Monday, Blood Monday

Slowed swiping 

Consumer borrowing in June expanded at the slowest pace in three months, driven by contracting credit card debt. Revolving credit (like credit cards) fell by 0.1% for the month, after growing 8.4% and 7.6% the two months prior. Non-revolving credit (like auto and student loans) tend to be less volatile and increased at a steady rate by 5.8%. 

Moral of the story: Despite the weakness in June, consumer credit for the second quarter expanded by 4.9%, which was 0.6% higher than the expansion we saw in the first quarter. While I like to see consumer debt decline on a personal level, it means consumers are spending less. The strong consumer has been the saving grace of the economy recently and if this consumption trend in June is indicative of what’s coming for the third quarter, we could be in trouble.

Now hiring

Job openings fell slightly in June but remained above 7m for the 15th consecutive month. Job openings increased in retail and real estate while they decreased in construction, leisure, and hospitality (this makes sense seasonally). This also marks the 16th consecutive month when job openings exceeded the number of people unemployed. 

Moral of the story: The labor market continues to be strong but hiring has been weakened driven by a growing mismatch between the skills required by job openings and the skills available in the workforce. 

Riots and tariffs and wars, oh my! 

It’s been a stressful week for the market and it started with news from China and Hong Kong. After the market got spooked last week by Trump’s escalation of tariffs on Chinese goods and the Fed’s lack of commitment toward further monetary easing, this week began with news of China’s retaliation to Trump’s threats. Chinese related companies stopped buying US agricultural products and the government allowed the yuan to break through 7 against the US dollar (7 CNY = 1 USD) for the first time since 2008. This was followed by Trump accusing China of being a currency manipulator. Separately in Hong Kong, riots (which began to protest an extradition bill that would allow Hong Kong residents to be tried in mainland China) have expanded to a broader set of demands. If you know the history of Hong Kong and China, you know why this is a big deal. These riots are becoming a daily occurrence and fears are rising of another Tiananmen Square incident. This was all happening before the market even opened on Monday morning. The market had a real humpty dumpty type of a day on Monday as it experienced the worst fall of the year driven by fears of trade wars turned into currency wars turned into global recession. Then Monday evening, the US Treasury officially designated China as a currency manipulator (China eventually set the currency back to 6.9996 CNY/USD on Tuesday evening). The tumble in the US markets extended to the Asia markets and volatility continued to plague global stock and bond markets through most of the week. Might as well be chanting “lions and tigers and bears, oh my!” trying to run through this scary forest.

Moral of the story: This madness needs to end. This level of uncertainty is getting to be toxic and the market isn’t going to be able to handle it for much longer. China’s currency devaluation effectively sent a message that they have little to no hope on a trade deal. China also has their hands full with the unrest in Hong Kong. The only silver lining, however, is that Trump measures his success as a president based on the market and his reelection requires some relief in the form of friendlier policy and rhetoric.