US in­fla­tion still sub­dued

NBK MONEY MAR­KETS RE­PORT

Kuwait Times - - BUSINESS -

Mar­kets were gen­er­ally quite this week as they awaited US in­fla­tion fig­ures due Fri­day. After last week’s ro­bust US em­ploy­ment num­bers, the in­fla­tion re­port would give a bet­ter in­di­ca­tion to the next pol­icy move by the Fed­eral Re­serve. While em­ploy­ment has been con­sis­tently strong, in­fla­tion has been rel­a­tively stag­nant this year sup­ported by fall­ing oil prices. Nev­er­the­less, the US Fed deemed it ad­e­quate to hike rates twice al­ready this year with a third planned for the end of the year. How­ever, with em­ploy­ment near full ca­pac­ity for over a year now, in­fla­tion and growth re­main the key in­di­ca­tors. The Fed has al­ready ad­dressed the re­cent mod­er­a­tion in in­fla­tion call­ing it a “tran­si­tory” phase that should pick up in the medium term. In­deed, NY Fed pres­i­dent re­in­forced these views in a speech Thurs­day. The next GDP re­port is due Au­gust 30 and will bet­ter in­di­cate whether la­bor mar­ket strength is spilling over into in­fla­tion.

The US Fed last hiked in­ter­est rates in their June meet­ing de­spite in­fla­tion lag­ging be­hind their 2 per­cent tar­get. Mar­kets are now un­con­vinced the Fed can do it again after months of dis­ap­point­ing fig­ures. Con­sumer prices in­creased just 0.1 per­cent in July be­low ex­pec­ta­tions for the fourth month in a row. Year-on-year in­fla­tion is now marked at 1.7 per­cent. Al­though, the bench­mark US 10 year bond yield jumped 1.35 per­cent to 2.2185 per­cent after the re­lease of the CPI, it is still around 8 per­cent lower than short month ago. It is no sur­prise then, when look­ing at in­ter­est rate hike ex­pec­ta­tions which are based on the 10 year US bench­mark, mar­kets poll a 30 per­cent chance for an­other US rate hike in 2017.

In the cur­rency mar­kets, the US dol­lar in­dex be­gan the week on a re­cent high of 93.400 after be­ing boosted by the non-farm pay­rolls of last week but re­mained in a tight range as mar­kets awaited the CPI re­port Fri­day. After reach­ing a short lived high of 93.800 Wed­nes­day fol­low­ing an­other pos­i­tive em­ploy­ment re­port the JOLTS job open­ings, the in­dex found its way back down to a close of 93.401.

Mir­ror­ing the US dol­lar in­dex in­versely, the Euro had a quite week with no ma­jor eco­nomic in­di­ca­tors mainly re­act­ing to US pol­icy de­vel­op­ments. The EUR/USD opened the week at 1.1766 fell slightly after the US JOLTS re­view but re­bounded to close the week at 1.1820.

In the UK, the Bri­tish Pound has re­mained sub­dued after its fall last week fol­low­ing the dovish Bank of Eng­land pol­icy meet­ing and the pos­i­tive US em­ploy­ment re­port. Adding to its re­cent weak­ness was the flat growth in the man­u­fac­tur­ing sec­tor which co­in­cided with the BoE’s re­duc­tion in growth fore­casts last week. Al­though re­main­ing rel­a­tively flat through­out the week, the GBP/USD found its way down to 1.3011 after open­ing the week at 1.3025.

In Asia, the Ja­panese Yen saw some of the largest move­ments against its ma­jor coun­ter­parts in a spring of safe­haven buy­ing as US and North Korean ten­sions es­ca­late. The yen ap­pre­ci­ated around 1.60 per­cent as the USD/JPY fell from 110.60 at the open of the week to 109.15 at the close.

In com­modi­ties, crude oil prices dropped eras­ing their gains Fri­day after The In­ter­na­tional En­ergy Agency re­duced de­mand es­ti­mates for OPEC crude this year and in 2018. Fur­ther­more, the Agency also cast doubts on OPEC’s sup­ply curb com­mit­ment. Brent Crude reached a high of $53.64 be­fore drop­ping to close the week at $52.10. West Texas In­ter­me­di­ate fell sim­i­larly from $50.22 to a close of $48.82. Gold prices on the other hand, had its strong­est week in months in safe-haven buy­ing due to the po­lit­i­cal ten­sions be­tween the US and North Korea. The pre­cious metal opened the week at $1,258.64 and climbed to a close of $1,288.81.

Jolts

Monthly US jobs open­ings in­creased to a record high in June from May ac­cord­ing to the Bureau of La­bor Statis­tics. The in­crease came mainly from open­ings in the pro­fes­sional and busi­ness ser­vices by 179,000, with health care and con­struc­tion in­dus­tries in­creas­ing the se­cond and third most at 125,000 and 62,000, re­spec­tively. How­ever, the hir­ing rate was lit­tle changed at 3.7 per­cent. The JOLTS Job Open­ings came in at 6.163 mil­lion, ex­ceed­ing both the ex­pected 5.6 mil­lion and July’s 5.702 mil­lion.

In­fla­tion still sub­dued

US pro­ducer prices un­ex­pect­edly fell in July weighed down by de­clin­ing costs for ser­vices and en­ergy prod­ucts. The PPI dropped -0.1 per­cent in July while the an­nual rate slowed to 1.9 per­cent from 2.0 per­cent, both miss­ing ex­pec­ta­tions. The core fig­ure, which ex­cludes volatile com­po­nents such as food and en­ergy also de­clined by 0.1 per­cent on a month to month and an­nual ba­sis. US con­sumer prices also re­mained soft for the fifth straight month in July, rais­ing even more ques­tions about whether in­fla­tion will even­tu­ally rise to hit the Fed­eral Re­serve’s 2 per­cent an­nual rate tar­get. The con­sumer price in­dex and its core fig­ure both rose a sea­son­ally ad­justed 0.1 per­cent in July be­low ex­pec­ta­tions. An­nu­al­ized, con­sumer prices have risen an un­ad­justed 1.7 per­cent over the past 12 months.

Europe & UK Ger­man Prices Steady

Con­sumer prices in Ger­many rose by 1.7 per­cent in July 2017 com­pared with July 2016. Month-over-month, the con­sumer price in­dex rose by 0.4 per­cent in July 2017. The main driver were hol­i­day re­lated sec­tors and food. The in­fla­tion fig­ures were fully aligned with the flash es­ti­mate and showed that the EU’s largest econ­omy was gain­ing steadily.

UK man­u­fac­tur­ing flat

Man­u­fac­tur­ing growth in June 2017 was flat com­pared with May 2017. While, 6 of the 13 sub-sec­tors in­creased, trans­port equip­ment pro­vided the largest down­ward con­tri­bu­tion, fall­ing by 3.6 per­cent due mainly to a 6.7 per­cent fall in the man­u­fac­ture of mo­tor ve­hi­cles. How­ever, to­tal pro­duc­tion was es­ti­mated to have in­creased by 0.5 per­cent in June com­pared with the pre­vi­ous month due mainly to a rise of 4.1 per­cent in min­ing and quar­ry­ing as a re­sult of higher oil and gas pro­duc­tion.

UK trade deficit wi­dens

A fall in ex­port vol­umes and climb­ing im­ports widened Bri­tain’s trade deficit with the rest of the world in June. While a weaker pound makes Bri­tish ex­ports at­trac­tive, it also makes im­ports to the coun­try more ex­pen­sive. Be­tween the first and se­cond quar­ters of 2017, the to­tal trade deficit widened by £0.1 bil­lion to £8.9 bil­lion as in­creases in im­ports were closely matched by in­creases in ex­ports.

China in­fla­tion mixed

Chi­nese con­sumer in­fla­tion weak­ened slightly in July, while pro­ducer prices ex­panded at a steady pace. Con­sumer prices ad­vanced 1.4 per­cent from a year ear­lier, slightly be­low the pre­vi­ous month’s gain of 1.5 per­cent. Bei­jing’s key in­fla­tion read­ing has stum­bled this year after climb­ing above 2 per­cent an­nu­ally at the end of 2016. Pro­ducer prices on the other hand, rose from a year ear­lier for the 11th straight month. The pro­ducer price in­dex rose 5.5 per­cent in July, un­changed from the pre­vi­ous month. The recovering PPI has largely been driven by fis­cal poli­cies and other mea­sures aimed at re­solv­ing the na­tion’s over­ca­pac­ity con­straints.

Ja­pan busi­ness in­vest­ment lags

Ja­pan’s core ma­chin­ery or­ders un­ex­pect­edly fell for a third con­sec­u­tive month in June as com­pa­nies seem re­luc­tant to boost spend­ing. The fig­ures con­flict re­cent pos­i­tive sen­ti­ment sur­veys as a re­sult of higher global de­mand. How­ever, the core or­ders, re­garded as an in­di­ca­tor of cap­i­tal spend­ing in the com­ing six to nine months, de­creased 1.9 per­cent in June from the pre­vi­ous month.

Kuwaiti di­nar at 0.30160 The USDKWD opened at 0.30160 yes­ter­day morn­ing.

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