Low Inflation Frays Fed Consensus
(…) The minutes also showed a split on policy strategy, with about half the committee now supporting a run-it-hot scenario for the labor market.
“Several participants endorsed a policy approach” where the labor market would undershoot their estimate of full employment “for a sustained period.”
Meanwhile, several other participants “expressed concern that a substantial and sustained unemployment undershooting might make the economy more likely to experience financial instability or could lead to a sharp rise in inflation.” (…)
“Several preferred to announce a start to the process within a couple of months,” the minutes said. “Some others emphasized that deferring the decision until later in the year would permit additional time to assess the outlook for economic activity and inflation.” The minutes reasserted their intention to begin the process “this year provided that the economy evolves broadly as anticipated.” (…)
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Fed traditionalists face pressure over inflation Divisions among policymakers increase the uncertainty over interest rates beyond 2017
From the Minutes:
Recent readings on headline and core PCE price inflation had come in lower than participants had expected. On a 12-month basis, headline PCE price inflation was running somewhat below the Committee’s 2 percent objective in April, partly because of factors that appeared to be transitory. Participants continued to expect that, as the effects of transitory factors waned and labor market conditions strengthened further, inflation would stabilize around the Committee’s 2 percent objective over the medium term.
These charts show what happens to inflation when the “transitory factors” are removed. (The Daily Shot)
Source: Credit Suisse
They just don’t know what’s really happening.
U.S. Factory Orders Decline Again
Manufacturing sector orders fell 0.8% during May (+6.0% y/y) following a 0.3% April decline, revised from -0.2%. Durable goods orders were off 0.8% (+5.7% y/y), revised from -1.1% in the advance report. Transportation sector orders declined 3.0% (+1.7% y/y). Orders outside of the transportation sector eased 0.3% (+6.8% y/y). (…)
MBA: Mortgage Applications Increase in Latest Weekly Survey
Breaking out:
Manhattan Home Sales Surge as Cuts Bring Prices to Buyers’ Level
(…) Purchases of resale homes jumped 16 percent from a year earlier to 2,597, according to a report Thursday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. Buyer interest was fueled by average price cuts of 6.1 percent across all property types. The last time the average discount was larger was the third quarter of 2012, when it was 7.2 percent.
Sellers of luxury apartments took the whittling further, cutting prices by an average of 10 percent, the most since the end of 2010 and the second-biggest discounts in more than 16 years of record-keeping. (…)
The frenzy might not last though. Contracts to buy homes in Manhattan fell 8 percent in the quarter from a year earlier to 3,258, brokerage Corcoran Group said in its own report Thursday. Corcoran cited the high price of the remaining supply as one reason for the decline. (…)
Eurozone sales rise to greatest extent in almost two years
Eurozone retailers recorded a rise in like-for-like sales for the third time in as many months during June. Growth was driven by sharp expansions in France and Germany, although another decline in Italy continued weigh on overall growth.
The headline IHS Markit Eurozone Retail PMI® – which tracks the month-on-month changes in like-for-like retail sales in the bloc‟s biggest three economies combined – rose to 53.2 in June, from 52.0 in May. The latest reading signalled the sharpest rate of growth in just shy of two years. (…)
SENTIMENT WATCH
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Clouds start to form over high-yield debt Returns prove strong so far this year, but second half threatens to be less clear-cut
For the first time in 16 months, the supply of U.S. leveraged loans will outpace investor demand, and in a big way. (…)
The big question is why the sudden buyers’ strike?
Volvo Gives Tesla a Shock, As Others Plan Electric Push Volvo indicated it is mounting an ambitious challenge to Tesla’s electric cars. But the company isn’t the only rival planning to compete with the Silicon Valley pioneer.
(…) Nearly all global vehicle makers are mounting their own electric-car push, powered by ever-cheaper prices for batteries, stricter emissions rules and lucrative government incentives for customers. (…)
In a report published earlier in this year, McKinsey & Co. noted that “auto makers face a difficult challenge” when it comes to how quickly to move away from internal combustion engines. The consulting firm estimates 30% of U.S. buyers would consider an EV purchase today, but car companies must boost consumer-education initiatives and marketing campaigns at a time when overall demand for automobiles is slipping.
“They must strike the right balance between selling enough EVs to comply with tightening regulatory fleet emissions and fuel economy targets, while also preventing the incremental cost of adding battery packs from cannibalizing corporate profits,” McKinsey said.
The consulting firm estimates battery-pack prices have fallen about 80% since 2010, and an electric car and comparable gasoline-powered car could hit cost parity within a decade.