Job news/German factory orders/Riksbank

In today’s Challenger, Gray monthly release of job cuts, there was a pick up in those related to the tariffs but mostly offset, for now, a pick up related to them. They said “Last month saw an increase in companies attributing job cuts to tariffs, specifically tariffs on imported steel, which are ongoing, and newsprint, which have recently been overturned. Companies announced 521 job cuts due to these tariffs in August, for a total of 591 so far this year…While tariffs have been blamed for cuts, U.S. steel makers announced plans to hire 359 workers in August.” As for the headline number of cuts, the announced plans were the most since March and were led by the Industrial Goods space with half the layoffs coming from Johnson Controls as part of a previously announced restructuring. Challenger said “Manufacturers are grappling with rising costs, weak demand, and competition on a global scale. We may see additional job cuts as the full ramifications of imposed tariffs are felt.”

Positively, “Hiring announcements increased in August to 17,274, the highest total since February” with tech adding 7k of those.

Bottom line, I usually don’t discuss the Challenger data because it doesn’t give a full picture of the labor market as we’ll see tomorrow but wanted to point it out today in light of the already announced tariffs and the possibility of more by tomorrow. Also, because of the slowdown in global trade, the industrial space is an area we must watch.

Speaking of global trade, German factory orders in July fell .9% m/o/m, well worse than the forecast of up 1.8%. That follows a 4% drop in June. The German Economy Ministry in response said “Order intake in the manufacturing sector has slowed noticeably since the beginning of the year after a very dynamic 2nd half of 2017. The worldwide uncertainty caused by trade conflicts probably played a role here.” The caveat here is that Europe mostly shuts down on holiday in August and there was slower production of auto’s related to emission regulation changes. That said, the estimates were still way off and non eurozone orders fell by 4% m/o/m after a 5.6% drop in June. The euro is unchanged and the DAX is sitting at its weakest level in 5 months.

With still negative interest rates at -.50, the Swedish Riksbank kept policy unchanged as expected but still wants to raise rates soon. ‘Soon’ though is now defined as in either December or February vs definitely by year end. On the other hand, they said they are willing to hike by 25 bps instead of the market though of 10-15 bps. It’s amazing they feel the need for still emergency policy but what we’re seeing here is a central bank that is getting trapped because they are always fearful of something (“uncertainty regarding international developments”, “risks of excessively low inflation” and their watch on the Krona and desire for its weakness) and will have ZERO ability monetarily speaking in dealing with the next economic downturn, whenever that might occur. The one thing the Riksbank did acknowledge but it is of their own making, “low interest rates are exacerbating the risks linked to high and rising household indebtedness.”

The Krona is selling off against the euro on the possible push out of the rate hike and is near 9 year lows. I highlight the Riksbank not because it has much relevancy for the global economy considering the small size of the Swedish economy but because we are seeing how a central bank is dealing with both NIRP and trying to get out of it. The Swedes also go to the polls this weekend in what could be a ground breaking election.

While European stock markets are pretty flattish today after yesterday’s sharp selloff, most of Asia was weak again. I point out in particular the Hang Seng index which closed at the lowest level since August 2017. As we know, we anxiously await what the Administration will announce on the threatened $200b of new tariffs.