Euro dips after report ECB to cut inflation outlook
The euro fell more than half a percent on Wednesday after a report suggesting the European Central Bank, rather than swinging decisively toward a tighter monetary stance this week, is preparing to cut its outlook for inflation. The single currency had recovered almost 10 percent against the dollar in the past five months, benefiting from broad greenback weakness but also on the view that rising inflation would prompt the ECB to raise interest rates in early 2018. But with global inflation pressures waning, and with euro zone data coming in weaker in recent data releases, that view has started to shift, and the ECB is not expected to signal a change in policy at its meeting this week. Bloomberg, citing unnamed euro zone officials, said the central bank’s staff forecasts for inflation for the next three years had been cut to 1.5 percent, from 1.7 percent, 1.6 percent and 1.7 percent, respectively in March. Those have still to be approved by the two-day meeting of the Governing Council that starts on Wednesday, the news agency said, but, if true, would be a signal of a softer line than many in currency and bond markets have been expecting.
U.S. job openings hit record high; skills mismatch rising
U.S. job openings surged to a record high in April and employers appeared to have trouble finding suitable workers, pointing to a tightening labour market that could encourage the Federal Reserve to raise interest rates next month. The Labour Department’s monthly Job Openings and Labour Turnover Survey, or JOLTS, published on Tuesday also suggests that a recent moderation in job growth could be the result of a skills mismatch rather than easing demand for labour. “These data underscore the difficulty in hiring new workers, which we think is increasingly likely to be a factor restraining payroll growth going forward,” said John Ryding, chief economist at RDQ Economics in New York. “The Fed becomes somewhat uneasy when the labour market becomes too tight and this report supports the Fed’s case to nudge rates higher next week.” JOLTS is one of the metrics on Fed Chair Janet Yellen’s so-called dashboard of labour market indicators. It came ahead of the U.S. central bank’s June 13-14 policy meeting, at which it is expected to raise its benchmark overnight interest rate by 25 basis points. Job openings, a measure of labour demand, increased 259,000 to a seasonally adjusted 6.0 million in April, the highest since the government started tracking the series in 2000. The monthly increase was the largest in just over a year and pushed the jobs openings rate to 4.0 percent, the highest since last July, from 3.8 percent in March.
China May forex reserves rise more than expected on weaker dollar, capital controls
China’s foreign exchange reserves rose in May for a fourth consecutive month and by more than markets had expected, as stringent capital control measures and a weakening in the dollar helped staunch outflows. Reserves rose $24 billion in May to a seven-month high of $3.054 trillion, compared with an increase of $21 billion in April, central bank data showed on Wednesday. It was the first time since June 2014 that reserves climbed for four months in a row, and the biggest gain since reserves moved back above the closely watched $3 trillion level in February. Economists polled by Reuters had expected reserves to rise $10 billion. A weaker U.S. dollar boosted the value of other currencies and assets held by China in May, the State Administration of Foreign Exchange (SAFE) said in a statement explaining the rise. Foreign exchange supply and demand was basically balanced in the month, it added. In May, the dollar recorded its largest monthly percentage loss against a basket of major currencies .DXY since January. Tighter restrictions on taking funds out of the country imposed in recent months continue to keep a lid on capital outflows, said Zhou Hao, a Singapore-based analyst at Commerzbank.
Global growth headed for six-year high: OECD
The global economy is on course this year for its fastest growth in six years as a rebound in trade helps offset a weaker outlook in the United States, the OECD forecast on Wednesday. The global economy is set to grow 3.5 percent this year before nudging up to 3.6 percent in 2018, the Paris-based Organisation for Economic Cooperation and Development said, updating its forecasts in its latest Economic Outlook. That estimate for 2017 was not only a slight improvement from its last estimate in March for 3.3 percent growth, but it would also be the best performance since 2011. Yet despite this brighter outlook, growth would nonetheless fall disappointingly short of rates seen before the 2008-2009 financial crisis, OECD Secretary General Angel Gurria said. “Everything is relative. What I would not like us to do is celebrate the fact that we’re moving from very bad to mediocre,” Gurria told Reuters in an interview. “It doesn’t mean that we have to get used to it or live with it. We have to continue to strive to do better,” he added. While recovering trade and investment flows were supporting the improving economic outlook, Gurria said barriers in the form of protectionism and regulations needed to be lifted to ensure stronger growth.