Dow went up 73, decliners slightly ahead of advancers & NAZ lost 15. The MLP index was off 2 to the 246s. Junk bond funds fluctuated & Treasuries attracted more buying, bringing the yield on the 10 year Treasury down to 2.1%. Oil dropped to the 52s & gold rose another 10 to 1338 (a 3½ month high).
AMJ (Alerian MLP Index tracking fund)
Trade tensions have had a ‘significant’ impact on China, IMF says
The US services sector expanded at a faster rate than expected. The Institute for Supply Management's non-manufacturing index rose to 56.9 in May from 55.5 in Apr. The forecast called for the index to remain unchanged. A number above 50 indicates expansion while a print below 50 shows contraction. Business activity in the sector rose to 61.2 from 59.6 in Apr, its 118th straight month showing expansion. New orders in the services sector also grew at a faster rate in May relative to Apr. “The non-manufacturing sector continues to experience a slight uptick in business activity, but it is still leveling off overall,” Anthony Nieves, chair of the Institute for Supply Management, said. “Respondents are mostly optimistic about overall business conditions, but concerns remain about tariffs and employment resources.” The ISM data follows the release of much weaker-than-expected employment data from ADP & Moody’s Analytics. Private payrolls increased by just 27K in May versus a forecast of 173K. Treasury yields pared losses after the ISM data was released. The 2-year rate traded at 1.81% after hitting its lowest level since Dec 2017 earlier in the day. The 10-year yield recovered to trade at 2.1%. The services data was also a welcomed surprised after ISM's manufacturing gauge fell in May to its lowest level since Oct 2016.
US services sector growth tops expectations
Investors are digesting yesterday's rally in stocks. Early indications are for sluggish growth in May economic data in the US as the trade issues aggravated with higher tariffs casts a very dark cloud over the stock market. The Dow chart below still looks gloomy.
Dow Jones Industrials
AMJ (Alerian MLP Index tracking fund)
| CL=F | Crude Oil | 52.68 | - 0.80 | -1.5% |
| GC=F | Gold | 1,342.30 | +13.60 | +1.0% |
US private sector hiring grew by just 27K jobs in May, according to the ADP National Employment report, fueling
renewed concerns that the US economy is slowing as investors worry
about the impact of a lengthy US-China trade war &d new Mexico
tariffs on the markets. The forecast called for an increase of 180K jobs. “Job
growth is moderating," said Mark Zandi, chief economist of Moody’s
Analytics, said. "Labor shortages are impeding job growth,
particularly at small companies, and layoffs at brick-and-mortar
retailers are hurting.” But stock futures pared gains after the report's big miss. Most job losses came at companies with fewer than
50 employees, which reported a loss of 52K jobs. Medium business,
with up to 499 employees, reported almost zero growth, with a measly
11K jobs added. Large businesses, meanwhile, added 68K jobs, likely because they have the necessary
resources to compete for workers in a tight labor market. The
much weaker-than-expected number follows last month's surge of 275K
jobs, which economists believed overstated the economy's strength. But
the near stop in private sector job growth could provide renewed fodder
to policymakers at the Federal Rerserve to cut interest rates, as they look for signs of slowing growth (a result of trade uncertainties) & muted inflation. The
results precede the release on Fri by the Labor Dept of the
monthly jobs report, which will provide further insight into whether the
nation's economy is slowing amid an escalated trade war between the US & China. The US economy is expected to have added 185K jobs after job growth in Apr surged by 263K.
Heightened trade tensions with the US are beginning to hit China's growth. The IMF lowered its 2019 growth forecast for the world's 2nd-largest economy
to 6.2% from 6.3%, after the conclusion of the
organization's visit to China over the last 2 weeks. “The trade tensions have had an impact, significant, but in our view,
so far contained,” Kenneth Kang, deputy director of the Asia-Pacific
Department at the IMF & leader of the visiting team, said. “The renewed trade tensions are a
significant source of uncertainty and a downside risk to our outlook ...
But I think we need to wait a few more months,” he added. The IMF expects China’s growth to slow to 6% next year & to 5.5% by 2024. Negotiations between Beijing & Pres Trump's
administration took a turn for the worse in early May with the increase
of tariffs on $200B worth of Chinese goods exported to the US, & an effective ban on American companies doing business with Chinese
telecom giant Huawei. Beijing responded with tariffs on $60B
worth of US goods, the announcement of an “unreliable entities list” & a far tougher stance against US requests. Treasury Secretary Steve Mnuchin & People's Bank of China Governor Yi Gang are expected to meet this weekend, but there is still no confirmation on whether Trump & Chinese Pres Xi Jinping will hold talks at the G-20 meeting in Japan at the end of the month to seal even a temporary deal. The
pressure from the US on trade comes as China already faces slowing
growth. In the last year, authorities have announced a slew of measures
to improve financing to privately-run companies, which account for most
of the jobs and economic growth, & tax cuts in order to boost
consumption. So far, those efforts have paid off. Kang noted
that “employment has held up” amid the heightened trade tensions. “We
would encourage the authorities to rely more on market forces rather
than on administrative targets to improve the efficiency, to make this
lending sustainable,” he said. Private survey data released this
week indicated that China's economy is just holding above the 50 level
that indicates expansion. The Caixin/Markit factory Purchasing Managers’ Index for May was 50.2, unchanged from Apr. However, the services index fell to 52.7 in May, the lowest since Feb. China's official (although frequently questioned) GDP grew by 6.4% in the first qtr, unchanged from the prior qtr but down from 6.8% a year ago.
Trade tensions have had a ‘significant’ impact on China, IMF says
The US services sector expanded at a faster rate than expected. The Institute for Supply Management's non-manufacturing index rose to 56.9 in May from 55.5 in Apr. The forecast called for the index to remain unchanged. A number above 50 indicates expansion while a print below 50 shows contraction. Business activity in the sector rose to 61.2 from 59.6 in Apr, its 118th straight month showing expansion. New orders in the services sector also grew at a faster rate in May relative to Apr. “The non-manufacturing sector continues to experience a slight uptick in business activity, but it is still leveling off overall,” Anthony Nieves, chair of the Institute for Supply Management, said. “Respondents are mostly optimistic about overall business conditions, but concerns remain about tariffs and employment resources.” The ISM data follows the release of much weaker-than-expected employment data from ADP & Moody’s Analytics. Private payrolls increased by just 27K in May versus a forecast of 173K. Treasury yields pared losses after the ISM data was released. The 2-year rate traded at 1.81% after hitting its lowest level since Dec 2017 earlier in the day. The 10-year yield recovered to trade at 2.1%. The services data was also a welcomed surprised after ISM's manufacturing gauge fell in May to its lowest level since Oct 2016.
US services sector growth tops expectations
Investors are digesting yesterday's rally in stocks. Early indications are for sluggish growth in May economic data in the US as the trade issues aggravated with higher tariffs casts a very dark cloud over the stock market. The Dow chart below still looks gloomy.
Dow Jones Industrials
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