Overseas Headlines- July 12, 2019

Date: July 12, 2019

United States:

U.S. Producer Prices Increased More Than Forecast in June

“A measure of underlying U.S. producer prices increased in June by more than forecast, driven by trade services and indicating inflation may be starting to stabilize. Excluding food and energy, producer prices increased 2.3% in June from a year earlier, matching the prior month’s annual advance and more than the median forecast of 2.1%, a Labor Department report showed Friday. The overall producer-price index rose 0.1% for a second month, also exceeding expectations for no change. The data follow a report Thursday showing consumer prices also picked up, which may complicate Fed policy makers’ decision on interest-rate policy later this month. The stronger figures indicate companies are seeing at least some inflation that could filter through to the broader economy. Final demand services rose in June by the most since October 2018. Trade indexes measure changes in margins received by wholesalers and retailers. Retail margins for fuels surged by the most since November, while margins also picked up at wholesalers of machinery and at retailers of health and beauty products and apparel and footwear. Core consumer inflation topped expectations in separate data released Thursday, showing that the index which excludes food and energy rose the most since January 2018. There were gains across categories, from shelter to clothing and used vehicles. President Donald Trump has repeatedly called on central bank officials to cut interest rates to spur economic growth, citing muted inflation as one reason to cut. Bond traders widely expect officials to do so at their next meeting, while Fed leaders emphasize political independence. In Capitol Hill testimony this week, Fed Chairman Jerome Powell said the economy continues to face downside risks including trade tensions and sluggish inflation, strengthening the case for a reduction in interest rates.”




European Industry Shows Signs of Life as Output Beats Estimates

“Europe’s economy got a shot in the arm on Friday with a report showing the biggest jump in industrial production in four months. Output jumped 0.9% from the previous month, beating the 0.2% median estimate of economists. Capital goods and consumer goods both saw strong gains. The figures follow positive national reports from the region’s largest economies — Germany, France, Italy and Spain. All four posted increases in May, the first time that’s happened since last summer. The data, which can be volatile, may not be enough to shift the European Central Bank from its current path toward adding more monetary stimulus. The outlook is still clouded by trade tensions that have hit confidence, and forward-looking surveys, as well as comments from company executives, still offer reason for caution. BASF SE, the world’s largest chemical maker, shocked markets this week with a huge profit warning, and Germany’s car industry is still suffering from industry-related problems. On Friday, Daimler AG issued its fourth such warning in just over a year, this time blaming higher costs to deal with a recall for faulty airbags and increasing funds set aside to address allegations of emissions tampering. The European Commission on Wednesday cut its euro-area growth and inflation forecast for 2020, suggesting that the weakness that’s characterized the first half of the year will stick around. Most investors and economists have penciled in an ECB interest-rate cut by September, though some say the central bank could act as soon as this month. There’s also a chance it restarts bond purchases, having only brought the program to a close at the end of 2018.”




Beyond the Trade War, China’s Economy Is Struggling to Stabilize

“China is grappling with a slowdown that will see output growth slide to the weakest pace in almost three decades this year, as factors far beyond the trade war with the U.S. weigh on the world’s second-largest economy. Gross domestic product is forecast to grow at 6.2% in the second quarter, the slowest in a three-month period since at least 1992. Data due for release next Monday will show whether the downward forces from external demand, deflationary factory prices and contracting manufacturing can be offset by stabilizing investment, brighter consumer sentiment and a rebounding property sector. The chances for those green shoots to hold on and expand into a firmer recovery depend in turn on how well the government’s targeted stimulus policies can lift local production and counteract the trade war’s effects. The U.S. Federal Reserve’s path toward imminent rate cuts is handing China more room to make its own monetary policy easier, just when it needs it. “China’s economy will slow further in the second half as external demand remains the biggest drag, and it’ll likely stabilize from there under policy support,” said Wang Tao, chief China economist at UBS AG in Hong Kong. “The annual growth rate will stay above 6%.” Data released Friday in Beijing confirmed the picture of weak domestic demand, the negative impact of the tariff war — and the chance that stimulus measures aimed at fostering credit may put a floor under the slowdown. Export growth slowed, imports slumped, while credit expansion held up.”