Date: May 31, 2019
Fed’s Preferred Core-Price Gauge Picks Up as Spending Gains
A crucial measure of U.S. inflation watched by the Federal Reserve picked up in April for the first time this year while Americans’ spending and incomes topped forecasts, offering some evidence that economic growth is both holding up and helping boost prices. The Fed’s preferred core price gauge — tied to spending and excluding food and energy — rose 0.2% from the prior month and 1.6% from a year earlier following a downwardly revised 1.5% in March, according to a Commerce Department report Friday. That matched the median estimates in a Bloomberg survey. Meanwhile purchases, which make up more than two-thirds of the economy, climbed 0.3% after an upwardly revised 1.1% in March that was the best gain since 2009. Personal income increased 0.5% in April, the most this year, boding well for spending in the months ahead. The rise in core inflation toward the Fed’s 2% target may help support Chairman Jerome Powell’s view that transitory factors had temporarily restrained the gauge while bond markets bet that price gains will stay muted. In addition, steady spending underscores the strength of the consumer in a solid labor market, with the Fed stressing patience on interest-rate moves amid economic weakness abroad and intensifying trade tensions. Still, the data precede President Donald Trump’s escalating tariff war with China and threat late Thursday for levies on all goods from Mexico which together are scrambling the economic picture. If spending gathers momentum, economic growth could slow this quarter by less than previously thought following a 3.1% pace of first-quarter expansion that reflected significant boosts from trade and inventories.
Greek Bonds Resurgent as Yield-Hungry Traders Swayed by Politics
Greek debt may no longer be Europe’s bogeyman. Yields on the country’s 10-year bonds dropped below 3% for the first time on record, while those on five-year securities dropped below their Italian peers, a sign of the diverging fortunes of the two nations. Italy has replaced Greece as the target for concern about European political risk, meaning Athens has benefited more from demand for higher returns in a low-yield environment. Investors have to effectively pay to hold the debt of most European governments out to five years of maturity, with Italy and Greece among the few exceptions. But while Athens is being rewarded for improving public finances with lower yields, fears about Rome’s populist administration and its budget spat with the European Union has seen Italian debt miss out on the recent global fixed-income rally. “Tumbling bond yields basically force even more of a reach for yield, and in a very thin market like Greece, a squeeze is all too easy,” said Marc Ostwald, global strategist at ADM Investor Services. “The fundamentals story is more a convenience in justifying the reach, rather than the key trigger.” The yield on Italy’s five-year bonds rose as much as 13 basis points to 1.81% on Friday, a three-month high. That on their Greek equivalents fell as much as 12 basis points to 1.73%, a record low. The rate on Greece’s 10-year debt fell to 2.92%, also an all-time low.
China Puts U.S. Soy Buying on Hold as Tariff War Escalates
China, the world’s largest soybean buyer, has put purchases of American supplies on hold after the trade war between Washington and Beijing escalated, according to people familiar with the matter. State-grain buyers haven’t received any further orders to continue with the so-called goodwill buying and don’t expect that to happen given the lack of agreement in trade negotiations, said the people, who asked not to be named because the information is private. Still, China currently has no plans to cancel previous purchases of American soybeans, the people said. President Donald Trump escalated his trade war with China earlier this month, ramping up tariffs on about $200 billion of Chinese goods, prompting Beijing to retaliate with further duties of its own. Trump and his counterpart Xi Jinping are expected to meet again at the end of June for the G-20 summit, when some analysts predict a potential resolution. Soybean futures in Chicago slumped to a 10-year low earlier this month as the tensions peaked. Since then, prices have rebounded as a deluge of rain roils U.S. plantings. Government data indicates China bought about 13 million metric tons of American soybeans after the countries agreed to a truce in December, in a move that showed goodwill toward getting the trade dispute resolved. While U.S. Agriculture Secretary Sonny Perdue said in February that China had pledged to buy an additional 10 million tons of American soy, purchases have now stopped.