Erdogan’s Waning Patience: Four Questions for Turkey’s Central Bank

The bank has kept its benchmark rate at 19% since March, when Erdogan installed Sahap Kavcioglu as its latest governor. That makes it one of the highest policy rates in the world – although so too is Turkey’s inflation rate, which touched 19.25% last month.

Ahead of a monetary policy meeting set for 2 p.m. (11:00 GMT) on Thursday in Ankara, here are four key questions:

IS A RATE CUT COMING?

After months of hawkish talk that allowed the lira to recover from an all-time low in June, the central bank has changed its tune in the last few weeks.

On Sept. 1 conference calls with investors, Kavcioglu did not repeat a longstanding pledge to keep the policy rate above inflation. Two days later, data showed inflation did indeed surpass 19% https://tmsnrt.rs/3yTLHBq, leaving real rates negative.

Kavcioglu also began downplaying this “headline” inflation figure and instead stressed that a “core” measure – which is lower – is more appropriate given the fallout from the pandemic.

In a speech on Sept. 8, he said a near 30% spike in food inflation represents “short-term volatilities”, so the bank will focus more on the core measure that dipped to 16.76%. He added that policy was tight enough and predicted a falling price trend in the fourth quarter.

Investors have taken all this as a dovish turn that suggests that rate cuts are on the way. Some have warned of a “policy mistake” if they come too soon.

Fourteen of 17 economists polled by Reuters expect easing to begin in the fourth quarter, with two, including the Institute of International Finance, predicting it will start this week.

“Though most expect no rate cut, the bank’s new guidance suggests it would not be surprising to see one on Sept. 23 if it takes a slight deceleration in core inflation as permanent,” said Ozlem Derici Sengul, founding partner at Spinn Consulting, in Istanbul.

HOW LONG WILL ERDOGAN WAIT?

Many analysts say Erdogan appears to be growing impatient for monetary stimulus, given loans are expensive and he faces a tough election no later than 2023. A few say a prompt rate cut could even signal plans for an early vote.

In recent months, the central bank has urged patience due to unexpected inflation pressure brought on by rising global commodities prices and a surge in summer demand as pandemic restrictions eased.

Despite the risk of currency depreciation https://tmsnrt.rs/3neUCLN and stubbornly high inflation, Erdogan will likely get what he wants soon.

A self-described “enemy of interest rates”, he ousted the last three central bank chiefs over a 20-month span due to policy disagreements.

In June, Erdogan said he spoke to Kavcioglu about the need for a rate cut after August.

In early August, he said “we will start to see a fall in rates” given it was “not possible” for inflation to rise any more.

Market tensions “are set to increase as President Erdogan continues to pile on political pressure for rate cuts, while inflation pressures are building,” said Phoenix Kalen, global head of emerging markets research at Societe Generale.

WHEN WILL INFLATION COOL DOWN?

Annual headline inflation should remain high through October and begin to dip in November due to the base effect of a jump late last year, since which it has continued to rise.

The government forecasts inflation will drop to 16.2% by the end of the year, while Goldman Sachs and Deutsche Bank see 16.7%. That should provide a window for at least one rate cut in the fourth quarter, most analysts say.

Yet because Turkey imports heavily, further lira weakness could push inflation higher and complicate or even thwart any easing. High import costs were reflected in the 45.5% annual jump in the producer price index last month.

Another risk is that the U.S. Federal Reserve removes its pandemic-era stimulus sooner than expected, which would raise U.S. yields and hurt currencies of emerging markets with high foreign debt, like Turkey.

Analysts say the biggest problem is the central bank’s diminished credibility in the face of political interference, leading to years of double-digit price rises and little confidence that inflation will soon return to a 5% target.

Ricardo Reis, a London School of Economics professor who presented a paper this month at the Brookings Institute, found that Turkey’s “inflation anchor seems definitely lost” based on market expectations data from 2018 to 2021.

HOW ARE INVESTORS AND SAVERS PREPARING?

When Kavcioglu downplayed inflation pressure earlier this month, the lira weakened 1.5% in its biggest daily drop since May. It has depreciated nearly 15% since Erdogan replaced Kavcioglu’s hawkish predecessor Naci Agbal in March.

Foreign investors hold only about 5% of Turkish debt after reducing their holdings for years.

Still, some say that rebounds in exports, tourism revenues and in the central bank’s foreign reserves make lira assets more attractive.

“With inventories so low in Europe, I can’t see how exports are not going to continue to do well,” said Aberdeen Standard Investments portfolio manager Kieran Curtis.

“It does feel to me like there is more of a move towards loosening from the authorities (but) I don’t think anyone is expecting a cut at the next meeting,” he said.

In Turkey, soaring prices for basic goods such as food and furnishings have prompted individuals and companies to snap up record levels of dollars and gold. They held $238 billion in hard currencies this month.

For a look at all of today’s economic events, check out our economic calendar.

(Additional reporting by Ali Kucukgocmen in Istanbul and Marc Jones in London; Editing by Hugh Lawson)

Senior House Democrats Concede Likely Scale-Back of $3.5 Trillion Biden Spending Bill

House Speaker Nancy Pelosi also may delay sending the $1.2 trillion infrastructure measure after House passage to the White House for Biden’s signature until the larger spending bill passes, House Budget Committee Chairman John Yarmuth told “Fox News Sunday” – a move aimed to ensure that moderate Democrats support the bill.

Their comments illustrate the difficult path Democrats face in passing Biden’s sweeping agenda with razor-thin majorities and staunch Republican opposition. Tempers are high within the Democratic caucus, with moderate and progressive wings of the party sharply divided over the scale of spending.

Democrats also face looming October deadlines to fund the government and raise the federal debt ceiling. Failures on either part could deal a blow to the economy and hurt the party’s standing with voters.

Asked about the amount of the “reconciliation” tax-hike and spending bill on childcare, education and green energy, Yarmuth said he expects that the bill’s top line number “will be somewhat less than $3.5 trillion.”

Representative James Clyburn, the third-ranking House Democrat, told CNN that the number could be lower.

“So it may be $3.5 (trillion), it may be really close to that or maybe closer to something else. So I think that we ought to really focus on the American people to think about what takes to get us in a good place and then let the numbers take care of themselves,” Clyburn said on the “State of the Union” program.

Democrats aim to pass the massive spending plan without Republican support under budget reconciliation rules and cannot afford to lose any Democratic votes in the Senate and only three votes in the House.

Moderate Senate Democrats including Joe Manchin and Kyrsten Sinema say $3.5 trillion is too much; Manchin suggests spending less than half that. Meanwhile, some progressives Democrats in the House say they cannot support a bill with lower spending levels aimed at bolstering the middle class.

Clyburn said that “it’s going to take some work” to bring Democrats together to support a bill, but added “I believe in our party and our leadership.”

The $3.5 trillion spending package aims to support American families with free community college, universal preschool, an extended Child Tax Credit and investments in clean energy. But it also comes with major proposed tax hikes on the wealthy and corporations.

Pelosi has sought to delay House passage of bipartisan infrastructure bill as leverage to ensure that moderate Democrats support the social spending bill. But House Democrats set a Sept. 27 deadline for passage of the infrastructure bill as part of a budget resolution and the larger spending bill is not yet ready for vote.

Yarmuth said the infrastructure bill could still pass, but leverage could be preserved if Pelosi holds it back from Biden’s desk and signing it into law.

He said that this can be done under legislative rules. “She can hold on to that bill for a while. So there’s some flexibility in terms of how we mesh the two mandates.”

Yarmuth said the Sept. 27 deadline would likely be missed, with passage of the infrastructure bill slipping “sometime into early October would be my best guess.”

Yarmuth said he would also advocate folding a debt ceiling hike into a normal appropriations measure or the reconciliation plan, but “I don’t think that decision has been made yet. We have several options for raising the debt ceiling, which is absolutely mandatory.”

Senate Republican leader Mitch McConnell has said his party will not support a debt ceiling increase, even though the Treasury has warned that it will exhaust its cash and borrowing capacity sometime in October, leaving the U.S. government unable to pay all of its obligations.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by David Lawder and Chris Prentice; Additional reporting by David Morgan; Editing by Lisa Shumaker)

Evergrande Begins Repaying Wealth Product Investors With Property

Evergrande, with over $300 billion in liabilities, is in the throes of a liquidity crisis that has left it racing to raise funds to pay its many lenders and suppliers. It has a bond interest payment of $83.5 million due on Thursday.

The company said in a WeChat post dated Saturday that investors interested in redeeming wealth management products for physical assets should contact their investment consultants or visit local offices.

Financial news outlet Caixin reported on Sunday that an estimated 40 billion yuan ($6 billion) in Evergrande wealth management products are outstanding. Such products are typically held by retail investors.

Specific payment methods and details are subject to local conditions, a customer service representative told Reuters on Sunday.

According to a proposal seen earlier by Reuters that Evergrande did not confirm, wealth management product investors can choose from discounted apartments, office, retail space or car parks for repayment.

Earlier this month, a stock exchange filing showed that Evergrande had repaid  219.5 million yuan in overdue debts due to supplier Skshu Paint Co Ltd in the form of apartments in three unfinished property projects.

On Sept. 10, Evergrande had vowed to repay all of its matured wealth management products as soon as possible.

For a look at all of today’s economic events, check out our economic calendar.

($1 = 6.4655 Chinese yuan renminbi)

(Reporting by Aishwarya Nair in Bengaluru and Min Zhang and Tony Munroe in Beijing; Editing by William Mallard)

India Antitrust Probe Finds Google Abused Android Dominance, Report Shows

Alphabet Inc’s Google reduced “the ability and incentive of device manufacturers to develop and sell devices operating on alternative versions of Android,” says the June report by the Competition Commission of India’s (CCI) investigations unit.

The U.S. tech giant told Reuters in a statement it looks forward to working with the CCI to “demonstrate how Android has led to more competition and innovation, not less.”

Google has not received the investigation report, a person with direct knowledge of the situation told Reuters.

The CCI did not respond to a request for comment on the report. Senior CCI members will review the report and give Google another chance to defend itself, before issuing a final order, which could include penalties, said another person familiar with the case.

Google would be able to appeal any order in India’s courts.

Its findings are the latest antitrust setback for Google in India, where it faces several probes in the payments app and smart television markets. The company has been investigated in Europe, the United States and elsewhere. This week, South Korea’s antitrust regulator fined Google $180 million for blocking customised versions of Android.

‘VAGUE, BIASED AND ARBITRARY’

Google submitted at least 24 responses during the probe, defending itself and arguing it was not hurting competition, the report says.

Microsoft Corp, Amazon.com Inc, Apple Inc, as well as smartphone makers like Samsung and Xiaomi, were among 62 entities that responded to CCI questions during its Google investigation, the report says.

Android powers 98% of India’s 520 million smartphones, according to Counterpoint Research.

When the CCI ordered the probe in 2019, it said Google appeared to have leveraged its dominance to reduce device makers’ ability to opt for alternate versions of its mobile operating system and force them to pre-install Google apps.

The 750-page report finds the mandatory pre-installation of apps “amounts to imposition of unfair condition on the device manufacturers” in violation of India’s competition law, while the company leveraged the position of its Play Store app store to protect its dominance.

Play Store policies were “one-sided, ambiguous, vague, biased and arbitrary”, while Android has been “enjoying its dominant position” in licensable operating systems for smartphones and tablets since 2011, the report says.

The probe was triggered in 2019 after two Indian junior antitrust research associates and a law student filed a complaint, Reuters reported.

India remains a key growth market for Google. It said last year it would spend $10 billion https://www.reuters.com/article/us-google-india-idINKCN24E0YL in the country over five to seven years through equity investments and tie-ups, its biggest commitment to a key growth market.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Aditya Kalra in New Delhi; Editing by William Mallard)

Wall Street Closes Rollercoaster Week Sharply Lower

All three major U.S. stock indexes lost ground, with the Nasdaq Composite Index’s weighed down as rising U.S. Treasury yields pressured market-leading growth stocks.

They also posted weekly losses, with the S&P index suffering its biggest two-week drop since February.

“The market is struggling with prospects for tighter fiscal policy due to tax increases, and tighter monetary policy due to Fed tapering,” said David Carter, chief investment officer at Lenox Wealth Advisors in New York.

“Equity markets are also a little softer due to today’s weak Consumer Sentiment data,” Carter added. “It’s triggering concerns that the Delta variant could slow economic growth.”

A potential hike in corporate taxes could eat into earnings also weigh on markets, with leading Democrats seeking to raise the top tax rate on corporations to 26.5% from the current 21%.

While consumer sentiment steadied this month it remains depressed, according to a University of Michigan report, as Americans postpone purchases while inflation remains high.

Inflation is likely to be a major issue next week, when the Federal Open Markets Committee holds its two-day monetary policy meeting. Market participants will be watching closely for changes in nuance which could signal a shift in the Fed’s tapering timeline.

“It has been a week of mixed economic data and we are focused clearly on what will come out of the Fed meeting next week,” said Bill Northey, senior investment director at U.S. Bank Wealth Management in Helena, Montana.

The Dow Jones Industrial Average fell 166.44 points, or 0.48%, to 34,584.88; the S&P 500 lost 40.76 points, or 0.91%, at 4,432.99; and the Nasdaq Composite dropped 137.96 points, or 0.91%, to 15,043.97.

The S&P 500 ended below its 50-day moving average, which in recent history has proven a rather sturdy support level.

Of the 11 major sectors in the S&P 500, all but healthcare ended in the red, with materials and utilities suffering the biggest percentage drops.

COVID vaccine manufacturers Pfizer Inc and Moderna Inc dropped 1.3% and 2.4%, respectively, as U.S. health officials moved the debate over booster doses to a panel of independent experts.

U.S. Steel Corp shed 8.0% after it unveiled a $3 billion mini-mill investment plan.

Robinhood Markets Inc rose 1.0% after Cathie Wood’s ARK Invest bought $14.7 million worth of shares in the trading platform.

Volume and volatility spiked toward the end of the session due to “triple witching,” which is the quarterly, simultaneous expiration of stock options, stock index futures, and stock index options contracts.

Volume on U.S. exchanges was 15.51 billion shares, compared with the 9.70 billion average over the last 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 1.97-to-1 ratio; on Nasdaq, a 1.00-to-1 ratio favored advancers.

The S&P 500 posted seven new 52-week highs and two new lows; the Nasdaq Composite recorded 67 new highs and 82 new lows.

(Reporting by Stephen Culp; Additional reporting by Krystal Hu in New York and Ambar Warrick in Bengaluru; Editing by Richard Chang)

If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher?

Last month marked the 50th anniversary of President Nixon’s suspension of the convertibility of US dollars into gold. This move broke the last, thin link between world currencies and the yellow metal, effectively ending the ersatz of the gold standard that we still had back then (the official end came in March 1973, marking the start of an era of freely-floating fiat currencies).

I wrote about the collapse of the Bretton Woods in the last edition of the Gold Market Overview, but as it was a truly revolutionary event that paved the way for today’s monetary conditions, it’s worth mentioning the topic again.

You see, as weak the diluted post-war version of the gold standard was, it limited the US central bank’s ability to increase the money supply, as there was still a possibility that other participants of the system would redeem their dollars for gold. But Nixon “suspended temporarily” the convertibility of the dollar into gold, and while gold is away, the mice will play. Without any true constraints, the pace of annual money growth hit double digits. The CPI inflation rates followed, and the great stagflation of 1970s emerged, as the chart below shows.

What’s more, without the discipline imposed by the gold standard, the central bank could much easier monetize the public debt. The governments could spend more, maintain fiscal deficits and increase their indebtedness. In short, without gold as an anchor for monetary policy, we got more money printing, more debt, higher inflation, and more severe financial crises.

Now, one could ask: if the current monetary system, or – as some analysts prefer to call it – non-system is so bad, why isn’t the price of gold higher? Shouldn’t it be rallying, indicating how rotten our fiat-money-debt-fueled economy is?

Well, there are many answers to this questions. First of all, let’s note that the price of gold has already surged about 4100%, or more than 7.7% annually, on average, since 1971 (see the chart below), which is really something!

Second, financial markets are great supporters of the current monetary system, as they love loose monetary policy and liquidity drips from the central banks. Please remember that the US stock market welcomed the closure of the gold window by increasing 3% the next day after Nixon’s infamous speech.

Third, even poor systems can work for a while. Communist economies didn’t collapse immediately, despite their obvious inefficiency. The Breton Woods worked for almost 30 years despite its evident flaws. Furthermore, there were some institutional changes implemented in order to strengthen the current system, such as central banks’ independence, inflation targeting, prohibition of direct monetization of public debt, etc.

However, probably the most important reason is that the gold standard was in a way replaced by the US dollar standard, as the greenback substituted gold as the world’s reserve currency. In such a system, there is simply no alternative to the US dollar as a global reserve. This is because America became even more central to global finance than it was in 1971 and because practically all countries conduct similarly unsound monetary and fiscal policies (and some central banks like the ECB or BoJ are even more radical than the Fed). The greenback’s strength limits dollar-denominated gold prices.

However, it’s worth remembering that unlike the gold standard, under which currencies were backed by gold (or: they were actually defined as units of gold’s weight), today’s currencies are backed only by the reputation of their issuers, which is not set in stone. This is actually why the Breton Woods eventually collapsed. Initially, the US enjoyed a great reputation, and no one even dared to question Uncle Sam’s ability to convert dollars to gold. But the prolonged war in Vietnam, Johnson’s great social programs, increased government spending and growing deficits undermined this reputation, and other countries started to demand gold for their dollars.

The same may happen in the future, especially given that Trump has left some scratches on America’s reputation. With Biden continuing his predecessor’s populist economic doctrine, the greenback should face further headwinds. What’s more, with ultra-low interest rates and a mammoth pile of debt, the room for inflating the economic bubble is limited. Although the return to the gold standard seems unlikely, the recurring business cycles and economic crises are more than certain. That’s great news for gold.

In other words, the current system persists mainly thanks to the faith in the central banks’ ability to control inflation, even without the discipline of the gold standard. However, this belief can break down one day. The Fed might be right that the current high inflation is temporary. But if not, we could have “Powell’s shock”, which could strengthen gold, just as Nixon’s shock did.

Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Arkadiusz Sieron, PhD
Sunshine Profits: Effective Investment through Diligence & Care.

 

Gold Downturn: Why Strong Fundamentals Are Not Everything

Gold plunged yesterday, just as it was likely to. The fake reason? U.S. retail sales exceeded expectations. The real reason? A major downtrend.

On the above gold chart, I added annotations that show what happened in the previous 3 cases after the retail sales reports. We saw the following:

  • gold declined after retail sales disappointed in June
  • gold topped after retail sales outperformed in July
  • gold paused its rally after retail sales disappointed in August
  • gold declined after retail sales outperformed in September

What should one make of that?

Nothing.

There is no clear link (and perhaps no link whatsoever) between U.S. retail sales and the price of gold. If gold had declined based only on great retail sales, then it surely should have soared based on disappointing retails sales in June, right? It plunged then.

For many weeks, months, and years, I’ve been writing that markets don’t need a trigger to move in a certain way. Getting one could speed things up, but the markets might eventually rally or decline on just about any piece of news, provided that they really “want to”. By markets “wanting” to move in a given way, I mean the fact that markets move in trends and cycles, and even if a given market has a very favorable fundamental situation for the long run, it doesn’t mean that it won’t slide in the short or medium term. That’s how markets work, and that’s been the case for decades, regardless of what gold permabulls might tell you.

Let’s face it, the monetary authorities around the world are printing ridiculous amounts of money, stagflation is likely next, and gold is extremely likely to soar based on that in the following years, just like what we saw in the 1970s.

But.

This is already the case – lots of money has been already printed, and the world has been suffering from the pandemic for well over a year. Gold should be soaring in this environment! Silver should be soaring! Gold stocks should be soaring too!

And what’s the reality?

Gold failed to hold its gains above its 2011 highs. Can you imagine that? So much money printed. Excessive debts. Even pandemic! And gold still failed to hold gains above its 2011 highs. If this doesn’t make you question the validity of the bullish narrative in the medium term in the precious metals sector, consider this:

Silver – with an even better fundamental situation than gold – wasn’t even close to its 2011 highs (~50). The closest it got to this level was a brief rally above $30. And now, after even more money was printed, silver is in its low 20s.

And gold stocks? Gold stocks are not above their 2011 highs, they were not even close. They were not above their 2008 highs either. In fact, the HUI Index – the flagship proxy for gold stocks – is trading below its 2003 high! And that’s in nominal prices. In real prices, it’s even lower. Just imagine how weak the precious metals sector is if the part of the sector that is supposed to rally first (that’s what we usually see at the beginning of major rallies) is underperforming in such a ridiculous manner.

And that’s just the beginning of the decline in the mining stocks.

More to Come!

The breakdown below the broad head and shoulders pattern (marked with green) was verified. The previous three similar patterns (also marked with green) were followed by huge declines, and I copied the moves to the current situation (marked with dashed lines). This simple analogy tells us that the HUI Index could slide to the 100 – 150 range, meaning that it could even decline to its early 2016 low.

Can it really happen? With the precious metals market as weak as it is right now (from the medium-term point of view, not the long-term one) — of course.

On a short-term note, please take a look at what silver just did.

It broke to new 2021 lows in terms of the closing prices. Indeed, back in August, silver’s intraday low was lower, but it didn’t close as low. That’s a major confirmation of the bearish price forecast for silver.

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For a look at all of today’s economic events, check out our economic calendar.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

UK Shares Rise on Travel, Banking Boost; Retail Sales Data Ease Taper Fears

The blue-chip FTSE 100 index rose 0.3%, with banking shares gaining after a series of brokerage upgrades and price target hikes.

Asia-focused banks HSBC Holdings and Standard Chartered jumped 1.8% and 0.5%, respectively, after Barclays raised price targets on the stocks. RBC also upgraded HSBC to “outperform” from “sector perform”.

However, gains on the FTSE 100 were capped by miners Rio Tinto and Anglo American, which slipped 2.7% and 3.6% after Morgan Stanley cut its price targets on the stocks.

The domestically focused mid-cap FTSE 250 index advanced 0.5%.

British retail sales dropped 0.9% on the month in August versus a Reuters poll for a rise of 0.5%, after data earlier this week pointed towards a sharp recovery in the jobs market and a spike in inflation.

Investor focus will now be on the outcome of Bank of England’s (BoE) policy meeting next week.

“Next week’s policy decision should reaffirm that some tightening will be needed over the next few years to keep inflation (and the economy) in check. But we don’t expect the BoE to conclude that there is a sufficient case yet for near-term rate hikes,” Deutsche Bank economist Sanjay Raja said.

Airlines Wizz Air, Ryanair Holdings and British Airways owner IAG, and holiday company TUI AG rose between 1.2% and 4.7%, as Britain was set to consider easing its COVID-19 rules for international travel.

“The hope will be that a shift in the rules is the precursor to people jetting off for autumn and winter getaways,” said Russ Mould, investment director at AJ Bell.

Wickes Group jumped 5.6% to the top of FTSE 250 index after Deutsche upgraded the DIY retailer to “buy” from “hold”.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Devik Jain in Bengaluru; Editing by Uttaresh.V and Shounak Dasgupta)

Dollar Index Climbs After U.S. Retail Sales Show Surprise Rebound

The dollar index, which measures the U.S. currency against six others, added to gains following the report and was last up 0.5% at 92.866. It hit its highest level since Aug. 27.

Retail sales rose 0.7% last month, boosted in part by back-to-school shopping and child tax credit payments, while data for July was revised down.

A separate report showed U.S. initial claims for state unemployment benefits increased 20,000 to a seasonally adjusted 332,000 for the week ended Sept. 11. Economists had forecast 330,000 applications for the latest week.

“If you look at the retail sales number, it’s quite constructive even with the revisions, so we are seeing the dollar benefit from that, particularly against the funding currencies like the euro, Swiss and the yen,” said Bipan Rai, North American head of FX strategy for CIBC Capital Markets in Toronto.

The news could bolster investor expectations for next week’s Federal Reserve policy meeting and how soon the U.S central bank will start to taper stimulus.

“It feels like whatever lingering concerns there were with the underlying economy … that was kind of washed away a little bit. So as we move towards the Fed next week, the evidence backs up the idea that we’re going to get a taper signal from the Fed at the meeting,” he said.

On Tuesday, the dollar index fell to a one-week low of 92.321 after a softer-than-expected inflation report. Its low for the month was 91.941, on Sept. 3, when payrolls data disappointed.

Investors are looking for clarity on the outlook for both tapering and interest rates at the Fed’s two-day policy meeting that ends next Wednesday.

Tapering typically lifts the dollar as it suggests the Fed is one step closer to tighter monetary policy.

It also means the central bank will be buying fewer debt assets, in effect reducing the amount of dollars in circulation, which in turn lifts the currency’s value.

The dollar also gained 0.3% to 109.70 yen , after sliding to a six-week low of 109.110 in the previous session.

The euro was 0.4% lower at $1.1766.

The Swiss franc also fell against the dollar and was last at 0.9263 franc per dollar.

Elsewhere, the Australian dollar was down 0.5% at $0.7296.

Earlier, data showed the country’s jobless rate unexpectedly fell to 4.5%, but the statistics bureau said the change reflected a drop in the participation rate rather than a strengthening of the labor market.

In cryptocurrencies, moves in bitcoin were relatively subdued. It was last down 0.9% at $47,711. Ether changed hands at $3,589, down 0.7%.

AMC Entertainment Holdings Inc boss Adam Aron said in a tweet this week that the theater chain would accept ether, bitcoin cash and litecoin alongside bitcoin for ticket purchases.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Caroline Valetkevitch; Additional reporting by Ritvik Carvalho in London and Kevin Buckland in Tokyo; Editing by Alexander Smith, Mark Potter and Jonathan Oatis)

 

World Shares Slide on Wall Street Sell-Off, China Worries

International investors that have been piling into China in recent years are now bracing for one of its great falls as the troubles of over-indebted property giant China Evergrande come to a head.

The developer’s woes have been snowballing since May. Dwindling resources set against 2 trillion yuan ($305 billion) of liabilities have wiped nearly 80% off its stock and bond prices, and an $80 million bond coupon payment now looms next week.

Hong Kong’s Hang Seng index dropped to its lowest level so far this year.

A report from the U.S. Commerce Department showed retail sales unexpectedly rose in August, indicating America’s economic recovery is strengthening on positive trends in consumer spending. The strong data lifted the dollar and pushed up treasury yields, and sent safe-haven gold down nearly 3%.

However, the U.S. labor market remains under pressure, with initial jobless claims rising by slightly more than expected last week.

Losses on Wall Street were dominated by technology and energy stocks as oil retreated from recent highs now that the threat to U.S. Gulf production from Hurricane Nicholas has receded.

The MSCI world equity index was last down by 0.29%, off an all-time high on Sept. 7. MSCI’s broadest index of Asia-Pacific shares outside Japan closed down 0.87%.

European equities bucked the trend, and Europe’s STOXX 600 closed up 0.44%.

The Dow Jones Industrial Average fell 91.51 points, or 0.26%, to 34,722.88, the S&P 500 lost 11.6 points, or 0.26%, to 4,469.1 and the Nasdaq Composite dropped 15.52 points, or 0.1%, to 15,146.01.

“(Retail spending) categories that were strongest in August were in Covid-beneficiary categories,” wrote Ellen Zentner, chief U.S. economist at Morgan Stanley.

“Now incorporating today’s retail sales release, we lift our real (personal consumer expenditures) tracking to +1.9% and GDP to +5.0%.”

Markets remain focused on next week’s Federal Reserve meeting for clues as to when the U.S. central bank will start to taper stimulus, especially after the flurry of U.S. economic data out this week.

On Tuesday, data from the U.S. Labor Department showed inflation cooling and having possibly peaked, but inflation in Britain was the highest in years, according to data on Wednesday.

“We have an unusual situation where the overall market is sideways to lower but with a  risk-on trend underneath and that’s down to signs the Delta variant may be peaking in the U.S., which is driving people into reflation and recovery plays,” said Kiran Ganesh, head of cross assets at UBS Global Wealth Management.

U.S. crude recently fell 1.2% to $71.74 per barrel and Brent was at $74.69, down 1.02% on the day.

The dollar index rose 0.506%, with the euro down 0.51% to $1.1755.

Spot gold slid 2.1% to $1,755.75 per ounce, after hitting an over one-month low of $1,744.30. U.S. gold futures settled down 2.1% at $1,756.70.

Caught in gold’s slipstream, silver was last down 4.3% at $22.79.

The U.S. 10-year Treasury yield was 1.3327%, while core euro zone government bond yields were little changed.

(Reporting by Elizabeth Dilts Marshall; editing by David Evans and Steve Orlofsky)

Marketmind: When the Dragon Sneezes, Europe Catches a Cold

A look at the day ahead from Danilo Masoni.

The STOXX 600 index has fallen 1% so far in September, twice as much world stocks, and while Europe broadly is still in favour with investors and research analysts, the index has slipped all the way down to July lows.

Wall Street’s strength overnight could trigger a relief bounce this morning, but the China woes are far from over.

The worsening crisis at China’s No. 2 property developer Evergrande has sent its shares to decade lows, pushed Asian stock markets to their fourth day of losses. Trading in Evergrande bonds has been suspended. And virus outbreaks are clouding travel plans during next week’s Mid-Autumn Festival.

Europe Inc faces internal woes too. Soaring power prices have prompted Spain to cap energy bills and Italy said on Thursday it plans “short-term measures” to offset the price rises. Worries are other governments could resort to similar measures — at the expense of utility firms.

There’s some market support from signs U.S. inflation has peaked and the world’s biggest economy is in robust shape. Retail sales will be eyed later on for more clues on the health of the world’s largest economy.

Key developments that should provide more direction to markets on Thursday:

Japan’s hot exports growth cools as COVID-19 hits supply chains

Philip Morris seals deal to buy UK’s Vectura with 75% stake tendered; French utility Veolia launches 2.5 bln euro capital increase[nL1N2QI0D1; Vivendi paves way for Lagardere takeover

German car registrations Aug

ECB Speakers: Christine Lagarde

Norges Bank Governor Oystein Olsen speaks

Egypt central bank meeting

U.S. weekly jobless claims/Philly Fed September

U.S. Retail sales/business inventories

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Danilo Masoni; editing by Sujata Rao)

 

U.S. Stocks Close Lower on Worries Over Recovery, Corporate Tax Hikes

Optimism faded throughout the session, reversing an initial rally following the Labor Department’s consumer price index report. All three major U.S. stock indexes ended in negative territory in a reminder that September is a historically rough month for stocks.

So far this month the S&P 500 is down nearly 1.8% even as the benchmark index has gained over 18% since the beginning of the year.

“There is a possibility that the market is simply ready to go through an overdue correction,” said Sam Stovall, chief investment strategist at CFRA Research in New York. “From a seasonality perspective, September tends to be the window dressing period for fund managers.”

The advent of the highly contagious Delta COVID variant has driven an increase in bearish sentiment regarding the recovery from the global health crisis, and many now expect a substantial correction in stock markets by the end of the year.

“We’re still in a corrective mode that people have been calling for months,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago. “Economic data points have been missing estimates, and that has coincided with the rise in the Delta variant.”

The CPI report delivered a lower-than-consensus August reading, a deceleration that supports Federal Reserve Chairman Jerome Powell’s assertion that spiking inflation is transitory and calms market fears that the central bank will begin tightening monetary policy sooner than expected.

U.S. Treasury yields dropped on the data, which pressured financial stocks, and investor favor pivoted back to growth at the expense of value. [US/]

The long expected corporate tax hikes, to 26.5% from 21% if Democrats prevail, are coming nearer to fruition with U.S. President Joe Biden’s $3.5 trillion budget package inching closer to passage.

The Dow Jones Industrial Average fell 292.06 points, or 0.84%, to 34,577.57; the S&P 500 lost 25.68 points, or 0.57%, at 4,443.05; and the Nasdaq Composite dropped 67.82 points, or 0.45%, to 15,037.76.

All 11 major sectors in the S&P 500 ended the session red, with energy and financials suffering the largest percentage drops.

Apple Inc unveiled its iPhone 13 and added new features to its iPad and Apple Watch gadgets in its biggest product launch event of the year as the company faces increased scrutiny in the courts over its business practices. Its shares closed down 1.0% and were the heaviest drag on the S&P 500 and the Nasdaq.

Intuit Inc gained 1.9% following the TurboTax maker’s announcement that it would acquire digital marketing company Mailchimp for $12 billion.

CureVac slid 8.0% after the German biotechnology company canceled manufacturing deals for its experimental COVID-19 vaccine.

Declining issues outnumbered advancing ones on the NYSE by a 2.25-to-1 ratio; on Nasdaq, a 2.40-to-1 ratio favored decliners.

The S&P 500 posted two new 52-week highs and two new lows; the Nasdaq Composite recorded 50 new highs and 107 new lows.

Volume on U.S. exchanges was 10.07 billion shares, compared with the 9.38 billion average over the last 20 trading days.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Stephen Culp; additional reporting by Krystal Hu in New York and Ambar Warrick in Bengaluru; Editing by Richard Chang)

 

Dollar Falters After U.S. Inflation Rise Eases, Safe-Haven Yen, Franc Up

Several Fed officials have suggested the U.S. central bank could reduce its buying of debt securities by the end of the year, but said an eventual interest rate hike would not happen for some time.

The Fed will hold a two-day monetary policy meeting next week, with investors keen to find out whether a tapering announcement will be made.

Tapering tends to benefit the dollar as it suggests the Fed is one step closer toward tighter monetary policy. It also means the central bank will be buying fewer debt assets, effectively reducing the number of dollars in circulation.

Data on Tuesday showing the U.S. consumer price index, excluding the volatile food and energy components, edged up just 0.1% last month has raised doubts about tapering this year, some analysts said.

August’s core CPI rise was also the smallest gain since February and followed a 0.3% rise in July. The so-called core CPI increased 4.0% on a year-on-year basis after gaining 4.3% in July.

“The softer inflation prints caused investors to push back on bets that the Fed could move sooner to taper bond purchases. Easing inflation would take the heat off the Fed to move prematurely,” said Fiona Cincotta, senior financial markets analyst at City Index.

She also cited U.S. core producer prices (PPI) data for August released last week, which also rose at a slower pace. Excluding the food, energy and trade services elements, producer prices rose 0.3% last month, the smallest gain since last November. The so-called core PPI shot up 0.9% in July.

“So the evidence does appear to be building that peak inflation has passed. That said, supply chain bottlenecks are expected to persist for a while so it’s unlikely that either PPI or CPI will drop dramatically or rapidly,” Cincotta added.

In afternoon trading, the dollar index was slightly down at 92.601, moving away from a more than a two-week high on Monday.

The euro was flat against the dollar at $1.1807.

Risk appetite soured on Tuesday as well, with Wall Street shares down while U.S. Treasury prices were up sharply, pushing yields lower.

Investors looked past decelerating inflation and focused on uncertainties about U.S. growth now clouded by the economic impact of the Delta variant.

Against the safe-haven Swiss franc, the dollar dropped 0.4% to 0.9189 francs.

Versus another safe-haven, the Japanese yen, the dollar fell 0.4% to 109.615 ye

In other currencies, the Australian dollar fell to a two-week low after Reserve Bank of Australia Governor Philip Lowe painted a very dovish policy outlook with no rate hikes on the horizon until 2024.

The Aussie dollar was last down 0.7% at US$0.7319. In cryptocurrencies, bitcoin was last up 3.1% at $46,400 . Ether changed hands at $3,344, up 1.9%.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Gertrude Chavez-Dreyfuss in New York; Additional reporting by Saikat Chatterjee in London and Shreyashi Sanyal in Bengalaru; Editing by Nick Zieminski and Paul Simao)

 

Equities Fall as U.S. Inflation Data Raises More Questions

MSCI’s world stocks benchmark fell 0.23%, and all of the major U.S. stock indexes were down by mid-afternoon New York time. European shares closed 0.1% lower, dragged down by mining, banks and luxury stocks, which followed Asian luxury stocks in falling on a new spike in COVID-19 cases in Fujian, China.

The Labor Department said on Tuesday its Consumer Price Index (CPI) was up just 0.1% last month, compared to an expected increase of 0.3%. That was the smallest gain in six months, and it indicated that inflation has probably peaked.

However, concern that inflation could remain high for a prolonged period has pressured stocks in September, and the data included warning signs that some bottleneck issues have not entirely gone away.

“Today’s CPI data came in a bit weaker than expected, but (the Producer Price Index) is at a record high and inflation continues to be a key challenge for investors,” said David Petrosinelli, Senior Trader at InspereX.

The U.S. Federal Reserve will meet next week. The August CPI data lifts some of the pressure the Fed faced to announce it would begin tapering its massive bond-buying program.

Further delaying this key Fed announcement is “distorting” the economy and throwing off markets, said BlackRock’s Chief Investment Officer of Global Fixed Income Rick Rieder.

“Continuing to stimulate demand higher increases the risk of a severe supply/demand mismatch across economic as well as financial assets,” said Rieder, also the head of BlackRock’s global allocation team.

The Dow Jones Industrial Average fell 262.72 points, or 0.75%, the S&P 500 lost 20.69 points, or 0.46%, and the Nasdaq Composite dropped 33.25 points, or 0.22%.

The prospect of a corporate tax rise in the United States from 21% to 26.5% as part of a $3.5 trillion budget bill is also front and center for investors.

Investment bank Goldman Sachs Group Inc estimates that if Democrats succeed in raising the corporate tax rate increase to 25% and get half of the hike proposed in foreign income tax rates, it could shave 5% off S&P500 earnings in 2022.

In Asia, China’s tightening grip on its technology companies again kept investors on edge after authorities told tech giants to stop blocking each other’s links on their sites.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.43%.

The dollar index fell 0.161 points or 0.17%, to 92.514.The euro was last up 0.09%, at $1.1819 .

The yield on 10-year Treasury notes US10YT=RR was 1.282%.Bond yields in the euro area moved up, with Germany’s 10-year yield, the benchmark for the bloc, at -0.34%, hitting a two-month high.

Oil prices rose, extending gains as Nicholas weakened into a tropical storm and the International Energy Agency said demand would rebound in the remainder of the year.

Brent crude settled up $0.9, or up 0.12%, at $73.60 a barrel. U.S. crude settled up $0.1, or up 0.01%, at $70.46 per barrel. Spot gold prices rose $12.7509 or 0.71 percent, to $1,806.24 an ounce.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Elizabeth Dilts Marshall in New York; Tom Arnold in London and Scott Murdoch in Hong Kong; editing by Angus MacSwan and Nick Zieminski)

Global Stock Markets Slip on Inflation, Tax, Regulation Worries

Leading U.S. House of Representatives Democrats said they are seeking to raise the tax rate on corporations to 26.5%, up from the current 21%.

The U.S. consumer price data due out on Tuesday will give a broad picture of the economy’s progress ahead of the Federal Reserve’s meeting next week.

The MSCI world equity index, which tracks shares in 45 nations, shed 0.22%, while U.S. stocks were mixed.

The Dow Jones Industrial Average rose 0.4% and the S&P 500 fell 0.17%. The Nasdaq Composite dropped 0.4%, as investors pivoted away from major technology stocks to sectors more likely to benefit from an economic bounce later this year.

The dollar climbed to a two-week peak against a basket of major currencies as investors priced in the possibility that the Federal would reduce its asset purchases.

“Investors are grappling with an unusually wide range of potential economic outcomes beyond the post-pandemic restart, reflected in frequent shifts in equity market leadership and volatile bond yields,” said Vivek Paul, senior portfolio strategist at BlackRock Investment Institute.

The yield on 10-year Treasury notes was down 2 basis points to 1.321%.

European stocks ended higher for the first time in five days on hopes that a strong euro zone economic recovery can outweigh risks of a global slowdown. The pan-European STOXX 600 index was up 0.3% after hitting a three-week low last week.

Asian stocks fell earlier in the day following news of a fresh regulatory crackdown on Chinese firms.

China fired a fresh regulatory shot at its tech giants, telling them to end a long-standing practice of blocking each other’s links on their websites. The Financial Times also reported that China is aiming to break up the payments app Alipay.

The Chinese blue-chip index fell 0.5% and MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.78% lower. Japan’s Nikkei rose 0.22%.

The core reading of the U.S. consumer price index is expected to show a rise of 0.3% in August, down from 0.5% the previous month and 0.9% in June.

The U.S. Federal Reserve is paying close attention to price pressures as it mulls when to begin to reduce its massive bond holdings and how soon to begin lifting rates from near zero. It also remains on the lookout for any signs that price pressures may broaden.

The general air of risk aversion helped lift the dollar index to 92.69, up 0.12%.

Oil prices rose to six-week highs as U.S. output remains slow to return two weeks after Hurricane Ida slammed into the Gulf Coast and worries another storm could affect output in Texas this week.

Brent crude settled up $0.59, or up 0.81%, at $73.51 a barrel. U.S. crude settled up $0.73, or up 1.05%, at $70.45 per barrel.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Sujata Rao in London and Elizabeth Dilts Marshall in New York; additional reporting by Wayne Cole in Sydney and Dhara Ranasinghe in London; editing by Emelia Sithole-Matarise, Will Dunham, Chizu Nomiyama and Dan Grebler)

European Stocks Snap 4-Day Losing Streak as Oil, Banks Rise

By Sruthi Shankar and Shreyashi Sanyal

The pan-European STOXX 600 index was up 0.3% after hitting a three-week low last week. Asian stocks, however, fell following news of fresh regulatory crackdown on Chinese firms.

Global stocks have come under pressure recently after months-long gains on worries about inflation, tighter COVID-19 curbs in Asian economies, China’s regulatory moves, and growing views that central banks will soon start paring stimulus.

While those concerns remain, European investors took comfort as the European Central Bank last week raised its growth and inflation projections for this year and beyond, as the euro zone economy recovers quicker than expected from the pandemic shock.

“While we are used to seeing US markets lead the way, there is a feeling that we could see greater catch-up for Europe as high vaccination levels keep deaths relatively stable,” said Joshua Mahony, senior market analyst at IG.

Economy-sensitive sectors, including banks, oil and gas, and construction and materials, rose between 0.9% and 2.8%, while utilities climbed 1.6%.

All eyes will be on the U.S. consumer prices data on Tuesday after soaring producer prices last week raised doubts about the U.S. Federal Reserve’s view that inflation is transitory.

“Some central bankers will have you believe they are happy to hold back on tightening for now, we are seeing very clear signs that this spike in inflation is far from fleeting,” IG’s Mahony said.

Meanwhile, a September market sentiment survey published by Deutsche Bank showed an equity market correction of 5%-10% by the end of the year was the overwhelming consensus.

Among individual stocks, German online pet supplies’ retailer Zooplus AG jumped 9.0% after Hellman & Friedman raised its takeover offer to 3.29 billion euros ($3.89 billion) from an initial offer of 3 billion euros.

Associated British Foods dropped 2.4% as fourth-quarter sales at its Primark fashion business were lower than expected, with shopper numbers hurt by public health measures in its major markets.

Valneva plunged 41.6% after the British government ended a COVID-19 vaccine supply deal with the French company, alleging a breach of obligations that Valneva denies.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Sruthi Shankar and Shreyashi Sanyal in Bengaluru; Editing by Sherry Jacob-Phillips, Uttaresh.V, William Maclean)

Strained Supply Chains Keep U.S. Producer Prices Hot

Strong demand and supply constraints were underscored by other data on Friday showing the pace of inventory accumulation at wholesalers slowed in July. It is now taking wholesalers the fewest months in seven years to clear shelves.

“Supply chain bottlenecks have persisted longer and more intensely than most predicted at the beginning of this year, and widespread labor shortages are among the main input issues producers are dealing with,” said Will Compernolle, a senior economist at FHN Financial in New York. “This means consumer price inflation should remain elevated for a while.”

The producer price index for final demand rose 0.7% last month after two straight monthly increases of 1.0%, the Labor Department said. The gain was led by a 0.7% advance in services following a 1.1% jump in July.

A 1.5% increase in trade services, which measure changes in margins received by wholesalers and retailers, accounted for two-thirds of the broad rise in services. Goods prices jumped 1.0% after climbing 0.6% in July, with food rebounding 2.9%.

Transportation and warehousing prices shot up 2.8%.

The latest global wave of COVID-19 infections, driven by the Delta variant of the coronavirus, has disrupted production at factories in Southeast Asia, key raw materials suppliers for manufactures in the United States. Congestion at Chinese ports is also adding to the pressure on U.S. supply chains.

In the 12 months through August, the PPI accelerated 8.3%, the biggest year-on-year advance since November 2010 when the series was revamped, after surging 7.8% in July.

Economists polled by Reuters had forecast the PPI gaining 0.6% on a monthly basis and rising 8.2% year-on-year.

Stocks on Wall Street were lower. The dollar was steady against a basket of currencies. U.S. Treasury prices fell.

LOGISTICS DELAYS

Though surveys from the Institute for Supply Management this month showed measures of prices paid by manufacturers and services industries fell significantly in August, they remained elevated. Factories and services providers still struggled to secure labor and raw materials, and faced logistics delays.

This was corroborated by the Federal Reserve’s Beige Book report on Wednesday compiled from information collected on or before Aug. 30 showing “contacts reported generally higher input prices but, as with labor, they were mostly concerned about getting the supplies they needed versus the price.”

The supply bottlenecks are making it harder for businesses to restock after running down inventories in the first half of the year. In a separate report on Friday, the Commerce Department said wholesale inventories rose 0.6% in July after surging 1.2% in June. Sales increased 2.0%. At July’s sales pace it would take wholesalers 1.20 months to clear shelves, the fewest since July 2014, from 1.22 in June.

“Producers are struggling to replenish their stockpiles against surging demand,” said Matt Colyar, an economist at Moody’s Analytics in West Chester, Pennsylvania.

With inventories tight, producers are easily passing on the higher costs to consumers. Federal Reserve Chair Jerome Powell has steadfastly maintained that high inflation is transitory.

Though most economists share this view, some argue that strong wage growth from a tightening labor market suggests inflation could be more persistent.

“Today’s data on wholesale prices should be eye-opening for the Fed, as inflation pressures still don’t appear to be easing and will likely continue to be felt by the consumer in the coming months,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.

The Fed’s preferred inflation measure for its flexible 2% target, the core personal consumption expenditures price index, increased 3.6% in the 12 months through July after a similar gain in June. Data next week will likely show the consumer price index rising 0.4% in August and increasing 5.3% on a year-on-year basis, according to a Reuters survey.

High inflation and supply constraints, which tanked motor vehicle sales in August, have prompted economists to slash their third-quarter gross domestic product growth estimates to as low as a 3.5% annualized rate from as high as 8.25%. The economy grew at a 6.6% rate in the second quarter.

“The danger with inflation is once prices go up, they don’t go back down and the economy and producers and consumers all have to live in a costlier world where many don’t have the means to do more than just barely survive,” said Chris Rupkey, chief economist at FWDBONDS in New York.

There are, however, signs that inflation is likely nearing its peak. Excluding the volatile food, energy and trade services components, producer prices rose 0.3%, the smallest gain since last November. The so-called core PPI shot up 0.9% in July.

In the 12 months through August, the core PPI accelerated 6.3%. That was the largest rise since the government introduced the series in August 2014 and followed a 6.1% increase in July.

Details of the PPI components, which feed into the core PCE price index, were mixed. Healthcare costs fell 0.2%. Portfolio management fees rose 1.1% and airline tickets increased 8.9% after soaring 9.1% in July.

“Soft medical services suggest that evidence of persistently stronger inflation in PCE may be more limited,” said Andrew Hollenhorst, chief U.S. economist at Citigroup in New York.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)

Dollar Gains With Yields as Fed Policy in Focus

The greenback has risen from a one-month low reached last Friday after jobs data for August showed that jobs growth slowed, while wage inflation rose more than expected.

It has not yet been able to establish a strong trend, however, as investors wait on new clues on when the Fed is likely to begin paring its bond purchases and, eventually, raise rates.

“That to me is the most important thing, is when does the Fed hike rates, and unfortunately we may not know that for a little while,” said Erik Nelson, a macro strategist at Wells Fargo in New York.

Cleveland Fed President Loretta Mester said on Friday that she would still like the central bank to begin tapering asset purchases this year, joining the chorus of policymakers making it clear that their plans to begin scaling back support were not derailed by weaker jobs growth in August.

Fed officials are grappling with rising price pressures while jobs growth remains below their targets.

Data on Friday showed that U.S. producer prices increased solidly in August, indicating that high inflation is likely to persist for a while, with supply chains remaining tight as the COVID-19 pandemic drags on.

The Wall Street Journal on Friday wrote that Fed officials will seek to make an agreement at the Fed’s September meeting to begin paring bond purchases in November.

The dollar index gained 0.05% to 92.57. It is up from a one-month low of 91.94 on Friday.

The U.S. currency had dipped earlier on Friday on improving risk sentiment on news that U.S. President Joe Biden and Chinese leader Xi Jinping spoke for the first time in seven months.

In a statement, the White House said Biden and Xi had “a broad, strategic discussion,” including areas where interests and values converge and diverge. The conversation focused on economic issues, climate change and COIVD-19, a senior U.S. official told reporters.

The dollar was last down 0.13% to 6.4419 yuan, nearing a more than two-month low of 6.4233 yuan reached last week.

The euro fell 0.07% to $1.1816 on Friday, a day after the European Central Bank said it will trim emergency bond purchases over the coming quarter.

For a look at all of today’s economic events, check out our economic calendar.

(Additional reporting by Ritvik Carvalho in London; Editing by Chizu Nomiyama)

Marketmind: Hitting the Buffers

A look at the day ahead from Sujata Rao.

Yet there is no dismissing the brewing concerns — we seem to be past peak liquidity and peak growth, yet inflationary pressures show no sign of abating. Chinese factory gate prices have hit 13-year highs, the ECB just upped inflation projections and later on Friday, we will see what U.S. producer prices looked like in August. Remember last month brought the biggest annual increase in over a decade.

Warnings about input costs are coming through from companies too, with Nestle warning of even higher factory prices in 2022. The question is when these costs trickle down to consumers and their earnings; wage inflation, as we know, tends to be less easily tamed.

It comes as the post-pandemic growth rebound fizzles. Data shows Britain’s economy barely grew in July (versus expectations for a 0.6% expansion), even as tax hikes loom.

What of stimulus? The Bank of England appears well on the road to a 2022 interest rate rise while the Bank of Canada on Thursday flagged plans to stop adding new stimulus and to raise interest rates.

Policy has long been tightening across emerging markets and later on Friday, Russia will likely raise interest rate for the fifth time this year.

Finally, there is no getting away from the fact that the ECB — among the more dovish central banks — has hit peak QE, even though it was at pains on Thursday to describe its stimulus slowdown as recalibration rather than tapering.

So while equity futures signal a more cheerful session in Europe and Wall Street, stocks may face a rocky ride from here.

Key developments that should provide more direction to markets on Friday:

-U.S. President Joe Biden and Chinese leader Xi Jinping spoke for 90 minutes

-China Evergrande bonds rebound as loan payment extensions ease default worries

-Willis Towers Watson has $5 bln of capital, possibly for M&A

-Euro zone finance ministers meet

-Fed speakers: Cleveland President Loretta Mester 1300 GMT

Russia central bank meeting

Ratings: S&P: Ukraine, Ghana, Jordan, Malta; Moody’s: Montenegro

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Sujata Rao; Editing by Dhara Ranasinghe)

New Biden Plan Could Mandate COVID Shots or Tests for Two-Thirds of U.S. Workers

The new measures, which Biden was due to lay out in remarks at 5 p.m. ET (21:00 GMT), cover about two-thirds of all U.S. employees, part of a broader, more aggressive attempt to get Americans vaccinated amid a surge in COVID-19 cases from the fast-spreading Delta variant.

Under Biden’s plan, the administration would also require vaccinations for more than 17 million healthcare workers at hospitals and other institutions that participate in Medicare and Medicaid social programs for poor, disabled and older Americans, senior administration officials said.

The new vaccination requirements cover about 100 million workers, or about two-thirds of all workers in the United States, officials said. In addition, the administration plans to ramp up testing capacity for the virus.

Biden will use his authority under the Defense Production Act to spur industry to accelerate production of the tests, and big retailers including Walmart, Amazon.com and Kroger will sell the tests at cost for the next three months to make them more affordable, the officials said.

The full recovery of the U.S economy depends on blunting the spread of the virus, which is a key health and political goal of the president, a Democrat who took entered the White House in January.

“Our overarching objective here is to reduce the number of unvaccinated Americans,” White House spokeswoman Jen Psaki said, noting that 80 million still have not been vaccinated. “We want to reduce that number, decrease hospitalizations and deaths and allow our children to go to school safely.”

Federal workers unions suggested on Thursday they would accept the vaccine mandate.

Federal workers will have a 75-day “ramp up” period to get vaccinated, and then be referred to human resources for counseling and possible disciplinary action, Psaki said. Workers who are not exempt from vaccination and refuse to get a vaccine may be terminated.

53% VACCINATED

Despite a full-throttled campaign by the Biden administration urging all eligible Americans to get the free vaccines, just over 53% of Americans are fully vaccinated, according to date from the U.S. Centers for Disease Control and Prevention (CDC).

The disease has killed more than 654,000 people in the United States, and deaths and hospitalizations have been rising sharply as the easily transmissible Delta variant of the virus spreads.

In July, Biden said federal workers had to get vaccinated or face regular COVID-19 testing and other restrictions like mandatory face covering at workplaces.

Biden’s speech also will cover mask-wearing, protecting the economic recovery from the pandemic-induced recession, and improving healthcare for people infected with COVID-19, Psaki said.

“He’s going to speak directly to vaccinated people and their frustration, and he wants them to hear how we’re going to build on what we’ve done to date to get the virus under control and to return to some version of normal in this country,” she said.

The White House COVID recovery plans, and the projected U.S. economic rebound were based on the vast majority of eligible Americans being vaccinated this year. But the public health issue has become politicized, with a vocal minority refusing the shots and mask mandates, arguing that they are an infringement on their individual rights.

COUNTRY ‘STILL IN PANDEMIC MODE’

The spread of the Delta variant has raised concerns as children head back to school, while also rattling investors, upending company return-to-office plans, and tamping down hiring.

With 160,000 new infections a day, the country is “still in pandemic mode … That’s not even modestly good control,” Biden’s chief medical adviser, Dr. Anthony Fauci, told Axios.

“You’ve got to get well below 10,000 (a day) before you start feeling comfortable,” Fauci added.

The White House plans to offer booster shots providing additional protection to those who are fully vaccinated. That goes against arguments from the World Health Organization and other advocates that say with global vaccine supplies limited, rich countries should pause booster programs until more people worldwide are inoculated.

But with Delta causing more symptomatic breakthrough infections among fully inoculated individuals, most vaccinated Americans want a booster, a recent Reuters/Ipsos opinion poll found.

Abbott Laboratories and other test manufacturers are trying to boost production as cases soar, after having scaled back in recent months. CVS Health Corp recently imposed limits on the number of at-home tests customers can buy.

The White House said the federal government cannot mandate vaccines nationwide, but it has encouraged school districts, businesses and other entities to require shots.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Jeff Mason, Ahmed Aboulenein, David Shepardson, and Trevor Hunnicutt; Additional reporting by Steve Holland and Susan Heavey; Writing by Steve Holland and Jeff Mason; Editing by Heather Timmons, Bill Berkrot and Howard Goller)