Date: July 11, 2019
U.S. Core Consumer Inflation Tops Projections in Broad Gain
“A key measure of U.S. consumer prices rose more than forecast in June, potentially complicating the Federal Reserve’s assessment of inflation as policy makers weigh an interest-rate cut as soon as this month. The core consumer price index, which excludes food and energy, rose 0.3% from the prior month, the most since January 2018, and 2.1% from a year earlier, Labor Department data showed Thursday. Both figures exceeded estimates. The broader CPI climbed 0.1%, also more than projected, and 1.6% annually. The report showed broad monthly gains in the core categories, including pickups in costs for shelter, used vehicles, clothing, and home furnishings and operations. U.S. stock futures dipped after the report while the yield on the 10-year Treasury rose. The firmer inflation readings follow Fed Chairman Jerome Powell’s testimony to lawmakers Wednesday that there’s “a risk that weak inflation will be even more persistent than we currently anticipate.’’ Also Wednesday, minutes of the June policy meeting showed officials judged uncertainties and risks to the economic outlook had increased significantly, strengthening the case for a rate cut at their July 30-31 meeting.”
BOE Sees Fallout on House Prices, Pound From No-Deal Brexit
“The Bank of England said the risks of a no-deal Brexit have increased and warned that such an outcome could slam the pound, government bonds and house prices. In its Financial Stability Report on Thursday, it said that “significant market volatility and asset price changes are to be expected in a disorderly” withdrawal from the European Union. It also sees a risk of “material economic disruption.” There’s some good news for big banks: The report says they have the strength to survive a global trade war colliding with a disorderly Brexit. It also said most of the threats of disruption to cross-border banking services because of Brexit have been mitigated, though more action by the EU is needed to fully clear the risks. The central bank has long highlighted Brexit as a key threat to U.K. financial stability, saying previously that a no-deal scenario could mean “significant market volatility.” The U.K. is due to leave the EU by the end of October, but Parliament is deadlocked and refusing to pass a deal, increasing the odds the country crashes out. In the buildup to the original Brexit date of March 31, the BOE increased the frequency of its regular liquidity operations and introduced measures to ensure banks could access euro funding.”
What Powell’s Rate Cut Signal Means for China’s Central Bank
“The unmistakable signal from U.S. Federal Reserve Chairman Jerome Powell that a rate cut is imminent hands China more room to maneuver in easing its own monetary policy. The question is on which tool to use. With a slowing economy, resurgent deflationary fears and the downdraft from trade tensions, the case for easier policy from the People’s Bank of China is building. A more stable yuan also gives Governor Yi Gang and other policy makers more leeway. “If the Fed does cut rates in July, it would open room for a domestic interest rate cut here,” Ming Ming, head of fixed-income research at Citic Securities Co. in Beijing wrote in a note. “China’s central bank will very likely follow suit.” It’s not as simple as matching one rate cut in Washington with another in Beijing, though. China’s complex array of monetary tools is in flux, and the instrument that’s nominally still the “benchmark” is falling into disuse. Policy makers have given few clues about their intentions, and a meeting of the Politburo later this month may be the first opportunity to clarify the government’s plans.”
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