Shares Rise After Dovish Yellen Comments Equity markets rose in Europe, following another record U.S. market close driven by dovish comments from Federal Reserve Chairwoman Janet Yellen.
Ms. Yellen signaled that the Fed will approach tightening cautiously, given the uncertain inflation outlook. It plans to continue raising interest rates gradually, she said, but is ready to change course if inflation stays weak. (…)
“It’s quite remarkable, the mixed signals that we’ve received from central banks recently. It’s only two weeks ago that major central banks suddenly seemed to be singing from the same hawkish hymn sheet,” Mr. McGuire said. “It’s a very confusing message. It seems like they were playing poker and the Fed’s folded awfully quickly.” (…)
Ms. Yellen said, as she did in June, that the Fed could pull the trigger on the balance-sheet plan “relatively soon.” She added Wednesday that she didn’t find the timing terribly important now that the approach is well understood by markets. (…)
Fed Beige Book: Labor Markets Tighter, Price Pressures Modest Labor markets tightened further, but price pressures were largely held in check, according to a new report from the Federal Reserve.
“Labor markets tightened further for both low- and high-skilled positions, particularly in the construction and IT sectors,” the Fed said Wednesday in its latest roundup of anecdotal information about regional economic conditions, known as the beige book. But price pressures had “eased slightly” in some districts as gasoline prices and dairy and crop costs fell. (…)
Broadly, the Fed said economic activity expanded at a slight to moderate pace in June. The Fed reported economic growth was modest in six districts, moderate in four districts and slight in two districts. Looking forward, many districts expect modest to moderate gains in the months ahead.
The report found that “wage pressures generally trended with employment conditions.” A broad range of industries reported a shortage of qualified workers. (…)
“Prices continued to rise modestly” across districts, with several reporting higher construction materials costs and increased home prices. (…)
The beige book showed consumer spending to be rising across a majority of districts, led by increases in tourism and retail sales, outside of auto dealerships. (…)
- US financial conditions continue to ease despite three rate hikes over the past seven months. Some FOMC members are concerned that a prolonged period of easy financial conditions will result in asset bubbles. (The Daily Shot)
Meanwhile, in the U.K.:
Canada No Longer Needs Strong Stimulus, Central Bank Says In the surest signal yet that the Canadian economy has turned a corner after the oil-price shock, the Bank of Canada raised its policy rate by a quarter percentage point, to 0.75%, its first increase in seven years.
China Exports Rise for Fourth Straight Month China’s exports in June grew 11.3% from a year earlier, rising for a fourth straight month as external demand for goods from the world’s second-largest economy continued to strengthen.
The increase came in higher that the 8.7% growth in May and a forecast for a 9.0% rise by economists polled by The Wall Street Journal.
Imports in June also came in stronger than expected, expanding 17.2% from a year earlier, after a 14.8% increase in May. Economists had forecast a 12.4% gain. (…)
The Consumer Goods sector has emerged as one of the main contributors to the region’s strong performance. With a PMI of 55.9, the sector recorded its fastest expansion in over ten years in June. The brightening picture is the result of an overall boost in new orders amid a strengthening labour market, and coincides with a slowing in the rate of input price inflation. (…)
Similar to the headline PMI, the New Orders Index for the Consumer Goods sector rose to its highest in over ten years in June, at 57.2. The outstanding performance was led by two constituent sectors, Beverages and Automobiles & Auto Parts, with the latter recording the strongest new order growth for three-and-a-half years. Compared with the summer of 2016, when the PMI data were indicating only moderate growth, the surveys are now implying a stronger upturn and a more promising outlook for corporate earnings.
Costs pressures in the economy have meanwhile softened for the past four months. Looking at the Consumer Goods sector as a whole, the Input Prices Index has pulled back from a peak of 70.2 in February to 58.9 in June. The easing trend signals less upward pressure on companies’ costs and points to a boost in their profits, with the Output Prices Index rising to a joint 70-month high in June.
The decline of the Input Prices Index has been sharper for the Automobiles & Auto Parts sector than for Beverages companies, reflecting the former’s greater exposure to metal prices. However, the trends in the Output Prices Indexes indicate that the Beverages sector is more prone to passing higher costs onto customers. (…)
India IP going the other way:
In its closely watched monthly oil market report, the IEA said it now expects global demand to grow by 1.5% this year to 98 million barrels a day, driven in part by rising consumption in Germany and the U.S. during the second quarter.
The Paris-based adviser to governments and companies raised its 2017 demand forecast by 100,000 barrels a day, compared with a previous estimate last month, while predicting “similarly paced” growth for next year.
Global demand growth hit a three-year low of 1 million barrels a day during the first three months of the year, with overall demand rising to 96.5 million barrels a day. Demand accelerated in the second quarter, growing to 97.4 million barrels a day—1.5 million barrels a day faster than in second quarter of 2016. (…)
In addition to unexpected demand in Germany and the U.S., a recovery in demand growth in India continued into May and Chinese apparent demand “rebounded strongly” during that month, the IEA said. (…)
But overall, the IEA said Thursday, global oil supply in June rose by 720,000 barrels a day to 97.46 million a day, boosted by increased output from OPEC and non-OPEC producers such as the U.S.
“Each month something seems to come along to raise doubts about the pace of the rebalancing process,” the IEA report noted. The “two hitches” this month include the recovery of production in Libya and Nigeria—two OPEC members that have faced no restrictions on production—and a lower rate of compliance with the deal by other OPEC members.
Oil inventories in the Organization for Economic Cooperation and Development fell in May, but at over 3 billion barrels still remained 266 million barrels above OPEC’s target of the last five year average.
- U.S. demand not all that strong:
On the other hand, US crude oil production has resumed its upward trend, approaching 9.5 million barrels per day. This trend will continue to create headwinds for oil prices. (The Daily Shot)
China’s Booming Housing Market Proves Impossible to Tame Beijing’s efforts to curb speculation have only made buyers more determined. Many believe the government won’t allow a market collapse.
(…) With each new policy intended to restrict home purchases, buyers are piling in. Stressed about the prospect of being left behind, many are borrowing heavily, believing prices will continue to rise despite the restrictions and will soar if the government has to lift restrictions to spur economic growth.
Another article of faith is that the Communist Party won’t allow housing prices to collapse. “The government will spare no effort to make sure there are no big swings in the property market,” says Ni Pengfei, a housing expert at the Chinese Academy of Social Sciences, a government think tank.
The desperate home buyers are exposing Beijing’s inability to control a housing market it has been relying on for economic growth. A decade ago, the real-estate sector, including construction and home furnishings, accounted for about 10% of China’s gross domestic product, according to Moody’s Investors Service . It now accounts for almost one-third, reflecting both a dearth of other investment options and the petering out of manufacturing growth. (…)
Long-term household loans, mostly mortgages, now account for one-third of all new bank loans. Household debt stands at more than 42% of GDP, according to Moody’s. That ratio has grown 9 percentage points in three years and now surpasses levels in China’s emerging-market peers including Brazil, Mexico, Turkey and Russia. In the U.S., that ratio hit about 85% during the housing crisis. (…)
Frothy as prices have been, China’s housing market isn’t vulnerable to a full-blown property downturn like the one in the U.S. a decade ago, economists say. Chinese home buyers often are required to put at least 30% down. Because Chinese banks only have a limited ability to sell off loans as securities, they don’t offer risky mortgages like those that triggered the U.S. housing debacle. Moreover, home-equity financing that lets owners borrow against their homes hasn’t taken off in China.
In Shenzhen, the average home sells for 44 times average annual household income, compared with around 12 times for homes in New York City, according to an analysis by Zhang Ming, a senior economist at the Chinese Academy of Social Sciences.
Chinese government data show that prices across 70 Chinese cities were 9.7% higher in May than a year earlier, a larger year-over-year increase than the 9.3% last September, when the current round of housing controls were instituted. (…)
In Shanghai, the year-over-year increase was 31% in May, compared with 50% last September. Beijing posted a 22% annual increase in May, down from 33% in April.
Halfway across China in Lanzhou, a polluted industrial hub at the edge of the Gobi Desert, the housing market is booming. Homes for sale are packed with would-be buyers, including small-business owners who think property is a better bet than shops or factories. (…)
In Foshan, a city of seven million dotted with factories making refrigerators, television sets and other household appliances, home prices have risen 18% in recent months as buyers poured in after property controls were imposed in Guangzhou. (…)
The boom in Foshan hasn’t cooled things off in Guangzhou. Sales agents for the Blessed and Colorful Apartments, a new high-rise complex in the southern part of the city, say that prices for the units have risen nearly 30% since they went on sale in January. (…)
A 53-year-old engineer in Lanzhou was determined to buy. “The harder it is to get something, the more you want to buy,” he said while browsing apartments decorated in Old Europe style, replete with chandeliers. “I need to buy before prices go up further.”
At the end of last year, real estate accounted for 68.8% of China’s household assets, Moody’s says. In the U.S., it is less than 60%.
Mr. Ni, the housing expert at the Chinese Academy of Social Sciences, estimates that as much as 50% of China’s home sales today are for investment, a situation that worries the Communist Party leadership. (…)
Nonetheless, the government has stopped short of imposing a property tax, which would discourage people from buying homes as an investment and leaving them empty by making it more expensive to own a home. Beijing has shown little political will to force a move that would raise costs for already stretched homeowners. (…)