A much weaker than expected US jobs report made headlines this morning, sending all major indices on Wall Street sharply lower at the open. The mere 20,000 new jobs created in February came as quite a shock to investors who believe the US economy is booming.
Leaving aside the soundness of that belief, the reaction is quite striking given the way Wall Street has rallied on bad news and slumped on good news in recent years. In the era of QE and now QT, Fed action has weighed much more in investors’ judgment than economic fundamentals.
Mr. Market treating today’s bad news as actual bad news is telling. He doesn’t see the Fed coming to the rescue with more easy money, so the bad news really is bad.
I agree that bad news should be seen as bad, but objectively, this seems like an overreaction. We’ve seen sharp one-month drops like this every year back to 2015. They’ve all been one-off events. And the overall unemployment rate (if you trust the BLS) fell in February, while wages and productivity rose.
A couple of anemic reports like this in a row would show that the US labor market has indeed changed. For now, this blip is just an interesting straw in the wind.
I have to admit, however, that it was nice to see gold pop on the news… just as a safe-haven asset should.
But none of this is the most important news of the day. For resource investors, the much more important report came from China.
Chinese exports fell more than 20% in February—and imports dropped over four times more than expected.
If this keeps up, the implications for resource investors are major.
But will it? I’m sorry to say that it could. Easily.
The ECB just slashed its growth forecast for the eurozone, China’s largest customer. Trump and Xi are hopeful that the trade war will end soon, but it hasn’t yet. And if there’s something to all the fears regarding the fragility of the Chinese banking system and other institutions, China’s newfound wealth and power could evaporate like a dewdrop on a Sahara morning.
On the bright side, China is clearly very motivated to get a deal with the US done. Given the setbacks the Trump administration has suffered recently, they too must be very eager for a deal. But Trump himself just sent the Chinese a very strong warning when he walked out on Kim Jong Un. It could all be part of the art of the deal, but if he walks out on the Chinese, it’s going to be very bad for industrial minerals for many months. Perhaps years.
And China has more problems than Donald Trump. It’s by no means certain that an end to the trade war will right the ship there.
Make no mistake: of all the balls being juggled by world leaders today, the ones that impact the Chinese economy are the most important ones for resource investors.
If it becomes clear that China is going down for the count, I’ll be exiting industrial minerals wholesale.
We’ll just have to see. Until then, I’ll be watching this very closely.
Caveat emptor,
