Daily Comment (January 10, 2020)

by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA

[Posted: 9:30 AM EST]

Happy employment day Friday!  We cover the data in detail below, but the quick take is that the data is a bit soft as nonfarm payrolls rose by only 145k, less than the 165k forecast.  The big news was a plunge in non-supervisory worker wages, mostly due to base effects from minimum wage laws enacted last year.  In other news, it appears Iran shot down the Ukrainian airliner.  Brexit passes.  Strikes continue in France.  Taiwan’s elections.  Here are the details:

Ukraine airliner: Evidence is mounting that the downed Ukrainian airliner was hit by a surface-to-air missile launched from Iranian territory.  The suspected weapon, SA-15, is a Russian-made system that uses a mobile launching platform.  Simply put, this isn’t the kind of weapon that is used by proxy groups.  In Iran, this system is managed by the Islamic Revolutionary Guard Corps (IRGC).  Iran is disputing the evidence and has expressed willingness to turn over the black boxes to foreign governments for analysis.  The current consensus of opinion is that Iran likely made a mistake; in the current environment, it is likely that Iranian air defense personnel were anxious about potential retaliation and thought the civilian aircraft had hostile intent.  It is unclear how this incident will play out but, if the Malaysian Air Flight 17 offers any insight, not much will occur.

Brexit passes: In rather anticlimactic fashion, the Brexit bill passed the House of Commons 330-231; the bill now moves to the House of Lords where it will pass and become law.  From this point, the focus will be on the trade negotiations.  The early look from Michel Barnier is that talks will be difficult.  The EU will do everything it can to prevent the U.K. from becoming a “Singapore on the Thames,” forcing Britain to accept EU regulations.  We expect London to push back on this position.  Our take is that the two sides will come up with a deal but not in 12 months; however, an extension won’t be a market-moving event.

Taiwan elections: Beijing will be watching this weekend’s elections in Taiwan closely; a big win for the DPP would suggest that tensions in Hong Kong have swayed opinions on the island that the PRC believes is a breakaway province.  In fact, China is doing more than watching—it is actively trying to affect the outcome of the vote.  We are watching to see how effective their measures are because we would not be surprised to see similar actions tried in the U.S. elections.

France: Transportation workers extended their strike into the sixth week, making it the longest labor action in French history.  Workers are concerned about President Macron’s plans to reform the country’s convoluted pension system.  Although it is generally acknowledged that reform is needed, workers don’t trust the president and fear that “reform” will mean longer working lives and less money for retirement.

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