Daily Economy Watch keeps an eye on events that affect your hard asset portfolio. View archives.
Weak demand hits global factory activity
-- Dwindling demand hurt factory activity across much of Asia and Europe in September, and mixed manufacturing indicators in the Americas on Wednesday raised the chances of slower global economic growth in the months ahead. China's manufacturing sector barely expanded, while Britain's slumped, and the drop in new orders did not even spare Germany, the strongest member of the euro zone currency bloc, or France, its No. 2 economy.
Eurozone factories' final September purchasing managers' index from private data vendor Markit was 50.3, down from 50.7 in August, and its lowest reading since July last year, as new orders contracted for the first time in more than a year. The U.S. manufacturing industry expanded in September, though at a slower pace than in August. See full story.
Consumer confidence fell in September
-- U.S. consumer confidence fell in September for the first time in five months and home prices in July rose less than expected from a year earlier, underscoring the unsteady nature of U.S. growth. Another report on Tuesday showed business activity growth in the U.S. Midwest decelerated slightly in September. "We're continuing to effectively struggle," said Mike Englund, chief economist at Action Economics in Boulder, Colorado. "Some of the optimism that we got in the updraft in consumer confidence in the third quarter was probably a bit overstated."
Consumer confidence was hurt by concerns over the job market and expectations that economic growth will slow in coming months. In a third report, the Institute for Supply Management-Chicago business barometer fell to 60.5 this month from 64.3 in August, falling short of economists' expectations for 61.9. See full story.
Consumer spending bounces back
-- Consumer spending rebounded toward the end of the summer as Americans bought more cars, electronics and furniture. Consumer spending rose by a seasonally adjusted 0.5% in August after no change in the prior month, the Commerce Department said Monday. Initially the government had reported that spending fell in July.
The bounce back in spending suggests the economy continued to grow at a moderate pace in the third quarter, with further income gains and diminishing inflation giving Americans more cushion to spend in the months ahead. Consumption accounts for more than two-thirds of the U.S. economy activity. See full story.
Dollar gains for eleventh week
-- The U.S. Dollar Index finished higher Friday, notching its 11th-consecutive weekly gain, extending its longest winning streak since the currency became free-floating in 1973. The U.S. Dollar Index reached 85.6490 Friday afternoon, compared to 85.1950 late Thursday. It benefitted from an upward revision to U.S. second-quarter GDP data released Friday morning. Positive GDP data showing the U.S. economy enjoyed its best performance since the recession ended in mid-2009, helped drive the buck higher.
“While [the dollar rally] is undoubtedly the strongest trend in the market right now, there are risks to the buck’s rally heading into next week,” said Matthew Weller, senior technical analyst at FOREX.com. A host of economic data will come to bear including the jobs report. If next Friday’s non-farm payrolls report comes in below 200,000 like it did in August, investors could sour on the currency, Weller said. See full story.
Wall Street ends sharply lower
-- U.S. stocks sank, with the Nasdaq 100 plunging the most since April, as Apple Inc. sank on complaints related to its new smartphone and amid signs of worsening conflict in Russia and the Middle East. The Standard & Poor’s 500 Index (SPX) fell the most since July, sliding 1.6 percent to 1,965.99 at 4 p.m. in New York. All but 14 of the index’s components retreated, the broadest slump since Feb. 3. The Dow Jones Industrial Average plunged 264.26 points, or 1.5 percent, to 16,945.80. The Nasdaq 100 dropped 2.1 percent. About 6.4 billion changed hands on U.S. exchanges today, 13 percent above the three-month average.
Equities opened lower as data on equipment orders and jobless claims bolstered speculation the economy is strong enough for the Federal Reserve to raise rates sooner than estimated. Stocks extended losses on a report that Russian lawmakers drafted legislation that would allow the government to seize foreign assets. U.S. and Arab airstrikes targeted oil refineries in the east of Syria. “We could have a pull back of 5 percent anytime if you have a confluence of factors that impact investor psychology or geopolitical factors that seem to get out of control,” Marshall Front, chief investment officer at Chicago-based Front Barnett Associates LLC, said by phone. See full story.
New home sales surged in August
-- New-home sales in the U.S. surged in August to the highest level in more than six years, a sign that the housing recovery is making progress. Purchases of new houses jumped 18 percent to a 504,000 annualized pace, the strongest since May 2008 and surpassing the highest forecast in a Bloomberg survey of economists, Commerce Department figures showed today in Washington. The one-month increase was the biggest since January 1992.
The housing market is improving in fits and starts this year amid slow wage growth and tight credit conditions. Sustained improvement in the job market will be needed to push up pay and sustain a stronger recovery. The sales data are volatile because they’re based on a small sample, which means last month’s figure could be revised over coming months. See full story.
Dollar falls on uneven recovery
-- The dollar fell against most of its major peers as signals of an uneven economic recovery damped speculation the Federal Reserve will raise interest rates by mid-2015. The yen gained earlier versus the dollar as the U.S. said it conducted its first airstrikes in Syria, boosting demand for the safest assets. A Bloomberg gauge of the dollar retreated for the first time in three days as data showed U.S. home prices rose less than forecast in July, the second report in two days showing a weaker-than-forecast housing market.
“We’ve had a little bit of setback in growth expectations and Fed-action expectations in the U.S.,” Greg Anderson, head of global foreign-exchange strategy in New York at Bank of Montreal, said in a phone interview. “It has translated into foreign-exchange participants taking off their favorite trade, which is long the dollar against the world.” Traders saw a 43 percent chance the Fed will increase its benchmark interest-rate target to at least 0.5 percent by June, federal-funds futures trading showed. The likelihood was 48 percent on Sept. 19. See full story.
Treasurys climb as investors fret over China
-- Treasury prices rose on Monday as Chinese economic woes pushed investors toward securities that benefit from uncertainty. The 10-year Treasury note yield, which falls as prices climb, was down 2.5 basis points on the day at 2.564%, on track to fall for the second consecutive session, according to Tradeweb. China’s finance minister said over the weekend that the nation won’t make major tweaks to its policies, even as it faces downward economic pressure. That pushed investors into safe assets like Treasurys, while U.S. stocks dipped.
Soft data helped add to Treasury gains. The Chicago Federal Reserve’s national activity index turned negative in August, indicating that activity was below trend. Sales of existing homes dropped for the first time in five months during the month of August.The central bank affirmed last week that its outlook on eventually raising short-term interest rates will depend on improvement in economic data. That reminded investors of the importance of key releases.See full story.
Leading indicators rise in August
-- Economic activity in the United States rose less than expected in August, but was still consistent with the economy expanding at a moderate pace for the rest of this year, The Conference Board said on Friday. The research organization's monthly Leading Economic Index inched up 0.2 percent, after an upwardly revised 1.1 percent increase in July. Economists polled by Reuters predicted that the index would rise 0.4 percent after July's earlier reported 0.9 percent increase.
The slower-than-expected pace of growth last month, the report said, was driven by dismal applications for housing permits and new orders for non-defense capital goods. "The leading indicators point to an economy that is continuing to gain traction, but most likely won't repeat its stellar second-quarter performance in the second half," said Ken Goldstein, economist at The Conference Board. See full story.
Jobless claims fall to 2-month low
-- The number of Americans filing applications for unemployment benefits plunged last week to a two-month low, a sign the labor market continues to strengthen. Jobless claims decreased by 36,000 to 280,000 in the period ended Sept. 13, the Labor Department said today in Washington. The median forecast of 52 economists surveyed by Bloomberg called for a decline to 305,000. Those already collecting unemployment benefits fell to a more than seven-year low.
Companies are retaining workers as stronger household and corporate demand fuels order growth. Fewer firings and more job gains represent a labor market that has “improved somewhat further,” even as other indicators point to persistent slack, Federal Reserve policy makers said yesterday. “The fact that we’re falling below 300,000 -- that’s a good sign,” said Aneta Markowska, chief U.S. economist at Societe Generale in New York, whose forecast for 290,000 claims was the lowest in the Bloomberg survey. “Companies are not laying off. A big chunk of the decline in continuing claims is basically people finding jobs.” See full story.
CPI falls for first time in 16 months
-- Consumers keep getting sticker shock from the rising price of beef, but they might be able to afford more steak and burgers if the price of gasoline continues to drop. U.S. consumer prices fell in August for the first time in 16 months, largely because of a decline in the cost of filling up at the gas station, the government reported Wednesday. Lower energy costs helped offset another increase in the price of groceries. The consumer price index dropped a seasonally adjusted 0.2% last month, the Labor Department said Wednesday. Economists surveyed by MarketWatch had expected the CPI to be flat.
The receding rate of inflation means the Federal Reserve is likely to stick to its current course of slowly reducing stimulus for the economy. Top Fed officials meet Wednesday to plot their strategy. “The latest report on consumer prices showed few sources of upward pressure,” chief economist Michael Moran of Daiwa Capital Markets America wrote in a note. See full story.
Producer prices flat in August
-- U.S. producer prices were flat in August, pointing to muted inflation pressures that should allow the Federal Reserve to bide its time as it considers when to raise interest rates. The Labor Department said on Tuesday falling gasoline and food prices restrained its producer price index for final demand last month. Prices received by the nation's farms, factories and refineries had edged up 0.1 percent in July.
"The Fed has more time to allow monetary policy to work its way through the economy before feeling the need to raise rates," said Jay Morelock, an economist at FTN Financial in New York. Economists had expected producer prices to gain 0.1 percent last month. In the 12 months through August, they increased 1.8 percent, accelerating a bit from the 1.7 percent rise in the year through July. The report came as Fed officials gathered for two-day policy meeting. They have held benchmark rates near zero since late 2008, but are seen inching toward an increase around the middle of next year. See full story.
China growth weakens in August
-- Data showing that the Chinese economy quickly lost steam in August caused some economists on Monday to trim their 2014 growth forecasts for the country. UBS shaved its full-year forecast to 7.2 percent from 7.3 percent. Barclays Capital reduced its projection to 7.2 percent from 7.4. ING cut its forecast to 7.4 from 7.5 percent. Over the weekend, data showed factory output grew at its weakest pace in nearly six years in August while weaker readings in investment, retail sales and imports revealed a picture of an economy struggling to gain momentum despite recent stimulus steps.
"Our downward revision is based on our belief of a shift in the government's attitude and it is now less focused on achieving the 7.5 percent growth target," analysts at Barclays said in a note. The slowdown in the data also indicated banks are getting cautious about lending, especially with the backdrop of mounting pressure on company balance sheets and an entrenched slowdown in the property sector, a key engine for economic growth. See full story.
U.S. stocks snap 5-week advance
-- The U.S. stock market closed lower on Friday as rising Treasury yields and the prospect of next week’s Fed rate meeting made investors cautious.
The S&P 500 retreated from record high levels throughout the week amid speculation that the Federal Reserve may signal the arrival of interest-rate increases sooner than expected.
Kristina Hooper, U.S. investment strategist at Allianz Global Investors, said that near-term small selloff in September and October is not surprising. “Retail sales data were positive and suggest the economy is growing steadily. But there is trepidation among investors, ahead of next week’s Fed meeting and whether the Fed will change the language over the timing of the interest-rate increases,” Hooper said.
For the full story please use this link: http://www.marketwatch.com/story/us-stocks-futures-flat-consumers-in-the-spotlight-2014-09-12?link=MW_home_latest_news
Treasury Auctions Attract Most Foreign Demand Since February
-- Treasury auctions this week attracted the strongest demand since February from a class of investors that includes foreign central banks as the plunge in European yields spurred demand for higher-returning U.S. debt.
International investors have been flocking to Treasuries since speculation the European Central Bank was moving closer to buying bonds drove yields in the region to historic lows this month and turmoil in Ukraine enhanced the refuge appeal. The gap between U.S. 10-year note yields and comparable securities from Group of Seven countries widened to 0.83 percent, close to the highest since June 2007.
For the full story please use this link: http://www.bloomberg.com/news/2014-09-11/treasury-auctions-attract-most-foreign-demand-since-february.html
Pound Climbs Scots May Stay in U.K.
-- The pound jumped from the lowest level in 10 months after an opinion poll showed fading support for Scotland’s bid for independence from the U.K.
The dollar reached the strongest against the yen since 2008 and rose versus the euro as traders raised bets the Federal Reserve will increase interest rates in mid-2015. Switzerland’s franc slumped to a one-year low against the dollar and dropped versus the euro after the Wall Street Journal reported negative interest rates remain an option for the Swiss National Bank. The ruble dropped as European officials considered sanctions against Russia.
For the full story please use this link: http://www.bloomberg.com/news/2014-09-10/euro-falls-as-wsj-reports-swiss-say-neative-rates-an-option.html
French rival Greeks for pessimism
-- The French have become almost as pessimistic as the Greeks as Europe struggles with a persistent lack of job prospects, according to a Pew Research Center poll that paints a gloomy picture of the world economy. Forty-eight percent of French people surveyed said they expect the economic situation to deteriorate over the next 12 months, second only to the Greeks, with 53 percent, among the 44 nations polled. In Greece, Italy and Spain, more than 90 percent of respondents said the current situation is bad, a view held by 88 percent in France.
As President Francois Hollande struggles to lift the country out of its economic malaise, France faces the sputtering growth and high unemployment that has dogged countries across the euro zone since the crisis. The European Central Bank last week announced a new round of measures to jump-start activity, while at the same time postponing a fight with Germany over whether it should buy government bonds. “Amid an uneven global economic recovery, publics around the world remain glum,” the Pew poll said. “In most nations, people say their country is heading in the wrong direction and most voice the view that economic conditions are bad.” See full story.
China trade surplus hits record
-- China’s trade surplus climbed to a record in August as exports rose on the back of increased shipments to the U.S. and Europe, while imports fell for a second month as a property slump hurt domestic demand. Exports increased 9.4 percent from a year earlier, the Beijing-based customs administration said today, compared with the 9 percent median estimate in a Bloomberg survey. Imports unexpectedly dropped 2.4 percent, leaving a trade surplus of $49.8 billion.
Divergent directions for exports and imports show China is some way from providing the global growth boost that IHS Inc. this month forecast will see it eclipse the U.S. economy in 2024. Languishing domestic demand underscores risks to the government’s economic-growth target this year of about 7.5 percent as home prices and construction fall, boosting chances of additional stimulus. See full story.
Job growth falls to eight-month low
-- U.S. employers hired the fewest number of workers in eight months in August and more Americans gave up the hunt for jobs, providing a cautious Federal Reserve with more reasons to wait longer before raising interest rates. Nonfarm payrolls increased 142,000 last month after expanding by 212,000 in July, the Labor Department said on Friday. The jobless rate fell one-tenth of a percentage point to 6.1 percent, but that was partly because people dropped out of the labor force.
"Fed Chair Janet Yellen will be able to use the weakness to hold off hawks who would like to raise rates soon," said Diane Swonk, chief economist at Mesirow Financial in Chicago. Data for June and July were revised to show 28,000 fewer jobs created than previously reported. In addition, manufacturing saw no job growth and retail payrolls declined for the first time since February. See full story.
Draghi adds $900 billion in ECB aid
-- Mario Draghi signaled at least 700 billion euros ($906 billion) of fresh aid for his moribund economy and left a fight with Germany over sovereign-bond purchases for another day. Pledging to “significantly steer” the European Central Bank’s balance sheet back toward the 2.7 trillion euros of early 2012 from 2 trillion euros now, the ECB president today announced a final round of interest-rate cuts and a plan to buy privately owned securities. His mission: to revive inflation in the 18-nation euro area.
Fully-fledged quantitative easing as deployed in the U.S. and Japan wasn’t enacted amid a split on the 24-member Governing Council, with Bundesbank President Jens Weidmann opposing the new stimulus and others seeking more. The latest round of measures pushed the euro below $1.30 for the first time since July 2013 and sent European bond yields negative. See full story.
Beige Book shows moderate expansion
-- The U.S. economy expanded at a "moderate" pace across much of the nation in recent weeks, with the auto industry showing strong growth and banking conditions improving, the Federal Reserve said on Wednesday. In its Beige Book report of anecdotal information on business activity collected from contacts across the nation, the central bank said six of its 12 districts reported economic growth as "moderate."
Labor market conditions, as measured by hiring trends, were reported to be relatively unchanged from generally modest rates in most districts, the Fed said.But the Fed said nearly all the districts reported difficulties finding certain types of skilled labor, citing information technology, truck drivers and construction workers as some of the occupations with shortfalls. "Overall, price pressures remained largely unchanged," it added. See full story.
ISM index signals robust growth
-- Gains in manufacturing boosted the U.S. expansion in August, led by a surge in orders for plastics and metals that powered the world’s largest economy past a global slowdown. The Institute for Supply Management’s index unexpectedly climbed to 59, the highest level since March 2011, from July’s 57.1, beating all forecasts in a Bloomberg survey of economists. The orders gauge was the strongest in a decade, the Tempe, Arizona-based group reported today.
American factories are benefiting from a rebound in auto sales and stronger business spending on new plants and equipment that are helping industries rise above the political tensions weighing on Europe. Faster wage growth is now needed to sustain the advance and broaden household purchases beyond automobiles. “The manufacturing sector is just on fire right now,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, whose ISM forecast at 58.5 was the highest in the Bloomberg survey. “You’ve got increased demand for workers, and the more people working, and the more money they are making, the more money they’ll spend.” See full story.