The US economy added 164,000 jobs in July, in line with expectations and confirming the recent trend of softening labor readings. The economy is slowing down, but overall this is still a strong report when you considering how late we are in this record long economic expansion. The three-month average gain of 140,000 is smallest pace in almost two years and the average weekly hours fell to the lowest level in eight years. Average hourly earnings ticked higher both on a monthly and annual basis.
The weekend papers will focus little on the Fed’s first rate cut in over a decade and this bland employment report. The key story is and will remain trade for the coming weeks.
Central banks will step up easing efforts in the coming months and we should not be surprised if the PBOC acts this month with RRR cuts and if we see other banks become more aggressive with their easing efforts.
Trade
Trump’s latest tariff threat mean all goods will be subject to some duties and this will start to weigh more on the US consumer. China’s retaliation will not be limited to trade and will likely cause havoc for US businesses. The dangerous game of chicken will weigh heavily on global equities and we should not see the US remain immune to this latest escalation.
While the risk for a complete collapse in trade talks is going up by the day, Trump has decided to not make the Hong Kong protests a bargaining chip, a sign that we eventually will see America push forward for a deal. Thousands of American live in Hong Kong and Trump’s decision to let China handle it is a positive sign that he wants a deal done.
Oil
The oil price collapse that stemmed from the latest escalation in the trade war between China and US should be easing. Trade talks are likely to have a bumpy ride until we see both sides offer concessions and that may not happen for a month. Weakening global demand will be countered by supply risks that should see oil start to stabilize shortly.
Crude prices rose to session highs after Russian Energy Minister Novak met with his Saudi Arabian counterpart to discuss strengthening their cooperation. OPEC and allies know oil is approaching critical support levels and they may decide to increase production cut efforts in hopes of not seeing all the last three years work of cuts disappear.
Gold
The outlook for gold seems bullish on both the macro and technical perspective. The latest escalation in the US-China trade war will not likely have any optimistic tones anytime soon, unless we see the Chinese decide to deliver on some purchases and efforts on cutting the fentanyl trade. The tension level on the trade war is back up to a five and still has the potential to go up to a ten over the next month. Gold will be supported on trade and the prospects of new tidal wave of easing from the world’s largest central banks, with the PBOC probably leading the charge.
