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Greek deal unlocks fresh bailout loans
-- Eurozone finance ministers and the International Monetary Fund patched together a deal in the early hours of Wednesday that clears the way for fresh loans for Greece and sets out how the country could get debt relief in the future. The ministers, who held an 11-hour meeting in Brussels, said Greece had done what was necessary to unlock the next slice of financial aid, concluding a review of its bailout that was delayed for months. The new payouts will save Greece from defaulting on big debt redemptions to the IMF and European Central Bank in July. “On the package of reforms Greece had committed to last summer, we now have full agreement,” said Jeroen Dijsselbloem, the Dutch finance minister who presided over the meeting of finance ministers.
Once all 19 eurozone countries have formally signed off on the new deal, Greece will get 10.3 billion euros ($11.48 billion) in fresh loans, starting with a €7.5 billion installment in the second half of June. The ministers also agreed on a road map to ease Greece’s mountain of debt, moving to end a long-standing standoff with the IMF over the type and scale of relief Athens needs. See full story.
New homes sales hit 8-year high
-- New U.S. single-family home sales recorded their biggest gain in 24 years in April, touching a more than eight-year high as purchases increased broadly, a sign of growing confidence in the economy's prospects. Tuesday's report from the Commerce Department, which also showed a surge in new home prices to a record high, offered further evidence of a pick-up in economic growth that could allow the Federal Reserve to raise interest rates soon.
New home sales jumped 16.6 percent to a seasonally adjusted annual rate of 619,000 units, the highest level since January 2008. The percent increase was the largest since January 1992. Data for February and March were revised to show 39,000 more units sold than previously reported. The new home sales report came in the wake of fairly upbeat data on home resales and residential construction. It also added to retail sales and industrial production reports in suggesting that the economy was gathering speed after growth slowed to a 0.5 percent annualized rate in the first quarter. See full story.
Fed's Bullard worries about low rates
-- U.S. interest rates being kept too low for too long could cause financial instability in future and stronger market expectations for a rate rise are "probably good", St. Louis Federal Reserve President James Bullard said on Monday. A relatively tight labor market in the United States may also exert upward pressure on inflation, raising the case for higher interest rates, Bullard added. His comments come as financial markets have increased expectations for a U.S. interest rate hike in June or July and a range of policymakers are now stating that a rise is firmly on the table for the next policy meeting in June.
"I do worry that keeping rates too low for too long could feed into future financial instability even if it doesn't look like we're in that situation today," Bullard, a voting member of the Fed's policy-setting committee, told reporters. Expectations for a June rate hike rose last week following minutes from the central bank's April policy meeting released on May 18 that showed Fed officials felt the U.S. economy could be ready for another interest rate increase. A possible British exit from the European Union in a vote next month will not affect the Fed's upcoming decision on rates, Bullard said. See full story.
Dollar rises to third weekly gain
-- Global equity markets rose on Friday as investors took in stride the possibility the Federal Reserve may hike interest rates in June, a view that helped U.S. bond yields to rise and lifted the dollar to a third straight week of gains. U.S. home resales rose more than expected in April, suggesting the American economy has continued to gather pace during the second quarter. The data added to a growing perception that a rate hike next month or in July would not derail U.S. growth. Wall Street was higher, following gains in Europe, with the S&P financial sector index rising as recent comments from Fed officials suggested the possibility of a rate increase as early as June. The dollar traded close to two-month highs after it pushed past $1.12 per euro for the first time since March.
Not everyone believes a rate hike is imminent. The probability of a June rate hike has jumped to 30 percent from around 4 percent at the start of the week, according to CME Group's FedWatch site. Futures markets are predicting two rate hikes this year as opposed to just one as recently as last week. "There is not enough data suggesting a rate hike is warranted," said Rahul Shah, chief executive of Ideal Asset Management, adding that equity gains amounted to a relief rally.
Economic data point to Q2 GDP rebound
-- The number of Americans filing for unemployment aid fell from a 14-month high last week, the latest sign the economy was picking up speed in the second quarter and likely would be healthy enough for the Federal Reserve to raise interest rates in June. The economic outlook got a further boost from another report on Thursday showing a gauge of future activity jumped in April. The reports followed recent upbeat data on retail sales, home building and industrial production. Minutes from the Fed's April 26-27 policy meeting, published on Wednesday, showed most officials considered it appropriate to raise rates next month if data continued to point to an improvement in second-quarter growth.
The Fed raised its benchmark overnight interest rate in December for the first time in nearly a decade. "The economy is coming back. This is further ammunition to our view that the Fed will restart the normalization process, either in June or July," said Michael Strauss, chief economist at Commonfund in Wilton, Connecticut. Initial claims for state unemployment benefits declined 16,000 to a seasonally adjusted 278,000 for the week ended May 14, the Labor Department said. That was the biggest drop since February and snapped a three-week string of increases. See full story.
Fed minutes lean toward June hike
-- The Federal Reserve will likely raise interest rates in June if economic data points to stronger second-quarter growth as well as firming inflation and employment, according to minutes from the U.S. central bank's April policy meeting released on Wednesday. That view, expressed by most Fed policymakers at the last policy meeting, suggests the central bank is much closer to lifting rates again than Wall Street expects. But members of the Fed's policy-setting committee said recent economic data made them more confident inflation was rising toward their 2 percent target and that they were less concerned about a global economic slowdown, according to the minutes from the April 26-27 meeting.
"Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor markets continued to strengthen, and inflation making progress toward the committee's 2 percent objective, then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June," according to the minutes. Some policymakers were wary about a slowdown in U.S. economic growth during the first quarter, when gross domestic product expanded at a two-year low of 0.5 percent. But others argued that ongoing robust job growth suggested the economy was still on track and the growth data could be flawed. See full story.
Inflation rises at fastest rate in 3 years
-- The prices Americans pay for goods and services saw the fastest increase in April in more than three years, led by the higher cost of gas and rent. The consumer price index shot up a seasonally adjusted 0.4% last month, the biggest gain since February 2013. More than half of the rise in consumer inflation stemmed from a recent bump in the cost of gasoline. Rent was another major contributor, accounting for about one-fourth of the increase.
Although price pressures are on the rise, overall inflation is still relatively tame. The CPI has risen just 1.1% in the past 12 months, up from 0.9% in March, the government said Tuesday. The Federal Reserve wants inflation — as measured by a related series known as the PCE price index — to rise to a 2% level that it considers healthier for the economy. The central bank is reluctant to raise interest rates despite steady growth and a tighter labor market because of low inflation. Real or inflation-adjusted hourly wages, meanwhile, dipped 0.1% in April. They have risen a mild 1.3% in the past 12 months, helping to explain why consumers are not spending as much as they have in the past. See full story.
Oil jumps on potential supply shortfall
-- Oil futures rallied more than 3% on Monday after Goldman Sachs said that the market is now in a supply shortfall, boosting prices for a commodity that has been under pressure from a severe glut for almost two years. June West Texas Intermediate crude rose $1.51, or 3.3%, to settle at $47.72 a barrel on the New York Mercantile Exchange, the highest settlement since early November. Brent crude for July delivery gained $1.14, or 2.4%, to $48.97 a barrel. Goldman Sachs said that the recent outages from large producers such as Canada and Nigeria had sent the oil market from near full storage levels to a deficit.
“All of a sudden, in a major about face, Goldman Sachs is now saying that the global oil market has gone back to a supply deficit for the first time in two years,” said Phil Flynn, senior market analyst at Price Futures Group, in a note, pointing out that Goldman Sachs has been “one of the biggest oil bears on the street.” They are “starting to realize that the line between an oversupply and a deficit is a lot thinner than people think,” said Flynn. See full story.
Retail sales, sentiment data buoy outlook
-- U.S. retail sales in April recorded their biggest increase in a year as Americans stepped up purchases of automobiles and a range of other goods, suggesting the economy was regaining momentum after growth almost stalled in the first quarter. The jump in sales reported by the Commerce Department on Friday is a boost for the sector that has been hit by sluggish demand. It comes days after major retailers, including Macy's and Nordstrom, reported sales tumbled in the first quarter and lowered their full-year profit forecasts. Retail sales surged 1.3 percent in April, the largest gain since March 2015, after dropping 0.3 percent the prior month.
Prospects for consumer spending got a boost from a third report showing sentiment among households jumped to an 11-month high in early May, driven by steadily rising incomes, better employment prospects and low inflation. The University of Michigan said its consumer sentiment index surged 6.8 points to 95.8 early this month, the highest reading since June. Sentiment increased among all income and age groups, with big gains among lower-income and younger households. As a result of last month's strong core retail sales increase, the Atlanta Fed raised its fourth-quarter GDP growth estimate to a 2.8 percent annualized rate from 2.2 percent. Reuters
Jobless claims hit 14-month high
-- The number of Americans filing for unemployment benefits rose last week to a more than one-year high, but economists blamed striking telecommunications workers for the surge and said the data did not signal a deterioration in the overall labor market. Another report on Thursday showed import prices increased in April for a second straight month, suggesting the disinflationary impulse from a strong dollar and lower oil prices, which has helped to hold inflation well below the Federal Reserve's 2 percent target, was fading.
Initial claims for state unemployment benefits increased 20,000 to a seasonally adjusted 294,000 for the week ended May 7, the highest level since late February 2015, the Labor Department said. It was the third consecutive week of increases in first-time applications for jobless benefits. "We have to look past the noise in the latest jobless claims number because it was likely influenced by the Verizon strike. The broader underlying trend in claims remains very constructive," said Jacob Oubina, senior U.S. economist at RBC Capital Markets in New York. See full story.
Oil jumps on U.S. drawdown
-- Oil jumped on Wednesday, with Brent up more than 4 percent for a second day in a row, after the U.S. government unexpectedly said crude inventories fell the first time since March, adding to concerns over supply outages in Canada and Nigeria. The U.S. Energy Information Administration (EIA) said crude inventories fell 3.4 million barrels last week, compared with analysts' expectations for an increase of 714,000 barrels and the American Petroleum Institute's (API) build of 3.5 million barrels in preliminary data issued on Tuesday. The EIA report "has been quickly viewed as bullish, with the crude draw just about exactly opposite to what API had," said Dominick Chirichella, senior partner at the Energy Management Institute in New York.
Oil markets extended gains after the data. Brent crude futures settled up $2.08, or 4.6 percent, at $47.60 per barrel. In the previous session it gained 4.3 percent. The EIA, in a separate report on Wednesday, said it expected Brent to trade at $76 a barrel in the next year on continued increase in demand. Crude prices had risen earlier after Shell announced a Nigerian pipeline closure while Canadian energy companies tried to restart closed facilities that had halted more than 1 million barrels per day (bpd) in supply after a huge wildfire in Alberta's oil sands region. See full story.
Global stocks surge as oil climbs
-- Stock markets around the world rallied on Tuesday, helped by solid corporate earnings reports and higher oil prices supporting energy shares, while the yen again retreated sharply against the dollar. MSCI's broad gauge of global stocks climbed 1 percent, on track for its best session in three weeks. The yen fell against the dollar for a second day as a Japanese economic adviser reiterated that the country was prepared to intervene in currency markets.
Equities globally benefited from investors' belief that the U.S. Federal Reserve is less likely to raise interest rates in June in light of recent weaker-than-expected economic data, said Peter Kenny, senior market strategist at Global Markets Advisory Group in Berkeley Heights, New Jersey. "Markets are banking on an unchanged interest rate narrative, not only in June but for the foreseeable future, meaning certainly to the end of the summer," Kenny said. The Dow Jones and the S&P 500 gained 1.1 percent. See full story.
Dollar moves higher on hawkish Fed
-- The U.S. dollar rose against its main rivals Monday, extended last week’s gains as investors shifted their positions to account for the potential that the Federal Reserve will raise interest rates later this year. The rise in the greenback follows signs of wage growth in April’s jobs report, released Friday by the Labor Department. Monday's theme in the currency market was the potential for “a less dovish Fed,” said John Doyle, director of markets at Tempus Inc., particularly after New York Fed President William Dudley on Friday said two rate hikes this year remained a “reasonable expectation.”
Dudley is a voting member of the Fed’s policy committee and is someone markets pay close attention to as he is seen as a close ally of Fed Chairwoman Janet Yellen. Meanwhile, in a speech in London Monday, Fed member Charles Evans also pointed to rising labor participation. The hawkish comments, along with technical factors that point to the greenback’s rebound after its recent weakness, supported the dollar’s gain on Monday, Doyle said. See full story.
Weak payrolls temper rate view
-- The U.S. economy added the fewest number of jobs in seven months in April and Americans dropped out of the labor force in droves, signs of weakness that left economists anticipating only one interest rate hike from the Federal Reserve this year. Nonfarm payrolls increased by 160,000 jobs last month as construction employment barely rose and the retail sector shed jobs for the first time since December 2014, the Labor Department said on Friday. April's job gains were the smallest since September and below the first-quarter average job growth of 200,000. Adding to the report's soft tone, employers added 19,000 fewer jobs in February and March than previously reported.
The slowdown in hiring came against the backdrop of weak economic growth, subdued productivity and corporate profits. It prompted several Wall Street banks, including Bank of America Merrill Lynch and Barclays, to lower their interest rate hike expectations for this year to one from two before the report. "We now only expect one rate hike in 2016, in September, as we believe it will take longer for policymakers to accumulate sufficient evidence that economic and labor market activity is rebounding after a soft start to the year," said Michael Gapen, chief economist at Barclays in New York. See full story.
Dollar rises again after jobless-claims report
-- The U.S. dollar stretched gains against its main rivals into a third day, ahead of remarks from a host of Federal Reserve officials later Thursday as well as a widely watched report on April job gains due Friday. The ICE U.S. dollar index, a measure of the dollar’s strength against a basket of six rival currencies, picked up nearly 0.6%. Though the number of people applying for unemployment benefits rose sharply last week, the total number of Americans collecting unemployment benefits fell in late April to a nearly 16-year low, which analysts said was supportive of the dollar because it increased the chances of a Fed interest-rate hike in June.
“The underlying trend in the labor market is still showing signs of improvement. If payrolls tomorrow comes in around 200,000, then I think a hike in June cannot be excluded,” said Piotr Matys, emerging-markets currency strategist at Rabobank. The dollar on Wednesday initially weakened after a report on private-sector employment came in at its weakest level in three years. But the currency soon shrugged off those declines to trade higher. See full story.
Services sector buoys economic outlook
-- The U.S. services sector expanded in April as new orders and employment accelerated, bolstering views that economic growth would rebound after almost stalling in the first quarter. The growth outlook was, however, dimmed by another report on Wednesday showing private employers hired the fewest number of workers in three years in April. Economists say strong services industry activity together with a rebound in automobile sales in April reported on Tuesday, underscore the economy's firm fundamentals that could keep the Federal Reserve on track to raise interest rates twice this year.
"The earliest indications point to a solid growth rebound of the U.S. economy in the second quarter. If Friday's payrolls report corroborates that trend, a June rate hike certainly remains an option," said Harm Bandholz, chief economist at UniCredit Research in New York. The Institute for Supply Management said its nonmanufacturing index rose 1.2 percentage points to a reading of 55.7 in April, with the majority of industries expressing optimism about the business climate and the economy. A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of the U.S. economy. Services industry activity was last month buoyed by a 3.2 percentage point surge in new orders. See full story.
China's manufacturing PMI slips again
-- A private gauge of nationwide factory activity in China fell to 49.4 in April from 49.7 in March, Caixin Media Co. and research firm Markit said Tuesday. The reading points to a continued deceleration in China's manufacturing activity and marks the 14th month in a row that the index has languished in contractionary territory. A reading below 50 indicates a contraction in manufacturing activity from the previous month, whereas a reading above that level indicates an expansion. China's official manufacturing PMI, a competing gauge, came in at 50.1 in April compared with 50.2 in March, according to data from the National Bureau of Statistics on Sunday.
"All of the index's categories indicated conditions worsened month-on-month, with output slipping back below the 50-point neutral level," said He Fan, chief economist at Caixin Insight Group. "The fluctuations indicate the economy lacks a solid foundation for recovery and is still in the process of bottoming out. The government needs to keep a close watch on the risk of a further economic downturn." Mr. He said. See full story.
U.S. manufacturing barely grows in April
-- U.S. manufacturers barely grew in April and there’s little sign of a broad pickup in business anytime soon, a survey of executives found. The Institute for Supply Management said its manufacturing index fell to 50.8% last month from 51.8% in March. Economists surveyed by MarketWatch had forecast the index to fall to 51.4%. Although readings over 50% indicate more companies are expanding instead of shrinking, manufacturers are clearly struggling to grow. The ISM index has hovered between 48% and 52% since last summer.
The sluggish ISM reading for April also suggests that scattered evidence recently of improvement among manufacturers is probably a mirage. Companies have been hurt by a strong dollar and weak global economy, reducing exports. And a slump in the U.S. energy sector because of cheap oil has forced oil and natural gas producers to slash equipment purchases from very high levels just a few years ago. See full story.
Tame U.S. inflation bolsters Fed caution
-- U.S. inflation barely rose in March as consumer spending remained tepid, making it less likely that the Federal Reserve will be able to follow through on its projected two interest rate hikes this year. The tame inflation backdrop was reinforced by another report on Friday showing labor costs increasing moderately in the first quarter. The Commerce Department said the personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, edged up 0.1 percent last month after an upwardly revised 0.2 percent increase in February. The so-called core PCE rose 1.6 percent in the 12 months through March, after advancing 1.7 percent in February. The core PCE is the U.S. central bank's preferred inflation measure and is running below its 2 percent target.
Following its latest policy meeting, the Fed said on Wednesday it was continuing to "closely" monitor inflation. It left its benchmark overnight interest rate unchanged and suggested it was in no hurry to tighten monetary policy further. It hiked rates in December for the first time in nearly a decade. Fed policymakers earlier this year forecast two more rate hikes for 2016. But market-based measures of Fed policy expectations are mostly leaning toward one increase this year. See full story.
U.S. economy stalls in first quarter
-- U.S. economic growth braked sharply in the first quarter to its slowest pace in two years as consumer spending softened and a strong dollar continued to undercut exports, but a pick-up in activity is anticipated given a buoyant labor market. Gross domestic product increased at a 0.5 percent annual rate, the weakest since the first quarter of 2014, the Labor Department said on Thursday in its advance estimate. Growth was also held back by businesses stepping up efforts to reduce unwanted merchandise clogging up warehouses.
Almost all sectors of the economy weakened in the first quarter, with housing the lone star. The dollar's rally is largely over, oil prices appear to be stabilizing and the bulk of the inventory liquidation is out of the way. In addition, the jobs market remains fairly robust. A separate report from the Labor Department showed first-time applications for unemployment benefits rose less than expected last week and the four-week average of initial claims fell to its lowest level since 1973. See full story.
Fed tones down concerns over global economy
-- The Federal Reserve voted Wednesday to leave interest rates unchanged and took a wait-and-see stance toward future interest rate hikes. For the third time since the start of the year, Chairwoman Janet Yellen and her colleagues voted to keep the federal funds rate in a range of 0.25-0.5%. In its carefully calibrated statement the Fed did not give any hints about a possible move in June. The tone was slightly more upbeat than the central bank’s last statement at the end of March.
The Fed moderated previous expression of concern about global financial and economic developments, saying only that it was monitoring them. In March, it expressed concern these were areas of risk. For instance, the new statement spotlighted continued improvement in the labor market and “solid” gains in household income.But the Fed also noted that consumer spending has moderated while business investment and net exports are soft. See full story.
Weak factory, consumer data cloud outlook
-- Orders for long-lasting U.S. manufactured goods rebounded far less than expected in March as demand for automobiles, computers and electrical goods slumped, suggesting the downturn in the factory sector was far from over. Tuesday's report from the Commerce Department also implied that business spending and economic growth were weak in the first quarter. Prospects for the second quarter darkened after another report showed an ebb in consumer confidence in April. The data came as Federal Reserve officials started a two-day policy meeting. The U.S. central bank is expected to leave its benchmark overnight interest rate unchanged on Wednesday. The Fed raised rates in December for the first time in nearly a decade.
"These disappointing reports will likely add to the caution at the Fed. Given the weak performance in these two key segments of the economy, we expect the rebound in growth momentum in the second quarter to be quite weak," said Millan Mulraine, deputy chief economist at TD Securities in New York. Manufacturing, which accounts for 12 percent of the U.S. economy, is struggling with the lingering effects of the dollar's past surge and sluggish overseas demand. The durable goods report added to recent reports on retail sales, trade and industrial production in suggesting economic growth slowed further in the first quarter. The economy grew at an anemic 1.4 percent annualized rate in the fourth quarter. See full story.