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Wall Street rises after presidential face-off
-- Consumer and technology stocks including Amazon led gains on Wall Street on Tuesday as some investors deemed Democrat Hillary Clinton to have won a presidential debate against Republican rival Donald Trump. The S&P 500 technology sector rallied 1.13 percent, powered by a 2-percent gain in Microsoft and a 1.14-percent rise in Facebook. Amazon.com increased 1.98 percent and the consumer discretionary index gained 0.93 percent higher after a report showed that the consumer confidence index for September rose to its highest level in nine years.
Following the first of three presidential debates on Monday, Trump vowed to hit Clinton harder after she put him on the defensive. With six weeks until the Nov. 8 vote, some investors see the neck-and-neck contest sparking volatility in sectors including health insurers, drugmakers and industrials. "From a market perspective, rightly or wrongly, there is an understanding that Mrs Clinton would be a safe pair of hands, that there's very little uncertainty there," said Brad McMillan chief investment officer for Commonwealth Financial in Waltham, Massachusetts. See full story.
Stocks sag before U.S. presidential debate
-- Stock prices around the world fell on Monday ahead of the first U.S. presidential debate between Hillary Clinton and Donald Trump, while oil prices rose in advance of an informal OPEC meeting in Algeria on hopes for an output cut. Half of America's likely voters will rely on the presidential debates to help them make their choice between the two major U.S. party nominees in the Nov. 8 election, according to a Reuters/Ipsos poll released on Monday.
"Investors are acting extremely nervous with regards to the debate ... and it highlights the fact that the markets are not focusing on the health of the economy, interest rates and geopolitical events," said Robert Pavlik, chief market strategist at Boston Private Wealth. In afternoon trading, the Dow Jones industrial average was 157.86 points, or 0.86 percent, lower at 18,103.59, the S&P 500 was down 17.59 points, or 0.81 percent, to 2,147.1 and the Nasdaq was down 47.23 points, or 0.89 percent, lower to 5,258.51. See full story.
Manufacturing gauge slips to 3-month low
-- Manufacturing activity in September grew at the slowest pace in three months as purchasing managers blamed weak new orders and the strong dollar, according to data released Friday. The Markit flash U.S. manufacturing purchasing managers index fell to 51.4 in September from 52, marking the lowest level since June. Any reading above 50 indicates improving conditions—what’s been the case for the last seven years.
That said, the PMI reading was close to the postcrisis low of 50.7, reached in May, Markit indicated. “Softer new-order gains are the main concern in the latest PMI survey, and this could act as a drag on production growth into the final quarter. Alongside reports of subdued domestic demand, a renewed dip in export sales also held back growth momentum in September,” said Tim Moore, senior economist at IHS Markit, in a statement. See full story.
Dollar weakens in wake of Fed decision
-- The dollar lost ground against most of its rivals on Thursday, weakening for a second straight session as investors continued adjust to the Federal Reserve’s vote to hold off on raising interest rates this month. Fed chief, Janet Yellen, signaled that a rate hike was likely by year’s end. While she reiterated that the case for a hike is stronger due to the economy picking up and employment staying firm, market participants haven’t to been convinced. The U.S. central bank didn’t raise rates at the end of its September meeting on Wednesday, a decision that wasn't seen as a surprise.
“With the U.S. likely to post another year of modest growth, we do not expect the divergence that would be necessary to trigger a significant [dollar] rally,” UBS analysts wrote in a note on Thursday. “We continue to think the dollar has peaked on a trade-weighted basis versus [developed market] currencies, the euro in particular.” The ICE U.S. Dollar Index, a gauge of the buck’s strength against a half dozen rivals, was down 0.4% to 95.13, extending its decline of about 0.5% on Wednesday. The WSJ Dollar Index, a measure of the dollar against a basket of major currencies, was down 0.4% at 86.06. See full story
Fed keeps rates steady
-- The U.S. Federal Reserve left interest rates unchanged on Wednesday but strongly signaled it could still tighten monetary policy by the end of this year as the labor market improved further. The Fed said U.S. economic activity had picked up and job gains were "solid" in recent months. "The case for an increase in the federal funds rate has strengthened," the U.S. central bank said in a statement following a two-day policy meeting. It added that its rate-setting committee had decided against raising rates "for the time being," until there was more evidence of progress toward its employment and inflation objectives.
The Fed has held its target rate for overnight lending between banks in a range of 0.25 percent to 0.50 percent since December, when it raised borrowing costs for the first time in nearly a decade. The central bank has appeared increasingly divided over the urgency of raising rates. On Wednesday, Kansas City Fed President Esther George, Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren dissented on the policy statement, saying they favored raising rates this week. See full story.
Fed poised to cut long-run rate forecast
-- U.S. Federal Reserve policymakers are set this week to again cut their forecasts for how high interest rates will need to go in an economy where output, productivity and inflation are growing at a slower pace than in past decades. It would be the fourth time in 15 months that the U.S. central bank has been forced to admit its estimate of this so-called neutral rate was too optimistic, raising questions about the health of the economy in the coming years. The Fed, however, still insists low interest rates and its large balance sheet of bonds are sufficient to continue bolstering economic growth.
Conversations with Fed officials suggest some will cut their predictions for the longer-run rate at this week's monetary policy meeting, with the median forecast possibly falling to 2.75 percent. It was 3.75 percent in June 2015 and 4.25 percent four years ago. The Fed is expected to leave its benchmark overnight interest rate unchanged following its two-day meeting on Wednesday, according to a Reuters poll of economists. See full story.
BOJ may shift policy focus
-- The Bank of Japan could shift negative interest rates to the primary focus of its monetary policy on Wednesday, heightening market disquiet over what any move away from quantitative easing reveals about the waning firepower of global central banks. With three years of massive money printing failing to push up inflation, the BOJ is expected to move away from shock therapy and towards a protracted battle against deflation, say sources familiar with its thinking. The BOJ's "quantitative and qualitative easing" (QQE) has been a signature policy of Governor Haruhiko Kuroda since 2013 that aimed to shock the economy out of stagnation and change households' deflationary mindsets.
While the central bank is unlikely to ditch QQE completely, altering its emphasis would herald an end to the "shock and awe" approach that made Kuroda's policies unique compared with the gradualist approach preferred by his predecessors. A less aggressive approach would also come as a world of tame growth and low inflation force the U.S. Federal Reserve to go slow on raising interest rates and the European Central Bank to concede the limits of what monetary policy alone can achieve. See full story.
Inflation stirring on healthcare, housing costs
-- U.S. consumer prices rose more than expected in August as healthcare costs recorded their biggest gain in 32-1/2 years, pointing to a steady build-up of inflation that could allow the Federal Reserve to raise interest rates this year. The cost of living last month was also pushed up by sustained increases in rents. The uptick in inflation is likely to be welcomed by Fed officials when they gather next week to deliberate on monetary policy, though a rate hike is not expected at that meeting. The Labor Department said on Friday its Consumer Price Index increased 0.2 percent last month after being unchanged in July. In the 12 months through August, the CPI increased 1.1 percent after advancing 0.8 percent in the year through July.
The U.S. central bank has a 2 percent inflation target and tracks an inflation measure that has been stuck at 1.6 percent since March. Fed Governor Lael Brainard said on Monday she wanted to see stronger consumer spending data and signs of rising inflation before hiking rates. The Fed raised its benchmark overnight interest rate at the end of last year for the first time in nearly a decade, but has held it steady this year amid concerns over persistently low inflation. Many economists expect the Fed to increase borrowing costs at its December policy meeting. See full story.
U.S. retail sales, factory output slump
-- U.S. retail sales fell more than expected in August amid weak purchases of automobiles and a range of other goods, pointing to cooling domestic demand that further diminishes expectations of a Federal Reserve interest rate increase next week. The economic growth outlook also took a hit from other data on Thursday showing a drop in manufacturing output last month. The reports, which extended August's run of weak data, prompted economists to cut their growth estimates for the third quarter. "With households not buying, manufacturers stopped producing. If the Fed is data dependent, then the next time a hike would likely come is December," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. The Commerce Department said retail sales declined 0.3 percent after edging up 0.1 percent in July. Sales were up 1.9 percent from a year ago. Excluding automobiles, gasoline, building materials and food services, retail sales slipped 0.1 percent last month after a similar drop in July.
In a second report, the Fed said manufacturing output fell 0.4 percent in August, reversing July's increase. Output was hurt by declines in the production of nondurable goods. While many durable goods industries posted declines of nearly 1 percent or more, motor vehicle assembly increased. In the wake of the dour reports, the Atlanta Fed lowered its third-quarter GDP estimate by three-tenths of a percentage point to a 3.0 percent annual rate. The economy grew at a 1.1 percent rate in the second quarter. See full story.
Import, export prices fall in August
-- U.S. import prices fell for the first time in six months in August on weak petroleum and food costs, but the declining trend is slowing as oil prices stabilize and the dollar's rally fades. Still, Wednesday's report from the Labor Department suggested the near-term inflation outlook would remain tame, strengthening the argument for the Federal Reserve to keep interest rates steady next week. Import prices slipped 0.2 percent last month after gaining 0.1 percent in July. August's drop was the first since February and was led by a 2.8 percent decline in petroleum prices. Imported petroleum prices fell 3.6 percent in July.
Import prices have been constrained by dollar strength and cheap oil. That, together with sluggish wage growth, has left inflation persistently running below the Fed's 2 percent target. But the dollar rally appears to have peaked early this year and oil prices have pushed off multi-decade lows.The report also showed export prices fell 0.8 percent in August. That was the biggest drop since January. See full story.
Dollar higher despite dovish Fed signal
-- The dollar shifted higher on Tuesday as the impact of dovish comments from Federal Reserve Gov. Lael Brainard appeared to fade. The ICE U.S. Dollar index, a measure of the buck’s gains against a basket of six rivals, was up 0.5% in recent trade. Brainard’s comments stunted an early rally in the dollar, causing the index to finish Monday’s session little-changed from its late Friday level. In a speech to the Chicago Council on Global Affairs on Monday, Brainard said the Fed needed to stay accommodative to protect the U.S. economy from the low-growth, low-inflation environment plaguing Europe and Japan.
Some investors had expected Brainard, known as a proponent of keeping rates low, to shift to a more hawkish stance after other senior Fed officials, including Fed Chairwoman Janet Yellen, said the U.S. economy is ready for higher rates. The dollar’s rebound shows that Brainard’s comments didn’t materially shift currency traders’ expectations for the timing of the next rate increase. Renewed weakness in oil prices weighed on the currencies of some major oil exporters [boosting the buck]. See full story.
Odds dropping for September rate hike
-- Wall Street thinks that the likelihood the Federal Reserve will pull the trigger on raising rates as early as September is low and getting lower. On Monday afternoon, federal-funds futures was pricing in an 11% chance of a rate hike when the policy-setting Federal Open Market Committee convenes for a two-day confab on Sept. 20-21, according to CME Group. That figure has been flipping around, but did take a leg lower from 19% after Federal Reserve Gov. Lael Brainard said during a speech that the lack of inflation pressure “makes the case to tighten policy pre-emptively is less compelling.”
Brainard’s comments aren’t particularly surprising, given that she has consistently advised caution in hiking rates, but her statement Monday offered Wall Street some comfort that a well-documented dove wasn’t falling in a growing string of Fed members expressing eagerness to dial rates higher sooner than later. Brainard is a voting member of the Fed. Fed Chairwoman Janet Yellen is viewed as dovish, or reluctant to raise rates soon. For December, fed-funds futures indicate that the chance of a rate hike is a coin toss. See full story.
Dollar jumps on Rosengren comments
-- The dollar strengthened Friday against most of its rivals after Boston Federal Reserve President Eric Rosengren said a “reasonable case can be made” for raising interest rates. The ICE U.S. Dollar Index, a measure of the dollar’s strength against a basket of six rivals, gained nearly 0.5%. Rosengren, who’s a voting member of the Fed’s policy committee and therefore has a say in the Fed’s decision, has previously voiced his support for tightening policy.
On Thursday, the European Central Bank declined to extend its program of monthly bond purchases past March 2017. Furthermore, new ECB staff forecasts for growth and inflation over the next two years were downgraded only slightly. The ECB’s shift to a more hawkish stance gives the Fed more room to raise interest rates, said Colin Cieszynski, chief markets strategist at CMC Markets. “Now that the ECB has held, that leaves the door open for the Fed to do something,” Cieszynski said. See full story.
ECB only hints at more stimulus
-- The European Central Bank held interest rates at record lows and kept the door open to more stimulus on Thursday but gave few hints about its next move, disappointing markets that had priced in a decisively dovish tone. ECB President Mario Draghi said the ECB will study policy options to ensure it can pursue its unprecedented money-printing program but did not hint at the anticipated extension of its asset purchases, maintaining the March end-date in an unexpectedly balanced message. Facing anemic growth and inflation, the ECB is buying 1.74 trillion euros worth of bonds, holding rates deep in negative territory and giving banks free loans, hoping to end the bloc's nearly decade-long economic malaise with an infusion of cheap credit.
It has managed to prop up growth, but not enough, and even shaved some of its forecasts on Thursday, reinforcing market expectations that more monetary stimulus is just a matter of time. "For the time being, the changes (in forecasts) are not substantial (enough) to warrant a decision to act," Draghi told a news conference, adding that an extension of the ECB's asset buys was not discussed. Draghi also took pains to reassure markets that he would not hesitate to ease policy if the inflation outlook warranted it. See full story.
Pressure mounts on ECB to do QE3
-- Will they or won’t they? Extend the European Central Bank’s quantitative easing program, that is. Investors are becoming increasingly convinced the ECB will prolong its asset-buying program beyond March 2017, but the big question is whether they will make the move as early as this week. The ECB kicked off its corporate bond buying program in June, complementing its purchases of government debt. The gathering Thursday marks the second meeting for ECB policy makers since the U.K.’s June 23 Brexit vote. After a dovish message in July, economists are scrutinizing every possible hint in a bid to predict the next move. But with ECB President Mario Draghi remaining remarkably quiet in recent weeks, analysts are left to inspect economic data, which aren’t pointing to a clear path for policy.
“The decision to announce further policy accommodation at the September meeting or wait for further evidence is likely to be a close call. The recent survey and hard data, credit flow data and inflation paint a mixed picture of the eurozone economy,” analysts at Deutsche Bank said in a note. Second-quarter gross domestic product numbers out on Tuesday confirmed eurozone economic growth at 0.3%, in line with expectations, but still way below the historic average. The purchasing managers indexes showed private-sector activity in the bloc overall expanded in August, but with weakness starting to emerge in Germany and the periphery. A slowdown in Europe’s largest economy was also the takeaway from the country’s July factory orders that grew an underwhelming 0.2%. See full story.
Services growth weakest in six years
-- Companies in the U.S. that offer services, such as health care, retail goods and financial advice, grew in August at the slowest pace since 2010, a potentially worrisome sign for third-quarter growth unless activity picks up again soon. The Institute for Supply Management said its non-manufacturing index fell to 51.4% last month from 55.5% in July. Reading over 50% signal that more businesses are expanding instead of contracting, but it was the weakest showing since February 2010, shortly after the end of the Great Recession.
The downturn in the ISM indexes gives more reason for the Federal Reserve to hold off on raising interest rates in September, economists say. “Much like its manufacturing cousin, the non-manufacturing ISM poured cold water on expectations for a Fed rate hike later this month, and also called into question the strength of the economy heading into the fall,” said Jennifer Lee, a senior economist at BMO Capital Markets.The vast majority of Americans are employed in service-oriented businesses that account for much of U.S. growth. If the slowdown persists, that would not bode well for the U.S. economy. See full story.
U.S. jobs growth slows in August
-- The pace of hiring in the U.S. slowed sharply in August after huge gains earlier in the summer, a downshift that’s likely to spur the Federal Reserve to keep interest rates at current low levels until after the presidential election. The economy added 151,000 jobs last month, below the 170,000 forecast of economists surveyed by MarketWatch. Wages also grew more slowly than expected. “The August employment report underwhelmed expectations,” noted Scott Anderson, chief economist at Bank of the West.
Hiring was expected to taper off after blistering gains in July and June in which more than a half-million new jobs were created. Most major industries filled fewer open positions while energy producers, manufacturers and construction firms cut jobs. The unemployment rate was unchanged at 4.9%, the government said Friday. In recent Wall Street action, stocks jumped and bond prices rose. See full story.
Factory activity contracts in August
-- U.S. factory activity contracted in August for the first time in six months as new orders and production tumbled, but a low level of layoffs continued to point to a pickup in economic growth in the third quarter. While manufacturing remains constrained by the lingering effects of a strong dollar and lower oil prices, sustained labor market strength could push the Federal Reserve closer to raising interest rates later this year. "Today's disappointing (manufacturing) number further weakens the case for a rate hike later this month, but we currently see no reason to change our Fed call and continue to anticipate a rate hike at the December meeting," said Harm Bandholz, chief U.S. economist at UniCredit in New York.
The Institute for Supply Management (ISM) said its index of national factory activity fell 3.2 percentage points to a reading of 49.4 last month. That was the first contraction since February. The index remains above the 43.2 threshold that is associated with a recession. A reading below 50 indicates a contraction in manufacturing, which accounts for about 12 percent of the U.S. economy. The dollar's surge between June 2014 and December 2015 as well as weak global demand have crimped export growth. See full story.
Private sector adds 177,000 jobs
-- Private-sector hiring stayed strong in August, as employers added 177,000 jobs, ADP reported Wednesday. Economists had expected an August gain of 175,000 jobs. ADP also revised July’s gain to 194,000 from the original estimate of 179,000.
Economists use ADP’s data to get a feeling for the Labor Department’s employment report, which will be released Friday and covers government jobs in addition to the private sector. Economists polled by MarketWatch expect the government’s report to show that nonfarm employment rose by 185,000 this month, compared with the strong July gain of 255,000. Odds of a Federal Reserve rate increase have been creeping higher in recent days. There will be a lot of attention on Friday’s payroll report to see if conditions might be in place for a hike at the Fed’s next meeting on Sept. 20-21. See full story.
Dollar climbs on rate-hike talk
-- The dollar strengthened Tuesday after Federal Reserve Vice Chairman Stanley Fischer reiterated that the central bank could raise interest rates in the coming months, providing U.S. economic data holds up. The U.S. dollar recently traded at ¥102.11, higher than ¥101.91 late Monday in New York. The euro was changing hands at $1.1144, compared with $1.1187 late Monday. The greenback added to its gains after the Conference Board’s measure of consumer confidence rose to an 11-month high in August, suggesting that consumer spending and consumption will remain strong in the third quarter, according to Capital Economics.
The ICE U.S. Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, rose 0.4% to 95.9970. Though Fischer didn’t directly comment on the timing of the next hike, he said the decision to raise rates would be based on the strength of economic data, adding that the U.S. economy “is very close to full employment.” A widely watched report on the pace of job creation in August is due later this week. Market strategists say the data could kick off a sustained rally in the dollar because many view it as an important factor in the central bank’s thinking on whether to raise rates. See full story.
U.S. stocks close near record high
-- U.S. stocks closed near an all-time high after an increase in consumer spending underscored the strength of the world’s largest economy as traders assessed the outlook for interest rates. The dollar rose, while oil slumped.
The S&P 500 Index rebounded from a three-day slide, and the dollar rose against most of its major peers. The extra yield that 30-year bonds offer over two-year notes shrank to the lowest closing level since 2007, indicating traders are betting on higher borrowing costs. Oil sank amid doubts that producers will agree on a deal to stabilize the market when suppliers meet in September. Brazil’s Ibovespa extended the world’s biggest gain this year on speculation President Dilma Rousseff will be permanently removed from office.
For the full story: https://www.bloomberg.com/news/articles/2016-08-28/yen-holds-drop-amid-resurgent-dollar-with-september-hike-in-play