January 29, 2018.
Treasuries Slide, Dollar Gains as Busy Week Begins: Markets Wrap
U.S. Treasuries extended a selloff that’s taken yields to the highest since early 2014 as traders gear up for a hectic week of data and policy announcements. The dollar climbed and stocks edged lower as the euro, Swiss franc, yen and pound all retreated. The greenback advanced after capping a seventh week of losses on Friday. The yen fell as the Bank of Japan downplayed Governor Haruhiko Kuroda’s comments on stronger inflation, and the British pound declined as pressure built on Prime Minister Theresa May over Brexit. The euro weakened as German bonds retreated for a fourth day, while the Stoxx Europe 600 Index turned lower after benchmarks were mixed in the Asian session. “The higher Treasury 10-year yield is spurring dollar-buying,” said Ko Haruki, head of the financial solutions group at CIBC World Markets (Japan) in Tokyo. “The dollar is consolidating with major currencies failing to break Thursday’s highs.” Janet Yellen’s final policy meeting as Federal Reserve chair will be the main focus of investor attention in what’s shaping up to be another active week for markets still finding their feet after the recent dollar selloff. There’s a string of fresh economic data due, as well as a State of the Union address from President Donald Trump and earnings releases from the world’s biggest tech companies. Elsewhere, U.S. oil fell, though it’s at about its strongest level in five months relative to global benchmark Brent crude as a weaker dollar and falling stockpiles boost the American marker. Metals advanced amid optimism over global growth and the impact of the softer greenback, with zinc soaring to the highest level in more than a decade.
More Business Economists See Higher U.S. Wages, Investment
Wages are increasing at more companies in the U.S. and will become even more widespread in coming months amid increased difficulty hiring skilled labour, according to a survey of business economists. A net 48 percent of economists surveyed this month by the National Association for Business Economics said worker pay was increasing. That’s the highest in 18 years and the third-highest in NABE data to April 1982. The net share expecting bigger wage costs over the next three months reached the highest since April 2014. “More respondents report that their firms are hiring — and having trouble filling positions — than in the October survey,” Kevin Swift, NABE vice president and chief economist for the American Chemistry Council, said in a statement. “Looking at 2018 as a whole, 63 percent of respondents expect their firms to increase sales, and three times as many expect hiring to increase rather than decrease.” Capital spending rose at more firms and is expected by business economists to keep climbing. A net 37 percent reported increased investment in the latest survey, conducted from Dec. 29 to Jan. 10, up from 28 percent at the start of the fourth quarter and the strongest since July 2015. At the same time, roughly two-thirds said no changes were made to hiring or investments in anticipation of changes in U.S. economic policy. Tight labour markets help explain why wages costs are rising. Some 39 percent reported a shortage of skilled labor, the highest percentage since the July 2008 survey.
Euro Area Looks Strong But Weak as Economy Powers On in 2018
The euro area is set to start the new year the way it ended the old: the economy is strong but inflation is weak. The region’s fastest growth in a decade will be confirmed this week in a burst of data that should also show economic confidence at the highest since the currency bloc’s early days, unemployment at a post-crisis low, and manufacturing continuing to boom. Yet inflation, the key metric for the European Central Bank, will probably be the slowest in six months. The readings will cement the 19-nation region’s transformed reputation from an economic black spot to a pillar of the global upswing, an opinion expressed frequently at the World Economic Forum last week in Davos, Switzerland. They will also underpin ECB President Mario Draghi’s argument that it’s still too soon to consider winding down the unprecedented monetary stimulus that sparked the recovery.
Worst Asian Bond Market Has More to Fear: Modi’s Borrowings
The timing for India to sell an estimated record amount of debt couldn’t be worse. Prime Minister Narendra Modi’s government will seek to borrow 6.5 trillion rupees ($102 billion) in the fiscal year starting April 1, according to the median estimate of 15 fixed-income strategists and economists before Thursday’s budget. That compares with the 6.05 trillion rupees expected for the current year.Whereas falling oil prices and bond yields have benefited Modi since he took power in 2014, their steep ascent in the past six months is posing a threat. Chief Economic Adviser Arvind Subramanian cautioned Monday that the government can’t rule out a pause in its plan for fiscal consolidation, helping extend a rout that has made Indian sovereign notes Asia’s worst performers. “Setting overly ambitious targets for consolidation — especially in a pre-election year — based on optimistic forecasts that carry a high risk of not being realized will not garner credibility,” Subramanian said in the Economic Survey presented in Parliament.