Market news

Bloomberg.com — U.K. unemployment dropped to a new 43-year low in the three months through June but the pace of wage growth eased.

The jobless rate stood at 4 percent, the least since February 1975, the Office for National Statistics said on Tuesday. Economists had expected it to stay at 4.2 percent.

The decline helps to explain why the Bank of England increased interest rates this month. Policy makers believe inflationary pressures are building in the labor market as skill shortages force some employers to raise wages to attract and retain staff.

Still, there was little sign of overall wages taking off in the latest data — pay growth slowed to a nine-month low of 2.4 percent between April and June — but the BOE sees a pickup toward 3.5 percent this year.

Much depends on productivity. Without a significant improvement, firms may find their profit margins coming under pressure and increase prices to compensate. Flash figures for the second quarter Tuesday show output per hour rose 0.4 percent, leaving productivity up just 1.5 percent on the year.

BOE officials expect unemployment to fall to 3.9 percent this year and Governor Mark Carney signalled that further rate hikes will be needed to return inflation to target, assuming Britain avoids a chaotic departure from the European Union next year.

Wage growth excluding bonuses slowed to 2.7 percent, the weakest since January but still ahead of the 2.4 percent rate of inflation. Upward pressure on settlements is expected to come from the public sector, where millions of workers will this year benefit from the easing of a cap on pay increases in place since 2010.

There were some signs of weakness in the labor market report. While vacancies were at a record, the jobless rate fell thanks to a drop in economic activity, and employment rose by just 42,000, less than half the increase expected.

The increase in employment over the past year was driven by U.K. nationals as foreigners arrive in fewer numbers since the Brexit vote. There was a record drop in employment among EU nationals, driven by citizens of the eight countries that joined the bloc in 2004.

Bloomberg.com — Asian stocks mostly steadied Tuesday as the contagion from the economic crisis in Turkey remained relatively contained in developed markets. The dollar slipped from its highest in 14 months and Treasuries edged lower.

Japan’s equities outperformed as the yen pared some of Monday’s rise. Australian and South Korean shares also rose while those in China and Hong Kong traded lower. The offshore yuan strengthened even as data showed China’s economy hit a mid-year rough patch. European futures climbed alongside U.S. contracts as Turkey’s lira steadied after slumping over 20 percent in four days.

Still, in a sign that investors are still trying to work through the implications of Turkey’s meltdown, the Indian rupee hit the 70-per dollar mark, a record low, as emerging-market currencies remained under pressure. Earlier, Argentina’s central bank unexpectedly hiked its key interest rate as the peso slumped to a record low.

“I would be looking more for any strength that we see perhaps in the next week or two as an opportunity to sell rather than looking at it as a buying opportunity,” Ray Attrill, head of foreign-exchange strategy at National Australia Bank Ltd., told Bloomberg Television. “The biggest EM risk, it’s still ahead of us.”

The economic troubles in Turkey have gripped global financial markets, with investors scrambling to determine whether and how far pain there would spread. President Donald Trump’s top national security aide warned Turkey’s ambassador on Monday that the U.S. has nothing further to negotiate until a detained American pastor is freed, according to people familiar, signaling a standoff between the countries will continue.

Elsewhere, oil pared losses even as economic turbulence in Turkey and the strengthening greenback heightened concerns about global oil demand. Bitcoin dropped below $6,000 and dozens of smaller digital tokens tumbled as this month’s selloff in cryptocurrencies showed few signs of letting up.

Bloomberg.com — Stocks declined in Asia alongside the euro and emerging-market currencies, while the yen advanced, on continued turmoil in Turkey that’s sparked wider concern of market contagion. The dollar rose to its highest in more than a year.

Shares fell across the region while U.S. equity futures slid, with events in Turkey dominating. The lira recouped some of Monday’s drop as Turkey’s central bank took steps to boost liquidity. Emerging-market assets were under pressure as President Recep Tayyip Erdogan maintained his defiance toward the U.S. and financial-market orthodoxy in speeches on Sunday even after the nation’s currency plummeted. The South African rand, which tumbled to a June 2016 low, and the Indonesian rupiah were among other weakening developing-nation currencies.

Money is flowing into safe-haven assets like Treasuries and the Japanese yen as the situation in Turkey gives traders a reason to reduce positions in riskier assets. The lira’s plunge has reminded investors of past crises in emerging markets and rattled nerves, which show little sign of calming.

The decline in the lira “may fuel volatility in emerging-market assets and dampen investor sentiment in the near term, as markets are already skittish,” said Kerry Craig, global market strategist at JPMorgan Asset Management. “But the drivers of the lira’s decline are very specific to Turkey – therefore it should not derail the positive fundamentals in other emerging markets over a longer-term.”

Elsewhere, commodities slipped but were less affected by the Turkish volatility. Oil traded below $68 a barrel after Iran ruling out talks with the U.S. heightened concerns over global supply, offsetting signs of a potential increase in American output.

Bloomberg.com — Canada’s jobless rate returned to four- decade lows in July on stronger-than-expected employment gains.

The unemployment rate declined to 5.8 percent from 6 percent in June, matching the lowest level since the 1970s, Statistics Canada reported from Ottawa. The economy added 54,100 jobs, another strong month following a 31,800 gain in June. The breakdown was less rosy, with all the gains in part-time employment and concentrated in public sector service jobs.

Still, the report is consistent with a robust economy that continues to generate jobs at a steady pace and looks to be running up against capacity.

One question policy makers have been seeking to answer is how much slack remains in the labor market, and whether a tightening jobs market could prompt the Bank of Canada to raise interest rates and trigger a slowdown in growth.

Friday’s report — based on a survey of households — may provide some comfort that tightening is happening at a gradual pace. Wage gains slowed during the month, with average hourly wages up 3.2 percent from a year ago. That’s the slowest pace since February. Wage gains for permanent workers were 3 percent, the slowest this year.

While the monthly employment gains were the strongest this year, total actual hours worked was up just 1.3 percent in July, the lowest since November 2017. That’s because the gains last month were all part-time, up 82,000 in July. Full-time employment fell by 28,000.

Another weak point in the monthly jobs data was a 36,500 drop in goods-producing industries, including a net decline of 18,400 in manufacturing. All the employment gains were in services, which was up 90,500 during the month. That’s the biggest ever monthly increase in service jobs since at least 1976 and reflects higher employment in education and health.

Bloomberg.com — U.S. consumer prices rose in July, with a gauge excluding food and fuel costs posting the biggest annual gain since 2008, underpinning expectations that the Federal Reserve will raise interest rates next month.

The consumer-price index rose 0.2 percent from June after a 0.1 percent month-on-month gain the prior month, a Labor Department report showed Friday. That matched the Bloomberg survey median. Excluding food and energy, the core gauge was also up 0.2 percent, the same as projected. The core measure on a year-over- year basis advanced 2.4 percent, the biggest jump in that measure since September 2008.

The results indicate steady consumer demand will sustain inflation, at a time tariffs and counter-levies by the U.S. and nations including China also threaten to lift costs on a range of goods. Sustained progress toward the Fed’s goal — based on its preferred gauge of inflation — keeps the central bank on track for one or two more rate hikes this year.

The overall CPI gauge rose 2.9 percent in the 12 months through July, matching the survey median, the report showed. Core CPI was projected to advance 2.3 percent on an annual basis.

About 60 percent of the increase in the overall index came from a jump in shelter costs.

Some items that posted big declines in June reversed course in July. Among them were hotel and motel rates, which rose 0.4 percent after a record decline of 4.1 percent in June. Airfares jumped 2.7 percent, the most since July 2013, following a 0.9 percent drop in June.

Apparel decreased again, dropping 0.3 percent after falling 0.9 percent the prior month.

The core CPI reading brought the three-month annualized gain to 2.3 percent, after rising 1.7 percent in June. […]

Bloomberg.com — The U.K. economy bounced back from its turgid start to the year in the second quarter but the dominant services sector lost momentum toward the end of the period.

Gross domestic product increased 0.4 percent between April and June, in line with the median forecast in a Bloomberg survey, figures from the Office for National Statistics Friday showed.

In June alone, output gained just 0.1 percent, its weakest performance since March. While manufacturing and construction posted reasonable gains, services output was entirely unchanged.

With an annualized expansion of 1.5 percent in the second quarter, growth is back to the rate the Bank of England estimates to be the economy’s speed limit. Still, the slowdown in June may give ammunition to those who say Governor Mark Carney and his colleagues acted too early when they raised the benchmark interest rate to the highest since 2009 last week.

The pound was 0.5 percent lower at $1.2756 as of 9:34 a.m. in London. The currency is set for a seventh day of losses against the dollar, a run that has taken it to the weakest since June 2017. Investors also slightly cut bets on the pace of BOE rates increases.

A big question mark over the economy, and BOE action, remains Brexit, with a lack of clarity over the U.K.’s future relationship with the European Union putting investment decisions at risk. Investors are betting the BOE won’t act again before Britain quits the EU in March.

Weather Boost

The statistics office said good weather lifted retail sales and construction, suggesting the reasons behind the second quarter’s relative strength may be just as transient as the snow and storms that caused a near standstill at the start of 2018.

Growth in the second quarter was driven by services, with the best quarter for the sector since the end of 2016 offsetting the worst manufacturing performance since 2012. Construction rebounded, recovering the weather-related losses it incurred in the first quarter.

Consumer spending rose 0.3 percent and business investment increased 0.5 percent. Net trade acted as a drag on the economy as the deficit in goods and services widened. The value of exports fell 3.6 percent from the first quarter as shipments of cars and planes declined sharply, while imports rose 2 percent.

Bloomberg.com — The euro slumped with emerging-market currencies and stocks declined amid concern Turkey’s problems are spilling over. The Turkish lira hit a fresh record low amid a souring of diplomatic relations with the U.S.

The common currency sank and the dollar extended gains as the Financial Times reported that the European Central Bank was concerned about the Turkish exposure of some banks. Traders sought out traditional havens in U.S. Treasuries and the yen. Turkish investors are looking to President Recep Tayyip Erdogan to calm their nerves when he speaks Friday for the first time since the latest selloff began. Other emerging market currencies fell in sympathy with the lira, and U.S. and European equity futures fell alongside Asian bourses.

“My guess on the euro is that its related to contagion from Turkey,” said Raymond Lee, money manager at Kapstream Capital in Sydney. “At the moment it doesn’t feel like a systemic issue but more a market reaction to the surprise.”

Geopolitical tensions between the U.S. and other countries have set the tone for markets this week as China responded to the Trump administration’s latest trade war volley with additional tariffs of its own. The ruble hit a two-year low after the U.S. announced new sanctions on Russia over the March 4 nerve-agent attack on a former double agent in the U.K.

Investors will be closely watching bank shares in Europe, with Spain’s Banco Bilbao Vizcaya Argentaria SA, UniCredit SpA and BNP Paribas SA mentioned in the Financial Times report. The ECB doesn’t see the situation as critical but is concerned about exposure to the plunge in the Turkish lira, it said, citing people familiar with the matter.

Elsewhere, Tesla shares rose in post-market trading after CNBC reported that its board planned to meet with financial advisers next week to formalize a process to take the co. private and would ask CEO Elon Musk to recuse himself from the process.

Bloomberg.com — The European Central Bank has grown concerned about the exposure of some euro zone banks to Turkey following the lira’s plunge, the Financial Times reported.

Banco Bilbao Vizcaya Argentaria SA, UniCredit SpA and BNP Paribas SA are particularly exposed after the Turkish currency lost more than a third of its value this year, the newspaper reported, citing unidentified people familiar with the matter.

The ECB’s Single Supervisory Mechanism has begun over the past couple of months to look more closely at European banks’ ties to the country, the FT said, adding that the watchdog doesn’t see the situation as critical yet. The risk is that Turkish borrowers may not be hedged against the lira’s weakness and could start to default on foreign-currency loans, the newspaper said.

The lira sank more than 3 percent to a record low against the dollar Friday, as concern about souring relations with the U.S. and runaway inflation overshadowed the nation’s plans to stem a market rout.

BBVA, UniCredit and BNP Paribas all declined to comment on the central bank’s concerns, along with the ECB, the FT said.

Investing.com – Consumer inflation rate in China in July 2018 increased to a record level since March.

Consumer prices (CPI index) increased last month by 2.1% in annual terms after an increase of 1.9% in June, according to the State Statistics Office (SSO) of China. Experts interviewed by the Bloomberg agency,  predicted June inflation in China at 2% on average.

The growth of the CPI index in monthly terms was 0.3%, in June its value decreased by 0.1%.

The increase in the cost of food last month accelerated to 0.5% compared with 0.3% in June. Non-food products rose 2.4% year-on-year after a 2.2% rise in prices in the previous month.

The indicator excluding the cost of food and energy remained in July at 1.9% against the same month a year earlier.

The PRC authorities are aimed at maintaining consumer inflation just below the level of 3% in 2018. Private economists expect a slowdown in price growth to 3.2% from 6.3% in 2017.

The rise in producer prices (PPI) in China slowed from 4.7% in annual terms in June to 4.6% in July. Analysts forecast an increase of 4.5% on average.