Fed chair cements case for cut in interest rates
Chair Jerome H. Powell
(…) Since our May meeting, however, these crosscurrents have reemerged, creating greater uncertainty. Apparent progress on trade turned to greater uncertainty, and our contacts in business and agriculture report heightened concerns over trade developments. Growth indicators from around the world have disappointed on net, raising concerns that weakness in the global economy will continue to affect the U.S. economy. These concerns may have contributed to the drop in business confidence in some recent surveys and may have started to show through to incoming data.
In our June meeting statement, we indicated that, in light of increased uncertainties about the economic outlook and muted inflation pressures, we would closely monitor the implications of incoming information for the economic outlook and would act as appropriate to sustain the expansion. Many FOMC participants saw that the case for a somewhat more accommodative monetary policy had strengthened. Since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook. Inflation pressures remain muted. (…)
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Small-business selling prices continue to point to higher core CPI ahead. This trend also makes it hard to justify deep rate cuts.
Source: Pantheon Macroeconomics (via The Daily Shot)
U.S. JOLTS: Job Openings Rate Dips; Hiring Weakens
The Bureau of Labor Statistics reported that the total job openings rate eased to 4.6% during May from an unrevised 4.7% in April. It was unchanged from twelve months earlier. The job openings rate is the job openings level as a percent of total employment plus the job openings level. The ability to find workers to fill openings also weakened. The hiring rate slipped to 3.8% from the record 3.9% in April. Employers let people go at a steady rate as shown by the layoff & discharge rate which held m/m at 1.2%, up from the record low of 1.1% in March. Individuals remained ready to find new work. The quits rate held steady at a near-record 2.3% where it’s been since June of last year. (…)
The level of job openings declined 0.7% (+2.8% y/y) to 7.323 million after falling 1.4% in April. Job availability was plentiful. Private-sector openings rose 1.8% y/y while government sector job openings jumped 13.8% y/y. (…)
Total hiring declined 4.4% (-2.3% y/y) to 5.725 million. Hiring in the private sector fell 2.9% y/y while government sector hiring gained 6.0% y/y.
Private job openings peaked last November and have declined 4.6% since.
Private openings were up 1.8% YoY in May. Private hires are down 2.9%. Openings in Professional and Business Services, about 25% of total private openings, are down 10% from their January peak and Hires are off 4.3% YoY.
What can Japan’s machine tool orders tell us about world industrial production?
Source: Pantheon Macroeconomics (via The Daily Shot)
Euro zone cuts growth and inflation forecasts as U.S. trade uncertainty looms
The commission confirmed its prediction that economic growth in the euro zone would slow this year to 1.2 per cent from 1.9 per cent in 2018. It also revised down its estimate for next year’s growth, which is now seen at 1.4 per cent instead of the 1.5 per cent forecast in May.
Risks for the bloc have increased, the commission said, and mostly come from “the elevated uncertainty” around United States’ trade policy, as Washington keeps threatening punitive tariffs on a broad range of EU products.
Fears of increased trade tensions “could also trigger a shift in global risk sentiment at times when valuations appear stretched across many asset classes,” the EU economics commissioner Pierre Moscovici told a news conference
“This could lead to rapid tightening of global financial conditions,” he added. (…)
The Case for Cancelling Student Debt
In this editorial for Fortune, Democratic presidential candidate Bernie Sanders argues canceling all $1.6 trillion of student debt would boost the economy by around $1 trillion over the next decade, creating jobs and giving graduates the financial space to buy homes, cars, and open businesses. Sanders argues the generation that graduated after the financial crisis is still grappling with crippling debt, and that the years after WWII can provide a guide for making education affordable again. Fortune
China Producer Prices Stall, Adding to Industry Woes Index continues a slide toward deflation as sluggish demand, falling commodities prices eat into company profits
A gauge of factory-gate prices in June was unchanged from a year earlier, official data showed Wednesday—the first stall since September 2016, when an upswing began after a prolonged deflation. That followed May’s 0.6% rise in the producer-price index and was below economists’ expectations. (…)
Consumer inflation held steady last month, as slower gains in nonfood prices offset faster increases in food. The June consumer-price index was up 2.7% from a year earlier, matching May’s pace, the statistics bureau said. The core CPI, which excludes volatile energy and food prices, also maintained its May pace, at 1.6%. (…)
Food prices in June were up 8.3%, accelerating from May’s 7.7%. Combined, the gains in fruit and pork prices boosted the headline index by 1.16 percentage points, the statistics bureau said.
Nonfood prices increased 1.4%, moderating from May’s 1.6%. Lower gasoline and diesel prices together cut the headline CPI reading by about 0.07 percentage point, said Dong Yaxiu, an economist with the statistics bureau.
Walmart’s Supplier Says Chinese Factories in ‘Desperate’ State
The world’s largest supplier of consumer goods says China’s factories are getting “urgent and desperate” as worried U.S. retailers accelerate a move out of the country amid heightened trade tensions.
China will see more factory shutdowns as the trade war that’s roiled the global supply chain exacerbates an exodus, said Spencer Fung, chief executive officer of Li & Fung Ltd. The company, which designs, sources and transports consumer goods from Asia for some of the world’s biggest retailers including Walmart and Nike, is being pushed by American clients to shift production out of China.
“U.S. clients are definitely very, very worried,” Fung said in an interview with Bloomberg. “Everyone is making razor-thin margins already and most people have a huge percentage in China. So if the biggest source increases the price by 25%, they are worried,” he said, referring to the scale of tariffs threatened on all Chinese imports to the U.S. by President Donald Trump. (…)
“Nobody’s investing, nobody’s buying. The trade war is causing people to stop investment because they don’t know where to put the money,” the Silicon Valley-trained CEO said. “Many people put the money into Vietnam with one tweet,” he said, referring to Trump’s habit of announcing American trade policy over the social media tool.
The Hong Kong-based supply chain and logistics provider, which relies heavily on trade between the world’s two biggest economies to make its fortune, will see China’s contribution to its total sourcing fall from 59% in 2015 to less than half this year for the first time.
While Chinese factories suffer, manufacturers in other Asian hubs become beneficiaries — up to a point. American retailers have already taken up all the manufacturing capacity in Vietnam in their rush out of China, said Fung, highlighting the lack of scale that prevents other destinations from fully substituting for China’s manufacturing might.
“Vietnam, for example, is full, completely full,” he said. “There’s no extra capacity for the U.S. companies to get in.”
“It is a buying opportunity for European and non-U.S. retailers,” Fung said, “In China, there are a lot of factories with less and less orders. They’re offering actually pretty good prices to anybody.” (…)
Ross Spells Out Reprieve for Huawei Commerce Secretary Wilbur Ross said the U.S. would grant licenses to American companies that want to sell technology to Huawei Technologies as long as the sales wouldn’t put national security at risk, expanding on a pledge made last month by President Trump to Chinese President Xi.
(…) Huawei will remain, however, on the Commerce Department’s “entity list,” Mr. Ross said Tuesday, meaning that companies that want to sell U.S.-sourced technology to Huawei must first apply for a license. The department will continue to review such licenses with a “presumption of denial,” he said. (…)
Anything very different than before Osaka?
Big Tech’s Buyback Spree Nears Its Limits Surge in sector’s share repurchases is outpacing its ability to fund them
The 20 most active tech companies on the buyback scene spent a little over $261 billion over the 12-month period ended with their most recent fiscal quarter reports, according to data from S&P Capital IQ. That comprised about 40% of the total dollars spent by the 100 largest buyers in the S&P 500 over that time. The largest few accounted for the lion’s share;Apple Inc., Oracle , Qualcomm , Cisco Systems and Microsoft spent a combined $175 billion over the past 12 months—triple their combined spending over the same period two years ago.
Much of the recent surge can be traced to the tax overhaul enacted in late 2017, which effectively freed up the enormous piles of cash many tech companies had stockpiled offshore. The accelerated repurchase activity also may have helped offset concerns about slowing growth at many of these companies.
Apple alone has spent a little over $75 billion buying back shares over the past four quarters, accounting for about 4% of cumulative shares traded during a time that the company’s iPhone business has slowed dramatically. Oracle spent an unprecedented $36 billion buying back shares in its fiscal year that ended May 31. The software giant’s overall revenue grew less than 1% for the period.
But while most giant tech companies are hardly short of cash, the recent pace of buybacks seems unsustainable for many. Oracle’s buybacks over the past year have reached the equivalent of nearly three times the company’s free cash flow for the period. The company’s buybacks did cool a bit in its most recent quarter, and only $5.8 billion remains on its current plan. But S&P Global still lowered its credit rating on Oracle last week, saying its leverage ratio could climb to around 2 times if the current pace continues in the current fiscal year. (…)
Japan Inc. Breaks Buybacks Record as Investor Pressure Pays Off A record wave of share buybacks by companies such as Sony, SoftBank and Nomura Holdings has cheered stockholders who say Japan’s bosses are finally warming to their interests.
Japanese companies announced an unprecedented ¥6.059 trillion ($55.6 billion) of share repurchases in 2018, I-N Information Systems Ltd said.
That was 4% higher than the previous record set two years earlier, according to I-N’s data, which goes back to 2004. In the first half of 2019, announced buybacks have totaled 5.825 trillion yen, more than double the tally from the first six months of last year, I-N research shows. (…)
Last year, companies in Japan’s Topix index spent an equivalent of 0.8% of the index’s end-2017 market value buying back stock, Goldman research shows.
In contrast, S&P Dow Jones Indices data shows companies in the S&P 500 spent $806 billion last year on buybacks. On the same basis, that works out to 3.5% of the index’s market value at the end of 2017. (…)
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