A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.
Fade the Rise
Share this story:
Andrew Kositkun Foreign Exchange Head Trader
The markets find themselves back in risk off as last night’s tech earnings have provided the markets with a reality check. Equity prices around the world have been rising due to massive amounts of fiscal and monetary stimulus. This rise in stocks has created a large disconnect between stocks and the real economy, who’s headwinds can be seen by the historic number of jobs lost.
Over the past 6 weeks, over 30 million jobless claims have been filed in the US and countries around the world show similar trends. Interestingly, Mexico’s unemployment rate for March actually dropped to 3.3% from 3.7% in February, a result that is drastically different from both what was expected due to social distancing measures and temporary business shutdown measures. However, as with everything, the details matter and these details suggest that the unemployment rate could be sending an inaccurate signal.
Specifically, there are two points worth noting. The first point is that there was a drop in the participation rate which works to undermine the narrative that strong job creation could be the driving force behind the drop in unemployment. The second point concerns the rise in underemployment that rose from 7.4% in January to 9.3% in March.
These two points are important when you consider the methodology for how unemployment is calculated. The unemployment survey considers a person to be unemployed if he or she did not work for at least one hour or seek employment during the survey’s reference week. This means the drop in the participation rate (people looking for a job) and the rise in underemployment (working in a job that doesn’t make full use of skills or abilities) both suggest that unemployment is worse than the jobless rate, on its own, indicates.
Job creation data, which should be accurate due to being a formal data point and not a survey, actually illustrates this point. Employers register or deregister workers at the social security institute and are required to pay a monthly fee for each registered employee which should increase the accuracy around this number. Taken at face value, 130 thousand formal jobs were lost in March, a number that would increase unemployment by 0.2% holding all else constant.
Regardless of what data series you look at, there is little uncertainty that the labor market will suffer acute deterioration over the upcoming months. The greater uncertainty is whether or not the unemployment rate will accurately reflect this given the unreliability of surveys and the methodology on how the unemployment rate is calculated.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
US-China tensions have ramped up again with Trump threatening to seek compensation from China with multiple avenues being evaluated. Possible options include use of tariffs, banning government retirement funds from investing in Chinese stocks and cancelling part of the US’s debt obligation to China. The belief is that these conversation are currently preliminary, but the fact that they are being discussed is notable. Clearly, a ramp up in tensions is the last thing the global economy needs right now.
The final UK manufacturing PMI number came in at 32.6 versus the preliminary print of 32.9. Additionally, the country is working on a comprehensive plan to re-start the economy with the use of a contact tracking via a phone app.
Inflation data in Japan showed a drop in inflation as expected. New headlines suggest that the state of emergency in Japan may be extended by another month.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Non-deposit investment products:
Are not FDIC insured,
Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and
Are subject to investment risks, including possible loss of the principal invested.
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
Now accepting scholarship apps Celebrating 40 years of service -- A loan to an innovative company -- Affording your dream home -- Mergers and a new branch in Raleigh View this email in your browser Forward to a friend
Your Market News update for May 30, 2019 | View online Market News News that's moving the market now As Trade-War Worries Linger, Market Seems to Lack Buying Conviction May 30, 2019 8:40 AM | JJ Kinahan 6 min read | Daily Market Update