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Yellen - case for interest rate hike has strengthened
-- The case for a U.S. interest rate hike has strengthened in recent months, Federal Reserve Chair Janet Yellen said on Friday in a speech that left the door open for such a move as early as next month.
Yellen, speaking at an international gathering of central bankers and academics in Jackson Hole, Wyoming, did not say when the U.S. central bank would raise borrowing costs, and investors remained skeptical that such a move was imminent.
But the Fed chief said the U.S. economy was creating a lot of new jobs and would likely keep growing moderately, despite data earlier in the day showing only sluggish growth in the second quarter.
For the full story: http://www.reuters.com/article/us-usa-fed-yellen-idUSKCN1111ND
Fed officials push hike case before Yellen
-- Two Federal Reserve officials argued the case for another interest-rate increase in interviews on the eve of an eagerly awaited speech by Chair Janet Yellen in Jackson Hole, Wyoming, that will be scoured for hints of a move that could come as soon as September.
Federal Reserve Bank of Kansas City President Esther George, speaking in a Bloomberg Television interview with Michael McKee broadcast on Thursday, repeated her case that higher rates were warranted with the U.S. nearing full employment and inflation rising toward the central bank’s target. Dallas Fed chief Robert Kaplan separately told CNBC television that “the case is strengthening” for another increase.
Their remarks reflect one camp at the Fed in favor of moving soon that’s debating with another group of policy makers who see no reason to rush. Investors are waiting to hear from the chair to figure out where she stands. Yellen speaks at 8 a.m. local time Friday at the Kansas City Fed’s annual mountain retreat in Wyoming, which is 10 a.m. in New York.
For the full story: http://www.bloomberg.com/news/articles/2016-08-25/fed-s-george-says-inflation-gains-call-for-near-term-rate-hike
World economy still sputtering
-- The amount of goods traded globally fell sharply in the second quarter after a flat performance in the first few months of 2016, highlighting a major challenge for leaders around the world grappling with soft growth. The volume of merchandise traded globally dropped by 0.8% from April to June following no change in the first quarter, according to the CPB World Trade Monitor produced by the Netherlands. Weaker trade patterns reflect fresh economic struggles in various countries and less demand among consumers, the main drivers of growth. Import volume fell the most in the Euro area (-1.8%) in the aftermath of the Brexit vote. Imports to Japan also dropped 1.3% and they declined 0.6% in the U.S.
Export volume fell 0.7% overall, but the poor performance was not universal. Exports rose 0.4% in the U.S. after declining in the prior two quarters. Export volume also climbed 1% in Japan, with the eurozone the major laggard. There are some signs world trade has partly rebounded in the third quarter, but 2016 is shaping up to be a difficult year. The IMF, World Bank and OECD, the three most influential global economic organizations, have all recently cut global growth forecasts for 2016 in part because of a soured trade outlook. The strong dollar has weighed heavily on U.S. trade and China is not growing as fast, two major sources of the slowdown in world trading volume. Lower commodity prices have also hurt developing nations, giving them less money to spend on imports. See full story.
Dollar retreats on Fed rate hike uncertainty
-- The dollar slid across the board on Tuesday, as investors shifted their focus away from hawkish remarks on U.S. interest rates by Federal Reserve officials and toward a speech on Friday by Fed Chair Janet Yellen. The greenback was given a boost over the weekend when Fed Vice Chairman Stanley Fischer said the U.S. central bank was getting close to its job and inflation targets, prompting speculation a rate hike could come as soon as September. Yellen will speak at the annual meeting of world central bankers in Jackson Hole, Wyoming, at the end of the week.
Investors are anxious to see whether Yellen will echo the hawkish views expressed by Fischer and New York Fed President William Dudley, or take a more subdued stance in line with the minutes from the Fed's July policy meeting. Those minutes suggested the central bank was not in a hurry to raise rates. "The big surprise (at Jackson Hole) would be a hawkish shift from Yellen which would be enough to rock the boat on risk and send U.S. rates and the dollar sharply higher," said Brad Bechtel, managing director at Jefferies in New York. "But I doubt she wants to do this and would prefer a relatively mixed view that has elements of hawkishness and dovishness and ultimately results in a December tightening, but a dovish December tightening." See full story.
Fischer sees Fed close to targets
-- The U.S. central bank is within reach of its twin targets of maximum sustainable employment and an inflation rate of 2%, said Federal Reserve Vice Chairman Stanley Fischer on Sunday, suggesting he is open to further interest rate hikes this year. “We are close to our targets,” Fischer said in a speech prepared to a conference on the world economy sponsored by The Aspen Institute in Aspen, Colorado. Fischer said the U.S. labor market has been “remarkably resilient” despite several shocks from overseas. And the core measure of the personal consumption expenditure index — the Fed’s favorite measure of inflation — at 1.6% “is within hailing distance” of the central bank’s 2% target, Fischer added.
Although Fischer did not say it, the suggestion is that with the Fed so close to its goals, it no longer has to keep monetary policy so loose and can snug up interest rates. Fischer is a member of Fed Chairwoman Janet Yellen’s inner circle and his views are followed closely by investors. His remarks are similar to recent comments from other close Yellen allies, New York Fed President William Dudley and San Francisco Fed President John Williams, who said the economy could likely handle another rate hike. Yellen will speak at the Fed’s Jackson Hole retreat on Friday, and economists believe she will also open the door for another hike in interest rates. See full story.
Fed’s Dudley is upbeat on outlook
-- New York Fed President William Dudley on Thursday was upbeat about the outlook for jobs and growth, adding color to his view that the time for another interest-rate increase “is edging closer.” “Job gains have remained very sturdy...the labor market is continuing to tighten,” Dudley said at a briefing for reporters at the regional Fed’s bank headquarters on Wall Street. Dudley said the second-half GDP growth would be stronger than the 1% annual growth rate of the first six months of the year.
“The second half [GDP] should be more than 2%,” Dudley said. Asked if the strength in the labor market and his upbeat view on growth would impact his views on the timing of interest rates, Dudley laughed and said, “my views haven’t changed since Tuesday,” referring to his interview with Fox Business Network. In the interview, Dudley said, “we are edging closer toward the point in time when it will be appropriate to raise rates further.” See full story
Dollar hovers near 8-week lows
-- The U.S. dollar hovered near its lowest against the euro and Swiss franc in nearly eight weeks on Thursday, a day after minutes from the Federal Reserve's July meeting showed a bias among policymakers against raising interest rates soon. The minutes showed members of the rate-setting Federal Open Market Committee were generally upbeat about the U.S. economic outlook. Several Fed policymakers, however, said a slowdown in the future pace of hiring would argue against a near-term hike, and FOMC members said they wanted to "leave their policy options open." The minutes disappointed those expecting that the Fed could be turning more hawkish. The expectations had been bolstered by comments from New York Fed chief William Dudley on Tuesday, who said the central bank could possibly raise rates as soon as September.
The euro hit a near eight-week high against the dollar of $1.1338 in early trading, and the dollar touched a nearly eight-week low against the Swiss franc of 0.9570 franc . The dollar also slipped to 99.66 yen earlier, or a hair above Tuesday's more than seven-week low of 99.53 yen. The dollar last hovered slightly above the multiweek lows. The dollar index, which measures the greenback against a basket of six major currencies, was down 0.36 percent at 94.374. The index earlier touched a near eight-week low of 94.324. "The market’s take on the FOMC minutes is to read them in a somewhat more dovish fashion on the view that the Fed seems too divided to raise rates anytime soon," said Alan Ruskin, global head of FX strategy at Deutsche Bank in New York. See full story.
Dollar turns lower after Fed minutes
-- The dollar turned lower Wednesday after minutes from the Federal Reserve’s July meeting dampened expectations for an interest rate hike before the end of the year. Fed officials expressed relief that the feared blowback from the U.K.’s vote to leave the European Union didn’t materialize, but there appeared to be disagreement over whether this meant the central bank should continue lifting interest rates. It raised its target benchmark rate in December for the first time in nearly 10 years.
“I think the Street has taken a fairly dovish read to the minutes,” said Colin Cieszynski, chief markets strategist at CMC Markets. “Over the next week and a half, we’ll have this duel between [dollar] bulls and bears about what various comments mean.” That interpretation seemed to jibe with the view expressed by St. Louis Fed President James Bullard shortly before the minutes’ release that investors should expect rates to stay lower for longer. See full story.
Dollar slumps to new post-Brexit low
-- A gauge of the dollar’s strength against its main rivals slipped on Tuesday to its lowest level since Britain’s late June Brexit vote as data showed inflation was flat in July, underscoring the Federal Reserve’s case for leaving interest rates on hold for the foreseeable future. The ICE U.S. Dollar index briefly slumped to 94.43, its weakest level since the U.K. voted to leave the European Union on June 23, before trimming its drop to 94.9410 in recent trade. Consumer-goods prices were unchanged in July, rising 0.8% compared with a year ago, down from a 1% rise in June.
Hawkish comments from New York Fed President William Dudley helped break the dollar’s fall around the beginning of trading in New York, as the influential Fed official reminded investors that a September rate increase is still on the table. The dollar has weakened in recent weeks as a string of disappointing data suggested the U.S. economic recovery has slowed in 2016, even as the jobs market remains strong. Investors have dialed back their expectations for the pace of Federal Reserve interest rate increases. According to the Fed-funds futures market, used by traders to bet on the pace of rate increases, investors don’t see a strong chance for another hike until September 2017. See full story.
Empire State index swings negative
-- Manufacturing conditions in the New York region weakened in August, the New York Fed said Monday. The Empire State manufacturing index for August fell to negative 4.2 from positive 0.6 in July. The deterioration in August was below the MarketWatch-compiled economist forecast. The index has been bouncing around zero all year, spending four months in negative territory which indicates deteriorating conditions. But this is an improvement from the sharp contraction in the second half of 2015.
However, the six-month outlook worsened to 23.7 in August from 29.2 in July. The data is also of interest to traders primarily because it’s seen as an early forecast of the national Institute for Supply Management factory survey due out in two weeks. In July the ISM manufacturing gauge dropped to 52.6% from 53.2% in June, in readings where over 50% indicates improving sentiment. See full story.
Weak data dim Fed rate view
-- U.S. retail sales were unexpectedly flat in July as Americans cut back on discretionary spending, pointing to a moderation in consumption that could temper expectations of a sharp pickup in economic growth in the third quarter. Other data on Friday showed that producer prices recorded their biggest drop in nearly a year in July amid declining costs for services and energy goods. Cooling consumer spending and tame inflation suggest the Federal Reserve will probably not raise interest rates anytime soon despite a robust labor market.
Separately, the Labor Department said its producer price index for final demand dropped 0.4 percent last month, the first decline since March and the largest since September 2015. It increased 0.5 percent in June. In the 12 months through July, the PPI slipped 0.2 percent. That was the biggest drop since December 2015 and followed a 0.3 percent increase in the 12 months through June. A strong dollar and cheaper oil continue to keep price pressures muted, leaving inflation running persistently below the Fed's 2 percent target. Fed officials have repeatedly expressed concern about low inflation. See full story.
Gold investments hits record levels
-- Investment demand for gold hit record first-half levels this year, a World Gold Council report showed on Thursday, fueled by a push towards low and negative interest rates, and concerns over political issues such as Brexit. Strength in investment offset a drop in jewelry purchases, especially among leading consumers China and India, to take overall first-half gold demand to the second highest on record, at 2,335 tonnes. Investment in gold surged to 448 tonnes in the second quarter, more than double the figure for the same period of 2015, driven chiefly by a year-on-year rise in ETF investment to 236.8 tonnes, against outflows of 23 tonnes a year before. Preliminary data showed those inflows continuing into the second half, with a further 80 tonnes added in July, the WGC's head of market intelligence, Alistair Hewitt, said.
"There are three structural factors prompting institutional investors to ... increase their exposure to gold," Hewitt told the Reuters Global Gold Forum on Thursday. "The first is the unparalleled loosening of monetary policy, most notably the pernicious spread of negative interest rates," he said. "Second, you have increasingly fractious politics, aptly illustrated by Brexit, and ... finally the slowing pace of U.S. interest rate hikes and consequent slowdown of U.S. dollar strength." Gold tends to benefit from ultra-low rates, which cut the opportunity cost of holding non-yielding bullion. See full story.
Dollar weakens on Fed rate bets
-- The dollar weakened Wednesday against nearly all of its developed and emerging-market rivals as investors bet that the Federal Reserve would leave interest rates unchanged for the rest of 2016. The ICE U.S. Dollar Index, a measure of the dollar’s strength against a basket of six rival currencies, was down 0.6% at 95.6130. The Wall Street Journal dollar index BUXX, -0.50% which measures the dollar’s strength against a broader basket of currencies than the ICE index, was down 0.5% at 86.17. U.S. economic data has been mixed in recent weeks. Data released on Friday showed the pace of job creation in the U.S. was much stronger than anticipated in July, helping to offset concerns about sputtering economic growth fostered by a weaker-than-expected reading on second-quarter gross domestic product.
Though the U.S. data calendar is relatively light this week, a disappointing reading on the productivity of U.S. workers, which fell for the third straight quarter according to data released on Wednesday, was seen diminishing the possibility that the Federal Reserve might raise interest rates before the end of 2016. Expectations for the pace of Fed rate hikes strongly impact the dollar, because higher interest rates would increase the return on U.S. sovereign debt and other assets. Also, the rising cost of hedging foreign currencies against the dollar is eating into the yield premium for Treasurys, making U.S. debt, and by extension the dollar, less attractive to international investors, said Doug Borthwick, managing director at Chapdelaine FX, a division of Tullett Prebon. See full story.
Productivity declines for third straight quarter
-- Productivity, a sore spot for the U.S. economy over the past few years, has now declined in three straight quarters, according to data released Tuesday. Productivity in the second quarter unexpectedly fell 0.5%, well below expectations, the Labor Department said. Economists surveyed by MarketWatch had forecast a 0.3% gain in productivity in the quarter.
Productivity is down 0.4% from a year earlier, the first year-over-year decline since the second quarter of 2013. Productivity measures how much an employee produces in an hour of work. Higher productivity is regarded as the key to a rising standard of living over time because it tends to lead to higher pay for workers and larger profits for companies. The average annual rate of productivity growth from 2007 to 2015 has sunk to 1.3%, well below the long-term rate of 2.2% per year from 1947 to 2014. See full story.
China imports suggest cooling demand
-- China's exports and imports fell more than expected in July in a rocky start to the third quarter, pointing to further weakness in global demand in the aftermath of Britain's decision to leave the European Union. Imports fell 12.5 percent from a year earlier, the biggest decline since February and suggesting China's domestic demand may be faltering despite a flurry of measures to stimulate economic growth. "I think (the drop in imports) is mainly from the demand side," said Ma Xiaoping, an economist at HSBC in Beijing.
Exports fell 4.4 percent on-year, the General Administration of Customs said on Monday, while adding that it expects pressure on shipments likely will start to ease in October. That resulted in a trade surplus of $52.31 billion in July, the biggest since January, versus June's $48.11 billion. China's imports have now declined for 21 straight months, while exports have fallen for 12 of 13 months, helping to drag economic growth to its slowest in a quarter of a century. See full story.
Strong U.S. employment report brightens outlook
-- U.S. employment rose more than expected for the second month in a row in July and wages picked up, bolstering expectations of faster economic growth and raising the probability of a Federal Reserve interest rate increase this year. Nonfarm payrolls rose by 255,000 jobs after an upwardly revised 292,000 surge in June, with hiring broadly based across the sectors of the economy, the Labor Department said on Friday. The unemployment rate was unchanged at 4.9 percent as more people entered the labor market. Highlighting job market strength, average hourly earnings increased a healthy eight cents and workers put in more hours. In addition, 18,000 more jobs were created in May and June than previously reported.
The signs of labor market strength, particularly the pickup in wage growth, could ease voter frustrations with an economic expansion that has left many Americans behind. That discontent has helped fuel support for Republican presidential nominee Donald Trump, who plans to lay out his economic vision in a speech on Monday. Economists polled by Reuters had forecast payrolls increasing 180,000 in July and the unemployment rate dipping one-tenth of a percentage point to 4.8 percent. See full story.
WGC: Gold to benefit from "perfect storm"
-- Gold is poised to benefit from a “perfect storm” of fewer viable investment alternatives and bigger risks, according to an industry group that is the sponsor of one of the world’s biggest gold exchange-traded-funds. Analysts have interpreted weak Japanese government bond demand—such as that seen for a 10-year auction earlier this week—as a sign that investors are losing faith in “unconventional monetary policies,” said the World Gold Council in its August monthly report. “In this environment, we believe investors are using gold to hedge portfolio risk as they add more stocks and low quality bonds to their asset mix,” said the World Gold Council.
Central banks are increasingly throwing all they can at global economies to stimulate growth, said The World Gold Council, which pointed to indications by the European Central Bank that it will expand stimulus. On Thursday the Bank of England cut rates and expanded its asset-buying program. The group took aim at one investment option for investors, which it said is really no option at all: high-quality sovereign debt. More than a third is sitting on central bank balance sheets as part of asset-buying programs, less than 40% has a positive yield and “available” to average investors, and only 17% yields more than 1%. See full story.
Stocks, dollar stumble after weak data
-- Weak U.S. economic data and disappointing auto sales numbers drove Wall Street down on Tuesday, further dragging on global equity prices after the approval of a fiscal stimulus package by Japan's cabinet failed to cheer markets. Data showing muted U.S. inflation hit the U.S. dollar, which dropped to a six-week low against a basket of currencies, while persistent worries of a supply glut sent U.S. crude prices back below $40 a barrel. Wall Street suffered its worst day in nearly a month after data indicated inflation was still below the Federal Reserve's 2 percent target, raising doubts about the chances of a near-term rise in U.S. interest rates.
"People are starting to see that things aren’t quite as rosy as they might have thought in the month of July with that big run-up," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois. In currency markets, the dollar fell against a basket of currencies, pressured by expectations the Fed would delay raising interest rates. The dollar index was down 0.65 percent at 95.094. See full story.
Factory activity, construction spending slip
-- U.S. manufacturing activity eased in July amid shrinking order backlogs and declining employment, while an unexpected drop in construction spending in June suggested second-quarter economic was probably even weaker than reported last week. ISM said its index of national factory activity slipped 0.6 percentage point to a reading of 52.6 last month. A reading above 50 indicates an expansion in manufacturing, which accounts for about 12 percent of the U.S. economy. The index has now increased for five straight months. Manufacturers reported a moderate slowdown in new orders as well as export order growth. Order backlogs contracted as did factory employment and inventories, though the pace of destocking slowed. Manufacturers also reported that their customers continued to view inventories as too high.
In a separate report, the Commerce Department said construction spending declined 0.6 percent to its lowest level since June 2015 after dipping 0.1 percent May. June marked the third straight month of declines in outlays. Weak spending on home building and nonresidential structures, including gas and oil well drilling, contributed to anemic growth in the last quarter. See full story.
U.S. economy running at half speed
-- The U.S. economy expanded at a slightly faster 1.2% pace in the second quarter, but a big rebound in consumer spending was overshadowed by the largest drop in business investment since the end of the Great Recession. The pace of growth in the spring was well below forecast. The Atlanta Federal Reserve’s closely followed GDPNow had estimated a 1.8% increase in gross domestic product, the official scorecard of the nation’s economy. Some economist has predicted an even stronger performance. The surprisingly weak GDP reading in the spring—after tepid 0.8% growth in the first-quarter—raises fresh questions about whether the economy will gain momentum in the second half of the year.
Businesses cut fixed investment by 3.2%, the biggest drop since 2009. And the value of inventories contracted for the first time since 2011, falling by $13 billion. Nor do companies show any sign they soon plan to ramp up investment, one of the three main pillars of economic growth. Some analysts believe firms may take a wait-and-see attitude until after the U.S. presidential election, an approach that could constrain the economy in the months ahead. The soft pace of growth could also complicate plans of the Federal Reserve to raise interest rates later this year, perhaps as early as September. Just a few days ago the Fed said the “near-term risks to the economic outlook have diminished.” See full story.
Dollar pulls back on Fed outlook
-- The dollar weakened Thursday as investors judged that the sanguine economic outlook from the Federal Reserve’s latest policy statement wasn’t as hawkish as initially believed. In a statement released Wednesday after the close of the Fed’s two-day policy meeting, members of the central bank’s interest-rate setting committee said near-term risks to the central bank’s economic outlook had diminished since the Fed’s previous statement. But after careful parsing of the statement’s language, the message about the balance of economic risks wasn’t as forceful as traders initially believed, said Steve Englander, global head of G-10 currency strategy at Citigroup. The dollar strengthened in the wake of the statement’s release, but quickly turned lower Wednesday afternoon.
“When you put [the statement] in the context of previous risk guidance, this turned out to be much less significant in policy terms than the market first read it,” Englander said. References to persistently low inflation and weak longer-term inflation expectations also helped provide monetary officials with plenty of wiggle room to hold rates steady until December at the very earliest, said Boris Schlossberg, managing director of currency strategy at BK Asset Management, in a note to clients. Schlossberg also doubts that the Fed would risk a challenge to its apolitical status by hiking interest rates until after the U.S. presidential election. See full story.