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Dollar hits highest since March
-- The dollar hit an eight-and-a-half-month high against key world currencies Monday as the prospect of further European Central Bank stimulus dragged the euro down to its weakest since mid-April. Global stock markets were mixed, with Wall Street dropping after a long weekend and ahead of a crucial jobs report Friday, while European shares rose. Still, the three major U.S. indexes were set to end the month higher for a second straight month. "We're coming off a quiet holiday week and we have a lot of hurdles to cross this week with all the data that we're expecting," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.
The week is likely to highlight the divergent outlooks for interest rates in the United States and the euro zone which may set the tone for markets early next year. European shares were lifted by the prospect of the ECB unveiling an extension of its bond-buying program at a Thursday meeting. In contrast, the U.S. Federal Reserve is expected to raise interest rates in December for the first time in nearly a decade. The dollar index, which measures the greenback against a basket of major currencies, touched its highest since mid-March and was on track for a 3 percent monthly gain. See full story.
U.S. consumer spending tepid
-- U.S. consumer spending barely rose in October as households took advantage of rising incomes to boost savings to their highest level in nearly three years, pointing to moderate economic growth in the fourth quarter. The Commerce Department said on Wednesday consumer spending edged up 0.1 percent after a similar increase in September. That suggests consumer spending, which accounts for more than two-thirds of U.S. economic activity, has slowed from the third quarter's brisk 3.0 percent annual pace.
The tepid rise in consumer spending could combine with an anticipated drag on the economy from an ongoing inventory reduction to hold the economy to around a 2 percent growth rate in the fourth quarter. The government reported on Tuesday that the economy expanded at a 2.1 percent rate in the third quarter. There was still no sign of inflation, which has persistently run below the Federal Reserve's 2 percent target. A price index for consumer spending ticked up 0.1 percent after declining in September for the first time since January. See full story.
Downed Russian jet raises geopolitical risks
-- Global stocks sold off and investors sought out havens like the yen and gold, but the overall reaction to Turkey’s downing of a Russian jet fighter remains relatively muted. There have been long-standing fears of a confrontation between Russia and Turkey, a member of the North Atlantic Treaty Organization. Both Turkey and Russia have ways to up the stakes in the medium term, the IHS analysts said. The incident, however, underscores longer term risks, analysts said.
”Russia can increase the price of Russian gas, while Turkey can provide support to insurgents within Russian Caucasian republics and in Crimea. Russia is also likely to retaliate indirectly by increasing support for the Syrian-Kurdish Democratic Union Party and its Turkey-based counterpart, the Kurdistan Workers’ Party,” they wrote. Meanwhile, the incident represents a major obstacle to neutralizing the threat posed by Islamic State—one of the most intransigent risks threatening the West, and by extension global markets, analysts said. See full story.
Commodities hit 13-year low on dollar
-- A measure of commodity prices hit its lowest in 13 years before bouncing back as the expectation of higher interest rates in the United States lifted the dollar to its highest in eight months. Stocks in major markets ticked lower after five days of gains and the euro fell as low as $1.0599, a seven-month low as the prospect of more policy easing by the European Central Bank was compounded by a security lockdown in Brussels.
The Thomson Reuters Core Commodity CRB index .TRJCRB hit its lowest since November 2002. The gauge is down more than 20 percent so far this year. "The biggest factor here is the dollar," said Hans van Cleef a senior energy economist at ABN Amro in Amsterdam. "It is having an impact on all major commodities at the moment." See full story.
Draghi: ECB will do what it must
-- The European Central Bank is prepared to deploy its full range of stimulus measures to fight low inflation, ECB President Mario Draghi said on Friday, suggesting that additional easy money policies are a strong possibility at the bank's next policy meeting in December. In a speech to a banking conference, Mr. Draghi specifically referred to the ECB's already negative deposit rate, an indication that it may be cut even further. He also underscored the power of the ECB's bond purchase program, a signal that an expansion of that program would likely be part of any fresh stimulus package.
"If we conclude that the balance of risks to our medium-term price stability objective is skewed to the downside, we will act by using all the instruments available within our mandate," Mr. Draghi said in his prepared remarks. The comments from Mr. Draghi, echoed by other top ECB officials, suggest support among the highest ranks of the central bank for expanding its quantitative easing program and cutting the deposit rate further. Under the ECB's bond buying program which was launched in March, the central bank is buying EUR60 billion ($64.41 billion) a month in mostly government bonds. It is slated to run at least through September 2016, but many analysts expect the ECB to extended the program beyond this date. See full story.
Fed's Lockhart sees "slow and halting" rate path
-- The U.S. Federal Reserve may be heading for a "slow ... halting" effort to raise interest rates after it begins its first tightening cycle in about a decade, Atlanta Fed President Dennis Lockhart said on Thursday. Speaking less than a month before the U.S. central bank is widely expected to raise rates from the current near-zero level, Lockhart said he is "comfortable with moving off zero soon," barring an unexpected downturn in the economic outlook. The Fed's targets for the U.S. labor market have largely been met and its price goals should be met over time, he said in prepared remarks to the DeKalb Chamber of Commerce in Atlanta.
But that doesn't mean the U.S. economy is in the clear, or that it will function as it did before the 2007-2009 financial crisis, Lockhart said. There are "serious concerns" about the global outlook, he said, and lower trend U.S. economic growth may mean the Fed's target "equilibrium" interest rate may be lower than in the past. "The pace of increases may be somewhat slow and possibly more halting than historic episodes of rising rates," Lockhart said. "Moreover, to the extent the evolving economic picture allows a process leading to a 'resting place,' that point might be lower than in the past, as implied by a somewhat lower trend rate of economic growth." See full story.
Fed minutes lean toward December hike
-- A large majority of Federal Reserve officials last month signaled they were nearly ready to make their first interest-rate hike in nine years. “Most participants” anticipated that the conditions for beginning to raise interest rates “could well be met by the time of the next meeting,” according to the minutes of the October meeting released by the Federal Open Market Committee on Wednesday.
In their October statement, for the first time, Fed officials said that they would contemplate a rate hike at their next meeting, set for Dec. 15-16. A majority of Fed officials said this new language didn’t mean a rate hike in December was automatic. But they said it would take an “unanticipated shock” or weak data would change their course. A minority of doves on the committee thought the new language could be misinterpreted as signaling too strongly the expectation that rates would be increased at the next meeting. See full story.
U.S. inflation turning corner;
-- U.S. consumer prices increased in October after two straight months of declines as the cost of healthcare and other services rose, evidence of firming inflation that further supports views that the Federal Reserve will raise interest rates next month. The economic outlook also got a boost from other data on Tuesday showing a fairly solid increase in manufacturing output in October after dropping for two consecutive months. "There is nothing that derails a December Fed rate hike in today's data. Inflation is starting to turn a corner and manufacturing production remains resilient," said Thomas Costerg, an economist at Standard Chartered Bank in New York.
The Labor Department said on Tuesday its Consumer Price Index increased 0.2 percent last month, reversing September's 0.2 percent drop. In the 12 months through October, the CPI advanced 0.2 percent after being unchanged in September. Signs of stabilization in prices after a recent downward spiral are likely to be welcomed by Fed officials and give them some confidence that inflation will gradually move toward the central bank's 2.0 percent target. Inflation has persistently run below target. In the wake of a robust October employment report, the U.S. central bank is expected to raise its benchmark overnight interest rate from near zero at its Dec. 15-16 meeting. See full story.
Empire State index remains deeply negative
-- A reading of New York-area manufacturing remained deep in negative territory in November, a further sign of the tough sledding facing U.S. factories in a weak global economy. The Empire State general business conditions index inched up to a reading of negative 10.7 from negative 11.4 in October, the New York Fed said. This marked the first four consecutive months where the index has been below negative 10 since early 2009. Economists had expected a smaller contraction in the index, which is on a scale where any positive number indicates improving conditions.
A MarketWatch-compiled economist poll had expected a negative 6.5 reading in November. Both the new-orders component and the shipments index had smaller contractions in November. Readings for unfilled orders and inventories were weaker. At the same time, labor market conditions continue to deteriorate, with employment levels and hours worked declining. The index for future business activity was little changed, suggesting “tepid optimism” about the future, the New York Fed said. See full story.
Wholesale inflation sees record fall
-- Inflationary pressure in the innards of the U.S. economy is hard to find. The producer price index, which includes wholesale costs, fell 0.4% in October, the Labor Department said Friday. The index has been flat or lower for four straight months, contributing to a record 1.6% decline over the past year using an updated method calculating prices that took effect in 2010. The cost of wholesale goods declined 0.4%. The overall cost of services dropped 0.3% last month, reflecting lower revenue generated by wholesalers and retailers.
A separate government report on Friday showed just a measly 0.1% gain in retail sales in October, with several large firms such as Macy’s and Nordstrom warning that sales have deteriorated. Measures of wholesale inflation at earlier levels of production were also muted. Whatever the case, the Federal Reserve appears poised to raise U.S. interest rates as early as December. The central bank expects inflation to rise in the next year as the effects of cheaper gas prices and a strong dollar fade. See full story.
Gold demand rises 8% in third quarter
-- Global gold demand rose 8% in the third quarter, boosted by buying from retail investors in key regions scooping up cheaper metal after it fell in price, said the World Gold Council Thursday. Consumption of the precious metal was 1,120.9 metric tons between July and September this year, up from 1,041.9 tons during the same period in 2014, according to the industry body's Gold Demand Trends report. Jewelry demand, which makes up more than 60% of total gold demand, was up 6% in the third quarter to 631.9 tons--it's highest level for that quarter since 2008.
Total bar and coin demand increased 33% to 295.7 tons, from 222.2 tons over the same time-frame in 2014. In China, bar and coin demand shot up 70% to 52.3 tons, up from 30.8 tons in the third quarter last year. In India, bar and coin demand was up 6% at 57 tons, from 54 tons in 2014. U.S. bar and coin demand rose 207% to 32.7 tons from 10.6 tons during the same period last year, while European bar and coin demand increased 35% to 60.9 tons, from 45.3 tons. See full story.
Dollar most overbought in 30 years
-- One technical indicator suggests that the dollar has reached its most overbought level in 30 years. The z-scores of the dollar’s six main freely traded rivals — the Canadian dollar, yen, British pound, Swiss franc, euro and Australian dollar — have all risen above six simultaneously for the first time since 1985. These six rivals make up the ICE U.S. Dollar index DXY, -0.24% , a widely watched measure of the dollar’s strength.
For those who haven’t taken an advanced statistics class, the z-score allows statisticians to make an apples-to-apples comparison between different data sets. According to the analysts at Sundial Capital Research who compiled the report, the dollar’s relative valuation swelled to this level twice during the dollar rally of the early 80s — once in July 1982, and again in March 1985...the second hit immediately preceded a turning point in the dollar’s long-term trend. See full story.
U.S. data show benign inflation
-- U.S. import prices fell in October as the cost of petroleum and a range of goods declined, indicating that a strong dollar and soft global demand continued to exert downward pressure on imported inflation. Other data on Tuesday showed a surprise increase in wholesale inventories in September, suggesting that the slowdown in economic growth in the third quarter was not as abrupt as initially believed. The Labor Department said import prices dropped 0.5 percent last month after declining 0.6 percent in September.
Import prices have now fallen in 14 of the last 16 months. Imported petroleum prices fell 2.1 percent after slipping 6.0 percent in September. "We believe that weakness in emerging Asia, especially China, is likely to push down import prices over and above any effect from the appreciation of the dollar," said Rob Martin, an economist at Barclays in New York. In the 12 months through October, prices tumbled 10.5 percent. The robust dollar and a sharp decline in oil prices have weighed on inflation, which is persistently running below the Federal Reserve's 2 percent target. See full story.
World stocks fall on China worries
-- World equity indexes dropped on Monday as disappointing trade data in world No. 2 economy China stoked concerns over weakening global growth, while oil prices slipped. All three major U.S. stock indexes were down more than 1 percent, while European shares closed 1.1 percent lower. Fresh builds at the delivery point for U.S. crude futures also dragged down oil prices, offsetting bullish OPEC demand projections.
Data showed China's October exports fell for a fourth month, while imports also dropped, leaving the nation with a record high trade surplus of $61.64 billion. Also not boding well for world growth, the Organization for Economic Co-operation and Development cut its 2015 global growth forecast again. But it said the U.S. Federal Reserve should raise interest rates as the U.S. economic recovery gains steam. Recent economic data including Friday's U.S. jobs report has boosted bets for a December rate hike by the Fed, which has added to volatility in U.S. stocks. See full story.
U.S. jobs report sends dollar soaring against major currencies
-- The dollar jumped against major world currencies on Friday after data showed the U.S. economy created far more jobs than expected in October, bolstering the case for an interest rate increase from the Federal Reserve next month. Non-farm payrolls increased 271,000 last month, the largest rise since December. Market economists polled by Reuters had predicted 180,000 new jobs for October. The data sent the dollar higher across the board. The greenback hit highs of 2-1/2-months versus the yen, seven months against the Swiss franc and 6-1/2 months against the euro. "I think (the dollar increase) will be sustained and will continue in the coming week," said Kathy Lein, managing director of FX strategy at BK Asset Management in New York. "I don’t think we’ll get too much additional push but maybe a slow ascent higher."
Recent speeches from Fed officials, including Chair Janet Yellen, had given traders the impression that the bar for a rate hike at its December meeting was low. Before the report, economists had said monthly job gains above 150,000 in October and November would be sufficient grounds for the first increase in overnight borrowing costs since 2006. “This is an unambiguously strong report,” said Brendan Murphy, senior portfolio manager for the Standish Global Fixed Income Fund in Boston. "It gives the Fed a green light to raise rates in December." St. Louis Fed President James Bullard added to that perception on Friday, telling reporters after the data was released that the "case continues to be compelling" for a December rate increase. Bullard also said he expected inflation to reach around 2 percent by the end of next year, fulfilling the other part of the Fed's dual mandate. See full story.
Dollar Rides Yellen's Wednesday comments to more gains
-- The dollar hit a three-month high against a basket of major currencies and a two-month peak versus the yen on Thursday, underpinned by comments from Federal Reserve officials suggesting a growing chance of an interest rate hike next month. Remarks from Fed Chair Janet Yellen on Wednesday boosted the dollar, with the effect carrying over to Thursday's session. The chances for a December rate hike are now perceived as higher than 50 percent after Yellen laid out what appeared to be the base case at the U.S. central bank that the economy is ready for higher rates. Driving home the point, New York Fed President William Dudley later Wednesday said he would "completely agree" with Yellen that December is a "live possibility" for raising rates.
The greenback fell to a session low against the euro on Thursday after unexpectedly weak data on U.S. jobless claims but largely rebounded and was last up 0.02 percent at $1.0860. U.S. jobless claims showed the biggest weekly rise in eight months but the level was still considered consistent with an improving labor market. The dollar broke out of its recent 120.00 to 121.60 range against the yen to reach a two-month high of 122.00 yen. It was last up 0.1 percent at 121.66 yen. See full story.
Yellen sees possible December rate hike
-- Federal Reserve Chair Janet Yellen on Wednesday pointed to a possible December interest rate "liftoff" but said rates would rise only slowly from then on to nurture the U.S. economic recovery. In her first public comments since the Fed's meeting last week Yellen laid out what now appears the base case at the U.S. central bank - that low unemployment, continued growth and faith in a coming return of inflation means the country is ready for higher interest rates. Her remarks pushed bond yields higher and stocks lower. They also caused investors to reset their expectations of a December rate hike above 60 percent, a sign that markets are finally taking the Fed's language seriously after a period in which U.S. central bankers were frustrated by the gap between their own outlook and market bets about their likely course of action.
"What the committee has been expecting is that the economy will continue to grow at a pace that is sufficient to generate further improvements in the labor market and to return inflation to our 2 percent target over the medium term," Yellen said at a House Financial Services Committee hearing. "If the incoming information supports that expectation then our statement indicates that December would be a live possibility." Moving sooner rather than later, she said, would allow the Fed to take a gradual approach to further hikes, slow enough to ensure that housing and other key markets are not disrupted by rising rates. See full story.
U.S. factory orders fall again
-- New orders for U.S. factory goods fell for a second straight month in September as the manufacturing sector continues to struggle under the weight of a strong dollar and deep spending cuts by energy companies. Motor vehicle production, however, remains a bright spot as orders surged in September. That trend is likely to persist, with early reports on Tuesday showing automobile sales were on track to be the strongest in 14 years.
"This morning's report provides little new signal on the state of U.S. manufacturing. Demand for many categories of manufactured goods continues to struggle from the effect of a stronger dollar, weak foreign demand and lower energy prices," said Jesse Hurwitz, an economist at Barclays in New York. The Commerce Department said new orders for manufactured goods declined 1.0 percent after a downwardly revised 2.1 percent drop in August. Factory orders were previously reported to have declined 1.7 percent in August. See full story.