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Economy

U.S. stocks halt five-day selloff with focus on economy

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Stocks climbed after jobless claims data showed some signs the labour market is cooling, which is one of the key factors Federal Reserve officials are watching to decide on whether they will be able to notch down their aggressive tightening campaign.

The rebound in the S&P 500 followed a five-day selloff that put the index on the cusp of breaking an important technical indicator: its average price of the past 100 days. Bonds also reversed course on Thursday, with 10-year yields on the rise and approaching the 3.5 per cent mark. Oil rallied as an outage on a major U.S. oil pipeline and optimism over China’s reopening propelled prices higher.

Recurring applications for U.S. unemployment benefits rose to the highest since early February, suggesting that Americans who are losing their job are having more trouble finding a new one. Traders are now waiting Friday’s producer price index for November — one of the final pieces of data Fed policymakers will see before their Dec. 13-14 policy meeting. The PPI in October cooled more than expected.

“It’s interesting to see jobless claims rising slightly, but in all likelihood this won’t move the market needle too much,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office. “Investors will have a lot to digest these next few days as they get a clearer picture of where we stand in the fight against inflation before the Fed decision. The market is largely expecting the slowdown in rate hikes to begin next week, but whether the pivot will be enough to steer the economy into a soft landing remains the question.”

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Strategists from Morgan Stanley to JPMorgan Chase & Co. have warned investors against piling back into risk on hopes the Fed is getting close to pivoting to easier policy.

“Presumably if the Fed is pivoting this time around, it’s not for a good reason. It’s a deteriorating fundamental picture,” Joyce Chang, chair of global research at JPMorgan, said in an interview with Bloomberg Television. “I mean, is that really a reason to be buying risk? I think it’s premature to say that there is a Fed pivot.”

Key events this week:

  • US PPI, wholesale inventories, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 rose 0.4 per cent as of 9:30 a.m. New York time
  • The Nasdaq 100 rose 0.4 per cent
  • The Dow Jones Industrial Average rose 0.3 per cent
  • The Stoxx Europe 600 fell 0.3 per cent
  • The MSCI World index rose 0.4 per cent

Currencies

  • The Bloomberg Dollar Spot Index fell 0.1 per cent
  • The euro rose 0.2 per cent to $1.0530
  • The British pound was little changed at $1.2212
  • The Japanese yen was little changed at 136.61 per dollar

Cryptocurrencies

  • Bitcoin rose 0.1 per cent to $16,852.68
  • Ether rose 1 per cent to $1,244.01

Bonds

  • The yield on 10-year Treasuries advanced six basis points to 3.48 per cent
  • Germany’s 10-year yield advanced five basis points to 1.83 per cent
  • Britain’s 10-year yield advanced five basis points to 3.10 per cent

Commodities

  • West Texas Intermediate crude rose 2.8 per cent to $74.01 a barrel
  • Gold futures rose 0.3 per cent to $1,802.50 an ounce

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Bank of Canada walking a ‘tightrope’ as analysts forecast inflation jump in February

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Economists expect inflation reaccelerated to 3.1% in February

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People banking on an interest rate cut may not like the direction Canadian inflation is heading if analyst expectations prove correct.

Bloomberg analysts expect inflation to reaccelerate to 3.1 per cent in February when Statistics Canada releases its latest consumer price index (CPI) data on Tuesday, following a slowdown to 2.9 per cent year over year in January.

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Article contentCPI core-trim and core-median, the measures the Bank of Canada is most focused on, are forecast to come in unchanged from the previous month at 3.3 per cent and 3.4 per cent, respectively.

Policymakers made it clear when they held interest rates on March 6 that inflation remained too widespread and persistent for them to begin cutting.

Here’s what economists are saying about tomorrow’s inflation numbers and what they mean for interest rates.

‘Can’t afford missteps’: Desjardins Financial

The Bank of Canada’s preferred measures “have become biased,” Royce Mendes, managing director and head of macro strategy, and Tiago Figueiredo, macro strategist, at Desjardins Financial, said in a note on March 18, “likely overestimating the true underlying inflation rate.”

They estimated the central bank’s preferred measures of core-trim and core-median inflation are overemphasizing items in the CPI basket of goods whose prices are rising more than five per cent. After adjusting for the “biases,” they estimate the bank’s measures are more in the neighbourhood of three per cent — which is at the top of the bank’s inflation target range of one to three per cent.

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Article content“If the Bank of Canada ignores our findings, officials risk leaving monetary policy restrictive for too long, inflicting unnecessary pain on households and businesses,” they said.

Markets have significantly scaled back their rate-cut expectations based on the central bank’s previous comments. Royce and Figueiredo are now calling for a first cut in June and three cuts of 25 basis points for the year.

“Given the tightrope Canadian central bankers are walking, they can’t afford any missteps,” they said.

‘Inflict too much damage’: National Bank

The danger exists that interest rates could end up hurting Canada’s economy more than intended, Matthieu Arseneau, Jocelyn Paquet and Daren King, economists at National Bank of Canada, said in a note.

“As the Bank of Canada’s latest communications have focused on inflation resilience rather than signs of weak growth, there is a risk that it will inflict too much damage on the economy by maintaining an overly restrictive monetary policy,” they said.

They argue there is already plenty of evidence pointing to the economy’s decline, including slowing gross domestic product per capita, which has fallen for six straight quarters. The jobs market is also on the fritz with the private sector having generated almost no new positions since June 2023, they added.

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Article content“Moreover, business survey data do not point to any improvement in this area over the next few months, with a significant proportion of companies reporting falling sales and a return to normal in the proportion of companies experiencing labour shortages,” the economists said.

Despite all these signs of weakness, inflation is stalling, they said, adding it is being overly influenced by historic population growth and the impact of housing and mortgage-interest costs.

The trio expect very tepid growth for 2024 of 0.3 per cent.

Recommended from Editorial 

  1. Canada's economy created 41,000 jobs in February, all of them full time, said Statistics Canada.Economists on the February jobs data 
  2. Bank towers in Toronto's financial district.What senior bank executives are saying about the economy 
  3. Tiff Macklem, governor of the Bank of Canada, in Ottawa.What the Bank of Canada needs to cut interest rates 

 

Rising gas prices: RBC Economics

Higher energy prices likely boosted the main year-over-year inflation figure to 3.1 per cent in February, Royal Bank of Canada economists Carrie Freestone and Claire Fan said in a note.

Gasoline prices rose almost four per cent in February from the month before. But the pair believe a weakened Canadian economy and slumping consumer spending mean “price pressures in Canada are more likely to keep easing and narrowing (to fewer items in the CPI basket of goods).

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China Growth Beats Estimates, Adding Signs Economy Gained Traction With Stimulus

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China’s strong factory output and investment growth at the start of the year raised doubts over how soon policymakers will step up support still needed to boost demand and reach an ambitious growth target.

Industrial output rose 7% in January-February from the same period a year earlier, the National Bureau of Statistics said Monday, the fastest in two years and significantly exceeding estimates. Growth in fixed-asset investment accelerated to 4.2%, strongest since April. Retail sales increased 5.5%, roughly in line with projections.

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China’s retail and industrial data lifts economy, but real estate drags

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Image for article titled China’s new retail and industrial data beat expectations — but signs still point to trouble ahead

 

 

Photo: Florence Lo (Reuters)

 

 

Official economic data out of China for the January and February period came in better than expected. Industrial output rose 7%, higher than the 5% forecast by economists in a Reuters poll, and sped up from the 6.8% growth in December, according to data published Monday by the National Bureau of Statistics.

Meanwhile, retail sales grew 5.5%, better than the 5.2% predicted by analysts but slowed from the previous period’s 7.4%.

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Still, the country’s troubled real estate sector continues to weigh on the economy: Investment in property development fell 9%. Commercial real estate sales are also down double-digit percentages.

“The national economy maintained the momentum of recovery and growth and got off to a stable start,” the statistics office said in its release. Beijing typically releases combined data for January and February to smooth over distortions caused by the Lunar New Year holidays.

China’s shaky domestic demand

Clouding the strong numbers from Monday’s data release are the persistent signs of weak domestic demand in China. New bank lending in China fell more than expected in February, according to Reuters calculations based on People’s Bank of China data.

Total outstanding yuan loans grew by 9.7% last month, a record low in data going back to 2003, according to Bloomberg. The sluggish borrowing demand comes even as the Chinese central bank made a surprise cut in the amount of cash that banks must hold in reserve, suggesting the stimulus measure has had little impact. And Beijing’s exhortations for unleashing “new quality productivity” (also translated as “new quality productive forces”) remains more rhetorical than substantive, particularly absent deeper structural reforms to the country’s economy.

With shaky demand at home, China’s bid to hit a GDP growth target of 5% this year will likely mean leaning heavily on its export machine. But that gambit will also face hurdles as governments, including the EU and Brazil, launch probes into China’s allegedly unfair trade practices. Separately, the U.S. is considering whether to investigate Chinese shipbuilding following a petition from major American labor unions.

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