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Inflation is back in Wall Street's crosshairs as the U.S. economy surges again – MarketWatch

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The regular rundown on wholesale inflation is usually a big yawn on Wall Street. But not right now.

One of the obstacles looming for the U.S. as it recovers from the coronavirus is a shortage of key businesses supplies. That’s making it harder for companies to produce enough goods and services to keep up with rising demand.

The result: Prices are going up and stirring long-dormant worries about inflation.

Read: Surging U.S. manufacturers grow faster as key ISM index hits 38-year high

If prices rise fast enough, the thinking goes, the Federal Reserve could be forced to raise interest rates far earlier than planned and make it more costly for consumers and businesses to borrow. Higher rates could also kill off a Wall Street
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stock boom.

It might have sounded farfetched last winter, but not anymore. Every key measure of inflation is on the rise again and the uptrend is expected last through the summer. Speedier U.S. economic growth is expected to put even more upward pressure on prices.

Read: U.S. gains 916,000 new jobs in March and signals strengthening economy

Also: Is the U.S. unemployment rate really 6%? Not even close

The government’s report on wholesale inflation, called the producer price index, is always the first price barometer to come out each month. The PPI data, due next Friday, is forecast to climb 0.5% in March in what would be the third strong increase in a row.

Such an increase would push the rate of wholesale inflation in the past 12 months up to 3.8% —a 10-year high.

See: MarketWatch Economic Calendar

The wholesale inflation report has often been ignored by Wall Street because it doesn’t show a strong relationship with with the prices Americans pay for a variety of goods and services

Yet a pair of broader gauges the Fed and investors use as their sounding board, the consumer price index and PCE index, are also showing a steady increase in the cost of living. So the whole report is sure to draw a lot of scrutiny.

“Markets will pay additional attention to PPI inflation, looking for signs of building price pressure, “Citibank economists wrote in a note to clients.

Fed leaders contend the burst of oncoming inflation will peter out as the global economy returns to normal and critical business supplies become more freely available again.

See: A visual look at how an unfair pandemic has reshaped work and home

They may be right, but they could find themselves in an uncomfortable spot if prices keep rising well above the Fed’s 2% target.

“Expect inflation to get above the Fed’s average long run target of 2% soon and stay there for an extended period,” said Joel Naroff of Naroff Economic Advisors. 

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Canadian dollar notches biggest gain in a month as stocks rally

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The Canadian dollar strengthened to a one-week high against its U.S. counterpart on Thursday as investor sentiment picked up and domestic data showed that retail sales fell less than expected in July.

World stock markets rallied and the safe-haven U.S. dollar retreated from one-month highs as worries about contagion from property developer China Evergrande eased and investors digested the Federal Reserve’s plans for reining in the stimulus.

Canada is a major exporter of commodities, including oil, so the loonie tends to be particularly sensitive to investor appetite for risk.

“The assumption here is that (Fed interest) rate hikes are still a long way out and so equities markets can still perform with accommodative financial conditions,” said Mazen Issa, senior FX strategist at TD Securities in New York.

“Consequently, currencies that have a higher beta to the equity market, like the CAD, can do alright.”

U.S. crude oil futures settled 1.5% higher at $73.30 a barrel, while the Canadian dollar was trading up 0.9% at 1.2653 to the greenback, or 79.03 U.S. cents.

It was the currency’s biggest advance since Aug. 23. It touched its strongest level since last Thursday at 1.2628.

Canadian retail sales dipped 0.6% in July, compared with expectations for a decline of 1.2%, while a preliminary estimate showed sales rebounding 2.1% in August.

Canadian government bond yields were higher across a steeper curve, tracking the move in U.S. Treasuries.

The 10-year touched its highest level since July 14 at 1.335% before dipping to 1.330%, up 11.6 basis points on the day.

(Reporting by Fergal Smith; Editing by Nick Zieminski and Peter Cooney)

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China Vows Better Policy Support to Economy as Headwinds Mount – BNN

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(Bloomberg) — Chinese policy makers reiterated the need to fine-tune economic policies as the world’s second-largest economy faces increasing headwinds from virus outbreaks and high commodity prices. 

Policy should be preemptive and coordinated across cycles, the State Council, the equivalent of China’s cabinet, said in a statement after a meeting chaired by Premier Li Keqiang Wednesday. Governments at all levels should maintain the continuity and stability of macroeconomic policies and enhance their effectiveness, while also do a good job in preventing and controlling virus cases, it said.

Efforts are needed to better coordinate fiscal, financial and employment policies in order to “stabilize reasonable expectations by the market,” it said. 

China again vowed to make sure the economy is operating within a reasonable range, with further measures to boost consumption, guiding private capital to play a better role in expanding investment, and ensuring stable growth in foreign trade and foreign capital, according to the statement. While the employment situation is stable this year, efforts are still needed to maintain employment and help companies, it said. 

The economy took a knock in August from stringent virus controls and tight curbs on property. While China’s Covid zero approach helped to quickly quash the infections, retail sales growth suffered, slowing to 2.5% in August. 

Facing the continued commodity boom, the State Council also pledged to use more market-based measures to stabilize commodity prices and ensure supplies of power and natural gas during the winter. 

©2021 Bloomberg L.P.

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UAE Says It's Unwinding Pandemic Stimulus as Economy Recovers – Bloomberg

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The United Arab Emirates has begun winding down an economic support program launched in response to the coronavirus pandemic as the economy shows signs of gradual recovery, the central bank said in a statement.

The reduced reserve requirements for banks won’t change for now and neither will the lower loan-to-value ratio required for first-time home buyers seeking mortgage loans, the bank said. The loan deferral component of the Targeted Economic Support Scheme will expire by the end of 2021 with financial institutions able to carry on tapping a collateralized 50-billion-dirham ($13.6 billion) liquidity facility until the middle of 2022, in line with earlier guidance.

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