Brief Macro: Brexit – The UK Economy Battles On and more

In this briefing:

1. Brexit – The UK Economy Battles On
2. Foreign Investment Law/Trade War/Huawei/Eu Vs PRC
3. Fed Optimism Dims with Sentiment
4. Fed Reflates the ‘buyside Bubble’?
5. When Job ‘Quality’ Prevailed over ‘Headcount’

1. Brexit – The UK Economy Battles On

The political crisis in the UK has left Brexit in shambles. Foreign manufacturers are exiting. Investment spending is contracting while London house prices are correcting fast. Despite this the UK economy has held up well, thanks to exporters and domestic consumers. UK economic activity is moderating but not as quickly as in the euro-area where heightened political tensions in Italy and France, a weakening German economy and slower additions to global US dollar GDP have taken their toll. Although Euro-area growth prospects are looking shaky economic activity should revive in 2H19. The same cannot be said about the UK economy. 

2. Foreign Investment Law/Trade War/Huawei/Eu Vs PRC

China News That Matters

• NPC approves “rushed” foreign investment law
• Trump in no hurry as “China threat” grows 
• Huawei struggles to build trust
• EU takes a stand: China as “systemic rival”

3. Fed Optimism Dims with Sentiment

By Steve Blitz, Chief US Economist

• FOMC sees economy growing as expected, but risks no longer “balanced”
• Ending QT now underscores their concerns about slowing growth
• Swapping MBS for Treasuries when QT stops is backdoor QE

4. Fed Reflates the ‘buyside Bubble’?

By Steve Blitz, Chief US Economist:

• Central banks, led by the Fed, have restored market bullishness
• But the December selloff could still be a taste of future trouble
• A decade of low interest rates has created a powerful search for yield

5. When Job ‘Quality’ Prevailed over ‘Headcount’

• A 387k decline in employment didn’t weigh on the jobless rate of 5.2% according to the latest labor survey data. As the labor participation rate declined in 4Q18, roughly 2.1mn of those in the labor pool voluntarily passed up the job search, to ease any employment demand-supply mismatch.

• For those employed particularly in the non-farm, production sectors led by manufacturing and construction, the quality of jobs generated dominated the lack of headcount gains in determining incomes, if not, uplifting purchasing power. If we exclude direct government job creation from the labor stats, we obtain a non-farm, private job creation of 1.1mn (vs 3Q18: -8.6k) up 3.8%YoY. Average weekly work hours were 43.2 versus 40.6 a year-ago suggesting more overtime work. Salaried workers grew by 1.4mn (+5.6%YoY) employed mainly from private establishments. Underemployment fell to 15.6% in the latest job survey vs 18% a year-ago.

• As inflation recedes, the robust non-farm employment and better job quality won’t be compelling for policymakers to rush any form of monetary accommodation. Since the jobs data or GDP prospects are not as vulnerable to sharp downswings due to onshore catalysts, e.g., upbeat public investments, consumption recovery, despite a less-than-encouraging global backdrop, the Central Bank may focus on possible risk of a liquidity crunch and emergence of positive, real interest rates in determining the policy options for monetary accommodation this year.