Market news

Bloomberg.com — A gauge of underlying U.S. inflation unexpectedly cooled in August as apparel prices fell by the most in about seven decades and medical-care costs declined, offering Americans a respite from accelerating price gains.

Excluding volatile food and energy costs, the core consumer price index rose 2.2 percent in August from a year earlier, compared with the 2.4 percent median estimate of economists surveyed by Bloomberg News, a Labor Department report showed Thursday. The broader CPI slowed to a 2.7 percent annual gain from 2.9 percent.

The cooling of price gains, along with what last week’s jobs report showed was the fastest wage increase since 2009, meant inflation-adjusted hourly pay rose 0.2 percent from a year earlier, following a 0.1 percent decline in August.

The moderation in the core gauge partly reflects a 1.6 percent monthly drop in apparel prices, a component that tends to be volatile. Even so, the broader slowdown follows data showing a surprise drop in producer prices and suggests the path of inflation could be softer than expected. At the same time, freight prices and rising wages, along with tariffs and counter- levies, may keep putting upward pressure on inflation.

Federal Reserve policy makers are widely expected to raise interest rates later this month, though a more persistent slowdown in inflation could affect their outlook for future increases.

Monthly Change

The core CPI rose 0.1 percent from the prior month, compared with the median estimate of economists for a 0.2 percent gain, and followed an annual increase of 2.4 percent in July. The broader CPI was up 0.2 percent, less than forecasts for a 0.3 percent increase. It was expected to rise 2.8 percent from a year earlier.

Besides apparel, the index for medical care fell 0.2 percent for a second month. The shelter category, which accounts for about one-third of the CPI, showed a 0.3 percent gain, in line with recent increases. Prices of new automobiles were unchanged, the first month without a gain since April, while used cars and trucks rose 0.4 percent.

Airfares rose 2.4 percent following a 2.7 percent advance in July, amid higher fuel prices, one of the biggest costs for airlines.

The Fed’s preferred gauge of inflation — a separate consumption-based figure from the Commerce Department — came in above the central bank’s 2 percent goal in July, and the figure tends to run slightly below the Labor Department’s CPI. August numbers are due on Sept. 28, after the Fed’s two-day meeting.

Seasonally adjusted gasoline prices increased 3 percent in August from the prior month, the most since April, and were up 20.3 percent over the past 12 months.

Bloomberg.com — The European Central Bank confirmed it will cut bond-buying in half next month and anticipates that new purchases will be halted by the end of the year.

The Frankfurt-based institution said it will buy 15 billion euros ($17 billion) of assets a month from October to December, and that a decision to halt the program after that continues to be contingent on incoming economic data. Policy makers reiterated that interest rates will remain at their present record lows “at least through the summer” of 2019. […]

Bloomberg.com – The Bank of England upgraded its view of the economy and noted recent strengthening pay, keeping officials on course for future series of gradual interest-rate increases.

Policy makers said recent activity has been better than expected, raising their third-quarter estimate to 0.5 percent from 0.4 percent, according to minutes of their latest meeting at which they left rates on hold. Officials also noted that consumer spending and pay settlements appear to have been stronger than anticipated.

But they reiterated that Brexit was the biggest challenge to the outlook and that uncertainty about the U.K.’s future outside the European Union had risen. With the government working on contingency plans for a no-deal Brexit, Governor Mark Carney has extended his stay at the BOE until early 2020. On Thursday, he even attended a Cabinet meeting to discuss preparations.

At the BOE decision, the Monetary Policy Committee voted unanimously to hold the benchmark rate at 0.75 percent, after hiking at the last meeting in early August. It reiterated that “limited” and “gradual” rate increases will be needed to control inflation, and investors see the next quarter-point increase arriving in May.

The pound edged higher after the decision, before paring gains to trade little changed at $1.3049 as of 12:38 a.m. in London. The bank’s analysis of financial markets revealed that there had been an increase in interest-rate options bets on a central-bank interest-rate cut in 2019. Investors also see greater downside risks to the pound.

The committee also noted that risks to global growth had increased as trade tensions escalated and emerging markets became more volatile. In Turkey, the central bank jacked up its benchmark interest rate by 625 basis points to 24 percent on Thursday to stabilize the country’s finances. The decision came hours after President Recep Tayyip Erdogan triggered tumult by repeating his hostility to higher borrowing costs.

The BOE published the latest report from its agents around the country. They found that underlying consumer spending growth remained modest, and Brexit fears had contributed to a slight softening in investment intentions. However, the labor market remained tight and pay settlements had risen from a year earlier.

Bloomberg.com — Asian equities advanced Thursday, putting them on track to end the longest losing streak in 16 years, after news of potential U.S.-China trade negotiations. The dollar pared a decline and China’s yuan held gains.

The MSCI Asia Pacific Index rose after 10 days of losses, with Hong Kong and Japanese shares leading the charge. Futures pointed lower for stocks in Europe and New York. Treasuries steadied, while U.S. stocks ended Wednesday mixed. Crude oil pared its biggest two-day increase as traders keep watch on Hurricane Florence’s path to the U.S. east coast. The euro and the pound slipped ahead of policy decisions from the European Central Bank and the Bank of England.

Markets welcomed the news that Treasury Secretary Steven Mnuchin recently reached out to Beijing to propose another round of talks, just days after President Donald Trump threatened to slap tariff hikes on nearly all goods from China. Still, strategists remain concerned about an escalation in the trade dispute. Goldman Sachs Group Inc. even penciled in a bear market for American stocks in one scenario. And amid the global retreat from monetary stimulus, Morgan Stanley has also soured on equities.

“We’re not that bullish on equities anywhere globally at Morgan Stanley right now,” said Jonathan Garner, Asia and emerging-markets chief strategist, in an interview with Bloomberg TV. In the U.S., the bank’s latest recommendation was to reduce stock holdings and move to products tied to Libor, “to take advantage of those higher short yields,” he said.

Elsewhere, two-year Treasury yields hit another decade high, and futures trading shows investors anticipate two more Federal Reserve interest-rate hikes by year-end. A surge in Australian employment lifted the Aussie.

Asian stocks fell as investors assessed the outlook for global growth with no end in sight for trade tensions. Oil prices jumped as a potentially devastating hurricane headed for the American east coast.

Equities from Sydney to Bangkok declined, with Hong Kong shares sliding further into a bear market. Futures signaled a muted start for stocks in London. Two-year Treasury yields pulled back after hitting a decade high, as the U.S. sold debt and federal funds futures showed investors increasingly expecting two more rate hikes by year-end. Ten-year Treasury yields pared their advance toward 3 percent and the dollar steadied.

Asian stocks are heading for a 10th day of losses. The region’s currencies have also been hit by prospects for tighter U.S. monetary policy following a raft of strong American economic data.

“We are concerned that trade tensions are adding to the downside risks to growth,” Sneha Sanghvi, head of Asian financial markets at Westpac Banking Corp., told Bloomberg TV from Singapore. “We are seeing heightened volatility and risk aversion in financial markets — that trend is likely to continue for the next few weeks.”

Crude built on its biggest advance since June as Hurricane Florence threatened U.S. east coast gasoline markets and sanctions began crimping Iranian oil exports.

Bloomberg.com — U.K. wage growth accelerated over the summer amid the lowest jobless rate in more than four decades.

Earnings excluding bonuses rose an annual 2.9 percent in the three months through July, more than the 2.8 percent economists forecast. The jobless rate held at 4 percent, the lowest since 1975, the Office for National Statistics said Tuesday.

A tightening labor market prompted the Bank of England to increase interest rates last month to their highest level since 2009.

Muted productivity means that even a modest wage pickup could fuel inflation as companies raise prices to protect their margins. Officials, who are expected to hold fire at their meeting this week, say further rate hikes will be needed.

The pound extended an advance after the data and was 0.4 percent higher at $1.3075 as of 9:34 a.m. in London.

Wages are now growing faster than prices in a boon for hard-pressed households squeezed by years of meager pay rises and, more recently, a pound-induced inflation surge. Real wages remain below their levels before the financial crisis.

In July alone, basic wages rose 3.1 percent from a year earlier, the most since July 2015, and vacancies are at record levels.

There was less positive news on employment, which rose by just 3,000 during the period though the employment rate stayed close to a record high. Unemployment, which fell 55,000, may have risen but for a sharp rise in the inactivity rate.

Overall wage growth quickened to 2.6 percent between May and July and the BOE sees a pickup toward 3.5 percent next year. The ONS cautioned that subdued wage growth a year earlier may have slightly inflated the latest figures.

The ONS said there was only a small impact from pay rises in the National Health Service in July. Public-sector workers are benefiting from the easing of a cap on pay increases in place since 2010.

Bloomberg.com — Stocks in Asia traded mixed Tuesday as investors awaited fresh developments on the trade-war front. With U.S. yields on the rise again, a weakening yen gave Japanese stocks a boost.

Hong Kong stocks teetered on the brink of a bear market, weighed down by technology stocks, while equities in Shanghai drifted near the lowest level since January 2016. Relatively cheap valuations also helped Japanese shares outperform. The MSCI Asia Pacific Index lingered near a one-year low. European futures signaled stocks will rise at the open.

The pound added to gains after European Union chief Brexit negotiator Michel Barnier said a deal with the U.K. is “realistic” and “possible” within eight weeks. U.S. two-year yields hovered near the highest level in a decade in the run-up to an anticipated Federal Reserve interest-rate hike later this month.

Persistent trade frictions and turmoil in emerging-market currencies continue to mar the outlook for global equities. Investors are bracing for the next step in the U.S.-China trade dispute after the Trump administration signaled it’s ready to impose tariffs on even more goods imported into the U.S.

Elsewhere, crude was steady after slipping to the lowest in more than two weeks as investors weighed a potential production surge from Saudi Arabia and Russia against concern that Iranian sanctions will trigger a global supply crunch.

Bloomberg.com — The U.K. economy grew at the fastest pace in almost a year between May and July, as construction output rebounded and a heatwave boosted retail sales and the powerhouse services sector.

Gross domestic product increased 0.6 percent from the three months through April, the most since August last year, the Office for National Statistics said Monday. That’s more than economists forecast and up from 0.4 percent in the second quarter.

The figures appear to vindicate the Bank of England’s decision to raise interest rates last month. Annualized growth in the latest period was 2.4 percent, well above the pace policy makers believe will fuel inflation. The pound edged higher following the figures.

BOE officials, expected to keep policy unchanged on Thursday, have indicated that further modest hikes will be needed to bring inflation back target.

The solid performance in the latest period came as a prolonged heatwave helped the economy rebound from a snow-blighted start to the year.

Construction output jumped 3.3 percent, while services, the largest part of the economy, rose 0.6 percent with retail sales benefiting from the warm weather and soccer World Cup, the ONS said. Manufacturing and industrial production, by contrast, contracted.

A similar pattern was on display for July alone, when economic growth accelerated to 0.3 percent — more than forecast — from 0.1 percent in June.

The big question mark over the economy remains Brexit, with economists warning that failure to reach a deal with the European Union could deliver a shock to investment and consumer spending.

Separate figures showed the trade deficit in goods narrowed to a five-month low of 9.97 billion pounds in July, aided by a 2.8 percent rise in exports. The shortfall including services fell to just 111 million pounds.

Bloomberg.com — Stocks in Asia were mixed at the start of the week as investors digested U.S. President Donald Trump’s threat to escalate the trade war with China. The dollar and Treasury yields held gains as a rise in U.S. wages bolstered the prospects for further interest-rate hikes.

Equities sank in China and Hong Kong’s benchmark index flirted with bear-market territory, while stocks edged higher in Japan and were little changed in Australia and South Korea. European futures pointed to modest gains as did their U.S. counterparts. Emerging-market shares declined. Oil rebounded from the biggest weekly loss in two months on speculation of a crude-supply shortage.

Worries from the trade ructions to emerging-market turmoil have weighed on equities, with even U.S. stocks joining in with declines. Trump’s signal that he’s ready to target a sum of goods equal to virtually all imports from China came as data showed a healthy American labor market with signs of wage inflation that could clear the way for two more Federal Reserve interest rate hikes this year.

“Defensive positioning is still warranted at the moment,” Sean Fenton, director at Tribeca Investment Partners, said on Bloomberg Television in Sydney. On trade, “markets had some hope that as we got to that deadline there would be some concessions, but there’s really escalation.”

Elsewhere, the krona was little changed after Sweden’s election. The country may face weeks or even months of political gridlock after an inconclusive result left the biggest Scandinavian economy without a clear candidate to form a government.