Economics & Growth | Europe | FX | Monetary Policy & Inflation
Charts of the Week: US Trade Flows, Stalling Earnings, Rising Unemployment
- By Matthew Tibble
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- 6 min read
Summary
- The US is moving away from China imports.
- SPX and NDX earnings growth stalls – a warning for equities.
- US unemployment rises on increased participation, especially from young workers.
- Japan officials have started verbal intervention on JPY; actual intervention could follow.
The US Reduces Reliance on Chinese Imports
US imports from China have dropped from #1 to #4 (below the euro area, Mexico and Canada) recently (Chart 1). Versus 2016, when President Trump was elected, US imports are up 50-60% from the largest trade partners but down 20% from China, with the largest rise being Vietnam (Chart 2). This suggests a structural shift away from China particularly in the space of low-cost manufacturing.
Nasdaq 100 Earnings Are Falling
We think equities will continue to trade in a narrow range for the foreseeable future due to a lack of earnings growth. Trailing and forward earnings for the S&P 500 (SPX) have been flat for the past year (Chart 1) and falling for the NASDAQ 100 (NDX) (Chart 2). As John asks, how can either index maintain a rally if earnings growth has stalled?
US Unemployment Rises
The latest US labour market data showed unemployment rose by 30bp and underemployment by 40bp to 3.8% and 7.1% in August. Increased unemployment reflected a large increase in labour supply. The labour force (i.e., employed plus unemployed) increased by 736,000 in August, against an increase of 152,000 in July. The increase in labour supply reflected an increase in participation rate across all age classes – the largest of which was the 16 to 24yrs old bracket, which increased by 0.8ppt to 56.1% (Chart 5).
How USD/JPY Reacts to Intervention
Japanese officials have started verbal intervention on the JPY; actual intervention could follow. But importantly, intervention does not always work. While last year’s intervention marked the high in USD/JPY, previous JPY buying interventions have been less successful.
In the early 1990s, USD/JPY was already trending down, so JPY buying was simply reinforcing an existing trend. Meanwhile, in the late 1990s, JPY buying did not stop USD/JPY rising over 10% before the big USD/JPY carry unwind in late 1998 (Chart 6). For this and other reasons, we are reluctant to sell USD/JPY.
