U.S. warship sails in disputed South China Sea amid trade tensions

FILE PHOTO: The U.S. Navy Arleigh Burke-class guided-missile destroyer USS Wayne E. Meyer sails alongside South Korean multirole guided-missile destroyer Wang Geon during a bilateral exercise in the western Pacific Ocean April 25, 2017. U.S. Navy/Mass Communication Specialist 3rd Class Kelsey L. Adams/Handout via REUTERS

By Idrees Ali

WASHINGTON (Reuters) – A U.S. Navy destroyer sailed near islands claimed by China in the South China Sea on Wednesday, the U.S. military said, a move likely to anger Beijing at a time of rising tensions between the world’s two largest economies.

The busy waterway is one of a growing number of flashpoints in the U.S.-Chinese relationship, which include an escalating trade war, American sanctions on China’s military and U.S. relations with Taiwan. Reuters reported on Tuesday that China had denied a request for a U.S. Navy warship to visit the Chinese port city of Qingdao.

The U.S. Navy vessel Wayne E. Meyer, an Arleigh Burke-class guided-missile destroyer, carried out the operation, traveling within 12 nautical miles (14 miles/22 km) of Fiery Cross and Mischief Reefs, Commander Reann Mommsen, a spokeswoman for the Japan-based U.S. Navy’s Seventh Fleet, told Reuters.

The operation was conducted “to challenge excessive maritime claims and preserve access to the waterways as governed by international law,” Mommsen added.

The U.S. military operation comes amid an increasingly bitter trade war between China and the United States that sharply escalated on Friday, with both sides leveling more tariffs on each other’s exports.

The U.S. military has a long-standing position that its operations are carried out worldwide, including areas claimed by allies, and are separate from political considerations.

China and the United States have traded barbs in the past over what Washington has said is Beijing’s militarization of the South China Sea by building military installations on artificial islands and reefs.

China’s claims in the South China Sea, through which about $5 trillion in ship-borne trade passes each year, are contested by Brunei, Malaysia, the Philippines, Taiwan and Vietnam.

China has called its construction as necessary for self-defense and has said the United States is responsible for ratcheting up tensions by sending warships and military planes close to islands that Beijing claims.

China’s 2019 defense spending will rise 7.5 percent from 2018, according to a budget report. Its military build-up has raised concerns among neighbors and Western allies, particularly with China becoming more assertive in territorial disputes in the East and South China Seas and over Taiwan, a self-ruled territory Beijing claims as its own.

The U.S. military last year put countering China, along with Russia, at the center of a new national defense strategy, shifting priorities after more than a decade and a half of focusing on the fight against Islamist militants.

In addition, Vice President Mike Pence, in a visit to Iceland next week, will have talks about “incursions” into the Arctic Circle by China and Russia, a senior Trump administration official said on Wednesday.

(Reporting by Idrees Ali; Editing by Chizu Nomiyama and Will Dunham)

U.S. weekly unemployment claims rise; imported inflation weak

FILE PHOTO: People wait in line to attend TechFair LA, a technology job fair, in Los Angeles, California, U.S., January 26, 2017. REUTERS/Lucy Nicholson/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing applications for unemployment benefits unexpectedly rose last week, which could add to concerns that the labor market was losing steam after job growth slowed sharply in May.

Other data on Thursday showed import prices fell by the most in five months in May amid a broad decline in the cost of goods, the latest indication of muted inflation pressures. Signs of a slowing labor market and tepid inflation strengthen the case for the Federal Reserve to cut interest rates this year.

U.S. central bank policymakers are scheduled to meet on June 18-19 against the backdrop of rising trade tensions. Financial markets have priced in at least two rate cuts by the end of 2019. A rate cut is not expected next Wednesday.

Initial claims for state unemployment benefits rose 3,000 to a seasonally adjusted 222,000 for the week ended June 8, the Labor Department said on Thursday. Economists polled by Reuters had forecast claims decreasing to 216,000 in the latest week.

While layoffs remain relatively low, the third straight weekly increase in claims suggests some softening in labor market conditions. The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 2,500 to 217,750 last week.

The economy created only 75,000 jobs in May, with annual wages increasing at their slowest pace in eight months, the government reported last week. U.S. financial markets were little moved by the claims data.

The slowdown in hiring, which occurred before a recent escalation in trade tensions between the United States and China, raised fears of a sharp deceleration in economic growth. The claims data is being closely monitored for signs of any fallout from the trade war.

President Donald Trump in early May imposed additional tariffs of up to 25% on $200 billion of Chinese goods, prompting retaliation by Beijing. Trump on Monday threatened more duties on Chinese imports if no deal was reached when he meets Chinese President Xi Jinping at a G20 summit later this month in Japan.

A tariff on all goods from Mexico to force authorities in that country to stop immigrants from Central America from crossing the border into the United States was narrowly averted after the two nations struck an agreement late on Friday.

ECONOMY SLOWING

Data so far have suggested a sharp slowdown in U.S. economic growth in the second quarter after a temporary boost from exports and an accumulation of inventory early in the year. In addition to the sharp moderation in hiring last month, manufacturing production, exports and home sales dropped in April, while consumer spending cooled.

The Atlanta Fed is forecasting gross domestic product increasing at a 1.4% annualized rate in the April-June quarter. The economy grew at a 3.1% pace in the first quarter.

In another report on Thursday, the Labor Department said import prices dropped 0.3% last month, the biggest decline since last December, after edging up 0.1% in April.

Economists had forecast import prices slipping 0.2% in May. In the 12 months through May, import prices fell 1.5% after decreasing 0.3% in April. The report came on the heels of data on Wednesday showing consumer prices remained tame in May.

Import prices exclude duties. In May, prices for imported fuels and lubricants declined 1.0% after rising 1.7% percent in the prior month. Imported food prices dropped 0.8% last month after surging 2.7% in April.

Excluding fuels and food, import prices slipped 0.2% in May after falling 0.3% in the prior month. So-called core import prices decreased 1.5% in the 12 months through May. Though the dollar has weakened a bit this year, its gains last year against the currencies of the United States’ main trading partners continue to depress core import prices.

The cost of imported capital goods declined 0.1% last month. Prices for imported consumer goods excluding automobiles was unchanged. The cost of goods imported from China edged down 0.1% last month after falling 0.2% in April. Prices fell 1.4% in the 12 months through May, the largest drop since February 2017.

The report also showed export prices fell 0.2% in May, with prices for both agricultural and nonagricultural products dropping. Export prices nudged up 0.1% in April. They fell 0.7% on a year-on-year basis in May after gaining 0.2% in April. Soybean prices tumbled 20.6% year-on-year.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

Weak U.S. employment report casts pall over economy

FILE PHOTO: Brochures are displayed for job seekers at the Construction Careers Now! hiring event in Denver, Colorado U.S. August 2, 2017. REUTERS/Rick Wilking/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. job growth slowed sharply in May and wages rose less than expected, raising fears that a loss of momentum in economic activity could be spreading to the labor market, which could put pressure on the Federal Reserve to cut interest rates this year.

The broad cool-off in hiring reported by the Labor Department on Friday was even before a recent escalation in trade tensions between the United States and two of its major trading partners, China and Mexico. Analysts have warned the trade fights could undermine the economy, which will celebrate 10 years of expansion next month, the longest on record.

Adding a sting to the closely watched employment report, the economy created far fewer jobs in March and April than previously reported.

The economy thus far has been largely resilient to the trade war with China. President Donald Trump in early May slapped additional tariffs of up to 25% on $200 billion of Chinese goods, which prompted retaliation by Beijing.

Last week, Trump said he would impose a tariff on all goods from Mexico in a bid to force authorities in that country to stop immigrants from Central America from crossing the border into the United States. Talks are ongoing to prevent the duties from kicking in at 5% on June 10.

Fed Chairman Jerome Powell said on Tuesday the central bank was closely monitoring the implications of the trade tensions on the economy and would “act as appropriate to sustain the expansion.”

“Today’s report makes a cut more likely, and supports our view that the trade tensions will ultimately slow growth enough for the Fed to respond in September and December with cuts,” said Joseph Song, an economist at Bank of America Merrill Lynch in New York.

Nonfarm payrolls increased by 75,000 jobs last month, the government said in its closely watched employment report, falling below the roughly 100,000 needed per month to keep up with growth in the working-age population.

Economists polled by Reuters had forecast payrolls rising by 185,000 jobs last month. Job growth in March and April was revised down by 75,000.

In the wake of the weak report financial markets priced in a rate cut as early as July and two more later this year. U.S. Treasury prices rallied, while the dollar dropped against a basket of currencies. Stocks on Wall Street were trading higher.

May’s disappointing job growth was flagged by a report on Wednesday from payrolls processing firm ADP showing the smallest gain in private payrolls in nine years last month. Another report this week showed a drop in online ads by businesses looking for help.

Last month’s slowdown in job gains, however, probably understates the health of the labor market as measures such as weekly applications for unemployment benefits and the Institute for Supply Management’s services employment gauge have suggested underlying strength.

WORKER SHORTAGES

Some of the weakness in hiring last month could be the result of worker shortages, especially in the construction, transportation and manufacturing sectors.

Monthly wage growth remained moderate in May, with average hourly earnings increasing six cents, or 0.2% following a similar gain in April. That lowered the annual increase in wages to 3.1% from 3.2% in April. The average workweek was unchanged at 34.4 hours last month.

The moderation in wage gains, if sustained, could cast doubts on the Fed’s optimism that inflation would return to the U.S. central bank’s 2% target.

The tepid employment report added to soft data on consumer spending, business investment, manufacturing and homes sales in suggesting the economy was losing momentum in the second quarter following a temporary boost from exports, inventory accumulation and defense spending. Growth is cooling as the massive stimulus from last year’s tax cuts and spending increases fades.

The Atlanta Fed is forecasting gross domestic product rising at a 1.5% annualized rate in the second quarter. The economy grew at a 3.1% pace in the first quarter.

The unemployment rate remained near a 50-year low of 3.6% in May. A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, dropped two-tenths of a percentage point to 7.1% last month, the lowest since December 2000.

The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, was unchanged at 62.8% last month.

Hiring slowed across all sectors in May. Manufacturing payrolls increased by 3,000 last month, after gaining 5,000 positions in April. The sector is struggling with an inventory overhang that has resulted in businesses placing fewer orders at factories.

Manufacturing payrolls will be watched closely for signs of any fallout from the trade tensions. Factory output has weakened and sentiment dropped to a 31-month low in May, with manufacturers worried mostly about trade.

Employers in the construction sector hired 4,000 workers in May after adding 30,000 jobs to payrolls in April. Leisure and hospitality sector payrolls increased by 26,000 jobs last month.

Professional and business services employment rose by 33,000. Transportation and warehousing payrolls fell as did retail employment. Government shed 15,000 jobs, the most since January 2018.

(Reporting by Lucia Mutikani, Editing by Andrea Ricci)

China issues U.S. travel warning amid trade tensions

FILE PHOTO: The People's Republic of China flag and the U.S. Stars and Stripes fly on a lamp post along Pennsylvania Avenue near the U.S. Capitol during Chinese President Hu Jintao's state visit, in Washington, D.C.,U.S., January 18, 2011. REUTERS/Hyungwon Kang/File Photo

BEIJING (Reuters) – China’s embassy in Washington has issued a security advisory to Chinese nationals traveling to the United States, the latest such warning as trade tensions escalate between the two countries.

The embassy warned Chinese tourists to be aware of issues including expensive medical bills, the threats of public shootings and robberies, searches and seizures by customs agents, telecommunications fraud and natural disasters.

“Public security in the United States is not good. Cases of shootings, robberies, and theft are frequent,” the embassy said in the alert published on Thursday to its website.

“Travellers in the United States should be alert to their surroundings and suspicious individuals, and avoid going out alone at night.”

Aside from an additional warning about the risk of natural disasters, the advisory was similar to one the embassy posted in January.

Tensions are high between the two countries over the threat of tariffs.

U.S. President Donald Trump’s administration is set to impose tariffs on $34 billion worth of additional goods from China on Friday citing unfair Chinese trade practices, and has threatened successive waves of duties on up to $450 billion in Chinese imports.

China has vowed to retaliate in kind with its own tariffs on U.S. agricultural products and other goods and to take more “qualitative” measures if Trump escalates the conflict.

China’s Foreign Ministry, when asked on Tuesday if the timing of the alert was politically motivated, said the summer was the high season for Chinese going to the United States and that Chinese embassies had an obligation to warn citizens about potential risks abroad.

“This kind of reminder from the Chinese embassy in the relevant country, I think this is absolutely a matter that is in the scope of our duty,” ministry spokesman Lu Kang told a regular news briefing.

There was little mention of the latest embassy alert on Chinese social media.

China frequently issues travel warnings for Chinese abroad, generally in war-afflicted regions.

But some foreign governments have argued that Beijing uses other means, such as curtailing outbound tourism, to settle political or trade scores, though the Chinese government typically denies such issues are linked.

China banned all group tours to South Korea for part of 2017 in the wake of Seoul’s decision to install the U.S. Terminal High Altitude Area Defense system (THAAD), which has a powerful radar Beijing worries can penetrate Chinese territory.

(Reporting by Michael Martina and Ben Blanchard; Editing by Nick Macfie)