Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

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)

Edge and Odds

Invest with smart knowledge and objective odds

THE DAILY EDGE (10 September 2018):The Big Debate

THE BIG DEBATE
Job Market Slack Is History Faster wage growth shows the labor market has tightened to the point where the only way companies can get more workers is to pay them more

The Labor Department on Friday reported the economy added another 201,000 jobs, while the unemployment rate held steady at a low 3.9%. But the biggest news was an unexpected jump in average hourly earnings that pushed wages up 2.9% from a year earlier. That compared to a 2.7% gain in July, and marked the strongest growth since 2009. (…)

Sometimes one needs to be picky on stats. Most commentators are bouncing the +0.4% and +0.3% consecutive monthly rises in average hourly earnings in August and July respectively. The resulting 4.3% annualized growth is indeed scary. But the actual unrounded numbers are +0.37% and +0.26%, making the annualized +3.8% number somewhat less dramatic.

But the reverse is true if we consider the larger cohort of production and nonsupervisory employees which comprise 80% of the labor force. Last 3 months rounded numbers show +0.6% or +2.4% annualized. The unrounded stats total +0.663%, +2.7% annualized, same as the last 2 months and not as dramatic.

Another way to look at it is observing that the amplitude of monthly gains has widened somewhat on the upside. But in truth, no reason yet to panic on wages.

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Although, as NBF points out

The U.S. labour market is creating jobs at the fastest pace since 2015 according to the establishment survey. The latter showed non-farm payrolls rising a consensus-topping 201K in August, pushing up the tally for the first eight months of the year to a stunning 1.6 million. Also encouraging, given their tendency to move in synch with the economic cycle, were further gains in construction and temporary employment which point to continued expansion in Q3. The unemployment rate remained unchanged at 3.9%, although the U6 “wide” measure, which includes persons marginally attached to the labour force and those employed part time for economic reasons, fell further to 7.4%, the lowest since April 2001.

Clearly the U.S. labour market is getting tighter, and wages are heating up as a result. The private sector’s average hourly earnings rose 2.9% on a year-on-year basis, the highest since May 2009. And wage growth is not isolated to a single sector. As today’s Hot Charts show, most major industries in the U.S. are now seeing stronger wage growth than last year. The employment data will further reinforce the Federal Reserve’s view that tighter monetary policy is warranted.

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The interest on wages is two-fold: consumer income and expenditures, 70% of GDP, and corporate profits, equity markets’ primary fuel.

Regarding consumer expenditures, the Payrolls Index, up 5.2% YoY in August, suggests growth in nominal expenditures sustained in the 4.5-5.5% range:

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The problem is rising inflation (black line above) which is eroding real spending power. The blue line below is the Payrolls Index minus CPI, rising only 2.0% YoY in July and likely the same in August after we get the August CPI on Sep. 13.

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Employment growth is decelerating again: +185k over the past 3 months from +192k over the past 6 months and +194k over the past 12. On a YoY basis: +1.6% in August from +1.7% in May  and +1.4% in January. Unless wages accelerate markedly, payrolls will decelerate below inflation and stifle the economy.

Or inflation wanes.

The challenge to the U.S. economy is summarized in this simple chart: inflation (CPI) is now accelerating faster than wages (blue), negating any real income growth for individual employees. At the aggregate level, the rate of growth in the number of employed Americans has resumed its slow downtrend while the pool of available workers has shrunk to its 2007 level. In all, the basic fundamentals for consumer spending are not promising unless wages accelerate, which would pressure corporate margins, or inflation decelerates which could hurt revenue growth. Investors can’t have it both ways.

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Here’s an interesting chart plotting YoY changes in the CPI against unit labor cost. Amplitudes vary but trends are generally in sync except in 1987 and recently when ULC decelerated sharply while inflation accelerated. If history is any guide, these two lines will meet again.

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If it’s because inflation decelerates, it will likely cause a deceleration in revenue growth:

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If it’s because labor costs accelerate, it will likely impact profit margins which, at the national level (NIPA), remain 200 basis points below their 2014 peak on a pretax basis. At 12.0%, Q2’18 after tax margins are up spectacularly from 10.6% in Q2’17 but pretax margins are up only marginally from 13.3% to 13.7%. The impact of tax reform only has 2 quarters to go.

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Ed Yardeni charts the close relationship between NIPA and S&P 500 profits:

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Analysts currently see 2019 EPS up 10.2% to $179 on S&P 500 companies (accelerating from +8.2% in Q1 to +11.3% in Q4), a tall order considering:

  • nominal GDP growth and corporate revenues (NIPA) are still growing at around 5% annually;
  • other than compensation, operating costs have been accelerating in 2018;
  • compensation costs seem set for 3%-plus growth in 2019;
  • interest expense will also be rising on record corporate debt;
  • the actual long term growth rate in profits is 7%.
U.S. Manufacturing Thrives as the Rest of the World Sags

High five This is Moody’s Sep. 6 headline posting this spectacular chart which could very well be used by President Trump to underscore the success of its economic policies:

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But that would be flake news since the ISM manufacturing survey is proving to be totally out of whack with the reality as this next chart illustrates:

Markit’s U.S. PMI survey is a much better reflection of the reality and is pretty well in sync with the rest of the world’s PMI which, incidentally, is also a Markit product so all surveys have very similar methodologies.

Moody’s explains that the ISM survey captures both changes in actual activity and confidence and that

(…) sentiment has been boosting the ISM manufacturing index every month since November 2016. Anticipation and implementation of the Trump administration’s tax cuts and increased government spending have likely boosted manufacturer sentiment. Also, rising equity prices and a strong domestic economy are also reasons for manufacturers to be upbeat.

Trump Preparing Tariffs on Further $267 Billion in Chinese Imports President Trump said tariffs on another $267 billion in Chinese goods are ready to go and could be rolled out on short notice, signaling no end in sight for the trade dispute.

President Trump said Friday that tariffs on another $267 billion in Chinese goods are ready to go and could be rolled out on short notice, reinforcing earlier threats and signaling no end in sight for the growing trade dispute.

Speaking aboard Air Force One en route to Fargo, N.D., Mr. Trump said the tariffs would be in addition to the tariffs on $200 billion in Chinese goods the administration has been preparing, which he said will “take place very soon, depending on what happens.” (…)

The public comment period on the second, $200 billion round of tariffs ended Thursday, the last step before a decision. Trade associations, which oppose tariffs, were gearing up for an announcement as early as Friday.

A senior administration official told The Wall Street Journal on Friday that China tariffs “are coming,” but said that the timing remains unclear.

Mr. Trump later signaled that the timing of the $200 billion is not finalized, saying that it “could take place very soon depending on them—to a certain extent it depends on China.”

Elsewhere in the WSJ:

(…) Others familiar with the administration’s deliberations think that the Office of U.S. Trade Representative Robert Lighthizer could take weeks to make a move to demonstrate that it carefully considered the comments, numbering more than 4,000 by Thursday’s deadline. The office took three weeks after the end of the first comment period to announce tariffs. (…)

Several trade associations are considering suing the trade representative to stop additional U.S. tariffs on Chinese goods, by arguing the administration has exceeded its legal authority and has acted arbitrarily. (…)

On the other hand, few in Beijing expect much improvement before the U.S. midterms. That would leave very little time to conclude a deal in November, before the G-20 summit. Chinese officials believe that if Republicans fare poorly in the elections, the president will be weakened in talks with China. (…)

The administration and its allies think the Chinese are misreading U.S. politics.

A wounded Trump presidency is even more likely to push China hard, egged on by Democrats, they say. (…)

Kudlow Says U.S. Willing to Talk With China as Tariffs Loom

(…) While China’s response to U.S. demands has been unsatisfactory, Trump is still speaking to Xi, and would be open to meeting in person, said Kudlow, director of the White House’s National Economic Council. An opportunity could take place when world leaders gather at the UN General Assembly in New York this month and the Group of 20 summit in Argentina in November, he said. (…)

Trump Presses Apple: Shift Production to U.S. President Trump called on Apple to shift production to the U.S. and out of China, reviving a longstanding criticism and pressuring the iPhone maker to help fulfill the administration’s economic goal of restoring American manufacturing.

(…) Apple assembles most of its products, including the iPhone, in China. The Cupertino, Calif.-based company directly employs at least 80,000 people in the U.S. and claims responsibility for two million jobs around the country, including its own employees and those of suppliers, app developers and entrepreneurs who offer products across its devices. It spent $50 billion last year with more than 9,000 U.S. suppliers maintaining manufacturing operations across 38 states.

Apple said in July that it employs about 10,000 people directly in China and indirectly accounts for three million jobs there through its supply chain, which includes contract manufacturer Foxconn Technology Co. The company has also said it provides work for 1.5 million app developers in China. (…)

The company said in its filing to the U.S. Trade Representative that the administration’s proposed $200 billion in tariffs wouldn’t only “divert our resources and disadvantage Apple compared to foreign competitors” but also lead to higher “consumer prices, lower overall U.S. economic growth, and other unintended economic consequences.”

In his tweet, Mr. Trump rebutted those claims, “Apple prices may increase because of the massive Tariffs we may be imposing on China—but there is an easy solution where there would be ZERO tax, and indeed a tax incentive. Make your products in the United States instead of China,” he said. (…)

China’s Consumer Inflation Rises Further as Producer Prices Ease

The consumer price index rose 2.3 percent from a year earlier, compared with a projected 2.1 percent increase in a Bloomberg survey of economists, which was also the reading in July. The producer price index climbed 4.1 percent, compared with a 4 percent estimate and a 4.6 percent gain the previous month. (…)

Food prices rose 1.7 percent in August, much faster than the 0.5 percent increase in July, according to the statistics bureau statement. Food, alcohol and tobacco prices were up 1.9 percent, contributing 0.55 percentage point to the overall inflation. Healthcare costs jumped 4.3 percent, and transportation and communication costs were up 2.7 percent. (…)

Trouble Spreads to More Emerging Markets

(…) South Africa unexpectedly dipped into recession in the second quarter, with weak growth exacerbating continued jittersabout the rand and raising the risk of a credit downgrade. Meanwhile, inflation in the Philippines jumped to 6.4% in August, from 5.7% in July, exceeding most economists’ expectations and pressuring the central bank to raise interest rates–a troubling prospect as economic growth slows.

Indonesia’s government tried an array of measures to lift its currency, which fell to levels not seen since the Asian financial crisis that wrecked emerging markets two decades ago. As strong economic data out of the U.S. lifts the dollar and U.S. rates rise, global investors are more inclined to pull money from emerging markets and put it in bonds at home. That hurts emerging-market currencies. (…)

Moody’s: Above-Average Baa Industrial Spread Warns High-Yield

A well-below-average U.S. high yield bond spread of 361 bp remains atypically thin vis-a-vis a recent above-trend long-term Baa industrial company bond yield spread of 191 bp. The long-term medians for these spreads are 470 bp for the high-yield spread and 174 bp for the long-term Baa industrial spread. As derived from the historical record, a Baa industrial spread of 191 bp has been associated with a 497 bp median for the high-yield spread.

It was during 2007’s first half that the high-yield bond spread was previously so far under what otherwise might be inferred from the Baa industrial spread. High-yield investors would have done well to heed the caution expressed by the Baa industrial spread in view of how the average high-yield bond spread ballooned from the 286 bp of 2007’s first half to the 700 bp of 2008’s first half.

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EARNINGS WATCH

Preannouncements for Q3 continue to be on the negative side:

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But the +19.3% estimated growth ex-Energy for Q3 has not changed in the last 2 weeks and is only down from +19.8% in early August.

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TECHNICALS WATCH

Lowry’s Research is not worried by the weakness in its Buying Power index in the last 2 months, arguing that the “ongoing downtrend in Selling Pressure together with new
highs in the Adv-Dec Lines suggest a healthy, intact bull market, with selective Demand limited primarily to stocks in the small cap market segment.”

However, I am more worried because the Selling Pressure Index has been rising, somewhat, in recent weeks. On the other hand, Ned David Research’s “Volume Demand vs. Volume Supply” indicator (via CMGWealth), using a broad market equity index, shows continued domination from buyers:

Downside to the 200 dma is greatest among small caps: -8.6% on S&P 600 and Nasdaq (-7.0% on NDX). S&P 500 is 5.0% above its 200 dma.

That said, most other technical indicators I follow are still flashing green such as this 13/34–Week EMA Trend Chart (also from CMGWealth):

FAANGs PARTING WAYS

FB: faced the bear, –25.4%, below it 200 declining dma:

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Tempted by bottom fishing? Read this first: Americans are changing their relationship with Facebook

Younger Facebook users much more likely than older users to have recently adjusted their privacy settings, deleted Facebook app from their phone

My 35 year old geek son tells me that most of his friends have significantly reduced their use of Facebook and Instagram and that the bulk of FB’s subs growth now comes from poorer countries where FB provides free internet to its users. Advertisers are not attracted to these low income users.

AAPL:  down 3.6% from its Sep. 5 high, 17% above its rising 200 dma. Beware China tariffs retaliation.

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AMZN: down 4.8% from its Sep. 4 high, 20.7% above its rising 200 dma:

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NFLX: down 17.6% from its June 21 high, still 12.6% above its rising 200 dma.

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GOOGL : down 8.8% from its July 27 high, 4.7% above its rising 200 dma.

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And TSLA, after its “almost privatization” went up in smoke: down 32.1% from its Aug. 7 high, 17.2% below its declining 200 dma:

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Sadly, Elon Musk is challenging Trump for …

THE DAILY EDGE (7 September 2018)

U.S. Wage Gains Pick Up to 2.9% While Payrolls Rise 201,000

Average hourly earnings for private workers increased 2.9 percent from a year earlier, a Labor Department report showed Friday, exceeding all estimates in a Bloomberg survey and the median projection for 2.7 percent. Nonfarm payrolls rose 201,000 from the prior month, topping the median forecast for 190,000 jobs, after a downwardly revised 147,000 advance. The unemployment rate was unchanged at 3.9 percent, still near the lowest since the 1960s. (…)

Revisions subtracted a total of 50,000 jobs from payrolls in the previous two months, according to the figures, resulting in a three-month average of 185,000.

The details across industries showed manufacturing payrolls fell by 3,000 in August, breaking an almost yearlong streak of solid gains and missing the median estimate for a 23,000 increase. Construction added 23,000 jobs.

Service providers increased payrolls by 178,000 workers, a three-month high. Gains were led by education and health services at 53,000 jobs, professional and business services with 53,000 and wholesale trade at 22,400. (…)

Average hourly earnings rose 0.4 percent from the prior month following a 0.3 percent gain, the report showed. The annual gain followed a 2.7 percent advance in July.

A separate measure, average hourly earnings for production and non-supervisory workers, increased 2.8 percent from a year earlier, after a 2.7 percent gain.

The average work week for all private employees was unchanged at 34.5 hours in August. (…)

Layoffs Reach a Half-Century Low The number of Americans filing applications for new unemployment benefits fell at the end of August to a nearly five-decade low, as managers face difficulties finding qualified employees.
U.S. Worker Productivity Rose in Spring at Best Pace Since 2015 The improvement could be an early sign that better business investment in recent months is giving workers the tools necessary to increase output

The productivity of nonfarm workers, measured as the output of goods and services for each hour on the job, increased at an annualized and seasonally adjusted rate of 2.9% in the second quarter from the prior three months, the Labor Department said Thursday. (…)

From a year earlier, productivity advanced 1.3%. That matched the average annual rate recorded from 2007 to 2017, and was less than the 2.1% annual average recorded since the end of World War II.

Productivity has advanced at a 1.0% year-to-year pace or better for seven straight quarters.

(…) unit-labor costs, akin to compensation cost per piece made, decreased at a 1.0% annual rate in the second quarter from the first quarter. But from a year earlier, unit-labor costs rose 1.9%, well above the 0.9% annual average gain from 2007 to 2017. (…)

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COMPOSITE PMIs
U.S. service sector activity growth eases, amid weaker new business upturn

The latest survey data signalled a weaker rise in business activity across the U.S. service sector. Output growth softened to a four-month low and dipped below the long-run series trend. The rate of new business growth softened to an eight-month low, despite remaining strong overall. Subsequently, firms showed evidence of spare capacity with backlogs falling further and employment growth slowing to a seven-month low. Meanwhile, increases in input prices and output charges eased, despite the rate of charge inflation remaining well above the series trend.

The seasonally adjusted final IHS Markit U.S. Services Business Activity Index registered 54.8 in August, down from 56.0 in July. Output growth was largely attributed by panellists to greater client demand and the opening of new facilities. However, the overall rate of growth eased to the softest since April.

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Despite the rate of new business growth outstripping that of output, backlogs contracted for the second month running. The pace of decline was only fractional and eased slightly from that seen in the previous month.

Although still solid, the rate of job creation dipped to a seven-month low in August. Firms commonly reported difficulties finding suitable candidates, while greater business requirements and a sustained rise in new orders led many to increase employment.

Input prices paid by service sector firms continued to increase at a strong rate in August. The pace of inflation nonetheless softened to a five-month low, the increase was faster than the series trend. Anecdotal evidence suggested that higher cost burdens stemmed from greater purchases prices (largely driven by tariffs) and a rise in fuel costs.

Larger cost burdens were partly passed on to clients through higher output charges. Delays receiving purchases and higher wage costs were commonly mentioned as placing strain on profit margins. The rate of inflation remained strong and close to July’s recent peak.

Finally, business confidence was strongly positive and optimism improved from July’s recent low in August. Panellists stated that output expectations were driven by planned investment, greater marketing activity and a sustained rise in new business.

At 54.7 in August, the final seasonally adjusted IHS Markit U.S. Composite PMI™ Output Index fell from 55.7 in July. Although strong, the pace of expansion eased to a five-month low, driven by weaker rates of growth across both the manufacturing and service sectors.

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Eurozone output growth broadly steady in August but expectations weaken

Euro area economic growth moved broadly sideways during August. The final IHS Markit Eurozone PMI® Composite Output Index came in at 54.5, up slightly from the earlier flash estimate but only a marginal improvement on July’s 54.3. (…)

In line with the recent trend, national PMI data again pointed to a broad-based expansion of economic output. All countries recorded an increase in activity, with growth again led by Ireland (7-month high). Germany (6-month high) and France (2-month high) both saw marked and accelerated rates of growth, whilst Spain registered a slight improvement in growth compared to July’s 56-month low. In contrast to other nations, Italy saw a weaker rate of expansion, with economic output here rising at its slowest rate in just under two years (22-month low).

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The levels of new work continued to increase during August, with the rate of growth improving slightly on July, but business confidence regarding future activity continued to weaken. Latest data showed expectations were at their lowest level for 23 months as global trade tensions and the unknown impact on future activity continued to undermine confidence. Most notably, sentiment amongst Italian and Spanish companies fell to around five-year lows. Expectations in France were at their weakest in over a year-and-a-half.

Despite relatively subdued expectations for activity, companies continued to add to workforce numbers. Growth was again marked and improved since July to a six-month high. Germany saw a particularly strong rise in employment, with growth here accelerating to its best since March 2011. In contrast, job creation in Italy was the lowest for a year.

Input costs again rose at a sharp pace, despite inflation easing to a three-month low. A similar trend was seen for output charges. Price pressures remained most acute in Germany, compared to relatively subdued trends in Italy (where a slight fall in output charges was recorded).

August’s final IHS Markit Eurozone PMI® Services Business Activity Index edged up to 54.4 from July’s 54.2, and was unchanged on the earlier flash reading. (…)

The survey data for the third quarter so far suggest the single currency area is on course to at least match the 0.4% expansion of GDP seen in the second quarter, yet the downturn in optimism raises questions over whether this pace of growth can be sustained into the fourth quarter. (…)

imageGrowth also looks worryingly unbalanced. Although all of the largest euro countries have seen growth moderate so far this year, solid expansion is still being signalled for Germany and, to a lesser extent, France. (…)

Price trends are also varied across the region, ranging from near-record inflation in Germany to falling prices in Italy, serving as a reminder that deflationary pressures, it appears, have not completely disappeared from the euro area.

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China business activity growth slips to five-month low in August

The latest Caixin China Composite PMI™ data (which covers both manufacturing and services) indicated that business activity growth across China weakened for the second month in a row in August. Notably, the Composite Output Index fell from 52.3 in July to a five-month low of 52.0, to signal only a modest rate of expansion.

The decline in the headline index was driven by slower growth of services activity during August. Furthermore, business activity at services companies increased at the weakest pace since October 2017. This was highlighted by the seasonally adjusted Caixin China General Services Business Activity Index falling for the second month in a row, from 52.8 in July to 51.5 in August. In contrast, manufacturing production rose at the quickest rate since January, though growth remained moderate overall.

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In line with the trend for activity, services companies signalled a further upturn in total new business during August. That said, the rate of expansion remained modest, despite improving from July’s 31-month low. At the same time, manufacturers noted only a marginal rise in new order volumes, with the pace of growth the weakest seen since May 2017. Reports from panellists indicated that relatively subdued demand conditions weighed on sales in the latest survey period. As a result, new orders at the composite level expanded at the slowest rate in 26 months. (…)

Following a three-month sequence of reduction, backlogs of work were little-changed at service providers in August. Unfinished workloads meanwhile rose for the thirtieth month in a row at manufacturing firms, though the rate of accumulation was the softest seen since February. Nonetheless, the increase at goods producers led composite outstanding business to rise again, albeit marginally.

Stronger rises in input costs were seen across both the manufacturing and service sectors in August. The steepest rate of inflation was once again registered in manufacturing amid widespread reports of greater raw material costs. Services companies signalled a solid increase in operating expenses that was the quickest seen for six months. A number of service providers commented on higher prices for fuel and raw materials, as well as greater staffing costs.

Prices charged by Chinese companies also rose further in the latest survey period. Factory gate prices increased modestly overall, despite the rate of growth quickening from July. Meanwhile, the pace of charge inflation across the service sector was marginal and similar to that seen in the previous month. As a result, composite output charges rose for the fifteenth month running, albeit modestly.

Although overall sentiment towards the 12-month business outlook improved slightly from July’s recent low, confidence remained relatively subdued in the context of historical data. Notably, the level of optimism at services companies remained below the long-run series average, while sentiment at goods producers held close to June’s six-month low.

China Tariffs Threaten Cloud Costs

(…) The latest round of tariffs, announced last month, applies levies of up to 25% on many key components of cloud computing, from motherboards to memory modules and coaxial cables, hitting both U.S. cloud providers and users, the Washington-based technology and public-policy think tank said in a report this week.

All told, it estimates that a 10% levy on these imports would slow U.S. economic output by $163 billion over the next 10 years, while a 25% levy would slow output by $332 billion. (…)

The new set of tariffs would raise costs for cloud providers in the U.S., where there are currently 3 million data centers supporting cloud services, ITIF researchers said.

In turn, higher costs would be passed along to cloud users through higher prices, the report said. It estimates that more than 90% of U.S. businesses, big and small, rely on some form of cloud computing, adding that together they spent $70 billion last year on public cloud-computing services. (…)

According to CompTIA, an IT industry trade group, total U.S. tech imports from China totaled an estimated $165 billion in 2016, with cell phones accounting for roughly 40%, based on the latest available data.

Stefanie Holland, the group’s senior trade advisor in Washington, said the proposed tariffs on cloud equipment and other IT components from China amount to “taxes that are going to make manufacturing here in the U.S. more expensive,” she told CIO Journal. (…)

Eurozone Economic Growth Falls Further Behind U.S. The eurozone’s economy slowed slightly in the three months through June as imports jumped despite weak household spending, with few signs that a rebound is in prospect soon.

(…) The European Union’s statistics agency Friday said gross domestic product—the broadest measure of the goods and services produced by the eurozone’s 19 members—was 0.4% larger in the second quarter than in the first, and 2.1% up on the same period a year earlier. That was the equivalent of an annualized rate of 1.5%, slightly below the 1.6% rate of expansion recorded in the three months through March. It was well below the 4.2% annualized increase in U.S. GDP during the three months through June.

For the second straight quarter, trade was a drag on economic growth in the eurozone, as imports rose at almost twice the pace of exports. But household spending was also weak, rising at less than half the pace of the first quarter.

However, eurozone policy makers will be reassured by an acceleration in investment spending. Officials at the European Central Bank had expressed concern that a loss of confidence in the face of trade tensions between the U.S. and the European Union would hold back needed upgrades of equipment and facilities in the currency area. (…)

Bank of Canada Likely to Raise Rates Central bank official says trade protectionism would weigh on growth but push up inflation, creating trade-offs

A breakdown in talks toward a revised North American Free Trade Agreement wouldn’t necessarily prevent the Bank of Canada from raising interest rates, a senior official from the central bank said Thursday.

The Canadian dollar strengthened against the U.S. dollar shortly after the remarks were released, in a sign traders believe another rate increase, as soon as October, is in the offing.

Senior Deputy Governor Carolyn Wilkins said in a speech that tariffs and other protectionist measures can weigh on economic growth and incomes, particularly as businesses work to adjust to any policy changes. She said those same measures can also push consumer prices higher, a key concern for a central bank that sets policy to achieve and maintain 2% inflation.

“In weighing these trade-offs, you can be sure that [the central bank’s] governing council will not lose sight of our primary mission,” Ms. Wilkins said, referring to the bank’s inflation-targeting mandate. “Low and stable inflation will help reduce at least one source of uncertainty for companies and households.”

Other policy tools, outside of rate policy, would be better-suited to help manage the economy’s adjustment to increased protectionism, she said. Further, Ms. Wilkins said a successful outcome from Nafta talks under way between the U.S. and Canada could push growth higher than anticipated. (…)

HNA, Under Pressure From China, to Sell Its Overseas Empire HNA intends to unload its entire stake in Deutsche Bank and sell off the vast majority of overseas investments it made in recent years, according to people familiar with the matter.
Tech Declines Add to Pressure on Emerging Markets

Tech trouble adds to pressure on MSCI ’s widely followed gauge of emerging markets, which has already been hit by a strong dollar and trade friction. The index hit a 13-month low Thursday. That put it into bear-market territory, with a loss of more than 20% from its record high in January.

Chinese heavyweights Tencent Holdings Ltd. TCEHY 0.24% and Alibaba Group Holding Ltd.BABA -2.65% and South Korea’s Samsung Electronics Co. are among the largest constituents in MSCI’s flagship emerging markets index. (…)