October's jobs report was positive on all counts; U.S.-China trade deal rumblings; global oil prices fell as the U.S. embargo on Iranian crude came into effect.
“I’m not seeing anything bad in this jobs report.”
U.S. jobs: Nice! October had more good news for workers. Headline unemployment held steady at a strong 3.7%. Nonfarm payrolls beat expectations, growing at 250K, as did private-sector payrolls, at 246K for the month.
Manufacturing payrolls, carefully watched for the effects of tariffs and trade, grew 32k—twice the expected figure, but small in absolute terms. Underemployment, also politically sensitive, came in at a relatively strong 7.4%, and the labor participation rate beat estimates at 62.9%, a signal that more Americans are coming off the bench and going back to work.
After an initial upward spike on Friday morning, attributed by many to these jobs figures and stories about impending trade deals with China, U.S. equities settled into mildly negative territory, with the Dow Jones Industrial Average down about 100 points to 25267.76, a little over half a percent. The worst performing stock in the Dow was Apple, down nearly 7% on a disappointing earnings outlook, contributing some 104 index points to the decline as of late morning.
China: Deal talk The U.S. trade deficit widened more than expected in September, rising 1.3% from August to $54 billion, a 7-month high. With trade a headline issue ahead of the November 6 election, President Trump suggested that key U.S. officials had been asked to begin drafting potential terms for a trade agreement with China, after a “long and very good” telephone conversation with Chinese President Xi. It’s worth noting that the G20 meeting of the leaders of the 20 largest economies is scheduled to take place in Argentina at the end of November, giving Trump and Xi an opportunity to meet without the added pressure of a summit called for the specific purpose of trade negotiations.
Global oil: What embargo? The U.S. worldwide embargo of Iranian oil is scheduled to begin as of this month. Given that, why has WTI crude oil fallen 17% to $63.36 per barrel (bbl) since peaking in early October at $76.41? Ditto for Brent crude -- down 15.5% to $73.07/bbl over the same period?
First, Saudi Arabia has promised to make up much of the shortfall in global supply. Second, suppliers and customers have had plenty of time to build inventories – including storing crude oil on ships poised to move where needed by refineries. Third, the U.S. is expected to announce waivers for eight countries on Friday, November 2, allowing them to keep buying Iranian crude without fear of sanction. Those countries include major consumers; the two unidentified sources described by Bloomberg News as familiar with the discussions named three of the countries as Japan, India and South Korea, with China in discussions with the U.S. as one of the eight.
 Source: Bloomberg. Figures for the Dow Jones Industrial Average and Apple Inc are as of 11:36 AM on Friday, November 2, 2018.
All data Source: Bloomberg, November 2, 2018, unless otherwise identified.
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