Tag Archives: US Federal Reserve

Dollar tramples yen and safe-haven status, gold gains

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NEW YORK (Reuters) – The strong dollar got stronger on Thursday, rising to a three-year high against a basket of trading partner currencies, after a steep slide in the Japanese yen called into question its safe-haven status while the rally in U.S. equities took a pause.

Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York, U.S., February 6, 2020. REUTERS/Lucas Jackson

Gold prices hit their highest level in seven years as investors sought safe-haven assets after a rise in the number of new coronavirus cases in South Korea and the price of oil rose, supported by China’s efforts to bolster its virus-weakened economy.

The dollar has surged almost 2% since Tuesday against the yen, reaching its highest in almost 10 months, and the greenback climbed to near three-year highs against the euro.

The dollar index of the world’s most-traded currencies rose 0.12% to its highest level since May 2017.

The index is up 3.6% this year. It also gained to its best levels of the year against China’s offshore yuan and MSCI’s index of emerging-market currencies.

A host of reasons were cited for the dollar’s move, ranging from the outperformance of the U.S. economy and corporate earnings to potential recessions in Japan and the euro zone.

A run of dire economic news out of Japan has stirred talk the country is already in recession and that Japanese funds were dumping local assets in favor of U.S. shares and gold.

“The strongest explanation (for the yen’s decline) is a widespread selling by Japanese asset managers amid growing fears about the health of Japan’s economy,” said Raffi Boyadijian, investment analyst at XM.

The yen’s slide is unusual because the exchange rate with the dollar has been unraveling from its close correlation to the price of gold and U.S. Treasury yields, a development that must be watched, he said.

“This raises question marks about whether the yen is losing some of its shine as the world’s preferred safe-haven currency,” Boyadijian said.

China reported a drop in new virus cases and announced an interest rate cut to buttress its economy. But South Korea recorded an increase in new cases, Japan reported two deaths and researchers said the pathogen seemed to spread more easily than previously believed.

A rally that had lifted major U.S. and European stock indexes to record highs this week lost steam, as investors fretted about the spread of the coronavirus outside of China.

MSCI’s gauge of stocks across the globe shed 0.84% and emerging market stocks lost 0.95%.

The pan-European STOXX 600 index lost 0.62%.

The Dow Jones Industrial Average fell 283.03 points, or 0.96%, to 29,065. The S&P 500 lost 30.99 points, or 0.92%, to 3,355.16 and the Nasdaq Composite dropped 131.33 points, or 1.34%, to 9,685.85.

Morgan Stanley’s multibillion-dollar buyout for E*Trade Financial boosted the discount brokerage’s shares.

E*Trade jumped 24.4% after Morgan Stanley offered to pay $13 billion in an all-stock deal, the biggest acquisition by a Wall Street bank since the financial crisis.

Morgan Stanley’s shares fell 3.6%.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.5% overnight, led by drops in Hong Kong’s Hang Seng and South Korea’s KOSPI.

Spot gold rose 0.3% to $1,616.74 an ounce, after hitting its highest since February 2013 at $1,622.19.

Oil prices rose further after a U.S. report showed a draw in gasoline inventories and a much smaller-than-anticipated rise in crude stocks.

U.S. gasoline stockpiles fell 2 million barrels in the week to Feb. 14. Analysts had estimated an increase of 400,000 barrels.

Data from the U.S. Energy Information Administration (EIA) showed that crude inventories rose only 414,000 barrels last week, compared with a 2.5 million-barrel rise that analysts had expected in a Reuters poll. [EIA/S]

Brent crude futures rose 58 cents to $59.70 a barrel and West Texas Intermediate gained 91 cents to $54.20 a barrel.

Demand for safe-haven U.S. Treasury debt was robust, driving the 30-year bond yield below the psychologically significant 2% level to its lowest since September 2019.

The 30-year bond last rose 39/32 in price to push its yield down to 1.9626%.

Benchmark 10-year notes last rose 17/32 in price to yield 1.5135%.

Reporting by Herbert Lash; additional reporting by Ritvik Carvalho in London; editing by Jonathan Oatis

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Trump Fed nominee Shelton hits bipartisan skepticism in Senate hearing

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WASHINGTON (Reuters) – Federal Reserve board nominee Judy Shelton faced deep skepticism from Republicans and Democrats on the Senate Banking Committee on Thursday, as lawmakers challenged her independence from President Donald Trump and characterized her thinking as too far outside the mainstream to trust with the nation’s economy.

After the hearing, three Republican senators indicated she had not fully alleviated their concerns – enough to sink her nomination in a committee divided between 13 of Trump’s fellow Republicans and 12 Democrats, who are unlikely to vote in her favor.

Over the course of the roughly two-hour hearing she found herself having to back away from prior views, explain that she would not pursue a common North American currency with Canada and Mexico if confirmed as a Fed governor, and even apologize for comparing a currency forger’s challenge of the federal government’s dominance over money to civil rights pioneer Rosa Parks’ challenge of segregation laws.

“I apologize for the comparison. I truly do,” Shelton said of an incident raised by Alabama Democratic Senator Doug Jones in which a North Carolina man issued millions of dollars of his own precious-metal backed currency. “I believe he was testing the idea” that money needed to be backed by gold and silver, Shelton explained.

“Is that something you want to test?” Jones shot back, summing up committee concerns about past Shelton writings seeming to support a return to something like a gold or other asset-backed standard to keep the value of the dollar stable.

“No, senator,” said Shelton, a member of the Trump transition team and a long-time conservative author and commentator on financial issues.

It was one of a series of pointed exchanges between senators and Shelton, an economist with a long track record criticizing the Fed and questioning, at least in theory, whether central banks can even do the job assigned to them.

NOT IN THE MAINSTREAM

Four previous Trump appointees to the Fed failed to clear the Senate, a sign of the weight Congress has put on keeping the country’s monetary policy as free as possible of political interference, given Trump’s open verbal attacks on the Fed and demand for lower interest rates.

Asked about Trump’s war-by-tweet against the Fed, Shelton responded “I don’t censor what someone says.”

But during the hearing Pennsylvania Republican Senator Patrick Toomey called her views about using the Fed to manage the value of the dollar against other currencies “a very very dangerous path to go down.” Trump has often blamed the Fed for a rising dollar, which he argues has hurt exports. Shelton has often written about the need for a “sound” dollar.

A spokesman for Toomey said afterwards that the senator was undecided and that Shelton’s answers “didn’t alleviate” his concerns.

Alabama Senator Richard Shelby also “has not decided at this point, I know he still has some concerns,” the senator’s communications director, Blair Taylor, told Reuters.

Shelton, who holds a doctorate in business administration and has been sharply critical of the Federal Reserve in her writings and commentary, pledged broadly that she would be an independent thinker who would work well with existing Fed officials.

“I pledge to be independent in my decision-making, and frankly no one tells me what to do,” Shelton said, deflecting questions about her past writings that, for example, characterized the Fed’s setting of a short-term interest rate as similar to Soviet central planning.

“I don’t claim to be in the mainstream of economists….I would bring my own perspective. But I think the intellectual diversity strengthens the discussion.”

Senate Democrats said flatly that they do not trust her.

“Shelton has flip-flopped on too many issues to be confirmed,” said Ohio Democratic Senator Sherrod Brown. “She is far outside the mainstream. She is outside the ideological spectrum.”

TWO NOMINEES

A second nominee, Christopher Waller, a career economist who is currently the research director of the St. Louis Federal Reserve, faced few questions about his views.

Both were nominated by Trump to fill vacant seats on the Fed’s seven-member Washington-based Board of Governors.

Both Waller and Shelton released opening statements on Wednesday ahead of their hearings that offered few clues about their views on monetary policy beyond promising to promote policies that support financial stability and help the Fed meet its goals of full employment and price stability.

The two emphasized the Fed’s accountability to Congress, which oversees the central bank.

Both said they agreed with many of the opinions held by current Fed officials, including a reluctance to use negative interest rates as some other central banks have done, and a willingness to renew Fed bond purchases and expand the Fed’s balance sheet to fight a future downturn.For Waller, that is an extension of his 11 years working at the Fed and helping shape current policy as a key adviser to St. Louis Fed President James Bullard.

FILE PHOTO: The Federal Reserve building is pictured in Washington, DC, U.S., August 22, 2018. REUTERS/Chris Wattie

For Shelton, it was a seeming reversal from her earlier views that “quantitative easing” amounted to an inappropriate Fed intervention in markets that was inflating stock prices but doing little for the economy.

After cutting rates to zero, quantitative easing “is your only alternative,” Shelton said in response to a sharp and insistent series of questions from Louisiana Republican Senator John Kennedy on how she would respond to a downturn. Following the hearing, he remained undecided on whether to support Shelton’s nomination, according to an aide.

“It seems like you are taking a 180 degree position on all of this just to be appointed,” said Nevada Democratic Senator Catherine Cortez Masto. “Who are we getting?”

Additional reporting by Ann Saphir in San Francisco; Editing by Chizu Nomiyama, Dan Grebler and Andrea Ricci

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Trump touts stock market’s record run, but who benefits?

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(Reuters) – Donald Trump loves to trumpet the hot U.S. stock market as a key achievement of his presidency, and he was in full self-congratulatory mode on that front during Tuesday night’s State of the Union address.

U.S. President Donald Trump delivers his State of the Union address to a joint session of the U.S. Congress in the House Chamber of the U.S. Capitol in Washington, U.S. February 4, 2020. REUTERS/Leah Millis/POOL

“All of those millions of people with 401(k)s and pensions are doing far better than they have ever done before with increases of 60, 70, 80, 90 and 100 percent and even more,” Trump said in his address to a joint session of Congress.

While pensions and retirement funds were lifted by the rise in stock markets, the president has avoided talking about one key point about who really benefits when the market rallies: Most of the gains go to the small portion of Americans who are already rich.

That’s because 84% of stocks owned by U.S. households are held by the wealthiest 10% of Americans, according to an analysis of 2016 Federal Reserve data by Edward Wolff, an economics professor at New York University. So when the stock market has a blockbuster year – such as the nearly 30% rise in the S&P 500 benchmark index in 2019 – the payoff primarily goes to people who are already rich.

“For most Americans, a stock price increase is pretty immaterial to their well-being,” said Wolff, who published a paper about wealth inequality in the National Bureau of Economic Research in 2017.

Roughly half of Americans own some stocks through a brokerage account or a pension or retirement fund. But for most people, the exposure is too small for market gains to be life-changing or leave them feeling much better about their finances, Wolff said. “They’ll see a small increase in their wealth, but it’s not going to be anything to write home about,” he said.

Graphic: The stock boom’s unequal gains png, here

What’s more, nearly 90% of families who own stock do so through a tax-deferred retirement account, meaning they can’t access the money until they reach retirement age, unless they pay a penalty, Wolff said.

So who owns most of the stock market? The majority of corporate equities and mutual fund shares are held by investors who are white, college educated and above the age of 54, according to an analysis from the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis.

The typical middle-class family gets the bulk of its wealth from the housing market. Households in the middle three quintiles of wealth held 61.9% of their assets in their principal residence in 2016, according to Wolff’s analysis. That compares to households in the top 1%, who held 7.6% of their wealth in their homes.

Because most consumers accumulate the majority of their wealth through their homes, a rise in property values can provide a more substantial boost to household wealth than a stock market rally, said William Emmons, lead economist at the St. Louis Fed’s Center for Household Financial Stability.

Still, the recent revival in the housing market, spurred in part by the Federal Reserve’s interest rate cuts, is not helping all Americans equally. Rising property values benefit homeowners but make it harder for aspiring home buyers to break into the market, said Eugene Steuerle, co-founder of the Tax Policy Center, a joint venture between the Urban Institute and the Brookings Institution.

And some people who bought homes immediately before the recession hit may still be trying to recover their losses, Steuerle said. Their wealth may have been wiped out by foreclosure, meaning they then struggled to qualify for a new mortgage during the recovery, he said.

That’s in sharp contrast to well-off investors, whose overall wealth surged after the crisis thanks to strong returns on stocks, property and other investments. Some 72% of wealth accumulated between the third quarter of 2009 and the third quarter of 2019 went to the richest 10% of households, according to an analysis by Oxford Economics. Over that same time period, the poorest 50% of households reaped only 2% of wealth gains.

“There are a lot of families that have not yet recovered from the financial crisis,” Emmons said.

Some more evidence that the recent stock market boom is not making everyone feel richer: There has been little evidence of the “wealth effect,” which says that people tend to spend more when stock markets are up, said Lydia Boussour, a senior economist for Oxford Economics.

Since the recession, people have mostly continued to increase their savings even as the stock market rose. “Consumers are a lot more cautious,” she said.

Reporting by Jonnelle Marte; Editing by Dan Burns and Leslie Adler

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On the spot View: U.S. September payrolls decrease than anticipated, jobless fee drops

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(Reuters) – U.S. job progress elevated reasonably in September, with the unemployment fee dropping to close a 50-year low of three.5%, which might assuage monetary market issues that the slowing economic system was on the point of a recession amid lingering commerce tensions.

KEY POINTS:

* Sept nonfarm payrolls +136,000 (consensus +145,000) vs Aug +168,000 (prev +130,000), July +166,000 (prev +159,000)

* Sept labor pressure participation fee 63.2 pct vs Aug 63.2 pct (prev 63.2 pct)

* Sept jobless fee 3.5 pct (consensus 3.7 pct) vs Aug 3.7 pct (prev 3.7 pct)

* Common hourly earnings all non-public employees unchanged (cons +0.Three pct) vs Aug +0.four pct (prev +0.four pct)

* Sept U-6 underemployment fee 6.9 pct vs Aug 7.2 pct (prev 7.2 pct)

* Sept non-public sector jobs +114,000 (cons +133,000), vs Aug +122,000 (prev +96,000)

* Authorities jobs +22,000 vs Aug +46,000 (prev +34,000)

MARKET REACTION:

STOCKS: S&P e-mini futures ESv1 flip barely larger and have been final up 0.18%, pointing to flat to barely larger open

BONDS: Treasury yields rose barely; 2- 12 months US2YT=RR at 1.4237% and 10-year US10YT=RR at 1.5477%

FOREX: The greenback index .DXY reversed slight losses and was about 0.05% larger

COMMENTS:

SHAWN SNYDER, HEAD OF INVESTMENT STRATEGY, CITI PERSONAL WEALTH MANAGEMENT, NEW YORK  

“Anytime you see the unemployment fee fall Wall Avenue goes to suppose it’s good.”

“Traders are on excessive alert for indicators of a recession … It doesn’t affirm the story. Optimistic payroll shouldn’t be in line with a recession.”

“It’s type of a goldilocks report. It’s not sturdy sufficient to maneuver the Federal reserve away from chopping charges on the finish of October however it’s not weak sufficient to make you involved concerning the labor market or the patron.”

SHAUN OSBORNE, CHIEF FX STRATEGIST, SCOTIABANK, TORONTO:

    “The quantity got here simply shy of expectations, however provided that market expectations have shifted after the ADP and ISM numbers, individuals have been bracing for one thing worse than this. So that is within the ballpark of what’s acceptable. Wage progress is a bit gentle, however unemployment dropped. In a broad sense, this was not that dangerous. It most likely provides the greenback a little bit of respiratory room after a little bit of a tough experience the final three or 4 days.”

JOSEPH SROKA, CHIEF INVESTMENT OFFICER, NOVAPOINT, ATLANTA

“The quantity got here up mild relative to consensus, however not too dangerous on the non-public information. However the fruits of the weak ISM information and the payrolls report is rising the percentages in traders mindset that the Fed has extra incentive to think about one other rate of interest discount on the subsequent assembly.”

“The economic system has been going by a low degree of deceleration during the last couple of months and whenever you take them in mixture some is trade-related and a few is time-related, which means you possibly can’t develop infinitely. The Fed’s been proactive on adjusting rates of interest earlier than we noticed the info like this month’s ISM. So possibly the problem that some modest fee adjustment from the Fed is sufficient to preserve the economic system from a deeper decline and lengthen growth, albeit at a slower tempo.”

SAMEER SAMANA, SENIOR GLOBAL MARKET STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE, ST. LOUIS

“Headline job progress, non-public payrolls, and manufacturing payrolls, and wage progress all got here in weaker than anticipated and suggests some softening within the labor market.

  “This information most likely reinforces the case that the U.S. is now starting to really feel the results of the continuing international slowdown and doubtless strengthens the case for extra fee cuts, if the Fed chooses to go down that path.”

TOM PORCELLI, CHIEF U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK

“If individuals have been genuinely on the sting of the dialog about whether or not or not we’re slipping into recession or not, that is the sort of quantity that ought to pressure them to take a step again from that view. I by no means essentially thought that individuals must be holding that view, however I’m merely highlighting a market actuality. I believe that there was, from the market perspective, an actual threat that we have been slipping into recession. This isn’t a recessionary sort of quantity. This was a superbly sound report in most methods, not in each method. The one factor that I don’t like is that common hourly earnings have been flat. However however, the unemployment fee improved once more, we’re 3.5% on the unemployment report. This isn’t a dynamic that occurs with nice regularity in the USA, traditionally talking. The labor backdrop is definitely in actually fine condition, regardless of quite a lot of the noise that we proceed to listen to about these fears. This report throws quite a lot of chilly water on that.”

“I believe the Fed is locked stepping into October, virtually no end result was going to alter that. Whether or not the quantity was worse than anticipated and even fairly a bit higher than anticipated, I believe the Fed was going to go. The doves on the committee are clearly in management as a result of they’re the voters proper now.

KATHY JONES, CHIEF FIXED INCOME STRATEGIST, SCHWAB CENTER FOR FINANCIAL RESEARCH, NEW YORK

“I believe that the general image confirms the mild slowdown within the economic system that’s already priced into the bond market. However the lack of wage achieve, I believe, is a little bit of a shock. You’ll suppose that given the low degree of the unemployment fee, wages can be ticking up, however truly common hourly earnings have been down a bit. That may very well be a fluke, however they did peak in February…That raises quite a lot of questions – what’s the composition of jobs which can be being added? Is it that we’re pulling in quite a lot of people who’ve been on the margins and subsequently are extra low-wage jobs being added?”

“All in all, it’s not most likely a giant mover for the bond market, however it does go away the probability of a Fed fee minimize on the desk – maybe in October, maybe they’ll determine upon it in December and get extra information.”

“It’s fairly in line with what we noticed with the PMIs, the ISMs… The ISM was fairly gentle. The drop within the manufacturing payrolls was a affirmation of softness in there. We noticed a little bit of a drop in mining as properly, which isn’t stunning. Building, gentle. Total a gentle report, however that was anticipated.”

JOHN VELIS, GLOBAL MACRO STRATEGIST, BNY MELLON, NEW YORK

“Going into it and contemplating what we noticed with the 2 ISM surveys, it might have been so much worse. It’s most likely good for the market and never as dire as many individuals anticipated. It doesn’t imply that the economic system and the roles market are falling off a cliff. Then again, it’s not sturdy sufficient that it’s going to take out this extra Fed easing that has been priced into the curve the previous few days.”

DOUG DUNCAN, CHIEF ECONOMIST, FANNIE MAE, WASHINGTON

“The revisions being up is a optimistic as a result of sometimes when the employment market is slowing the revisions of prior months are down, and that has been the case for about 5 months. So, the truth that the revisions are up this time recommend that there’s not a precipitous slowing in unemployment. The truth that wage charges are holding is nice information, it’s help for the patron.

“There’s not a warning of a major slowdown within the economic system from these information. Our view is that with a purpose to keep the extent of unemployment steady we have to add someplace between 100,000 and 120,000 jobs a month, so this definitely matches that. It doesn’t recommend a major slowing in exercise at this level.

“I’d be stunned if there was a major response (from the market) in both course. What it does do is spotlight the variations of opinion on the Fed board about whether or not the economic system is slowing precipitously or not and also you had a number of dissents from the final fee minimize, that doesn’t assist make clear for them whether or not their disagreements are merited or not.”

JJ KINAHAN, CHIEF MARKET STRATEGIST, TD AMERITRADE, CHICAGO

“There’s a lot to love, particularly given the revisions that occurred. Retail shedding as many roles because it did once more, I don’t suppose it’s a huge shock. We proceed to see that pattern, everyone seems to be making an attempt to determine it out, so to talk, and once more the world they misplaced them in being primarily in clothes.

“Manufacturing could also be somewhat bit regarding, down 2,000 jobs not an enormous factor total. It’s a must to bear in mind this didn’t embrace the GM strike due to timing. In order that one will present up within the subsequent report, however it’s nice that we received a 45,000 revision larger between July and August and that is among the issues individuals actually favored about this. The 2 areas which have been unbelievable being healthcare and enterprise to enterprise providers are simply stud sectors. Each single month these two sectors present up and we simply proceed to see that. The opposite factor that was vital was transportation and warehousing, so once more, areas that take items from one place to a different, up 16,000 jobs. Most of this was an actual optimistic for the economic system regardless of a few of the different numbers we’re seeing.

“We’ve had such a string of dangerous information, that something that exhibits the economic system is doing higher than maybe individuals have been speaking about is properly acquired. I don’t suppose it clarifies the image any which method (for the Fed). It’s another piece of grey thrown into the image.”

Americas Economics and Markets Desk; +1-646 223-6300

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Divided Fed set to chop rates of interest this week, however then what?

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SAN FRANCISCO (Reuters) – Deep disagreements inside the Federal Reserve over the financial outlook and the way the U.S. central financial institution ought to reply is not going to cease policymakers from chopping rates of interest at a two-day assembly that begins on Tuesday.

FILE PHOTO: Federal Reserve Board Chairman Jerome Powell testifies earlier than a Senate Banking, Housing and City Affairs Committee listening to on the “Semiannual Financial Coverage Report back to Congress” on Capitol Hill in Washington DC, U.S., July 11, 2019. REUTERS/Leah Millis/File Photograph

Whereas an oil worth spike after assaults on Saudi Arabian oil amenities over the weekend added to the checklist of dangers dealing with an financial system already slowed by ongoing commerce tensions and world weak spot, the deep divide evident across the Fed’s policymaking desk means additional charge cuts could possibly be removed from a accomplished deal.

At one finish of the Fed’s large boardroom sit St. Louis Fed President James Bullard and Minneapolis Fed President Neel Kashkari, who’re anticipated to argue for a steep discount in borrowing prices to counter low inflation and an inverted Treasury yield curve.

Pushback from the alternative finish is prone to come from Cleveland Fed President Loretta Mester, who opposed the Fed’s charge minimize in July, and Philadelphia Fed President Patrick Harker, who solely reluctantly supported it and says he needs to depart charges the place they’re “to see how issues play out.”

Fed Chair Jerome Powell, seated halfway down the desk, faces the fragile activity of taking over board these views and the disparate arguments of the opposite dozen policymakers to construct consensus.

(To chop or to not minimize? right here)

(Communications breakdown: right here)

A high problem: making sense of financial information that means the U.S. manufacturing trade could also be contracting and inflation stays weak, at the same time as households proceed to spend and employers total are including loads of jobs.

“The discord is extraordinarily seen,” mentioned Gregory Daco, chief U.S. economist at Oxford Economics. “Should you take a look at the financial system right now, you take a look at an financial system that’s bifurcated … The important thing query is whether or not that weak spot seeps by means of the financial system, and whether or not that’s aggravated.”

For the reason that Fed’s 8-2 resolution to chop charges in July, a transfer that Powell referred to as a ‘mid-cycle’ adjustment, the financial information has delivered combined indicators.

Sturdy retail gross sales and continued wage progress might add to Boston Fed President Eric Rosengren’s confidence that present financial circumstances don’t justify additional coverage easing. He dissented within the July coverage resolution.

The continuing U.S.-China commerce battle makes Dallas Fed President Robert Kaplan amongst others involved about slowing manufacturing unit output and a slide in enterprise funding. Kaplan supported July’s charge minimize.

‘MIXED OPINION’

The latest wild card to consider to the talk emerged unexpectedly in Saturday’s assaults on the Saudi oil amenities, which triggered the most important spike in oil costs in additional than 20 years. [nL5N2674W4][nL5N2672I3]

Fed officers might see the event both as a danger to an already fragile progress outlook, which might help the case for extra easing, or as a fine addition to inflation, which might again a case for standing nonetheless for now.

Merchants of futures contracts tied to the Fed’s coverage charge have been pricing in, as of Monday afternoon, a 65.8% probability that the central financial institution would minimize its benchmark in a single day lending charge by 1 / 4 of a proportion level to a variety of 1.75% to 2% on Wednesday.

And although the conviction for additional charge hikes has softened since final week, merchants total proceed to anticipate yet another discount in borrowing prices by the tip of the yr.

“If everybody was on the identical web page on the Fed I might perceive it,” mentioned Lee Ferridge, head of macro technique for North America at State Road World Markets.

“However clearly there’s disagreement on the Fed … If the Fed may be very cut up and Powell can’t give a powerful sign, doesn’t that indicate only a few strikes are possible, reasonably than these dramatic cuts?”

Fed policymakers will deliver to the assembly their very own views of the place charges ought to be by December. In June, the final time they printed their forecasts, about half of policymakers anticipated a complete of two charge cuts this yr; about half thought no charges can be applicable.

That divide within the so-called Fed “dot plot” has borne little relation to how coverage has truly formed up, but it surely might add to confusion over the speed outlook after the conclusion of this week’s assembly.

With extra dovish policymakers like Bullard, Kashkari and Chicago Fed President Charles Evans calling for extra easing, and extra hawkish policymakers like Mester, Harker and Kansas Metropolis Fed President Esther George extra skeptical, “anticipate the 2019 dots to mirror this combined opinion,” mentioned Jefferies economist Ward McCarthy.

Reporting by Ann Saphir; Enhancing by Dan Burns and Paul Simao

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Carmakers race higher, Johnson jitters for sterling

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LONDON (Reuters) – A speeding autos sector and hopes for even lower borrowing costs buoyed world stocks on Tuesday, while a brief sterling rally proved short-lived as hard-Brexit advocate Boris Johnson was confirmed as Britain’s new prime minister.

FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, July 22, 2019. REUTERS/Staff/File Photo

Corporate results from oil bellwether Halliburton, Swiss bank UBS and Apple supplier AMS had all helped Europe’s morning mood though it was a 4% surge from the auto sector that provided the real torque. [.EU]

German parts makers Hella and French peer Faurecia surged as much as 6% and tire maker Continental leapt 5.8% despite another profit warning, putting the sector on track for its best day since Jan. [.EU]

The region-wide STOXX 600 benchmark added over 1% while Wall Street’s main markets were expected to open 0.3%-0.4% higher later after a flurry of largely upbeat earnings from the likes of Coca-Cola and United Technologies. [.N]

“The results are coming in and have helped the market today and we are still under the influence of interest rates,” said Francois Savary, the chief investment officer of Prime Partners, referring to expectations of U.S. and ECB rate cuts.

He also said Wall Street earnings had provided no scares so far and this week’s results from Facebook, Amazon.com and Google parent Alphabet would “drive the market up the road”.

Ahead of the U.S. open, the International Monetary Fund lowered its forecast for global growth this year and next, warning that more U.S.-China tariffs, auto tariffs or a disorderly Brexit could further slow the world economy.

Among currencies, the dollar reached a two-week high after U.S. President Donald Trump and congressional leaders agreed on Monday to a two-year extension of the U.S. debt limit, ending the threat a government default later this year. [/FRX]

The New Zealand dollar led G10 losses after its central bank said it had “begun scoping a project to refresh our unconventional monetary policy strategy and implementation”, although it added it was at a very early stage.

Britain’s pound was the other notable mover as it slid back towards the mid $1.24 region having briefly rallied after eurosceptic Johnson was elected as the replacement for outgoing Prime Minister Theresa May.

Concern that Britain will crash out of the European Union without a withdrawal agreement have grown since Johnson said he would pull Britain out on Oct. 31 “do or die”.

The pound traded 0.2% weaker at $1.2445, near last week’s 27-month low of $1.2382, having made it as high as $1.2481.

Credit ratings agency Moody’s and investment Goldman Sachs both warned the risk of a no-deal Brexit was now higher.

“With Boris Johnson at the helm, the tail risks are likely to intensify ─ well into October,” Goldman said.

“We raise our odds on a ‘no deal Brexit from 15% to 20%, and we reduce our odds on ‘no Brexit’ at all from 40% to 35%.”

The euro fell too to $1.1189, although rather than Brexit it was weighed down more by the likelihood of even more negative ECB interest rates in the coming months. The central bank meets on Thursday.

“It is going to take a bold stroke by the ECB to both satisfy markets clamoring for incremental easing and make a difference to the economy, all the while remaining inside its institutional setting and not destabilizing the financial system,” wrote Carl Weinberg, chief international economist at High Frequency Economics.

SUMMER HOT SPOTS

Europe’s government bonds barely budged, with investors largely happy to sit on their hands having seen their yields slumping since the start of the year.

U.S. yields did tick fractionally higher in response to the debt ceiling deal but Germany’s 10-year bond yield, the benchmark for the euro zone, was down a basis point, at minus 0.35% and not far from the record low -0.40% posted at the start of the month.

The next events to watch include a vote on Thursday in the Spanish parliament on the future government. Caretaker Prime Minister Pedro Sanchez failed in his first attempt on Tuesday to get parliament’s backing to form a government, leaving him two days to try and strike a deal with the far-left Unidas Podemos.

There was also a rumored meeting between the leaders of the two squabbling parties who make up Italy’s coalition government, 5-Star Movement’s Luigi Di Maio and League’s Matteo Salvini.

“Investors are waiting to see whether this government will survive,” said DZ Bank strategist Daniel Lenz. “One possibility is that the coalition continues but both agree to replace (Giuseppe) Conte as prime minister, which would be a very bad signal.”

Conte is widely seen as a moderating influence on the anti-establishment Italian government, particularly in terms of its relationship with Brussels.

FILE PHOTO: The London Stock Exchange Group offices are seen in the City of London, Britain, December 29, 2017. REUTERS/Toby Melville/File Photo

In commodities, Brent crude edged lower to reach $63 per barrel, having shot up 1.2% the day before on concern over possible supply disruptions after Iran seized a British tanker last week. [O/R]

U.S. West Texas Intermediate crude slipped 23 cents to $55.99. “The response of oil prices to the seizure of a British oil tanker by armed Iranian forces near the Strait of Hormuz has been amazingly muted so far,” said Carsten Fritsch, analyst at Commerzbank.

“It appears that the majority of market participants are convinced that there will be no open conflict between the West and Iran.”

Additional reporting by Shinichi Saoshiro in Tokyo, Alex Lawyer and Abhinav Ramnarayan in London, editing by Larry King and Frances Kerry

Our Standards:The Thomson Reuters Trust Principles.

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Slowing manufacturing hiring may point to fraying U.S. expansion

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NEW YORK (Reuters) – The longest streak of U.S. factory hiring in a quarter century came to an unexpected end last month, and a clouded outlook for important manufacturing sectors like autos may impede a quick rebound, undermining a key plank of U.S. President Donald Trump’s economic agenda.

FILE PHOTO: A line worker installs the front seats on the flex line at Nissan Motor Co’s automobile manufacturing plant in Smyrna, Tennessee, U.S., August 23, 2018. REUTERS/William DeShazer/File Photo

That sector lost 6,000 jobs in March, the Labor Department said on Friday, ending a 19-month streak of gains that started in August 2017 and had it extended one more month would have become the longest uninterrupted expansion of factory employment since the mid-1980s.

As it stands, the just-ended run was the longest since a comparable streak from August 1993 through February 1995 and saw the generation of 410,000 U.S. factory jobs. By comparison, that earlier run during Democrat Bill Clinton’s presidency produced 526,000 new manufacturing positions. A 20-month streak back in the early 1980s generated 1.34 million production jobs.

Today, companies that produce cars, construction equipment and other manufactured goods account for 12 percent of an economy that in July marks 10 years of expansion, the longest on record. Back in the 1990s, manufacturing’s share of the economy was around 16 percent and it was closer to 20 percent in the early 1980s.

Trump campaigned on rebuilding the sector and his ability to create high-paying American manufacturing jobs, partly by pushing other countries for more favorable terms of trade.

For a graphic on U.S. manufacturing employment, see – tmsnrt.rs/2CYWCQt

Overall, though, the March jobs report was upbeat.

It showed U.S. employment growth in March accelerating from a 17-month low, signaling that February’s sharp pullback was more likely an anomaly rather than a sign of an impending economic slowdown. Nonfarm payrolls rose by 196,000 jobs for the month, while economists polled by Reuters forecast gains of 180,000 jobs.

Last month’s unexpected slowdown in factory hiring – economists polled by Reuters had forecast a gain of 10,000 jobs – may signal that slower consumer and business spending as well as softening auto sales may curtail manufacturing job growth going forward. Another possibility is that factories are finding trouble finding and retaining willing workers.

Weakness in the auto sector bears watching. Manufacturers in that area have announced thousands of job cuts to deal with slowing sales that have led to an inventory bloat. So far this year auto manufacturers and suppliers have unveiled plans to cut 15,887 jobs, according to data on Thursday from Challenger, Gray & Christmas Inc, an outplacement consultancy.

Yet some companies that are hiring in that sector report labor shortages in their regions.

Shawn Hendrix, president of Nissen Chemitec America Inc, which supplies parts for Honda and Subaru cars, said he is not seeing an industry slowdown. He is having trouble finding people to fill jobs at his London, Ohio, factory.

“We are hiring – in our area in central Ohio almost all manufacturers I know are hiring,” Hendrix said. But it’s hard to find workers willing to commit to long-term jobs: some quit after two days of orientation. “If we don’t develop a pipeline with our educators it’s going to be very difficult to sustain manufacturing,” he said.

It is possible that the figure for March is a blip. The Institute for Supply Management said on Monday that its index of national factory activity rose to a reading of 55.3 in March from 54.2 in February, which had marked the lowest level since November 2016.

Reporting by Trevor Hunnicutt; Editing by Dan Burns and Andrea Ricci

Our Standards:The Thomson Reuters Trust Principles.

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