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Dollar jumps after strong CPI
-- The dollar spiked against its major rivals Friday after a report showed consumer prices rose by the fastest rate since January 2013, a sign that inflation in the U.S. may finally be on track to meet the Federal Reserve’s inflation target. The euro fell to $1.1000 after the data, its lowest level in about three weeks, from $1.1110 late Thursday in New York, but down from $1.1130 immediately ahead of the report. The dollar strengthened to 121.45 yen, its highest level since mid-March, from ¥121.05 late Thursday. The pound GBPUSD, -1.0919% weakened to $1.5507, from $1.5662. Core consumer prices rose 0.3% in April, according to Labor Department data. Economists surveyed by MarketWatch had expected a 0.1% gain.
Mark Luschini, chief investment strategist at Janney Montgomery Scott, said the number was a “surprise” for the market, causing Treasurys, which were up ahead of the data, to turn lower, an early rally in gold to fade, and the dollar to move sharply higher. “There’s symmetry in all those readings,” Luschini said. “That’s a number that was somewhat Fed-friendly, giving the Fed ammunition if they want to raise interest rates this year.” Strong economic data typically strengthens the dollar because it increases the likelihood that Federal Reserve policy makers will raise rates earlier. Higher interest rates typically lead currencies to strengthen, because they increase the return on deposits held in that currency. See full story.
U.S. leading indicators climb in April
-- The index of U.S. leading economic indicators rose in April by the most in nine months, a sign of vitality in the world’s largest economy. The Conference Board’s gauge for the next three to six months climbed 0.7 percent after a 0.4 percent advance in March that was larger than previously reported, the New York-based group said Thursday. The median forecast of 45 economists surveyed by Bloomberg was for a 0.3 percent increase.
The reading suggests that the economy is set to pick up after a sluggish first quarter that was cursed by bad weather and a labor dispute at West Coast ports. While weakness in manufacturing will probably limit how fast the economy can grow, the highest level of homebuilding permits since June 2008 indicates housing will help pick up some of the slack. See full story.
Fed: data unlikely to support June hike
-- Many officials at the U.S. Federal Reserve's April policy meeting believed it would be premature to raise interest rates in June and that a bump in inflation was being offset by a weaker labor market and softer data, according to minutes from the meeting released on Wednesday. "Many participants, however, thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising (interest rates) had been satisfied ...," the minutes said.
But Fed officials also flagged a number of concerns weighing on the central bank, including disappointment that falling oil prices did not spur consumer spending as much as some of them had hoped. Economic worries in China and Greece were also cited. The minutes also mentioned concerns about bond market volatility and the possibility of long-term rates spiking when the Fed begins to raise rates - a worry Yellen spoke of in public remarks earlier this month. See full story.
Euro tumbles as ECB hints at faster QE
-- Equities around the world jumped on Tuesday and the euro tumbled on signals the European Central Bank may accelerate its 1 trillion euro bond-buying program over the next two months. The dollar gained 1.6 percent against the euro and was broadly ahead for a second day, while U.S. Treasuries fell on government data showing that U.S. housing starts in April rose to a nearly 7-1/2 year peak. Wall Street, which closed at record highs on Monday, reacted little to the upbeat housing data and was last down on weak results from retailer Wal-Mart. Some traders said the stronger-than-expected housing report could encourage Federal Reserve policymakers to raise interest rates sooner than later.
European markets shot up after senior ECB policymaker Benoit Coeure talked of adjusting the bank's buying program. He said that the speed of the recent spike in bond yields, which has effectively wiped out the benefits of quantitative easing, was worrisome and that the ECB could "moderately" increase its buying in May and June, and possibly in September, to ensure it doesn't fall behind on its target over summer. "There is a sense the comments from the ECB indicate a growing push back against the sell-off in bond markets that's been in place for the past month or so, and a push back against both euro strength and market volatility," said Manik Narain, a UBS strategist. See full story.
Greece nears endgame as payments loom
-- Signs are emerging that the Greek government is at serious risk of defaulting on its upcoming International Monetary Fund repayments, as one European Central Bank official warned Athens is facing its “endgame” in debt talks. In a leaked document seen by Channel 4 News, staff at the IMF said “there will be no possibility for the Greek authorities to repay the whole amount” of the 1.5 billion euros ($1.71 billion) due to the fund in June, without further financial aid from the lenders. The next repayment of €300 million is due on June 5. At the same time, Athens is scrambling to find enough money to pay salaries and pensions, which are due at the end of the month.
ECB Executive Board member Yves Mersch said over the weekend that the “endgame” is here for Greece, warning that the situation is “not tenable”. Greece has for months been locked in a negotiation impasse with its lenders over the release of the next €7.2 million in bailout cash. The creditors won’t disburse the money until Athens agrees to a set of economic overhauls, but the anti-austerity government is refusing to accept strict reforms it says will hurt the Greek people. See full story.
Weak data point to modest rebound
-- U.S. industrial production unexpectedly fell for a fifth straight month in April due in part to a further decline in oil and gas drilling, suggesting that the economy is growing at only a modest pace in the second quarter. The economy's struggle to pick up steam after a dismal first quarter was underscored by other data on Friday showing a drop in consumer confidence to a seven-month low in early May and only a mild rebound in factory activity in New York state. Coming on the heels of weak retail sales and producer inflation data this week, the reports suggest the Federal Reserve will probably not raise interest rates anytime soon.
"It means in the next month or so we are unlikely to see a massive rebound in growth momentum. These are not the numbers that would inspire confidence in the Fed to tighten policy," said Millan Mulraine, deputy chief economist at TD Securities in New York. Industrial output slipped 0.3 percent after a similar decline in March, the Fed said. Economists had expected a 0.1 percent gain. In a separate report, the University of Michigan said its consumer sentiment index fell to 88.6 early this month, the lowest reading since October, from 95.9 in April. See full story.
Producer prices resume downward trend
-- U.S. producer prices resumed their downward trend in April as the cost of energy fell and a strong dollar kept underlying inflation pressures benign, supporting views that the Federal Reserve will only raise interest rates later in the year. The Labor Department said on Thursday its producer price index for final demand fell 0.4 percent last month, declining for the third time this year. The PPI increased 0.2 percent in March. In the 12 months through April, producer prices fell 1.3 percent, the biggest year-on-year decline since 2010, after declining 0.8 percent in March.
A drop of 0.7 percent in the index for final demand goods accounted for more than 70 percent of the decline in the PPI last month. Energy prices fell 2.9 percent after rising 1.5 percent in March. Food prices fell for a fifth straight month. The dollar, which has gained about 11 percent against the currencies of the United States' main trading partners since June, and lower energy prices are keeping inflation subdued. That, together with signs of a modest rebound in economic growth after a dismal first quarter, suggest the Fed should be in no rush to start tightening monetary policy. Most economists do not expect the U.S. central bank to hike rates before September. See full story.
Weak retail sales cut rebound hopes
-- U.S. retail sales were flat in April as households cut back on purchases of automobiles and other big-ticket items, the latest sign the economy was struggling to rebound strongly after barely growing in the first quarter. The weaker-than-expected retail sales report from the Commerce Department, and other data on Wednesday showing the 10th straight month of declining import prices in April, suggest little urgency for the Federal Reserve to start raising interest rates.
"Hopes for a strong rebound are now fading. The likelihood of a near-term Fed action is almost zero now," said Thomas Costerg, an economist at Standard Chartered Bank in New York. While March's retail sales were revised higher to show a 1.1 percent increase instead of the previously reported 0.9 percent rise, that was not enough to offset the general weak tone of the report. Economists had forecast sales up 0.2 percent in April. Futures markets continued to show that traders do not expect an interest rate hike until December at the earliest. See full story.
Dollar weakens as Treasury yields drop
-- The dollar traded lower against most of its rivals Tuesday after two sessions of marginal gains, as Treasury yields turned lower and a Greek debt payment to the International Monetary Fund supported the euro. The shared currency climbed to $1.1237, up from $1.1156 late Monday. The gain came as eurozone bond yields crept higher. Dovish comments from New York Fed President William Dudley said Tuesday also weighed on the dollar, said Boris Schlossberg, managing director of FX strategy at BK Asset Management. Dudley said he doesn’t know when interest rates will rise, which the market interpreted to mean that the central bank might begin its regimen of rate hikes later than expected, which weighed on the dollar.
The cash-strapped Greek government made a scheduled 750-million-euro ($843 million) loan repayment to the IMF Tuesday, but reports surfaced that Greece only has €90 million left in its reserves. The lingering impasse in Greek budget negotiations remained a risk for the shared currency. “It’s a nice headline that they made this payment, but there’s still a considerable amount of risk in the short-to-medium term that we think will ultimately send the dollar back in the other direction,” Dilz said. See full story.
U.S. debt grew $7 trillion since 2009
-- Driven by higher interest costs, Social Security and Medicare for baby boomers, as well as tax cuts made permanent in 2012, the federal debt held by the public is expected to hit $40 trillion in 2035, according to calculations by the Committee for a Responsible Federal Budget based on Congressional Budget Office estimates. Back in 2009, soon after President Barack Obama took office, the forecast for the 2035 burden was at least $7 trillion lower.
In 2035, the debt will almost equal the size of the U.S. economy; four years later it will match the previous record, set in 1946, at 106 percent of gross domestic product, the CBO estimated last year. Compare that to the 2014 debt burden of $12.8 trillion, or 74 percent of GDP. The economy just isn't growing fast enough to keep pace with the costs of caring for the soaring ranks of the elderly, and the discrepancy between spending and revenue is estimated to widen in the next few decades. See full story.
Unemployment drops to 7-year low
-- The U.S. churned out 223,000 new jobs in April in a strong sign the economy is back on track after growth stalled in the first quarter and hiring briefly nosedived. Most major segments of the economy except for the energy industry added workers last month, the government said Friday, suggesting the second quarter got off to a pretty good start. Stronger job gains also tugged the unemployment rate down to 5.4% from 5.5% to mark the lowest level since mid-2008.
The latest employment figures are likely to keep the Federal Reserve on course to raise interest rates in 2015 for the first time in nine years. The central bank has tied its decision to steady improvement in the labor market. Despite the revival in job creation in April, hiring in the U.S. has still slowed considerably compared to the waning months of 2014. The number of jobs added in March was slashed to 85,000 from 126,000, reflecting the smallest increase in almost three years. The economy added an average of 194,000 jobs in the first four months of this year, down from a blistering 324,000 pace in the fourth quarter. See full story.
Jobless claims remain near 15-year low
-- The number of Americans who applied for unemployment benefits last week clung near a 15-year low, reflecting the very low level of layoffs taking place in a U.S. economy whose labor market is much improved compared to a few years ago. Initial jobless claims in the period stretching from April 26 to May 2 rose to a seasonally adjusted 265,000 from an unrevised 262,000 in the prior week, when they touched the lowest level since 2000. The four-week average of jobless claims fell by 4,250 to 279,500 to mark the lowest level since May 2000, the Labor Department said Thursday. The monthly average smooths out sharp fluctuations in the more volatile weekly report and is seen as a more accurate predictor of labor-market trends.
Jobless claims are a good proxy for layoffs, though they reveal less about how many people are actually being hired. U.S. employment growth slowed to 126,000 in March – the smallest increase in 15 months – but Wall Street expects a big bounce back in April. The U.S. likely added 233,000 jobs last month, according to a forecast of economists compiled by MarketWatch. Many economists believe the slowdown in job creation in March stemmed in part from harsh weather earlier in the year and they expect hiring to accelerate with the arrival of warmer weather. Yet another subpar employment report for April, which will be released Friday, could heighten anxiety about whether the economy has hit another soft patch. The U.S. barely grew in the first quarter. See full story.
ADP: payrolls slower for fifth month
-- For the first time in about two years, the U.S. created fewer than 200,000 private-sector jobs for two months straight, payrolls processor ADP said Wednesday. The report will heighten fears that jobs creation — which had been the bright spot of late in the U.S. economy — is continuing to decelerate. The U.S. created 169,000 private-sector jobs in April, ADP said, after a downwardly revised 175,000 jobs were created in March. From a peak of 284,000 jobs in November, job creation has slowed for five months in a row, ADP says. ADP said it was big companies, those with 500 or more employees, that had the slowest growth.
The manufacturing industry shed 10,000 jobs, while the trade, transportation and utilities segment added 44,000 jobs. “Fallout from the collapse of oil prices and the surging value of the dollar are weighing on job creation,” said Mark Zandi, chief economist of Moody’s Analytics, in a statement. “However, this should prove temporary and job growth will reaccelerate this summer.” Though the ADP report can at times veer substantially from the U.S. government’s report, which is due on Friday, it did provide a pretty good read for the last report. ADP initially estimated 189,000 private-sector jobs created in March, compared to the government’s estimate of 198,000 jobs. See full story.
Trade gap swells to 6-year high
-- The U.S. trade deficit widened in March to the highest level in more than six years, fueled by a record surge in imports as commercial activity resumed at West Coast ports following a resolution to labor disputes. The gap increased 43.1 percent, the biggest jump in 18 years, to $51.4 billion, the largest since October 2008, the Commerce Department reported Tuesday in Washington. The shortfall exceeded the highest estimate of 70 economists surveyed by Bloomberg. Purchases of foreign-produced foods, capital goods and consumer products all set records, while demand for petroleum dropped. Container ships streamed into West Coast harbors in March after port operators and dockworkers negotiated a new contract, allowing the flow of imported and exported goods to resume. At the same time, steady employment gains, a nascent pickup in wage growth and a stronger dollar may also help fuel domestic demand for foreign goods, which will keep the deficit wide.
“The ending of the port strike seemed to really only have a material effect on imports, not on exports,” said Michael Feroli, chief U.S. economist at JP Morgan Securities LLC in New York and the second-best forecaster of the trade balance over the past two years, according to data compiled by Bloomberg. “When we smooth through the data, it looks like the trend in imports is moving higher whereas the trend in exports looks kind of soft.” The bigger-than-projected jump in the deficit probably means the U.S. economy contracted in the first quarter when the Commerce Department issues revisions later this month. “For the first quarter, this has some pretty adverse implications for GDP growth,” said Feroli. He now sees GDP contracting at a 0.5 percent rate in the first three months of the year. “That import number is really eye-catching.” See full story.
U.S. factory data points to moderate bounce
-- U.S. factory activity failed to gain steam in April after slowing for five straight months, but stronger-than-expected vehicle sales suggested the economy was finding some momentum after almost stalling in the first quarter. Still, the sluggishness in the manufacturing sector and other data on Friday showing construction spending hit a six-month low in March indicated that the anticipated acceleration in growth in the second quarter could disappoint. That could see the Federal Reserve delaying raising interest rates until later this year.
The economy expanded at a 0.2 percent annual pace in the first three months of the year, slammed by bad weather, a strong dollar and a now-resolved labor dispute at the West Coast ports, as well as lower oil prices, which have undercut domestic energy production. "The reacceleration in growth will not come fast enough for many, especially those looking for a liftoff by the Fed to happen sooner," said Diane Swonk, chief economist at Mesirow Financial in New York. The Institute for Supply Management said its index of national factory activity was at 51.5 in April, matching the March reading, which had been the lowest since May 2013. See full story.
Data suggest economy picking up
-- The number of Americans filing new claims for jobless benefits tumbled to a 15-year low last week and consumer spending rose in March, signs the economy was regaining momentum after stumbling badly in the first quarter. The economic outlook was brightened further by another report on Thursday showing a solid increase in wages in the first quarter, which should keep the Federal Reserve on track to raise interest rates this year.
Separately, the Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.4 percent last month as households stepped up purchases of big-ticket items like automobiles. While that should boost growth in the second quarter, the rebound in economic activity could be crimped by an inventory overhang, a strong dollar and ongoing spending cuts in the energy sector, which has been hit by lower oil prices. Another report showed that factory activity in the Midwest accelerated in April, pushing further away from a 5-1/2-year low hit in February. See full story.
GDP barely grows in first quarter
-- The nation’s economic growth slowed to a crawl in the first quarter, a period marked by severe weather, a soaring dollar that curbed American exports and a steep drop in investment by U.S. energy companies after oil prices tanked. Gross domestic product expanded by a meager 0.2% annual clip — well below Wall Street’s forecast — after a 2.2% gain in the fourth quarter, the Commerce Department said Wednesday. By and large, consumers continued to spend at modest clip to keep the economy afloat. Outlays rose 1.9%, down from an unsustainable 4.4% in the prior quarter but just several ticks below the average gain since a U.S. recovery began in mid-2009.
Steady consumer spending, fueled by a surge in hiring over the past few years and a plunge in gasoline prices, is expected to keep the economy on track for stronger growth in the months ahead. Most economists predict a rebound in the spring in a replay of what happened in 2014, when a 2.1% decline in first-quarter GDP was followed by outsize gains of 4.6% and 5%. Yet few expect the snapback in 2015 to be quite as strong, owing to the strong dollar and cheap oil. See full story.
Consumer confidence drops to 4-month low
-- Ever since December, the collision between cooling consumer spending and buoyant consumer confidence has puzzled economists and investors. The clash is over for now, and optimism has suffered. The Conference Board’s consumer confidence index dropped to a four-month low of 95.2 in April, weaker than the most pessimistic forecast in a Bloomberg survey of economists, according to figures from the New York-based private research group Tuesday. Government data Wednesday are projected to show purchases grew in the first quarter at less than half the pace of the previous three months.
Americans said jobs were less plentiful after payrolls rose in March at the slowest pace in more than a year, and the higher cost of filling up at service stations meant extra cash was harder to come by. Plans to take a vacation or buy automobiles and appliances also took a step back this month, calling into question how much spending will rebound this quarter. “The labor market part was a little weaker than expected, so I was a little disappointed with that,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, whose projection was the lowest in the Bloomberg survey. “It’s also possible some of this is a fading boost from the plunge in gasoline prices.” See full story.
U.S. services sector cools in April
-- U.S. services sector expansion eased slightly in April from a seven-month high in March on a dip in new business growth, but the pace of hiring in the sector accelerated to its highest since last June, an industry report showed on Monday. Financial firm Markit said its "flash," or preliminary, reading of its Purchasing Managers Index for the services sector slipped to 57.8 in April from a final reading of 59.2 in March, which had been the highest level since August. A reading over 50 signals expansion in economic activity.
Markit's April reading of employment at service companies, meanwhile, rose to a 10-month high of 55.4 from March's 54.0. The services index's new business component pulled back slightly from the month before, when it had notched its highest level since September. Markit's composite PMI, a weighted average of its manufacturing and services indexes, dropped to 57.4 from 59.2 last month. Last week, Markit in its flash reading of U.S. manufacturing activity said the goods-producing sector's growth fell in April by the most in six months, although it remained solidly in expansion territory. See full story.
Busniess spending hints at slower growth
-- U.S. business investment spending plans fell for a seventh straight month in March, weighed down by a strong dollar and lower energy prices, suggesting the economy was struggling to rebound from a recent soft patch. The report from the Commerce Department on Friday came on the heels of lukewarm data on retail sales, employment and housing starts that have hinted at insufficient growth momentum that could prompt the Federal Reserve to delay raising interest rates until later this year. "This is consistent with a sluggish rebound in growth. It's shedding more doubt on the Fed's willingness to raise rates mid-year," said Gennadiy Goldberg, an economist at TD Securities in New York.
Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, declined 0.5 percent last month after a revised 2.2 percent drop in February, which was the biggest decline since July 2013. The so-called core capital goods orders were previously reported to have declined 1.1 percent in February. Economists had forecast these orders gaining 0.3 percent last month. The weakness mirrors other manufacturing indicators such as industrial production and various regional factory surveys. See full story.
Global economy disappoints in April
-- Business activity weakened in China and Japan in April and growth slowed in Europe and the U.S., suggesting the global economy may be less robust than policymakers are predicting. In China, where the government has been engineering a rebalancing of its economy towards domestic spending and away from reliance on exports of manufactured goods, the preliminary purchasing managers' index (PMI) fell to a one-year low of 49.2 from 49.6, according to data from HSBC/Markit. The Markit/JMMA preliminary Japan PMI for April also slid, to 49.7 from 50.3, as new orders continued to shrink and manufacturing production fell for the first time since July 2014.
A sudden drop in the euro zone flash composite Markit Purchasing Managers' Index (PMI) was driven by sharply slower growth in manufacturing orders in Germany and France, suggesting recent optimism about the euro zone may be overdone. Factory order growth slowed particularly in France, but also in major exporter Germany, the euro zone's No. 1 economy, suggesting more subdued activity ahead. Growth in the U.S. manufacturing sector slowed more than expected in April, with factory activity expansion showing the slowest momentum since January, according to Markit. See full story.