Macro Briefing: 4 August 2022

* China conducts live-fire military drills around Taiwan
* US Senate approves adding Finland and Sweden into NATO
* US factory orders post solid growth for June
* Global economic growth slows to 2-year low in July via PMI survey data
* OPEC agrees to small increase in oil output
* S&P US Services PMI shows contraction in July, but…
* ISM Services Index indicates slightly stronger growth in July:

China’s military drills around Taiwan threaten new supply-chain disruption. “The Taiwan Strait is one of the busiest straits in the world,” says Maersk CEO Soren Skou in conference call on Wednesday. “Obviously, if it were to close, it would have a dramatic impact on shipping capacity, in the sense that everybody would have to divert around Taiwan and add to the length of the voyages. That would absorb significant capacity. But I have to say that there seems to be no suggestion that this is where we’re going.”

Friday’s US payrolls report (released on Aug. 5) is expected to show hiring slowed, based on the consensus forecast. Dan North, a senior economist at Allianz Trade North America, anticipates the economy created 250,000 last month (down from a 372,000 rise in June) and the unemployment rate was steady at 3.6%. “That would normally be a very strong report, but there are signs underneath the surface that show cracks developing in the labor market,” he says. “First, the unemployment rate is almost useless since it does not consider everyone who is not participating in the labor force. Worse than that, it is a lagging indicator. It tells us what has already happened. Job growth is a coincident indicator at best, so it tells us about what is happening now. And note that this labor market has created no jobs since March 2020. It has only regained jobs. The tough part of creating jobs is coming up, and it will be tough.”