U.S. adds 69,000 jobs in May; jobless rate 8.2% - MarketWatch
Job market remains in growth mode, but is showing considerable weakness.
Coupled with China PMI data, dismal UK data, and weak U.S. consumer spending data, it feels like an “abandon ship” day in risk markets.
Fed’s loading the QE gun. This should become a headwind against further dollar strength; though not likely to derail its long-term bullish trend. Might take a breather though.
Keep an eye on 1,284 support on the S&P 500. That’s the 200-day moving average.
While the Chinese government is vowing not to spend as it did during the 2008 global financial crisis, the most accurate analysts say the benchmark index for the nation’s stocks will keep rising. The Shanghai Composite Index is set to gain 15 percent from yesterday’s close to 2,750 by year-end as slowing inflation allows the government to loosen monetary policy and banks to lend more to companies, according to Beijing Gao Hua Securities Co., Goldman Sachs Group Inc.’s partner in China and the firm with the most correct predictions for yuan-denominated A shares in the two years to January 2012, based on Bloomberg Rankings. (via China Stocks Seen Rising 15% by Goldman Partner on Loans - Bloomberg)
(-) U.S. Sets Duties as High as 26% on Wind Towers From China - Bloomberg
The wind-tower case highlights growing tension between the U.S. and China on economic and renewable-energy issues ahead of the U.S. elections in November. The Commerce Department on May 17 announced tariffs of 31 percent to 250 percent on Chinese solar-product imports, after companies including the U.S. unit of SolarWorld AG (SWV) said the products were sold below production cost. China on May 25 said it filed a complaint against U.S. anti-subsidy duties with the World Trade Organization in Geneva. — Bloomberg
(-) Korean Washer Exporters To Pay U.S. Duties As High As 71%
The U.S. Commerce Department proposed duties of as much as 71 percent on large, residential washing machines made in South Korea, concluding that government subsidies for the goods undercut U.S. producers. — Bloomberg
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Surreptitiously, protectionism is increasing.
A diver examines a pile of 16th-century Chinese porcelain submerged 60 meters deep off the coast of Indonesia. The porcelain is to be retrieved — more than 400 years after it was shipwrecked — in a recovery expedition next year. Source: Leuchtenburg via Bloomberg—(via Shipwrecked China Worth $43 Million to Be Fished From Sea - Bloomberg)
Factory closures stir China labor disputes - Caixin Online - MarketWatch
A decision to close an optical components factory in Shenzhen triggered a nine-day walkout in March by more than 1,000 workers. Officially, employees at the Oclaro (Shenzhen) Technology Co. Ltd. plant staged the strike to protest possible severance pay problems after the shutdown, which the company said would be completed by 2015.
But on a deeper plane, the strike reflected gnawing frustrations in Shenzhen over the rapid disappearance of local manufacturing jobs. Companies are leaving the city — home to China’s oldest economic development zone — as labor and property costs rise.
Moreover, the Shenzhen municipal government has been encouraging factory closures in certain sectors, while promoting more high-tech manufacturing and the service sector.
China seen bringing forward stimulus plan - MarketWatch
China may loosen monetary policy and initiate stimulus in the near-term, leading to a rebound in the second half of the year. That’s the bullish side.
While we may see some stimulus measures implemented, the reality is that officials don’t have much wiggle room, especially when you have structural inflation.
As I said here, while stimulus measures will be implemented, their scope will be a fraction of what the China bulls expect.
On a slightly different note, I thought this was interesting as it confirms my view of a manufacturing renaissance in the U.S. (and worldwide according to the article) over the longer-term as China transforms from a manufacturing to consumer-based economy.
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The future of the global economy lies in China. The country is in the slow process of preparing for a period of sustainable expansion. If we were faced with a negative market environment in the coming quarters, I’m sure one could find diamonds and diamonds in the rough in regards to US manufacturing and transportation companies. Watch out for protectionism though! I believe that China’s stock market has bottomed and it is currently in the retesting phase.
Longer-term though, (U.S. manufacturing) company cash levels are very high, and emerging markets may provide the secular growth that is needed for the (manufacturing) sector to stage a renaissance in the years ahead. While I don’t believe this scenario is knocking at our door, it’s progressively getting closer.
—-(RCS Investments Macro Outlook Mid-2011 — June 16, 2011)
China’s Top Fund Manager Sees Stock Gains on Pro-Growth Policy - Bloomberg
Here’s the other side of the coin on China, in the interest of being objective.
China Banks May Miss Loan Target for 2012, Officials Say - Bloomberg
Loan demand is decreasing and points to a bigger slowdown than expected (by Wall Street analysts), not me though.
I’ve been cautious and bearish on China since….
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Since early 2010, I have been bearish on China. However, the outlook is becoming increasingly clouded, with significant downside risks. I’d say that the chances of a hard landing in 2012-2013 range between 40-70%, a large range. On the bullish end we have: falling inflation, leading to loosening monetary policy; and a strong fiscal position, yielding plenty of wiggle room for stimulus should demand falter. On the bearish end, you have: continued austerity and bank deleveraging in Europe affecting Asian export-dependent economies, a possible popped housing bubble triggering unrest from a new cohort of citizens and possibly erupting into a full blown banking or political crisis, and finally, an economy susceptible to high inflation should additional stimulus be passed (stagflation). Overall, these symptoms are of an outdated growth model dependent on fixed-asset investment (ghost cities, malls, Disney) and exports. — RCS Investments Macro Outlook Begn-2012 January 16, 2012
China Pledges More ‘Fine-Tuning’ in Support for Growth - Bloomberg
I mentioned here how I thought Chinese officials wouldn’t be able to do much stimulating due to a structural inflation problem in their economy.
It’s interesting how even now they still use “fine-tuning” to describe the scope of further growth measures. This certainly doesn’t sound like the “load the cannons” stimulus that the country underwent in 2008-2009.
Copper doesn’t seem to be buying the bull thesis of loosening monetary policy setting the stage for a re-acceleration of growth in the second half of the year. It’ll be interesting to keep an eye on the commodity for hints that growth may be accelerating once again.
Premier Wen Says China Will Focus on Growth, Xinhua Reports - Bloomberg
I’m skeptical on the scope of help that officials can provide China’s economy given its structural inflation problem; however, with an oversold market, this news may cause a relief rally.
Investor’s are becoming more convinced that China’s growth will accelerate over the second half of the year. I’m not so sure.
Europe remains in the “Macro driver’s seat.”
“The more-vigorous pace of policy easing is pushing Chinese stocks into a bull market, Morgan Stanley said, as inflation is brought under control and the property market stabilizes. The ‘bear phase’ for equities is over, Hong Kong-based analysts led by Jonathan Garner, chief Asia and emerging-market strategist, said in a report dated yesterday.
‘With enhanced stimulus from Beijing, the economy should gradually recover in the second half,’ said Li Wei, a Shanghai- based economist at Standard Chartered Plc, which has the most- aggressive reserve-ratio forecast at 150 basis points of additional cuts through September.” (via China Slowdown to End in Third Quarter, Survey Shows - Bloomberg)
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Remember that most Wall Street analysts expected China to cut rates much sooner than they actually did. They neglect to account for structural inflation in the economy.
Cuts in China’s reserve ratio raises hopes that tightening has come to an end, however, I seriously doubt that the Chinese Central Bank or fiscal policy makers have much room to ease, barring a European catastrophe.
The outlook for China remains clouded with substantial risks to the downside. A long-term catalyst is at our door, the Eurozone situation will determine whether we have a global double dip, or if the recovery is set to continue (inflation would begin to cause headaches world-wide).
Copper took a dump today and in the process notched a lower low. The global recovery is at grave risk of getting upended due to ongoing events in Europe.
(Chart courtesy of Marketwatch.com)
China Lowers Banks’ Reserve Requirements to Support Growth - Bloomberg
China is beginning to focus more on growth than inflation. This is a bullish tidbit. However, Europe remains in the macro driver’s seat.
