· The U.S. dollar was stable on Wednesday after October consumer price inflation was greater than expected and Federal Reserve Chair Jerome Powell offered an optimistic outlook for the economy, further solidifying the case for the central bank to pause its monetary easing cycle.
Expectations for an interest rate cut do not rise above 30% before July 2020, according to CME Group’s FedWatch tool. And the slim chances of a cut in the months prior on Wednesday became slimmer.
The dollar index was up 0.05% to 98.36 and the greenback gained 0.08% against the euro to $1.0998.
· The U.S. dollar fell against the Japanese yen and the Swiss franc, traditional safe-haven investments, after media reports that trade talks between the U.S. and China had “hit a snag” over farm purchases.
Investors pulled out of riskier assets, sending the three major U.S. stock indexes lower, and pushing up safe-haven assets like the Japanese yen JPY= and Swiss franc CHF=. Both currencies were at their highest in about a week against the dollar, with the yen up 0.21% at 108.76 and the franc up 0.38% to 0.989.
· The Federal Reserve is unlikely to adjust interest rates anytime soon so long as the economy remains on its present path, central bank Chairman Jerome Powell told Congress on Wednesday.
In commentary he provided to the Joint Economic Committee, Powell reiterated a stance he outlined a few weeks ago that the Fed’s moves this year toward more accommodative monetary policy have helped support an economy that continues to grow. He noted that Fed moves tend to have a lagged effect, meaning that it will take time to assess what impact they are having.
As he has multiple times before, Powell cautioned that challenges remain, such as weakness abroad, trade tensions and low inflation.
For his part, Powell also has said that inflation would have to rise substantially before he would consider a rate hike. He said Wednesday that policymakers will continue to assess what needs to be done.
Powell said the labor market remains strong, incomes are rising and consumer confidence continues to grow.
· The high-stakes trade negotiations between the U.S. and China are running into trouble as the two countries attempt to finalize a limited trade agreement.
The U.S. is trying to secure stronger concessions from China to regulate intellectual property protections and to stop the practice of forced technology transfer in exchange for rolling back some of the tariffs, CNBC’s Kayla Tausche reported, citing people familiar with the matter. The two sides are at a stalemate even though the U.S. and China said they had an agreement in principle less than a month ago.
The Wall Street Journal first reported the roadblock in the trade talks, adding China is hesitant to commit to a specific amount of agricultural products in the text of a potential deal. China has agreed to buy up to $50 billion in U.S. farm goods as part of the so-called phase one trade deal, President Donald Trump claimed last month.
White House economic advisor Larry Kudlow told CNBC on Tuesday that there will be no tariff adjustments until a trade deal with China is made. He added the two sides have made progress on IP theft, financial services, currency stability, commodities and agriculture.
U.S. President Donald Trump’s threat to jack up U.S. tariffs on Chinese goods if the world’s two largest economies fail to reach a trade deal could raise the price of cellphones, laptops, and toys less than two weeks before Christmas.
· The Labor Department said on Wednesday its consumer price index increased 0.4% last month, the largest gain in the CPI since March and followed an unchanged reading in September.
In the 12 months through October, the CPI increased 1.8% after climbing 1.7% in September.
Economists polled by Reuters had forecast the CPI advancing 0.3% in October and gaining 1.7% on a year-on-year basis.
Excluding the volatile food and energy components, the CPI rose 0.2% after edging up 0.1% in September. The so-called core CPI rose as healthcare costs jumped by the most in more than three years. There were also increases in prices of used cars and trucks and recreation and rents.
In the 12 months through October, the core CPI increased 2.3% after rising 2.4% in September.
U.S. consumer prices rebounded and underlying inflation picked up, which together with abating trade tensions and fears of a recession, support the Federal Reserve’s signal for no further interest rate cuts in the near term.
October’s firmer monthly CPI reading and jump in healthcare costs suggest a pick-up in the core PCE price index last month. The core PCE price data will be published later this month.
· Britain’s ruling Conservative Party has made an offer of an electoral pact to Nigel Farage, which has been turned down by the Brexit Party leader, The Daily Telegraph newspaper reported.
The Conservative Party’s offer would have meant the Brexit Party targeting only 40 key seats in constituencies held by Britain’s opposition Labour Party, as the Conservatives pledged to stand only ‘paper’ candidates in those constituencies, according to the report.
Farage turned down the deal because he wanted the Conservative Party to withdraw their candidates altogether from those seats, the newspaper reported.
· Japan’s economy grew at the slowest pace in a year in the third quarter as the U.S.-China trade war and soft global demand knocked exports, keeping policymakers under pressure to ramp up fiscal and monetary stimulus to bolster a fragile recovery.
The world’s third-largest economy grew an annualized rate of 0.2% in the third quarter, slowing sharply from a revised 1.8% expansion in April-June, preliminary gross domestic product (GDP) data released by the government showed on Thursday.
· Oil prices edged up on Wednesday after the Organization of the Petroleum Exporting Countries said it saw no signs of global recession and rival U.S. shale oil production could grow by much less than expected in 2020.
Brent crude futures gained 31 cents to settle at $62.37, having fallen by over 1% earlier in the day. U.S. West Texas Intermediate crude settled at $57.17 per barrel, gaining 32 cents or 0.6%.
Reference: CNBC, Reuters
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