Month: July 2017

Payroll employment rises by 222,000 in June; unemployment rate changes little at 4.4%

• The change in total nonfarm payroll employment for April was revised up from +174,000 to +207,000,
  and the change for May was revised up from +138,000 to +152,000. With these revisions, employment
  gains in April and May combined were 47,000 more than previously reported.
• Employment growth has averaged 180,000 per month thus far this year, in line with the average monthly gain of 187,000 in 2016.
• The average workweek for all employees on private nonfarm payrolls rose by 0.1 hour to 34.5 hours in June. In manufacturing, the workweek edged up by 0.1 hour to 40.8 hours, while overtime was unchanged at 3.3 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls rose by 0.1 hour to 33.7 hours.
• In June, average hourly earnings for all employees on private nonfarm payrolls rose by 4 cents to $26.25. Over the year, average hourly earnings have risen by 63 cents, or 2.5 percent. In June, average hourly earnings of private-sector production and nonsupervisory employees increased by 4 cents to
  $22.03.

This was the picture before the revisions:

IHS Markit U.S. Services PMI  Business activity growth accelerates further in June

Business activity in the US service sector increased at the fastest pace since January in June, according to the latest survey data. Meanwhile, accelerations in new order and employment growth supported increased optimism in the sector. On the price front, input price inflation was the fastest since June 2015, while output charges rose at the strongest pace in the current 16-month sequence of inflation.

The seasonally adjusted IHS Markit U.S. Services Business Activity Index registered 54.2 in June, up from 53.6 in May. This signalled a third month of accelerated growth in business activity among US service providers. Panellists linked growth to increased new orders and strong client demand. Overall, activity during the second quarter expanded at a solid pace that was only fractionally softer than that seen in the first quarter.

June data signalled a further upturn in new order volumes placed at US service providers. Furthermore, the rate of expansion was the quickest seen since January. Anecdotal evidence suggested that higher demand from new and existing clients drove the upturn.

The trend of cost inflation, which stretches back to October 2009, was extended further in June. Notably, input prices increased at a solid rate that was the quickest in two years. Many respondents linked input price inflation to higher raw material and staffing costs.

Average prices charged by US service providers rose for the sixteenth consecutive month in June. The pace of increase in output prices was the fastest in the current sequence of inflation and solid. Panellists linked the latest increase in prices to greater cost burdens and stronger demand.

Employment growth in the US services sector remained strong in June. The pace of job creation was the quickest since February, with anecdotal evidence suggesting that additional workers were hired due to increased operating capacity requirements.

The level of outstanding work was broadly unchanged in June. This followed a marginal upturn in backlogs during the previous month.

The degree of optimism among firms in the US services sector increased in June, with confidence at the second-strongest level since May 2015. Positive expectations for future activity were largely attributed by panellists to strengthening underlying demand and planned business expansion.

The final seasonally adjusted IHS Markit U.S. Composite PMIâ„¢ Output Index rose to 53.9 in June, up from 53.6 in the previous month.

Although the composite figure picked up in June, the rate of growth remained historically muted. Nonetheless, the average pace of expansion indicated over the first half of the year was faster than that seen during the same period last year. (…)

(…) the average all-sector PMI reading for the second quarter is down slightly on the first quarter, suggesting that the underlying pace of economic growth remains somewhat subdued though still robust. The surveys are historically consistent with annualised GDP growth of just over 2%. Actual GDP data are expected to show a stronger rebound, though largely reflecting volatile quarterly seasonal variations in the official data.

U.S. Trade Deficit Narrowed in May The U.S. trade deficit narrowed in May as exports rose to their highest level in more than two years. The foreign-trade gap in goods and services narrowed 2.3% from the prior month to a seasonally adjusted $46.51 billion in May, the Commerce Department said Thursday.

(…) Imports fell 0.1% in May to $238.54 billion, and exports rose 0.4% from April. Total exports were $192.03 billion in May, the strongest month for overseas sales since April 2015. (…)

In the first five months of 2017, the value of U.S. imports rose 7.3% while U.S. exports increased 6.0% compared with the same period a year earlier. The overall trade deficit was up 13.1% compared with the first five months of 2016.

(Haver Analytics)

Orders for Heavy-Duty Trucks Rise in June

Motor carriers in June ordered 18,100 Class 8 trucks, the type used on long-haul routes, according to a preliminary report from ACT Research. That was a 7% improvement from May, when truck orders retreated after several stronger-than-expected months, and up 39% from a year ago. (…)

The bump was notable, he said, because trucking companies committed to buying new vehicles well before solid signs of improvement in the freight market.

“Usually you get the freight, then the freight rates, then the truck orders,” Mr. Vieth said. “This time we bypassed those and went straight to orders.” (…)

European shares sink to 11-week low  and euro edges up after ECB opens door to removing bond-buying pledge

The minutes of its latest meeting showed that rate setters meeting last month opened the door to dropping from their policy message a long-standing pledge to expand or extend the bank’s bond-purchase programme if necessary. 

The policymakers discussed already taking out that so called “easing bias” at the June 7-8 meeting but decided against it because an economic recovery in the euro zone had yet to result in higher inflation.

“If confidence in the inflation outlook improved further, the case of retaining this bias could be reviewed,” the ECB said in the accounts of the meeting. (…)

OPEC Considers Production Caps for Libya, Nigeria

(…) Libya’s crude-oil output has surged to over one million barrels a day, up from 400,000 in October, while Nigeria’s output has risen to 1.6 million barrels a day, up 200,000 barrels a day since October, according to JBC, a Vienna-based energy-industry consultancy.

Those increases have unnerved the Organization of the Petroleum Exporting Countries, the 14-nation cartel that joined forces last year with Russia and other big non-OPEC producers in an agreement to withhold almost 1.8 million barrels of oil from market every day. Libya and Nigeria were exempted from the obligation to cut because their industries had been crippled by civil unrest. (…)

Such a move could spark an internal OPEC fight.  At OPEC’s last meeting in May, Nigeria’s oil minister Emmanuel Ibe Kachikwu threatened to back out of any deal if he was forced to cut production, said a person familiar with the matter.

In May, Saudi Arabia’s energy minister, Khalid al-Falih, said OPEC was “very sympathetic with Libya and Nigeria” and “would be happy for them” if their production rose. ”The rest of us will adjust to this situation when and if it happens,” he added. (…)

China imported nearly 100,000 barrels of crude a day from the U.S. in the first five months of the year, a tenfold increase over the same period in 2016, the WSJ’s Brian Spegele reports. It’s a simple story of supply and demand: a federal ban on oil exports was loosened in 2015, unleashing U.S. crude onto the global market just as China was looking for new oil sources to replace falling production from its own aging fields. China is also an increasingly important buyer of plastic pellets produced in plants along the U.S. Gulf Coast, another example of how the shale boom is reshaping global supply chains. Chinese demand could dry up just as quickly as it’s emerged, however, if Middle Eastern producers cut prices to win back market share lost to U.S. competitors. (WSJ)

When will the US fracking spree finally slow down? Productivity gains mean falling oil prices have not curtailed production as expected

(…) This week Andy Hall of Astenbeck Capital Management, famed as a resolute oil bull, warned in a letter that the “long-term price anchor for oil has moved lower” because the cost for extracting shale oil has become surprisingly cheap. (…)

Occidental Petroleum, the largest Permian operator, says it can increase production by 5-8 per cent with oil prices at $50 a barrel and keep it steady at $40. “We believe that we need to be prepared for a $40 environment,” Vicki Hollub, chief executive, told a conference last month. 

Many producers also took advantage of an oil price rally last December, after Opec’s agreement on output cuts, to lock in sales for 2017 and so insulate themselves from lower prices. As of early May, leading US companies had hedged 57 per cent of their oil output for 2017, according to figures compiled by Energy Aspects, a consultancy. (…)

As Mr Hall said in his letter to investors, it would be “futile” to try to push oil prices to $60 when shale’s marginal cost is sinking into the $40s.  “It is unlikely that Opec will find the cohesion necessary to keep prices at an artificially elevated level,” he wrote, “if all it does is accommodate rampant growth in shale oil production.”

BTW:

The FT article above suggests that U.S. shale oil costs are lower than what seen on this chart (chart via The Daily Shot)

Gundlach: Bond Wipeout Is Just Beginning

(…) In an email to Bloomberg, Gundlach said that 10Y yields are on course to move “toward 3%” this year. There has “been no justification for the divergent policies in the U.S. versus Europe given economic fundamentals,” he said – a point he has made previously. A 10-year yield at 3 percent would put Treasuries in “definitive” bear market territory, Gundlach added. The 10Y traded as high as 2.39% on Thursday, just 3 bps below the key retracement of 2.42%, coinciding with the May high. The yield is also just shy of the 100 DMA, whose breach could lead to more systematic and CTA selling. (…)

• Gundlach Sees More Pain for Bond Bulls as Hedge Funds Make Exit

• Bank of Japan Punches Down Bond Yields Japan’s central bank stepped in to tame a rise in government-bond yields on Friday, signaling its determination to stick to its current policy mix, even as the recent selloff in global bond markets intensifies.

• Investors Withdraw $1.1B from US High Yield Funds

Other wipeout candidates:

Forget an IPO, ‘Coin Offerings’ Are New Road to Startup Riches “Initial Coin Offerings,” are exploding in value. So far this year, companies have raised more than $1 billion through this new, unregulated fundraising method that is based in the world of cryptocurrencies.

Two obscure companies with no sales raised nearly $400 million combined in recent days from outside investors. How did they do it? Via a new, unregulated fundraising method that has no connection to Wall Street and is based in the world of cryptocurrencies.

These fundraisings, called “Initial Coin Offerings,” are exploding in value. So far this year, companies have raised more than $1 billion this way. That is 10 times the amount raised in 2016, according to Smith & Crown, a digital-currency research firm. (…)

In a coin offering, the coins being sold are similar to bitcoin and ether. Investors purchase a coin, or digital token, that they can use in the future to buy a product or service a company plans to offer.

The coins usually don’t confer any ownership in a company. Rather, investors hope they will rise in value over time if a company’s product or service is popular.

The coin offerings’ success comes despite the companies’ youth: Dynamic Ledger is just three years old and block.one was founded this year. Both have only a handful of employees; their products aren’t yet fully developed. Blue Apron, by contrast, has been around for five years, has a well-known meal-kit business and had nearly $800 million in revenue last year. (…)

Buying into a coin offering is like purchasing a ticket to a Broadway show months or even years before a performance hits the stage. If the production is the next “Hamilton,” the ticket, or in this case the coin, could later be sold for multiples of its initial purchase price.

If the play isn’t produced, though, or if it turns out to be a flop, the ticket would be worthless. The same could prove true for some coin offerings.

Coin offerings are more like crowdfunding campaigns than a traditional securities offering. Most offerings don’t have a detailed prospectus, rather companies typically publish a so-called white paper outlining their project or idea. (…)

EU targets Kentucky bourbon in steel retaliation European officials seek to dissuade Trump from unilateral measures on imports at G20