Trade war is on
The last ADP report came in weaker than expected as US companies added fewer job than expected. June private payroll increased by 177k versus 190k forecast, while previous reading was upwardly revised to 189k. Initial jobless claims rose 3k to 231k last week, while market participants were looking for a print closer to 225k. June Nonfarm payrolls are due for release later today and should have eased to 195k (versus 223k in May). According to the latest forecast, the unemployment rate should have remained at 3.8%. As usual, investors will closely look for any signs of improvement in wages. Indeed, wage growth is the only missing piece of the full employment puzzle. Indeed, despite significant improvement in the labour market, wage growth barely matched inflation. When adjusted for inflation, labour costs have increased over the last twelve months (only 0.3%y/y in May).
However, in these troubled time, investors will pay less attention to hard data and focus on trade war developments between the US and China. The White House took a first stab on Friday as Donald Trump imposes new tariffs on $34bn of Chinese imports and threats it could reach $550bn should China retaliates. The US administration is also maintaining its plan to extend tariffs on another $16bn worth of goods. There is little China will back down; therefore, things will only get worse.
Financial markets were relatively stable this morning, which suggests that investors don’t really know where to stand on the prospect of a global trade war. The dollar index was down 0.10% to 94.30, the single currency rose 0.20% to 1.1715, while the Swiss franc and Japanese yen were treading water. The Chinese yuan was down only 0.10%. Equities were blinking green across the screen, while bond yields were relatively stable on both side of the Atlantic.
