Friday, May 4, 2018

Higher markets after unemployment rate drops below 4%

Dow jumped up 204 after beginning the day in the red, advancers over decliners 5-2 & NAZ gained 80.  The MLP index fell 1+ to the 251s & the REIT index inched up to 331.  Junk bond funds did little & Treasuries were flat.  Oil rose in the 68s & gold lost 1 to 1311.

AMJ (Alerian MLP Index tracking fund)


Crude Oil68.78


Gold  1,311.90
  -0.80 -0.1%

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The unemployment rate fell to 3.9% in April, an 18-year low, even as nonfarm payrolls rose by just 164K, according to the Bureau of Labor Statistics.  The forecast called for payroll growth of 192K & the jobless rate to drop by 1/10 of a percent to 4.0.  The official jobs tally showed an increase from an upwardly revised 135K in Mar. The closely watched average hourly earnings number rose by 4¢, equating to a 2.6% annualized gain, a bit off the pace from the previous month & a shade less than expected.  The average workweek was unchanged at 34.1 hours.  A more encompassing measure of unemployment that includes discouraged workers & those holding part-time positions for economic reasons fell to 7.8%, the lowest since 2001.  Unemployment for blacks fell to a fresh record-low of 6.6%, down 0.3%.  The drop in the unemployment rate came amid another decline in the labor force participation rate to 62.8%, the lowest since Jan.  The number of people counted as out of the labor force swelled by 410K to 95.74M.  Professional & business services created the most new jobs, with 54K, while manufacturing & health care added 24K apiece.  Mining saw 8K new jobs, bringing to 86K the total unemployment growth since Oct 2016 for a sector that Pres Trump promised to target when he campaigned.  Services jobs overall led the way, with 119K new positions. Leisure & hospitality increased by 18K.  The lack of wage pressure likely will be the one takeaway for Federal Reserve officials.  Central bankers are on a pace to continue raising rates, but the lack of inflation could augur for a more patient pace than some in the market anticipate.  Job creation overall tended strong toward full-time positions, also an indicator that wage pressures could be building.  Full-time jobs rose by 319K while part-time positions fell by 350K.

Unemployment rate dips to 3.9% in April, lowest since 2000

The US trade delegation in China for talks has put its cards on the table in today's meeting.  The US delegation led by Treasury Sec Steve Mnuchin, wants China to cut the trade imbalance immediately & to stop subsidizing advanced technology.  A source said the US delegation asked the Chinese to cut their trade surplus with the US by $200B by 2020  also put together a list of other demands.  In state-run media reports, the Chinese say the two delegations have reached a consensus on some issues but “big differences” remain.  They say the 2 sides have agreed to maintain close communication. 
The first round of threatened tariffs by the US focused heavily on technology products.  The US tariffs could go into effect in June following the completion of a 60-day consultation period.  China has threatened retaliation with tariffs on soybeans & aircraft.

US to China: Slash the trade imbalance immediately

Nearly ¾ of global chief financial officers (CFOs) believe the US economy will remain strong over the next 3 years, according to a reoprt.  Of the 497 CFOs across 30 countries surveyed by Zurich Insurance & the Atlantic Council, 71% expected continued improvement in the US business environment over the next 3 years, while 61% "felt confident or extremely confident about investing in the U.S."  This is despite rising calls for protectionism and the renegotiation of long-established trade arrangements by Pres Trump's administration.  A decade after the financial crisis, corp players cited global economic recovery, domestic tax reform & deregulation as core factors contributing to the strong sentiment gauged in the report, entitled "Borders vs Barriers: Navigating uncertainty in the U.S. business environment."  The respondents came from all industry sectors in foreign & domestic companies, & roughly ½ had investments in the US.  "A majority — 68% — of CFOs say U.S. tax reform will have a positive impact on their bottom line," the report said.  About ½ of companies benefiting from tax savings said they would use them to re-invest in plants & equipment, while almost 2/3 of those with US employees said they planned to increase their headcount over the next 6 months.  But despite their optimism, the investors still had concerns about how US policy could affect their business prospects, particularly any measures that restrict the flow of goods, capital & people.  Trump's motions toward a trade war & a crackdown on immigration are among their worries. 68% of CFOs surveyed expected US protectionism to grow in the next one-to-3 years, with "46 percent indicating this growth would negatively impact investment," the report said.  63% predicted harsher scrutiny of cross-border mergers and acquisitions & 68% expected more restrictive immigration policies, with 42% of those predicting these would negatively affect investment.

The US economy will remain strong for the next three years, 71% of global CFOs believe

Traders liked what they heard in the jobs report.  Stocks began lower, but they were bid higher for very solid gains.  The Dow is back over 24K, although still in the red YTD.  Now is the time to look at the trade negotiations in China which are not making any progress.

Dow Jones Industrials

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