Jerome Powell is becoming more dovish by the day, as global economic conditions are beginning to slow in the face of a trade war and sluggish economic output. US Jobs numbers stabilized somewhat in June with non farm payrolls coming in at an increase of 224,000. The top three sectors for jobs gains were Professional Services (51,000 jobs), Health Care (35,000) and Transportation (24,000). The unemployment rate is stable at 3.7%, with the US economy remaining strong.
Jerome Powell said “It appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the US economic outlook,” This comment provides certainty for July rate cut and the market has reacted positively. The S&P 500 eclipsed 3000 for the first time in history, as the market digested this comment by the fed governor. Trade war is weighing down global trade and the second half of 2019 should reflect this.
Germany and the EU are facing a recession as 2019 growth estimates are coming in around .5% (half of one percent). Euro debt is in negative yield territory, with Germany 1 year Bunds trading at negative 0.68%, most of the German yield curve is negative (less the 30 year Bunds at 0.25%). German exports are declining and second quarter exports are expected to come in around €113 billion Euros, which is a 4.5% increase over the same month last year and an increase of €3.9 billion over April. It is believed Europe’s strongest economy is entering a slowdown and German manufacturing firms are cutting hours for their employees to avoid wide-scale lay offs. Europe ended Quantitative Easing at the end of 2018, which saw interest rates rise across the continent on hopes of monetary policy normalization. However, with anemic inflation rate of 1.5%, many economists are predicting the ECB to resume some forms of stimulus in the hopes to jump-start Europe and overcome their decade of lost growth. Europe’s bleak economic picture has been a factor for the Federal Reserves board of governors, as the Fed has been factoring world economic interconnection as a reason to resume rate cuts and power the US economy and stock markets further.