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Dovish Draghi signals more ECB QE
-- It is hard to imagine how European Central Bank President Mario Draghi could have delivered a more dovish performance at his news conference Thursday, short of announcing an immediate boost to the size of the ECB’s bond-buying program. In a birthday performance, the central banker, who turned 68 Thursday, used his news conference to signal that the door to further quantitative easing is wide open as policy makers assess downside risks to the eurozone’s economic picture. The prospect of inflation returning to the ECB’s target of near but just below 2% also appears ever more distant.
“The door is now clearly wide open to the ECB stepping up its near-term pace of quantitative easing and/or increasing its overall size and duration,” said Howard Archer, chief European economist at IHS Global Insight, in a note. “Whether the ECB steps through that door will clearly depend on whether eurozone growth continues to struggle and inflation prospects deteriorate further.” The ECB in March launched its bond-buying program, snapping up 60 billion euros ($68 billion) a month in government bonds and other assets in an effort to boost inflation. The program is scheduled to run through September 2016. Draghi emphasized that the program could run beyond that date if necessary. See full story.
Private payrolls, productivity rise
-- U.S. private employers maintained a solid pace of hiring in August despite recent global financial market turmoil, suggesting that labor market momentum likely remains strong enough for the Federal Reserve to consider an interest rate hike this year. The ADP National Employment Report on Wednesday showed private payrolls increased 190,000 last month. While that was below economists' expectations for a gain of 201,000 jobs, it was a step-up from the 177,000 positions created in July. "Job growth remains strong and broad-based, except in the energy industry, which continues to shed jobs," said Mark Zandi, chief economist of Moody's Analytics in West Chester, Pennsylvania.
In a second report, the Labor Department said nonfarm productivity increased at its strongest pace in 1-1/2 years in the second quarter, keeping wage inflation subdued for now. But the trend in productivity remains weak. Productivity rose 0.7 percent from a year ago instead of the 0.3 percent increase reported last month. See full story.
Global factories slow, China's contract
-- China's giant manufacturing industry contracted and euro zone and U.S. growth eased in August in data published on Tuesday, while the International Monetary Fund cut its forecast for world growth this year. Stocks on major markets tumbled along with commodity prices following the data, with markets still trying to gauge the likelihood of a September interest rate hike by the Federal Reserve.
"It's all consistent with a global economy which clearly is struggling to make any significant headway," said economist Peter Dixon at Commerzbank. "As a consequence central banks which are thinking about raising interest rates in the near future will be looking at these numbers and it will maybe give them a little pause for thought." Global economic growth is likely to be weaker than earlier expected, the head of the IMF said, due to a slower recovery in advanced economies and a further slowdown in emerging nations. See full story.
Oil spikes on U.S. output concerns
-- Oil futures took a sudden, sharp turn higher Monday to score a monthly gain of more than 4% and settle at their highest level in nearly 6 weeks. Prices were on track to suffer a third straight monthly loss until a U.S. government report showed a roughly 1% decline in monthly crude production and a bulletin from the Organization of the Petroleum Exporting Countries expressed the group’s concerns over the low price of oil. October West Texas Intermediate crude settled at $49.20 a barrel, up $3.98, or 8.8%, on the New York Mercantile Exchange.
Based on the most-active contracts, prices were up about 4.4% for the month—the first gain since May. The daily settlement was also the highest since July 21. WTI futures on Aug. 24 posted a six-and-a-half year low at $38.24 a barrel. Including Monday’s rally, WTI prices have tallied a three-session gain of 27.5%, or more than $10 a barrel. WTI prices rallied Thursday on news that Venezuela had been contacting other OPEC members to push for an emergency meeting to come up with a plan to stop the oil-price rout. It also rallied Friday on the back of rising tensions in Yemen. See full story.
Market turmoil may delay rate hike
JACKSON HOLE, Wyo.
-- Federal Reserve officials who are most anxious to hike interest rates said on Friday that continued turmoil in financial markets may cause the central bank to delay tightening monetary policy beyond next month, even though the U.S. economy remains strong. St. Louis Fed President James Bullard told Reuters he still favored hiking rates at the Fed's next policy-setting meeting in mid-September, though he added that his colleagues would be hesitant to do so if global markets were volatile at that time. Loretta Mester, head of the Cleveland Fed and another so-called hawk who sometimes runs against the grain at the central bank, said the U.S. economy still could handle a modest rate hike, though she did not commit to backing a move at the Sept. 16-17 meeting. Their comments suggest the next three weeks will be critical as Fed policymakers weigh whether concerns about a slowing Chinese economy, the rising dollar, and falling commodity prices pose too deep a threat to U.S. inflation and economic growth for them to raise rates for the first time in nearly a decade.
The Fed's policy-setting Federal Open Market Committee (FOMC) "does not like to move right in the middle of a global financial storm," Bullard said in an interview on the sidelines of a global central bankers' conference here. Minneapolis Fed President Narayana Kocherlakota, who has long argued against lifting rates any time soon, said he does not see a case for a rate increase this year unless there is a major change in the economic outlook. See full story.
Dollar rises after 2nd-quarter GDP revision
-- The dollar strengthened Thursday and is on track to finish higher for the third straight session, after the Commerce Department revised second-quarter gross domestic product growth upward to 3.7% from 2.3%. Thursday’s data showed U.S. economic growth has remained robust in 2015 even as the strong dollar has eaten into corporate profits. “The divergence in economic sentiment between the U.S. and everywhere else remains as rampant as it has ever been over the past year,” said Jameel Ahmad, chief market analyst at FXTM.
Strong economic data from the past week — including Tuesday’s encouraging report on consumer confidence and Wednesday’s stronger-than-expected read on sales of durable goods in July — has reignited the debate about whether Federal Reserve policy makers will vote to raise interest rates in September. But Dennis de Jong, managing director at UFX.com, said the turbulence in global financial markets from the past week will likely stay the Fed’s hand. Though a hike is likely still “on the way.” See full story.
China's official PMI seen at 3-year low
-- Activity in China's manufacturing sector likely shrank at its fastest pace in three years in August, a Reuters poll suggested, adding to signs of deepening economic weakness which are shaking global financial markets. The official manufacturing Purchasing Managers' Index (PMI) is forecast to edge down to 49.7, the weakest level since August 2012, from 50 in July, according to the median forecast of 20 economists in the poll. A reading above 50 indicates an expansion in activity while one below that points to a contraction on a monthly basis.
A separate private survey released last week revealed that China's factory sector shrank at its fastest rate in almost 6-1/2 years in August, fanning global concerns that the world's second-largest economy may be slowing more sharply than earlier feared. The official PMI survey is heavily weighted toward larger, state-owned firms, while the private Caixin/Markit PMI is a gauge of smaller ones. Hit by a property downturn, factory overcapacity, weak exports and high local government debt, China's economy is headed for its slowest growth this year in a quarter of a century. Some analysts believe current growth levels are already well below the government's official 2015 target of 7 percent. See full story.
China cuts rates, reserve requirement
-- China took fresh moves to free up money for its slowing economy, after global investors expressed concerns over Beijing's management of the world's No. 2 economy. The country's central bank said in a statement on Tuesday that it cut interest rates by one-quarter of a percentage point and reduced bank-reserve requirements by one-half of a percentage point. The reserve-rate cut effectively adds 678 billion yuan (about $105.7 billion) to the Chinese economy. The PBOC also dropped a key control on rates for some bank deposits, allowing lenders greater freedom to compete for business.
The move comes after days of market turmoil in China and around the world, sparked in part by worries that Beijing won't be able to stem market instability or rekindle slowing growth. China's main stock index fell 7.6% on Tuesday after an 8.5% fall on Monday, bringing it down more than 20% over four trading days. Markets from Tokyo to London to New York also fell on Monday, hitting everything from stocks to currencies to commodities, before stabilizing on Tuesday. In a statement posted on its website, the People's Bank of China said the interest-rate cuts were aimed at reducing borrowing costs for Chinese companies, while the cut to bank-reserve requirements were intended to maintain "ample liquidity" in China's financial system. See full story.
Dow plunges 1,000 points in minutes
-- Wall Street is reeling from a bout of volatility which saw the Dow industrials rebound from a stomach-churning, 1,000-point drop, while the main benchmark S&P 500 briefly slipped into correction territory. Intraday volatility saw the main indexes plunge by more than 5%, nearly erase most losses by early afternoon and fall again to trade more than 2% lower on the day by midafternoon amid heavy volumes.
The global selloff in equity market on Monday was triggered by another plunge in China’s stock market, while investors remain concerned about the health of the second-largest economy. On Monday Chinese equities surrendered all of their gains for 2015, and a rout in the U.S. on Friday that capped the worst week for the market in four years. “Short-term fear of the unknown is still in the driver’s seat, I would expect more volatility in the coming weeks,” said Kate Warne, investment strategist at Edward Jones. See full story.
Disappointing data intensify world growth fears
-- Signs China's economic slowdown is deepening and weak growth in Europe and the U.S. reported on Friday further damaged the outlook for the global economy, sending stocks and commodity prices reeling. China's factory sector shrank at its fastest rate in almost 6-1/2-years in August, a private survey showed, pushing investors who fear China's sagging economy will translate into slower global economic growth to take refuge in gold and bonds. World markets had already been on edge after China's surprise devaluation of the yuan last week and a 33 percent fall in its stock markets since mid-year. "Uncertainty about China growth is now the main swing factor in markets," said Tim Condon, an economist at ING Group in Singapore.
"Today's data reinforced the doubts about global growth." The preliminary Caixin/Markit China Manufacturing Purchasing Managers' Index (PMI) stood at 47.1 in August, well below a Reuters poll median of 47.7 and down from July's final 47.8. It was the worst reading since March 2009, in the depths of the global financial crisis, and the sixth straight one below the 50-point level, which separates growth in activity from contraction on a monthly basis. See full story.
Stocks routed on global growth worries
-- U.S. stocks were seeing a broad-based rout Thursday, led by a selloff in media, technology, consumer and financial stocks as investors wrestled with worries about a slowdown in global growth. “There is heightened uncertainty that began with yuan devaluation last week, while overall China’s growth is slowing faster than thought. This is weighing on confidence,” said Randy Frederick, managing director of trading & derivatives at Schwab Center for Financial Research. The nervousness on Wall Street was apparent from a jump in the CBOE Volatility index VIX, which has gained more than 38% to 17.75 over the past three trading days. Meanwhile, U.S. Treasuries and gold were rallying as investors sought havens.
“Technology and consumer discretionary, or momentum stocks are selling off, because they had performed pretty well recently and so have more room to fall during broader market selloffs,” Frederick said. The selloff comes as investors continue to grapple with falling oil prices, turbulent foreign exchange markets and uncertainty about the timing of the first interest-rate increase in nearly a decade. Mixed economic reports as well as a conflicting message from the Federal Reserve in the minutes from the latest policy-setting meeting added to nervousness among investors. See full story.
Dollar tumbles after Fed Minutes
-- he dollar tumbled Wednesday after minutes from the July meeting of Federal Reserve policy makers showed that they may not be ready to raise interest rates in September. The dollar managed to erase all of its gains from the last three sessions after the minutes — which were released prematurely — showed that some Fed policy makers felt inflation was still too low to justify an interest-rate hike. Investors were particularly sensitive to the central bank’s outlook for inflation because the meeting happened before last week’s devaluation of the yuan, which further depressed inflation expectations.
“Overall, we were going to be more sensitive to [the Fed’s] comments on inflation because the outlook after China is going to be a little bit lower,” said John Doyle, director of markets at Tempus Inc. Earlier in Wednesday’s session, the July consumer-price index registered a 0.1% increase, missing a consensus forecast of a 0.2% gain from a survey of economists conducted by MarketWatch. Mark Luschini, chief investment strategist at Janney Montgomery Scott, said the dollar edged lower after the CPI report because it wasn’t strong enough to increase the likelihood of a September rate hike. See full story.
Housing starts near 8-year high
-- U.S. housing starts rose to a near eight-year high in July as builders ramped up construction of single-family homes, suggesting that the economy was firing on almost all cylinders. The Commerce Department report on Tuesday added to solid payrolls, retail sales and industrial output data in suggesting the economy got off to a strong start in the third quarter. The steady flow of upbeat economic reports has bolstered views that the Federal Reserve will raise interest rates in September.
Housing starts have now been above a one million-unit pace for four straight months. Economists had forecast groundbreaking on new homes rising to a 1.19 million-unit pace last month. "Construction activity is picking up across the country, which we take as a positive signal about the health of the U.S. consumer and overall economy," said Jesse Hurwitz, an economist at Barclays in New York. See full story.
NY Fed factory activity tumbles
-- Manufacturing activity in New York state plunged to its weakest level in August since 2009 due to steep drops in new orders and shipments, although optimism on future business improved, a New York Federal Reserve survey showed on Monday. The New York Fed's Empire State general business conditions index tumbled from 3.86 in July to -14.92 in August, its lowest since April 2009.
Economists polled by Reuters had expected the index to rise to 5.00 this month. A reading above zero indicates expansion. The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions. The new orders index was in negative territory for a third month at -15.70 from -3.50 in July, while shipment activity declined to -13.79 from 7.88 in July. See full story.
Eurozone sputters as China risks loom
-- Germany enjoyed robust if unspectacular growth in the second quarter while the French economy stagnated, leaving policymakers looking at a fragile euro zone recovery and risks from volatile Chinese markets. The German economy, Europe's largest, grew by 0.4 percent on the quarter -- a slight acceleration from 0.3 percent in the first three months of the year but below expectations for a 0.5 percent expansion as weak investment acted as a drag. In France, a jump in exports was not strong enough to offset the impact of weak consumer spending and changes in inventories and growth came to a standstill after a strong first quarter.
The readouts from the euro zone's two largest economies came a day after the minutes of the European Central Bank's last meeting showed it was concerned that volatility in Chinese markets may have more impact than expected on the euro zone. China has seen a run of weak economic data. The ECB described the recovery in the 19-country euro zone as moderate and gradual, a trend it called "disappointing", and said an increase in U.S. interest rates might slow the upturn. See full story.
Retail sales rise in July
-- Sales at U.S. retailers were solid in July and stronger than previously estimated for May and June, suggesting the economy is on firm footing going into the second half of the year. The retail-sales data give more ammunition to those members of the Federal Reserve who want to raise interest rates. Retail sales account for about one-third of consumer spending, the main engine of U.S. economic activity. Retail sales rose a seasonally adjusted 0.6% last month, or 0.4% excluding the auto sector, the Commerce Department said Thursday.
Adding to the sense of strength were May and June upward revisions. For June, sales were revised up to unchanged from a decline of 0.3%. May sales were revised to show a gain of 1.9% instead of a 1% gain. “On balance, this morning’s report paints a brighter picture of consumer spending in the second quarter and suggest gains should continue through the third quarter,” said Jesse Hurwitz, an economist at Barclays, in a note to clients. See full story.
Drop in Chinese yuan could reach 10%
-- The drop in China’s yuan may not be over for a while. After the People’s Bank of China devalued the yuan for a second straight day on Wednesday, some people at Deutsche Bank are speculating that a further slide is in store, possibly resulting in a devaluation of as much as 10% against the dollar. The Deutsche Bank thinking is in line with a report from Reuters that notes China’s central bank remains under pressure to devalue the yuan further in coming months.
The devaluation process has already triggered a series of currency depreciations elsewhere, which could quickly offset some of China’s gains in competitiveness. Analysts fear this is the opening salvo in a new currency war that could push the U.S. Federal Reserve to delay its first interest-rate hike in nearly a decade. A weak currency makes Chinese goods more competitive, while international companies exporting to the world’s second-largest economy are at risk of being hurt because their products become more expensive to yuan-holders. See full story.
China devalues yuan after poor data
-- China devalued its currency on Tuesday after a run of poor economic data, a move it billed as a free-market reform but which some suspect could be the beginning of a longer-term slide in the exchange rate. The central bank set its official guidance rate down nearly 2 percent to 6.2298 yuan per dollar - its lowest point in almost three years - in what it said was a change in methodology to make it more responsive to market forces. It was the biggest one-day fall since a massive devaluation in 1994 when China aligned its official and market rates.
The People's Bank of China (PBOC) called it a "one-off depreciation", but economists disagreed over the significance of a move that reversed a previous strong-yuan policy that aimed to boost domestic consumption and outward investment. The devaluation followed weekend data that showed China's exports tumbled 8.3 percent in July, hit by weaker demand from Europe, the United States and Japan, and that producer prices were well into their fourth year of deflation. See full story.
Fed’s Fischer: September hike uncertain
-- Stanley Fischer, the Federal Reserve’s vice chairman, made comments on Monday that suggest the central bank will not make its first interest rate hike since the financial crisis next month. “The interesting situation in which we are is that employment has been rising pretty fast relative to previous performance and yet inflation is very low,” Fischer said in an interview on Bloomberg TV. “And the concern about the situation is not to move before we see inflation as well as employment returning to more normal levels,” Fischer said.
Fischer is seen as a powerful number-two behind Fed Chairwoman Janet Yellen. His remarks are more dovish than comments he has made this year. In the interview, Fischer said if the Fed were focused solely on inflation, it would have to try to be more accommodative, if that was possible. See full story.
U.S. creates 215,000 jobs in July
-- The U.S. pumped out another 215,000 new jobs in July to set the stage for the Federal Reserve to raise interest rates next month, but workers still aren’t getting aggressive raises and millions of Americans remain on the sidelines. The steady flow of new jobs during the late spring and summer offer further proof the economy has regained its footing after growth slipped earlier in the year during a harsh winter onslaught. The U.S. has added an average of 235,000 jobs a month since May, up sharply from a 195,000 pace in the first quarter.
“While the report was not overwhelming in strength, it showed the economy and the labor market to be performing well,” said Michael Moran, chief economist of Daiwa Capital Markets America. The nation’s unemployment rate, meanwhile, was unchanged at 5.3% to match the lowest level in seven years. There was little change in the number of people who found work or who joined the labor force in search of jobs, according to a separate survey of households used to calculate the jobless rate. See full story.
Wall Street slumps on media stocks
-- Wall Street slumped on Thursday as weak earnings reports from media companies raised fears that more viewers are ditching cable TV, dragging the sector to its worst two-day loss since the financial crisis. The selloff was compounded by nervousness ahead of key jobs data on Friday that could provide clues about the timing of the first Federal Reserve interest rate hike in almost a decade. Viacom fell as much as 23.6 percent to its lowest in almost four years after reporting lower-than-expected quarterly revenue due to weakness in its cable TV business. Walt Disney was off 2.9 percent and down for a second session after it lowered profit guidance for its cable networks unit on Tuesday.
The S&P 500 media index was down 2.85 percent, recording it's biggest two-day fall since November 2008, with Time Warner, Comcast and CBS all in the red and Twenty-First Century Fox down 6.6 percent. "All the media stocks are down and it seems people just want to get out of the sector at any cost and take any loss," CLSA analyst Vasily Karasyov said. "The selling pressure is relentless." Eight of the 10 major S&P sectors were lower, with the health index leading the decliners.See full story.
Businesses added 185,000 jobs in July
Source: USA Today
-- Businesses added 185,000 jobs in June, payroll processor ADP said Wednesday, possibly signaling that the Labor Department this week will report a slowdown in hiring after solid gains the past three months. The employment reports for July and August are seen as pivotal in helping the Federal Reserve determine whether to raises interest rates in September for the first time in nearly a decade. Atlanta Fed president Dennis Lockhart told the Wall Street Journal this week that he expects the central bank to act next month, barring a sharp decline in the economic data.
Economists surveyed by Bloomberg estimated ADP would tally 215,000 private- sector job gains for July. They predict the Labor Department's closely watched employment survey due out Friday of both private and public sectors will report 227,000 additions. ADP attempts to foretell Labor's private-sector employment total. Although the two reports often have differed significantly this year, both have reflected similar broad trends and recorded 200,000-plus job gains the past two months. See full story.