United States:
U.S. Core Inflation Cools, Bolstering Case for Fed Rate Cut
A closely watched measure of U.S. inflation trailed forecasts in May as prices fell for used vehicles, reinforcing the case among investors for the Federal Reserve to cut interest rates. The core consumer price index, which removes energy and food costs, rose 2% from a year earlier, below forecasts, according to a Labor Department report Wednesday. The figure rose 0.1% from the prior month for a fourth-straight time and missed estimates. The broader CPI increased an annual 1.8%, less than projected. U.S. stock futures briefly advanced and Treasury yields dipped as below-forecast inflation followed signs of slower economic growth that stands to bolster investor expectations for Fed rate cuts this year. Weighing even heavier are signs of lackluster expansions at home and abroad, along with President Donald Trump’s tariffs on Chinese goods.
Europe:
Draghi Says Joining Euro Tends to Make Countries Better Governed
Mario Draghi said joining the euro has improved the quality of institutions in eastern European members, as opposed to “more mixed” results in countries that have kept their own currencies. The European Central Bank President, hosting a conference on central and eastern Europe in Frankfurt, told his audience that the main challenge in the region is achieving more balanced growth. That “will only be possible if domestic institutions and governance are improved,” he said. Enthusiasm for joining the 19-nation euro area has waned in the region, with some ex-communist countries including Poland and Hungary taking a more populist turn in recent years. This has fueled concern they may be backsliding on democratic norms some three decades after ditching communism. Per capita gross domestic product among new European Union members has already reached 70% of the region’s average, he said, adding that countries that also adopted the euro “have grown even faster, reaching almost 80% of the EU average.”
Asia:
China Sends Warning Signal to Yuan Bears Before G-20 Meeting
China’s central bank is making it clear to yuan bears that short-term declines are no sure thing, especially in the run up to a crucial meeting at the end of this month. The People’s Bank of China set its daily reference rate for the currency at higher than market watchers expected for a 10th straight day on Wednesday, the longest run since September. The strong bias on Tuesday was the largest since Bloomberg began releasing fixing forecasts in August 2017. The central banks also announced plans to sell bonds in Hong Kong in June — which would support the offshore rate. That helped the yuan climb by the most in two months on Tuesday. It was down by 0.03% to 6.913 per dollar as of 4 p.m. local time on Wednesday. The moves came after the yuan neared a decade-low and President Donald Trump threatened to raise tariffs on China again if President Xi Jinping doesn’t meet with him in Osaka at the Group of 20 summit. While PBOC Governor Yi Gang said last week that no particular level for the yuan is important, the official actions suggest to analysts that the authorities want to avoid one-way depreciation bets. The yuan hasn’t breached the 7 per dollar level since the global financial crisis.