U.S. producer prices record biggest drop in 11 months
U.S. producer prices unexpectedly fell in July, recording their biggest drop in nearly a year and pointing to a further moderation in inflation that could delay a Federal Reserve interest rate increase. Other data on Thursday showed an increase in the number of Americans filing for unemployment benefits last week. The trend in weekly jobless claims, however, remained consistent with a tightening labour market. The Labour Department said on Thursday its producer price index for final demand slipped 0.1 percent last month, weighed down by decreasing costs for services and energy products. That was the largest decline since August 2016 and reversed June’s 0.1 percent gain. In the 12 months through July the PPI increased 1.9 percent after rising 2.0 percent in the year through June. Economists had forecast the PPI ticking up 0.1 percent last month and climbing 2.2 percent from a year ago. Though the link between the PPI and the consumer price index has weakened, last month’s drop in producer prices could worry Fed officials who have long argued that the moderation in inflation was temporary. Fed Chair Janet Yellen told lawmakers last month that “some special factors” were partly responsible for the low inflation readings. Inflation, which has remained below the U.S. central bank’s 2 percent target for five years, is being watched for clues on the timing of the next Fed interest rate increase.
China economy has ‘bottomed out’ to enter stable stage, government adviser says
China is entering a new stage of stable economic growth that may last for a decade, a government adviser said on Thursday, dismissing talk of the start of a new round of robust growth, as the real estate industry is expected to continue to cool. “We have had initial proof that the economy has bottomed out and may be entering a new period of steady growth, thanks to more stabilized final demand,” said Liu Shijin, vice-chairman of state think-tank the China Development Research Foundation. The economy has now escaped the slowing trajectory of the past seven years, Liu told an economic forum in Beijing, predicting the new medium-speed new stage would probably last for about ten years, going by the example of Western nations. China’s economic growth of 6.7 percent in 2016 was its slowest pace in 26 years. Liu dismissed growing rhetoric that China is entering a new economic cycle of strongly rebounding growth, after having recorded a better-than-expected increase of 6.9 percent in gross domestic product (GDP) in the first two quarters.
German bonds in demand as Pyongyang unveils missile plan
Europe’s top-rated German bond yield held near a six-week low on Thursday as North Korea outlined detailed plans for a missile strike near the U.S. territory of Guam. While an investor panic that followed a war of words between Washington and Pyongyang on Wednesday appeared to abate slightly, demand remained firm for assets that tend to perform well in times of market stress, including German Bunds. Analysts said yields, which move inversely to prices, could fall further even as central bankers in the United States talked of a tightening in monetary conditions that could jack up global interest rates. Germany’s 10-year bond yield traded at 0.424 percent on Thursday, a shade above a low of 0.419 percent hit on Wednesday, according to Tradeweb data. U.S. and British equivalents were also trading a touch above Wednesday’s six-week lows. “We would currently be careful with a whiff of risk aversion in the air and, by extension, also stay away from shorts in the rates market,” RBC’s global macro strategist Peter Schaffrik said.