Rise in U.S. business spending bolsters economic outlook
New orders for key U.S.-made capital goods rose slightly more than expected in July and shipments surged, pointing to an acceleration in business spending early in the third quarter. The Commerce Department’s upbeat report on Friday also suggested the economy continued to gather momentum after growth slowed at the start of the year. Strength in business investment bolsters the case for the Federal Reserve to tighten monetary policy further. Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 0.4 percent last month after being unchanged in June. Economists had forecast these so-called core capital goods orders rising 0.3 percent last month. They were up 3.3 percent from a year ago. Shipments of core capital goods jumped 1.0 percent after an upwardly revised 0.6 percent increase in June. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement. They were previously reported to have gained 0.1 percent in June.
Euro Strength Takes the Shine Off Germany’s Bumper Economic Year
Germany’s stellar economic year isn’t enough to prevent companies and investors from getting a touch of the nerves. The closely watched Ifo index of business confidence eased back from a record high in August — a slight drop but one that follows a separate survey showing a third monthly slide in investor confidence in the nation. The wavering in sentiment comes even as economic data shows the country on track for its strongest growth since 2011, and can be pinned largely on one development: the appreciation of the euro. “Most companies do not change prices immediately in their foreign markets when the exchange rate changes — that means their margins will be smaller and I’m sure the export industry is concerned about that,” Clemens Fuest, president of the Munich-based Ifo Institute, said in a Bloomberg Radio interview. “If the euro rises above something like $1.20, I think companies will be concerned about it. But it’s just one factor.” The surge in the single currency to around $1.18 currently from below $1.04 late last year has also caused consternation outside the currency bloc’s largest economy, with some European Central Bank policy makers fretting about a potential overshoot at their July gathering. The issue may arise again at the Governing Council’s Sept. 7 meeting, complicating its discussions over when it might start to wind down the region’s bond-purchase program.
China’s money rates extend climb this week as c.bank siphons liquidity
China’s key money rates spiked for the week as the central bank conducted its biggest drain in nearly two months, tightening liquidity as it extends its campaign against riskier types of financing. While conditions eased slightly on Friday, analysts said tighter cash conditions had forced the non-bank financial institutions to deleverage as those lenders usually use short-term funds to meet their leveraged investment needs. The volume-weighted average rate of the benchmark 14-day repo traded in the interbank market, considered one of the best indicators of general liquidity in China, surged to its highest in five months on Wednesday. The 14-day repo eased on Friday, trading at 4.1625 percent by 0636 GMT. The 7-day repo rate also rose for the week and stood at 2.9344 percent on Friday afternoon, more than 6 basis points higher than the previous week’s close. In open market operations, the People’s Bank of China (PBOC) refrained from injecting net funds into the money market for the entire week, draining a net 330 billion yuan ($49.52 billion) in five days – matching the amount drained in the last week of June.