This is the most important thing to watch this week (outside of soccer)

Fortunately Q2 earnings reports are upon us because we can finally hear directly from Corporate America as to what the impact of actual and proposed tariffs will be, how high their labor costs are going (I repeat my belief that the mix of wage growth is what is keeping the aggregate numbers only slowing rising and that they are increasing more rapidly for everyone other than new entrants), what is the actual costs associated with the spike in transportation costs (for those that are affected) and how overseas business is. They can also tell us more about the state of US economy which likely ended the first half of 2018 with a 3% annualized growth rate. I’ll argue that the most important news story of the week on this will be the earnings report from Fastenal on Wednesday at 10am est. This company will be impacted in some way from all these factors and is a classic gauge of the US industrial and manufacturing part of the economy.

For those not familiar with the company, it has over 3000 stores (mostly in North America but overseas too) selling everything from fasteners (nuts, bolts, screws), safety products (eye protection, gloves), tools and equipment, cutting tools, material handling, electrical equipment, adhesives, sealants, tapes, plumbing, welding, power transmission, lighting, to machinery equipment etc… It is an extremely well run company with a tremendous track record of success. Thus, any issues or benefits they would face would be macro related rather than something company specific.

With respect to the tariffs, in case you missed it last week Challenger, Gray and Christmas for the first time started to quantify the impact on the labor market in its June report on job cuts. The top reasons usually given month to month for laying off workers are ‘restructuring’, ‘closing’, bankruptcy’, ‘cost cutting’, ‘acquisition/merger’, ‘contract loss’, ‘relocation’ and ‘outsourcing.’ All typical factors influencing businesses. For the first time though they added ‘Tariffs’ as a category and they said it cost 60 jobs in June. That is barely a speck of course compared to the solid job gain seen last month but is a category we should start watching in coming months.

I skipped a few months talking about it but in light of the weakness in the Chinese yuan of late (Q2 was the worst quarter vs the US dollar since 1994) and the tariff war, I’ll mention it today. Chinese FX reserves rose a touch, by $1.5b after two months that saw a decline of $31b. The reserves total $3.11T which was slightly more than anticipated. The China State Administration of Foreign Exchange (SAFE) said the rise was in part due to an increase in assets they own. They were not more specific. The yuan is having its best day vs the US dollar since March in response and the dollar happens to be weak across the board. Gold is also rallying to a two week high. After a rough time, the Shanghai comp bounced by 2.5% and the H share index was higher by 1.4%. All of Asia was in the green too.

After a rebound seen last week in Germany’s factory orders and IP data, today they reported better than expected export growth in May of 1.8% m/o/m, more than double the estimate of .7%. With Germany so reliant on exports this was good to see but exports ytd are barely higher from December AND exports fell to countries outside the EU. BMW today said its China division said the cars it ships from Alabama into China “will not be able to absorb completely the increase in customs duties.” The stock is down .5% as are other European car markers while the headline bourses are green across the board.