Most Fed Officials Saw Tightening ‘Soon,’ Favoured Unwind Plan
Most Federal Reserve officials judged “it would soon be appropriate” to tighten monetary policy again and backed a plan that would gradually shrink their $4.5 trillion balance sheet. “Most participants judged that if economic information came in about in line with their expectations it would soon be appropriate for the committee to take another step in removing some policy accommodation,” according to minutes from the Federal Open Market Committee’s May 2-3 gathering released Wednesday in Washington. The statement points toward a hike as soon as the Fed’s meeting in mid-June, though FOMC voters added the caveat that “it would be prudent” to wait for evidence that a recent slowdown in economic activity had been transitory. “‘Soon’ sounds to us like June,” Harm Bandholz, chief U.S. economist at UniCredit Bank AG in New York, wrote in a note to clients. “The Fed has always said that the policy outlook is data dependent, and this is no different.” U.S. stocks pushed to a fresh intraday record, while the dollar slipped with Treasury yields as minutes from the Fed’s last meeting showed officials unperturbed by recent signs of economic weakness.
Little-Changed U.S. Jobless Claims Signal Solid Labour Market
U.S. jobless-benefit claims are hovering near levels that continue to reflect a strong labour market, with figures little changed last week, Labour Department data showed Thursday.
HIGHLIGHTS OF JOBLESS CLAIMS (WEEK ENDED MAY 20)
- Initial benefit filings increased 1k to 234k (forecast was 238k)
- Continuing claims rose 24k to 1.923m in week ended May 13 (data reported with one-week lag)
- Four-week average of initial claims, a less-volatile measure than the weekly figure, decreased to 235,250 from 241,000 in the prior week
Even with the slight uptick in jobless claims, the average over the past month is at its lowest level since 1973. Employers remain optimistic and are choosing to retain rather than fire staff, despite lackluster economic growth in the first three months of the year. That indicates the labour market remains solid and will contribute to a U.S. economy that’s widely expected to accelerate in the second quarter.
Central bank prudence ushers in lower euro zone bond yields
Borrowing costs across the euro area fell on Thursday on further signs that major central banks are wary of stepping back from ultra-loose monetary policies too quickly. U.S. Federal Reserve policymakers agreed they should hold off on raising rates until it was clear a recent U.S. economic slowdown was temporary, though most said a hike was coming soon, minutes from their last policy meeting showed on Wednesday. Bank of Japan board member Makoto Sakurai meanwhile on Thursday ruled out the chance of an imminent hike in the central bank’s bond yield target, stressing the need to maintain its massive stimulus programme to prop up inflation and fend off overseas economic risks. As is the case in the euro zone, growing signs of life in Japan’s economy have presented the BOJ with a fresh communications challenge, pushing it to be clearer with markets on how it might dial back its stimulus, even though such action remains a long way off.
China’s yuan jumps to 2-month high in “show of strength” after downgrade-traders
China’s yuan leapt to a near two-month high against the U.S. dollar on Thursday, supported by major state-owned banks in what some traders said was a show of strength a day after Moody’s downgraded the country’s credit rating. “Major state-owned banks were selling dollars in the market,” said a trader at a Chinese bank in Shanghai, adding that it “clearly showed” the authorities’ interest in keeping the currency strong. Banks poured dollars into the market after the yuan remained stubbornly flat in morning trade despite U.S. dollar weakness overseas, traders said. In the spot market, the yuan opened at 6.8860 per
dollar and suddenly strengthened nearly 200 pips to a high of 6.8690 per dollar at around 0250 GMT, the strongest intraday level since March 27. It was changing hands at 6.8737 per dollar at midday, 158 pips stronger than the previous late session close but 0.06 percent weaker than the midpoint. The yuan appeared to be on track to firm by around 0.2 percent, which would mark its biggest one-day gain against the dollar since Feb. 16.