U.S. producer prices unchanged as energy costs drop
U.S. producer prices were unchanged in May as energy costs recorded their biggest decline in more than a year, suggesting inflation pressures were easing after rising at the start of the year. Signs of abating inflation came as Federal Reserve officials prepared to gather for a two-day policy meeting on Tuesday. The U.S. central bank is expected to raise interest rates at the end of the meeting on Wednesday, but weakening inflation could limit the scope for further monetary policy tightening this year. The Labour Department said last month’s unchanged reading in its producer price index for final demand followed a 0.5 percent jump in April. In the 12 months through May the PPI increased 2.4 percent, retreating from April’s 2.5 percent surge, which was the biggest yearly increase since February 2012. Last month’s inflation readings were broadly in line with economists’ expectations. Prices of U.S. government debt fell after the data. U.S. stock index futures were slightly stronger while the dollar .DXY was weaker against a basket of currencies.
Euro zone bond yields rise as Dutch, Finnish concerns temper political optimism
Euro zone bond yields rose across the board on Tuesday as a lack of progress in forming a government in the Netherlands and the risk of snap elections in Finland put a damper on political optimism around Europe. On Monday, euro zone government bond yields dropped as the first round of French parliamentary elections pointed to a landslide for President Emmanuel Macron’s party while Italy’s anti-establishment 5-Star Movement suffered in mayoral elections. But while political risks may have diminished in southern Europe, political uncertainty persists in some countries in the north. “We have had some major political news in Europe in the last few days, and though the French and Italian news has been much more in focus, we also have some negative news from other parts,” said DZ Bank strategist Daniel Lenz. “In the Netherlands, the second attempt to build a coalition failed and in Finland there is a possibility of snap elections.” Euro zone bond yields rose 1-2 basis points across the board on Tuesday. The yield on Germany’s 10-year government bond , the benchmark for the region, was up 1.6 basis points at 0.27 percent.
China to sell 1st dollar bonds since 2004, after Moody’s downgrade
China will sell its first U.S. dollar denominated sovereign bonds since 2004 in coming months along with yuan bonds, in its first overseas issuance of national debt since Moody’s downgraded its sovereign credit rating in May. The finance ministry said on Tuesday it will issue 14 billion yuan ($2.06 billion) of treasury bonds denominated in yuan, and dollar-denominated sovereign bonds equivalent to 2 billion yuan in a rare, albeit small-sized offering. IFR said it would be China’s first dollar bond offering since October 2004. The ministry said the treasury bonds will be issued in Hong Kong in two separate tranches of 7 billion yuan each. The first will be issued by June 30, and the other in the second half of this year. China has sold yuan denominated bonds over the last few years as part of efforts to internationalise its currency. The 2 billion yuan worth of dollar-denominated sovereign bonds will be issued in the second half of this year. Commerzbank economist Zhou Hao described the dollar-denominated offering as “an unusual move but since the amount is small, there may not be a huge implication.” Moody’s Investors Service on May 24 downgraded its credit rating on China for the first time in nearly 30 years, saying the country’s financial strength is expected to erode as economic growth slows and debt continues to rise.