Drill, baby, drill! Mine, baby, mine. Dig, baby dig! Trump the Disruptor has done it again.
Of course, as he would tell anybody who cares to listen it’s all about American jobs but as far as I’m concerned that’s total rubbish. By the opening of business in New York today we will have seen the latest payroll figures and if trends and indications are to be believed job creation is barrelling along quite happily with or without fossil fuel-based energy generation being ramped up.
Starting with one of the non-alternative facts, the May ADP employment change report yesterday knocked the cover off the ball by coming in at 253,000 as opposed to the consensus forecast of 180,000. Without making too fine a point, economists’ forecasts for today’s monthly nonfarm payroll report with the consensus of 182,000 new jobs might now look a tad on the cautious side. If job creation in the past month beats expectations, then there is also a jolly good chance that the unemployment rate could fall from 4.4% to 4.3%, the lowest level since May 2001. Whether it is 4.3% or 4.4% is a matter of statistical rounding errors but it might be worth bearing in mind that in the nearly 70 years since the current methodology for measuring unemployment was introduced, the average rate has been 5.9% which includes the era when America’s coal and steel industries were running at full capacity.
JUST ANOTHER BLUNDERING AMERICAN
In announcing the withdrawal from the Paris accord, the president declared “I represent the people of Pittsburgh, not Paris”. In terms of vacuous and meaningless statements this is bad, even by Trump’s standards. Does he or his voters really believe that disregarding the Paris accord will lead to the recommissioning of steel mills in Pittsburgh or the expansion of the coal mining business in West Virginia? In both cases I doubt it. What I do not doubt, however, is that the presidency has been stalling and cancelling the membership of Paris is one of the most headline-grabbing but in its outcome the least measurable of election promises the Trump White House could reach for, In other words, lots of noise but little, if any, actual longer term impact. Had he not done it, the emptiness of the “Make America Great Again” movement would have been at risk of being ruthlessly exposed. And by the way, Pittsburgh voted for Hillary Clinton not Trump.
If you find yourself looking for the market impact of the exit from the accord, give it up. There won’t be one. Wall Street yesterday was far more interested in the aforementioned ADP report and in the slight pick-up in the May manufacturing PMI to 52.7 from 52.5 in April than in the impact of a vocally isolationist White House. In fact, and as though these triples were now being done just for fun, we once again had the Dow, the S&P and the Nasdaq closing at new all-time highs while, at 2.21%, the 10-year note is trading towards the lower end of its post-election 2.20%-2.60% trading range.
PLAY IT, SAM
Japan has recently shown some more consistently good figures with domestic consumer activity, the bane of any administration and economic policy, finally looking to be stabilising. Tuesday brought some remarkably strong-looking retail sales figures for April with sales up 1.4% as opposed to the forecast of -0.2%. Whether this is the reason behind the 1.6% rise in the Nikkei today is a moot point but the it has finally broken back above 20,000 for the first time since June 2015 and at 21,000, should it get there, it would be the best level this century. To remind younger readers, don’t go looking for all-time highs as we are seeing in the US and Europe; even at 20,000 the index is still only at slightly better than half of its all-time high of just shy of 39,000 at the end of 1989. That, incidentally, is what happens when real bubbles burst.
So although current market trends make the world look safe and happy, there are always clouds that can spoil the picture. Having looked at the risks of over-borrowed consumers over the past few days, we now are beginning to get some warnings from the banks about the pressure on their earnings. Low trading volumes are hitting revenues and having been then storming performers of the past six months, the time might be coming to trim some of the over-weights and to lighten up on exposure.
Despite the very clear outcome of the French presidential election and now with the forecasts out that Macron’s La République en Marche movement is set to garner a comfortable majority in the upcoming polls for the Assemblée Nationale, disruptive politics are not at all out of the way. The UK, after all, has a disruptor leading the Labour opposition and although the probability of Theresa May getting turned over next Thursday is still small, it is not to be entirely ruled out.
HERE’S LOOKING AT YOU KID
I attended a dinner last night where the hostess made it perfectly clear that if there were to be a Corbyn victory, she would pack up and leave the country. Given the way that Corbyn is apparently back to subscribing to the old 1970s mantra of “Eat the Rich”, a significant exodus of higher rate taxpayers who still make up over 70% of the total income tax take should not be ruled out. But once again markets don’t seem too fazed with the FTSE opening this morning in record territory. Thank yesterday’s slightly stronger than expected manufacturing PMI if you wish – 56.7 vs 56.5 – but the fear of a political upset doesn’t seem to be taking root.
Alas, it’s that time of the week again and all that remains is for me to wish you and yours a happy and peaceful weekend. Half-term draws to a close and next week should see the City fully populated again. The summer has, however, already begun and we are gradually approaching sports days, speech days and other non-academic clutter that parents simply have to accept with equanimity. Smile sweetly and pray that the grandparents never let on what a pile of trouble you had been to them at the same stage in life at which you find your own recalcitrant progeny. Oh, and also hope that they don’t let on that you couldn’t be coerced either into studying harder for your exams. We’ve all survived it, haven’t we?