Doud, chief agricultural negotiator for the Office of the U.S. Trade Representative. Mr. Steinkamp said he expressed concern about destroying export markets for younger farmers who are struggling with debt loads or access to credit.

“We don’t want the next generation to be scared away from agriculture,” Mr. Steinkamp said, on what was his third trip to Washington since Chinese tariffs took effect. “Markets don’t just come back.” (…)

The U.S. share of world soybean exports is expected to drop to 31% this season, the lowest on record, while Brazil’s portion is forecast to swell to 52%, which would be its largest ever.

At an agricultural forum in Beijing last fall, according to Mr. Schickler, China’s deputy agriculture minister said China would not easily forget the current standoff, and China is building alternatives for soybean imports so it will never again be so dependent on a single source.

(…) Brazil’s ambassador to China told the group his country was working to become China’s most reliable supplier.

According to Mr. Sutter, the CEO of the Soybean Export Council, Chinese companies are working to develop soybean production in Russia, where soybeans haven’t yet become a major crop.

American farmers have few easy options if Chinese demand for U.S. soybeans remains depressed. Robust world grain supplies suggest there is little need for additional U.S. corn or wheat production. Switching to a new crop would require huge investments in equipment and infrastructure, to say nothing of finding viable markets. (…)

For that reason, the U.S. soybean industry is also working intensely to woo buyers in other international markets. The largest single-country export customer after China is Mexico. (…)

Restoring trade with China remains a critical goal for the export council. “We need to be looking for a way to get out of the mess we’re in” with China, said Mr. Adams, the former American Soybean Association president. In the trade fight, in his view, “We’re going to have to blink.”

(…) “If the US flip-flops again in the negotiations, the promises to buy American agriculture products will also be overturned,” Taoran Notes said. (…) The commentary was published ahead of next week’s revival of trade talks, when American negotiators will visit Beijing.

A lot will ride on how the US government handles the supply ban on Chinese telecom giant Huawei Technologies, sources have told the South China Morning Post. (…)

Beijing remained coy on whether China would immediately resume buying American soybeans, an American source briefed about the situation told the South China Morning Post.

He said Beijing wanted first to see how – and if – the Trump administration would ease the supply ban on Huawei, as promised by Trump.

He said the White House probably would make an announcement “in the next couple of days” on the conditions under which American companies would be allowed to resume supplying the Chinese tech giant.

The Chinese would then commit to buying American agricultural products. (…)

GM’s China sales decline for fourth straight quarter amid economy woes

(…) U.S. car companies’ share of China’s passenger vehicles market has fallen to 9.6% in the first five months of this year from 10.9% in the year-ago period, according to CAAM. Over the same period, German car makers’ share has risen to 23.3% from 20.9% and Japanese auto makers’ to 21.3% from 17.3%. (…)

Samsung Electronics Expects Quarterly Operating Profit to Fall More Than 50% sluggish demand for memory chips was exacerbated by the nagging U.S.-China trade dispute.

Samsung said it expects operating profit to fall to 6.5 trillion South Korean won ($5.56 billion) from 14.87 trillion won a year earlier. Revenue is expected to fall 4.2% to 56 trillion won. The company will report final results later this month.

The Suwon, South Korea-based company’s preliminary results exceeded market expectations. Analysts expected an operating profit of 6.01 trillion won and revenue of 54.6 trillion won for the quarter, according to S&P Global Market Intelligence.

Analysts say the company benefited in the quarter from a weaker-than-expected domestic currency and what the company described as a “one-time gain related to the display business.” (…)

The South Korean tech giant could experience further geopolitical headwinds in the coming months. Earlier this week, Japan effectively placed export restrictions on South Korea for three materials used to produce semiconductors and displays. The move could affect Samsung’s production yields for chips and displays since the materials can’t be easily replaced in the production process.

Dow Industrials Close at Record High The Dow Jones Industrial Average closed at a record, its first new high in nine months and fourth straight session of gains. The Dow was the last of the three major indexes to notch a record this year.
TECHNICALS WATCH

CMG Wealth’s Trade Signals and Lowry’s Research’s analysis all suggest a positive technical picture:

  • 13/34–Week EMA Trend Chart

  • Volume Demand vs. Volume Supply

  • S&P 500 Index 200-day Moving Average Trend

  • S&P 500 Index 50-day vs. 200-day Moving Average Cross

However, the gap to the slightly rising 200dma is wide:

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Mutually Assured Disruption in Silicon Valley With venture-capital funds flowing freely, everyone wants to be a disrupter; few actually disrupt

(…) The heightened competition is reflective of an era where big investors, desperate to generate returns when interest rates are low, are plowing money into startups like never before. By The Wall Street Journal’s count, as of April there were 88 still-private U.S. startups valued at $1 billion or more, up from 43 just five years earlier. (…)

Squeezed by U.S. Sanctions, Iran Shifts From Patience to Confrontation Tighter new U.S. sanctions have proven more punishing than Iran’s leaders expected, driving Tehran to hit back militarily and breach limits it had agreed to put on its nuclear program.

Well, with all the above, I hope we all have a nice weekend!

THE DAILY EDGE: 7 JUNE 2019

Payroll employment edges up by 75,000 in May; unemployment rate remains at 3.6%
  • Total nonfarm payroll employment edged up in May (+75,000). Monthly job gains have averaged 164,000 in 2019, compared with an average gain of 223,000 per month in 2018.
  • The change in total nonfarm payroll employment for March was revised down from +189,000 to +153,000, and the change for April was revised down from +263,000 to +224,000. With these revisions, employment gains in March and April combined were 75,000 less than previously reported.
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  • In May, average hourly earnings for all employees on private nonfarm payrolls increased by 6 cents to $27.83. Over the year, average hourly earnings have increased by 3.1 percent. Average hourly earnings of private-sector production and nonsupervisory employees increased by 7 cents to $23.38 in May. [+3.4%]
  • The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in May. In manufacturing, the average workweek and overtime hours were unchanged at 40.6 hours and 3.4 hours, respectively.
As Mexico-U.S. talks progress, markets rise on hopes a deal could be close  Mexican and U.S. officials held a second day of talks on trade and migration on Thursday, with markets rebounding on optimism a deal could be close, although it was unclear if Mexican pledges to curb migration flows were enough to persuade the Trump administration to postpone tariffs.

(…) U.S. Vice President Mike Pence said Mexico had offered “more” on Thursday than on Wednesday but that it would be up to Trump – who returns from a European trip on Friday – to decide if it were enough. (…)

Trump did not specify if he meant the DJII or the S&P 500 Index. Winking smile

Rise in U.S. Worker Productivity Could Be Difficult to Maintain U.S. workers’ efficiency improved at the best rate in nearly a decade, revised data confirmed, but that pace could prove difficult to maintain with economic growth expected to cool as the year progresses.

The productivity of nonfarm workers increased 2.4% from a year earlier in the first quarter, the Labor Department said Thursday. That was the best year-over-year gain since the third quarter of 2010, when the economy was just emerging from a deep recession.

Compared with the previous quarter, productivity increased at a 3.4% seasonally adjusted annual rate in the first quarter. That was a slight downward revision from last month’s initial estimate of a 3.6% gain. (…)

While the latest data show that worker efficiency has improved, the pace of gains is near average by historical standards. Since the end of World War II through 2018—including both expansions and recessions—productivity rose at an average annual rate of 2.1%. In the previous economic cycle, from 2000 to 2007, productivity rose at a 2.7% annual rate.

Thursday’s report showed compensation expenses, as measured by unit-labor costs, decreased at a 1.6% annual rate in the January-through-March period from the fourth quarter of 2018. That compared with an earlier estimate of 0.9% lower. (…)

This stat can be significantly revised so should be taken with reserves. As you can see, unit labor costs almost never decline YoY except immediately after recessions.

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China has ‘tremendous’ room to adjust monetary policy if trade war deepens, PBOC head says: report

“We have plenty of room in interest rates, we have plenty of room in required reserve ratio rate, and also for the fiscal, monetary policy tool kit, I think the room for adjustment is tremendous,” Yi said, according to the news outlet. He said he expected a “productive talk, as always,” when he meets with Treasury Secretary Steven Mnuchin on the sidelines of the G-20 finance ministers meeting, but that the risk of a trade war remains “uncertain and difficult.”

Germany: Horrible start to the second quarter Disappointing April data from industrial production and trade suggest that the latest ECB’s dovishness is justified

Industrial production fell by a sharp 1.9% month-on-month in April, from 0.5% MoM in March, the first drop since January this year. On the year, industrial production was down by 1.8%. Production in all sectors dropped, except for activity in the construction sector.

At the same time, German exports (seasonally and calendar adjusted) fell like a stone, dropping by 3.7% MoM in April, from 1.6% MoM in March. Imports decreased by 1.3% MoM, from 0.4% MoM in March. As a result, the trade balance shrank to €17.94 billion in April from €22.6 billion in March.

Let’s be clear, this is a horrible start to the second quarter for German industry, as global trade tensions as well as temporary problems in the automotive sector and chemical industry have left their marks. One-off factors should have disappeared by now and even turned into temporary positives. (…) (ING) (Charts from Bloomberg and Markit)

German industrial output plunged the most in almost four years

MARKIT EUROPE AUTO AND PARTS PMIimage
Selling prices fall at copper users amid weak demand and low cost inflation

At 49.4 in May, the seasonally adjusted Global Copper Users Purchasing Managers Index™ (PMI) – a composite indicator designed to give an accurate overview of operating conditions at manufacturers identified as heavy users of copper – ticked up from 49.1 in April, to signal a similarly marginal deterioration in business conditions. The reading extended the current sequence of decline to six months, but indicated the weakest drop in this period. (…)

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Demand weakness still gripped the global copper using industry in May, as the latest PMI data signalled another decline in new orders, albeit to the least extent for six months. This run of poor performance has finally prompted manufacturers to reduce their selling prices for the first time since August 2016, revealing the level of angst among businesses that markets may not recover in the short run. (…)

Euro-Area Consumers Gave Economy a Lift at the Start of 2019

Household expenditure jumped 0.5% in the first quarter, the most in a year, helping overall economic expansion accelerate to 0.4%. Investment and net trade also added to growth in the period, while there was a big drag — 0.3 percentage points — from inventories. (…)

Consumer spending and investment were big drivers of growth at start of 2019
Huawei Signs Contract To Build 5G Network In Russia

Huawei cuts or cancels orders to major suppliers after U.S. blacklisting: report

Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) confirmed that orders from Huawei have declined after U.S. President Donald Trump imposed a ban on the Chinese company on national security grounds, according to the report.

Huawei has also downgraded its forecast for total smartphone shipments in the second half of 2019 by “about 20 per cent to 30 per cent” from the previous estimate, the Nikkei reported. (…)

Optical components maker Lumentum Holdings Inc. ceased all its shipments to Huawei, while U.S. chip maker Qorvo Inc. said it expects first-quarter revenue to take a US$50-million hit due to a halt in shipments to the Chinese company.

Huawei is allowed to buy U.S. goods until Aug. 19 to maintain existing telecoms networks and provide software updates to its smartphones.

SENTIMENT WATCH
Investors, Buy the Dips: Recession Worry Is Overblown for Now

It may be time for investors to stop worrying and learn to love the economic boom. The inevitable bust could be further off than is commonly believed, but it could also be more painful. (…)

But if the business cycle truly is getting stretched, the expansion could last a few more years. This suggests investors should continue to buy stock-market dips—a successful strategy for the past 10 years. (…)

Investors should stop obsessing about an imminent recession but start planning for a financial storm some time in the mid-2020s.

I rest my case. Confused smile

That thing settled, some naysayers still remain:

  • PMI surveys signal weakest global economic growth for three years
  • Global PMI™ falls to lowest since June 2016, while future expectations hit a survey low
  • Stalling manufacturing sector joined by weaker services growth
  • Jobs and investment indicators fall amid rising risk aversion; price pressure also ease
  • Developed world growth down to lowest since 2012 as US joins the slow lane
  • Brazil downturn leads emerging markets lower

While the PMI had hinted at a modest pick-up in the pace of global economic growth in February and March, the data for the second quarter are looking decidedly gloomy, pointing to the weakest rate of expansion since the third quarter of 2016. The survey data are indicative of worldwide GDP rising at an annual pace of 2.0% (at market prices) so far in the second quarter, down from 2.4% in the first quarter, though momentum was lost to around 1.75% in May alone. (…)

A further loss of momentum is signalled for coming months via weaker new order inflows, falling backlogs of work and a drop in business expectations. Inflows of new work showed the smallest rise for three years, falling in manufacturing and growing at their slowest pace since mid-2016 in services. (…)

A major change in May was a weakened rate of expansion in the US, which joined the other major developed economies of the eurozone, UK and Japan in the slow lane to push developed world growth to its lowest since 2012. Emerging market growth also eased, reflecting a renewed downturn in Brazil and softer expansions in China and Russia. (…)

  • David Rosenberg remains obsessed:

With a recession inevitable, now is the time for every investor to hold on to their hat

(…) Perhaps the most important data point this week, with due deference to the jobs report, was the number of times the Fed Beige Book used the word “uncertain” to describe the outlook – the most in six years. And in uncertain times, the private sector tends to boost its savings rates at the expense of spending growth, and those savings in turn gravitate to safe havens – one reason why bonds and gold have reasserted their traditional roles in uncertain times. (…)