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Daily Economy Watch
Financial and economic news

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Daily Economy Watch keeps an eye on events that affect your hard asset portfolio. View archives.


June 23: Dollar drops on U.S. rate-hike doubts

Source: Reuters

New York -- The dollar fell against a basket of major currencies on Friday, recording its biggest one-day fall in three weeks, on persistent doubts whether the Federal Reserve would raise interest rates again this year due to softening inflation data. The greenback also broadly weakened versus commodity-linked currencies, which got a boost as global benchmark Brent futures recovered from a seven-month low. Sterling rose for a third consecutive day after soon-to-depart Bank of England policymaker Kristin Forbes late on Thursday urged hiking UK rates immediately on fears that the pound's weakness could have a lasting upward effect on inflation.

On Friday, St. Louis Fed chief President James Bullard said the central bank should wait on further rate hikes, while Cleveland Fed chief Loretta Mester said recent inflation weakness should not defer another rate rise this year. Traders, however, were doubtful about another rate increase later this year as recent U.S. data on balance have fallen short of forecast. See full story.


June 22: Oil recoups some recent losses

Source: Marketwatch

New York -- Oil finished modestly higher Thursday, with a second weekly decline in U.S. crude supplies helping prices recoup some of their recent losses. But prices were still stuck in a bear market, defined as a decline from a recent peak of at least 20%, on lingering worries about strong domestic production growth. August West Texas Intermediate crude advanced 21 cents, or 0.5%, to settle at $42.74 a barrel on the New York Mercantile Exchange. It fell 2.3% on Thursday to $42.53, the lowest most-active futures price settlement since Aug. 10, according to FactSet data. Brent crude for August delivery on London’s ICE Futures exchange added 40 cents, or 0.9%, to $45.22 a barrel.

Prices fell Wednesday as data from the Energy Information Administration showed a weekly climb in U.S. crude production, feeding concerns that efforts by other major producers to cut down global supplies down to a five-year average will fail. The report, however, also showed that crude stockpiles declined for a second week in a row. Tariq Zahir, managing member of Tyche Capital Advisors, said he believes oil prices “can get weaker or at least we feel rallies will be sold into” because of several reasons, including a continued rise in U.S. production, poor demand for gasoline and gains in active U.S. oil-rig counts. See full story.


June 21: Oil drops to 10-month low

Source: Reuters

New York -- Oil prices fell about 3 percent to a 10-month low in heavy trading on Wednesday, as nagging fears about the global crude glut fed a sell-off that was interrupted only briefly after news of a larger-than-expected drop in U.S. inventories. U.S. crude futures touched a low of $42.13, the lowest intraday level since August 2016. They were at $42.36 at 1:28 p.m. EDT (1728 GMT), down 2.6 percent. Since peaking in late February, crude has dropped by more than 20 percent. Rallies in that time have not been sustained as concern about inventories has prevailed over brief signals of rebalancing. Brent crude futures LCOc1 fell $1.34 to $44.68 a barrel. "The market wants proof that OPEC cuts are shifting petroleum balances, and it's not getting it. Crude prices are now on the hunt to find the stress point for the U.S. producers and we're not there yet," said Anthony Headrick, energy market analyst at CHS Hedging LLC in Inver Grove Heights, Minnesota.

The U.S. Energy Information Administration said crude inventories declined by 2.7 million barrels in the latest week, exceeding expectations for a 2.1 million-barrel drop. This data supported prices only briefly. Compliance with an agreement by the Organization of the Petroleum Exporting Countries and other producers to cut output by 1.8 million barrels per day from January reached its highest in May. However, production is rising in Nigeria and Libya, countries exempt from the deal, offsetting cuts by other OPEC members. Nigeria's crude exports are set to surpass 2 million barrels per day (bpd) in August, highest in 17 months, as the country recovers from militant attacks that crippled production in 2016. See full story.


June 20: Oil finishes at a 9-month low

Source: Marketwatch

New York -- Oil on Tuesday marked its lowest finish since August, with prices sinking into bear-market territory as investors remained concerned that rising output from the U.S. and Libya will offset OPEC-led production cuts. Meanwhile, natural-gas prices got a modest boost as traders eye two tropical storms that have formed in the Atlantic. July West Texas Intermediate crude declined by 97 cents, or 2.2%, to settle at $43.23 a barrel on the New York Mercantile Exchange on the contract’s expiration day. That was the lowest front-month contract finish since Sept. 16, according to data from Dow Jones. Prices also ended down 20.6% from 2017’s year-to-date high above $54—putting them in bear-market territory.

Crude’s last drop into bear-market territory “actually signaled a bottom” for prices, said Phil Flynn, senior market analyst at Price Futures Group. “The bears are driving us lower and if they keep it up, they will drive [U.S.] shale producers into retreat.” WTI saw “capitulation” ahead of the July contract’s expiration, with supply-glut fears being fed by expectations of higher Libyan production, said Flynn. Libya, which is exempt from the output-cut accord led by the Organization of the Petroleum Exporting Countries, has ramped up production to 900,000 barrels a day, adding further pressure on the market that is awash with surplus. See full story.


June 19: Dollar rises on hawkish Dudley

Source: Marketwatch

New York -- The dollar awoke from a slumber to move modestly higher versus major rivals Monday after a key Federal Reserve policy maker argued against slowing the pace of interest-rate increases. The widely watched ICE U.S. Dollar Index DXY, which tracks the buck against a basket of six rivals, erased a small loss to gain of 0.4%.

The dollar turned higher after New York Federal Reserve President William Dudley said the economy was in good shape and that he wasn’t paying much attention to signals of concern from the bond market, where a flattening yield curve has been taken by some analysts as a signal investors fear a potential slowdown or recession.Dudley’s remarks cut short a rally by the British pound, which had initially gained ground as formal talks on Britain’s exit from the European Union got under way. See full story.


June 16: U.S. housing starts hit eight-month low

Source: Reuters

Washington -- U.S. homebuilding fell for a third straight month in May to the lowest level in eight months as construction activity declined broadly, suggesting that housing could be a drag on economic growth in the second quarter. Housing starts weakened despite a dearth of properties on the market, which is hurting sales and boosting prices. Economists blame shortages of labor and land for the downturn. Demand for housing remains strong, underpinned by a tightening labor market."The recent stall in homebuilding is bad news for growth," said Gus Faucher, chief economist at PNC Financial in Pittsburgh. "A shortage of construction workers may be weighing on the construction industry, and in some parts of the country short supply of land to build on is also a factor."

Housing starts dropped 5.5 percent to a seasonally adjusted annual rate of 1.09 million units, the Commerce Department said on Friday. That was the lowest level since September 2016 and confounded economists' expectations for a rise to a 1.22 million-unit pace. Homebuilding fell 2.4 percent on a year-on-year basis. Building permits last month fell 4.9 percent to a pace of 1.17 million units, the lowest level since April 2016. The housing data added to weak reports on retail sales, manufacturing production and inflation in tempering expectations of a sharp acceleration in economic growth in the second quarter. Another report on Friday showed a dip in consumer sentiment in early June. Housing has contributed to gross domestic product for two straight quarters. The Atlanta Federal Reserve cut its estimate for second-quarter GDP to a 2.9 percent annualized rate from a 3.2 percent pace. The economy grew at a 1.2 percent pace in the first quarter. See full story.


June 15: Dollar finds traction on hawkish Fed

Source: Marketwatch

New York -- The dollar gained ground versus major rivals Thursday, building on momentum following the Federal Reserve’s widely expected decision a day earlier to raise interest rates. The widely watched ICE U.S. Dollar Index DXY, which tracks the buck against a basket of six rivals, was up 0.5% at 97.414. “After the Fed’s decision, the USD (U.S. dollar) restrengthened. If U.S. economic data moderately rebounds as we expect, the market’s rather flat interest rate expectations would have room to drift higher,” wrote analysts at Credit Suisse, in a Thursday note. “In combination with a cautious European Central Bank amid subdued eurozone inflation, this should help to re-widen the U.S. yield advantage in support of the USD.”

Meanwhile, the British pound traded at $1.2744, down from $1.2753 late Wednesday in New York, losing ground after the Bank of England’s decision to leave interest rates unchanged was met with three dissents on the central bank’s monetary policy panel. The pound earlier surged to $1.2781 in the immediate wake of the rate decision from $1.2702 just ahead of the announcement. Longer term, market direction could hinge on remarks by Bank of England Gov. Mark Carney. See full story.


June 14: Fed raises interest rates

Source: Marketwatch

Washington -- The Federal Reserve lifted a key U.S. interest rate and laid out a plan to shrink its massive $4.5 trillion balance sheet starting “this year,” a pair of moves reflecting its view that an economic expansion now entering its ninth year no longer needs so much propping up. The Fed as expected on Wednesday raised its benchmark federal-funds rate by a quarter percentage point to between 1% and 1.25% — the third increase in a year and a half. The aim is to raise the cost of borrowing for consumers and businesses to ensure the economy doesn’t overheat and spark a bout of inflation.

Senior Fed officials also stuck to their plans for just one more rate increase this year. A surprise softening in inflation recently has caught the Fed’s attention, giving the bank more reason to go slow. One senior official, Minneapolis Fed President Neel Kashkari, even preferred to leave rates unchanged. He was the lone dissenter in an 8-1 vote. In a statement released after the meeting, the Fed said it would monitor inflation developments closely. “The recent run of weaker core inflation readings has clearly rattled some Fed officials,” said Paul Ashworth, chief U.S. economist at Capital Economics. See full story.


June 13: Dow, S&P 500 close at records

Source: Marketwatch

New York -- The Dow and the S&P 500 closed at records Tuesday as technology shares rebounded following a two-day decline. But the market’s focus was on the Federal Reserve’s two-day monetary policy meeting and Attorney General Jeff Sessions’ testimony before the Senate Intelligence Committee. The Dow Jones Industrial Average climbed 92.80 points, or 0.4%, to close at 21,328.47. The S&P 500 index added 10.96 points, or 0.5%, to finish at 2,440.35. The Nasdaq Composite Index rose 44.90 points, or 0.7%, to end at 6,220.37. The two-day Federal Open Market Committee meeting will wrap up Wednesday with a news conference hosted by Fed Chairwoman Janet Yellen.

Market observers are nearly unanimous in the view that the fed-funds rate will be raised, with a nearly 100% chance of an interest-rate increase, according to the CME Group. “We are seeing a little of a move back up mainly due to expectations from the Fed meeting,” said Chris Gaffney, president at EverBank World Markets. With an interest-rate increase priced in, investors are comfortable with the idea that the Fed will remain cautious to ensure that tighter monetary policy doesn’t hinder growth, he said. The Fed “has been confronted recently with softer inflation data and only scattered evidence of an expected reacceleration of activity,” David Joy, chief market strategist at Ameriprise Financial wrote in a note. “While few expect the Fed to refrain from acting this time, what it must say about upcoming meetings and the possible timing of the start of unwinding its balance sheet will be scrutinized.” See full story.




June 12: Dollar rises, pound hits 7-week low

Source: Marketwatch

New York -- The U.S. dollar strengthened against major rivals on Friday, notably against the British pound, which fell to a seven-week low after the Conservative Party lost its parliamentary majority in the U.K. general election. The pound bought $1.2718, well off from late Thursday’s level of $1.2957 before the first indication of the election result was released. Sterling fell to as low as $1.2636 earlier Friday, FactSet data showed, touching levels not seen since April 18, when U.K. Prime Minister Theresa May called a snap election to strengthen her hand in negotiations for Britain’s exit from the European Union. But Thursday’s election ended in a hung parliament, meaning no party won the 326 seats needed to form a majority.

Media reports Friday said May reached a deal with Northern Ireland’s Democratic Unionist Party to help prop up the Conservative Party’s weaker position. “Clearly there is no panic yet, but should coalition talks fail and the prospect of another election prevail, I struggle to see [sterling] maintaining these levels and it would seriously harm the U.K.’s position in Brexit talks and create huge uncertainty,” said Craig Erlam, senior market analyst at Oanda, in a note to clients early Friday. Analysts said the prospect of a so-called hung parliament, where no party holds a majority, was probably one of the worst possible outcomes, particularly as the U.K. was soon set to start negotiating Brexit terms with EU officials. See full story.


June 9: Dollar rises on U.K. ‘hung parliament’

Source: Marketwatch

New York -- The U.S. dollar strengthened 0.2% against major rivals on Friday, notably against the British pound, which fell to a seven-week low after the Conservative Party lost its parliamentary majority in the U.K. general election. The pound bought $1.2736, well off from late Thursday’s level of $1.2957 before the first indication of the election result was released. Sterling fell to as low as $1.2636 earlier Friday, FactSet data showed, touching levels not seen since April 18, when U.K. Prime Minister Theresa May called a snap election to strengthen her hand in negotiations for Britain’s exit from the European Union. But Thursday’s election ended in a hung parliament, meaning no party won the 326 seats needed to form a majority.

Media reports Friday said May reached a deal with Northern Ireland’s Democratic Unionist Party to help prop up the Conservative Party’s weaker position. “Clearly there is no panic yet, but should coalition talks fail and the prospect of another election prevail, I struggle to see [sterling] maintaining these levels and it would seriously harm the U.K.’s position in Brexit talks and create huge uncertainty,” said Craig Erlam, senior market analyst at Oanda, in a note to clients early Friday. Analysts said the prospect of a so-called hung parliament, where no party holds a majority, was probably one of the worst possible outcomes, particularly as the U.K. was soon set to start negotiating Brexit terms with EU officials. See full story.


June 8: Euro retreats from 6-month high

Source: Marketwatch

New York -- The U.S. dollar rose in volatile trade on Thursday, after European Central Bank President Mario Draghi said a substantial degree of monetary accommodation was still needed in the eurozone. Investors also watched a Capitol Hill appearance by fired Federal Bureau of Investigation boss James Comey and a U.K. parliamentary election.The U.S. dollar index DXY, which compares the dollar with a half-dozen major rivals, rose 0.3% to 97.02, but remains sharply lower for the year, having dropped 5.1% thus far in 2017. In his commentary, Draghi said the ECB was ready to increase its asset-buying program if needed, though he added that the risks to the economic outlook were “broadly balanced” and the ECB slightly raised its growth projections for the next few years. As expected, the ECB left interest rates unchanged.

The euro is up 6.6% against the dollar index in 2017, partly due to the greenback’s weakness but also on the view that rising inflation would prompt the ECB to raise interest rates in early 2018. Higher rates tend to be supportive to currencies, making parking money in the currency more attractive to traders. The euro had weakened against major rivals on Wednesday after Bloomberg reported that the ECB will cut its inflation forecast through 2019. “The case for policy normalization is pretty clear, but the ECB has no incentive to talk hawkishly just to send the currency up. This is a pretty subdued response, but I suspect it will only be temporary,” said Kit Juckes, chief currency strategist at Société Générale. The ECB is just one likely market-mover on a Thursday that includes a U.K. election and the Capitol Hill hearing by Comey. The former FBI boss’s prepared testimony was issued Wednesday, but he is facing questions about his firing and his interactions with the president. See full story.


June 7: Kocherlakota says Fed shouldn’t hike rates

Source: Marketwatch

New York -- In his six years as president of the Minneapolis Federal Reserve, Narayana Kocherlakota became famous for his most unusual transformation from a leading hawk to the biggest dove on the central bank’s policy committee. Now, as an economics professor at the University of Rochester, Kocherlakota continues to think the central bank is being too hasty to tighten monetary policy.

In an interview with MarketWatch, Kocherlakota said more jobs would be created if the Fed delays tightening policy. Kocherlakota said he doesn’t think that the labor market is at full employment, and doubts reports that businesses are having trouble finding workers. If there was a labor shortage, wage pressure and inflation would not be so tame, he said. See full story.




June 6: Jitters push yields, dollar to 7-month lows

Source: Reuters

New York -- U.S. Treasury yields and the dollar dropped to seven-month lows on Tuesday and world stocks slid as political uncertainty from the United States to Britain and the Middle East pushed investors away from risky assets. The yen and gold also gained amid prevailing caution as an Arab rift opened up around Qatar, and ahead of testimony from the former head of the FBI, a British election and the European Central Bank's next move, which all happen on Thursday.

"We have risk events piling up," said Blake Gwinn, U.S. rates strategist at NatWest Markets in Stamford, Connecticut. "We'll be very focused on what happens on Thursday, but it might end up being a dud." Wall Street was lower for a second day after both European and Asian stocks dropped during their sessions. See full story.


June 5: U.S. services, factory data slow

Source: Reuters

Washington -- U.S. services sector activity slowed in May as new orders tumbled, but a jump in employment to a near two-year high pointed to sustained labor market strength despite a deceleration in job growth last month. The moderation in services industries production, together with other data on Monday showing orders for manufactured goods falling in April for the first time in five months and worker productivity unchanged in the first quarter, suggest limited scope for faster economic growth. "The economy is neither accelerating nor slowing, but the labor market is looking up," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

The Institute for Supply Management (ISM) said its non-manufacturing activity index fell six-tenths of a percentage point to a reading of 56.9. A reading above 50 indicates expansion in the sector, which accounts for more than two-thirds of U.S. economic activity. Services industries reported a 5.5 percentage points dive in new orders last month. Prices paid by non-manufacturing industries for materials and services declined after increasing for 13 straight months. See full story.


June 2: Jobs growth slows to 138,000 in May

Source: Marketwatch

Washington -- The U.S. added a modest 138,000 new jobs in May and hiring earlier in the spring was weaker than initially reported, adding to evidence that the tightest labor market in years is making it harder for companies to fill open jobs. The unemployment rate, meanwhile, fell again to 4.3% from 4.4% and touched the lowest level since 2001, the Labor Department reported. Yet the decline stemmed more from people leaving the labor force than an increase in the number who found jobs. The increase in hiring last month was well below Wall Street’s forecast, but the Dow Jones industrial Average DJIA, +0.30% rose in early Friday trading, perhaps a signal the Federal Reserve won’t be aggressive in raising interest rates. Economists surveyed by MarketWatch estimated a 185,000 increase in nonfarm jobs.

The steady rate of hiring, ultra-low unemployment rate and growing evidence of pressure on companies to raise wages is likely to keep the Federal Reserve on track to raise interest rates when senior bank officials meet in mid-June. The bigger question how far and how fast the Fed goes, especially since broader inflationary pressures have receded in the past few months. Whatever the case, the economy is on very solid ground. The U.S. is about to enter its ninth full year of expansion — making it the third longest since the 1850s — and there’s few cracks in the foundation. The recent soft patch in hiring has been especially pronounced in the spring. The government cut its estimate of new jobs created in April to 174,000 from 211,000. And March’s gain was reduced to 50,000 from 79,000. See full story.


June 1: Private sector job growth rebounds

Source: Marketwatch

Washington -- Private-sector hiring surged in May, according to a report released Thursday. Employers added a seasonally adjusted 253,000 during the month, payroll processor ADP said. Mark Zandi, chief economist for Moody’s Analytics, which helps produce the report, called job growth “rip-roaring.”

That was a much stronger pace of hiring than the Econoday consensus, which had called for 170,000 jobs. Economists watch ADP’s report for clues about the government’s monthly payroll data, due out Friday, though ADP has an imperfect record of forecasting the Labor Department’s numbers. The MarketWatch consensus for the government data is for a gain of 185,000 jobs. See full story.


May 31: U.S. economy ambles on

Source: Reuters

Washington -- The U.S. economy expanded at a modest to moderate pace from early April through late May but showed little sign of breaking out of a recent trend of sluggish inflation, a survey conducted by the Federal Reserve showed on Wednesday. "On balance, pricing pressures were little changed from the prior report," the central bank said in its Beige Book report of the economy derived from anecdotal evidence provided by business contacts nationwide. The Fed has begun to quicken the pace of interest rate hikes on an improving economy after years of rates held near zero in the aftermath of the financial crisis. The U.S. unemployment rate - currently at 4.4 percent - is at a near 10-year low.

Policymakers raised rates in December 2015 and again a year later, and have forecast three rate hikes in 2017. They raised rates in March and could do so again as early as their next policy meeting in two weeks time. Influential Fed Governor Lael Brainard said on Tuesday a rate rise "likely will be appropriate soon," although she and some other Fed officials remain concerned about stilted progress on inflation meeting the Fed's 2 percent target rate in recent months. See full story.


May 30: Consumer confidence falls for second month

Source: Marketwatch

Washington -- Consumer confidence fell in May for the second month in a row, suggesting Americans have tempered their expectations for the economy after a huge burst of optimism earlier in the year. The Conference Board said its consumer confidence index dropped to 117.9 in May from 119.4 in April. Just three months earlier, consumer confidence hit its highest level in more than 16 years on hopes that a pro-business Trump administration would give the economy a jolt. Yet so far the biggest proposals by the White House to replace Obamacare, cut taxes and increase spending on public works have languished in Congress or have yet to be put to the test.

Still, Americans are generally more optimistic amid a steady increase in hiring, a falling unemployment rate, rising wages and a drop in gasoline prices. The economy appears to have sped up in the spring after a slow start to 2017. Yet so far the biggest proposals by the White House to replace Obamacare, cut taxes and increase spending on public works have languished in Congress or have yet to be put to the test. Still, Americans are generally more optimistic amid a steady increase in hiring, a falling unemployment rate, rising wages and a drop in gasoline prices. The economy appears to have sped up in the spring after a slow start to 2017. See full story.


May 26: Economy slowed less than expected in Q1

Source: Reuters

Washington -- The U.S. economy slowed less than initially thought in the first quarter, but softening business investment and moderate consumer spending are clouding expectations of a sharp acceleration in the second quarter. Gross domestic product increased at a 1.2 percent annual rate instead of the 0.7 percent pace reported last month, the Commerce Department said on Friday in its second GDP estimate for the first three months of the year. That was the worst performance in a year and followed a 2.1 percent growth rate in the fourth quarter.

"Economic indicators so far aren't entirely convincing on a second-quarter bounce in activity and show a U.S. economy struggling to surprise on the upside," said Scott Anderson, chief economist at Bank of the West in San Francisco. The first-quarter weakness is a blow to President Donald Trump's ambitious goal to sharply boost economic growth. Though the economy appears to have regained some speed early in the second quarter, hopes of a sharp rebound have been tempered by weak business spending, a modest increase in retail sales last month, a widening of the goods trade deficit and decreases in inventory investment. See full story.


May 25: Oil plunges on OPEC disappointment

Source: Reuters

New York -- Oil prices fell about 4 percent on Thursday, on track for their biggest daily drop in three weeks, after OPEC's decision to extend production curbs fell short of expectations of deeper or longer cuts. As expected, the Organization of the Petroleum Exporting Countries, along with other non-OPEC members, agreed to extend a cut in oil supplies of 1.8 million barrels per day (bpd) until the end of the first quarter of 2018 to reduce a glut of supply. However, in the days prior to the meeting, talk of a possible extension for 12 months, or deeper cuts than the current agreement, helped buoy prices on optimism of a faster drawdown in supply. In Vienna on Thursday, Saudi Arabia's energy minister, Khalid al-Falih, said ministers did not see a need to reduce oil output further.

“Members participating in the output deal failing to agree on deeper cuts have given a bearish signal to the market as an extension alone may not rebalance the market fast enough," Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London. Brent crude oil LCOc1 was down $2.07, or 3.8 percent at $51.89 a barrel by 1:02 p.m., after hitting a low of $51.32. U.S. West Texas intermediate crude futures CLc1 was trading $2.05 or 4 percent lower at $49.31. WTI plunged as much as 5 percent to a low of $48.75, breaking through $50 for the first time all week as volumes rose sharply. Both benchmarks were on track for their biggest percentage decline in three weeks. See full story.


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