Signs of a China-Russia Rift; Rooting for a Soft Jobs Report?
Author: Greg Valliere
June 3, 2022
CHINA WILL CONTINUE TO OFFER rhetorical support for Russia, but Putin needs financial and technological support that is now sanctioned. President Xi Jinping wants to help Russia, but he’s reluctant to violate those sanctions, the Post reports, which has angered Russia.
CHINA HAS BALKED at helping Russia evade sanctions, fearing the U.S. and it allies could cut China off from critical technology, including semiconductors and aerospace equipment, as well as targeting its financial system. Shipments of high-end Chinese technology to Russia — including smartphones, laptops and telecommunications equipment — have plummeted since the war began.
THE OBVIOUS SOURCE of friction between China and Russia is a war that has dragged on for 100 days; the Russians pledged in late February that the conflict would end in less than a month.
SO CHINA MAY BE GETTING COLD FEET, even though Russian troops have enjoyed several weeks on the offensive. But Moscow’s ability to advance into central Ukraine is doubtful; the geography will become more friendly to the Ukrainians, who will soon receive massive new arms shipments from the U.S. and Western Europe.
THE GREAT WILD CARD continues to be Putin’s health. The New York Post, admittedly not the greatest source, reports this morning that intelligence experts are convinced that the Russian president is seriously ill, undergoing intensive therapy for a form of blood cancer.
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EXPERTS FROM WALL STREET TO WASHINGTON are advancing a novel theory: a soft jobs report at 8:30 this morning wouldn’t necessarily be a bad thing.
THE LOGIC: Signs that the red-hot labor market may be cooling off would increase chances that the Federal Reserve could begin slowing its rate hikes later this year (two 50-basis point hikes, on June 15 and July 27, are virtually certain).
BUT THE FED COULD CONSIDER rate increases of only 25 basis points per meeting this autumn — if there are signs that the economy is gradually cooling. That process could begin today, if nonfarm payrolls slide from 428,000 in April to something close to 325,000 last month.
WHILE A GRADUALLY SLOWING ECONOMY could encourage the Fed, we don’t think a recession is imminent. The economy is flush with cash, thanks to the 2021 spending blowout. But as monetary and fiscal policies become less accommodative, the economy undoubtedly will cool — which, from an interest rate standpoint — would be welcome by the markets.
THE KEY ISSUE: Do we get a soft landing or a potential recession by winter? The Fed obviously wants the former, not the latter — so the beginnings of a gradual labor market cooling would be most welcome this morning.
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