October 16, 2019
U.S. Retail Sales Unexpectedly Drop in Sign Consumer Shaky
“U.S. retail sales unexpectedly posted the first decline in seven months, suggesting consumers are starting to become shaky as the main pillar of economic growth and potentially bolstering the case for a third straight Federal Reserve interest-rate cut. Treasuries rose and U.S. stock futures fell. The value of overall sales fell 0.3% in September from the prior month after an upwardly revised 0.6% increase in August, Commerce Department figures showed Wednesday. The median estimate in a Bloomberg survey called for a 0.3% advance. Sales in the “control group” subset, which some analysts view as a more reliable gauge of underlying consumer demand, were little changed, missing projections for a 0.3% increase. The measure excludes food services, car dealers, building-materials stores and gasoline stations. The surprise drop in retail sales is the first decline since February and may indicate cracks are forming in the consumer spending that’s propped up economic growth in recent months. Together with weaker business investment and manufacturing, along with a lingering trade war, weaker consumption would increase risks to the nation’s longest economic expansion on record and complicate President Donald Trump’s re-election prospects in 2020. Despite solid income growth and other favorable fundamentals for consumers, “there were a lot of gloomy headlines” in September on topics such as trade talks, said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC. “People might have gotten a little cautious.” While consumer spending and job gains were likely solid overall during the third quarter, the latest figures as well as the employment report earlier this month suggest a loss of momentum heading into the last part of 2019. With global weakness and trade headwinds already leading Fed officials to lower interest rates at the last two meetings, some policy makers may see reason to cut again at the central bank’s next gathering Oct. 29-30 in Washington.”
Brexit Deal in Sight as Negotiators Wrestle With the Details
“The U.K. and European Union signaled a Brexit deal is in sight, with negotiators heading into intensive talks in Brussels as a potential compromise over the Irish border starts to emerge. With EU officials saying Boris Johnson had indicated a possible path to detailed talks, the U.K. prime minister planned to update his Cabinet on Sunday on progress toward a Brexit deal. Speculation that Britain will avoid dropping out of the EU without a divorce accord lifted the pound last week to its biggest two-day gain in a decade, though both sides cautioned that much work remains to be done for Britain to leave by Johnson’s Oct. 31 deadline. At issue are the prime minister’s plans to take Northern Ireland out of Europe’s customs union and give Stormont, its power-sharing assembly, a veto over the arrangement. The first would trigger the return of checks on goods crossing the frontier, something the Irish government and the EU oppose. The second would hand Northern Ireland’s Democratic Unionist Party an effective veto over the deal, something unacceptable south of the border. DUP deputy leader Nigel Dodds rejected any weakening of Northern Ireland’s custom ties with the U.K. and said his party is awaiting the outcome of the talks in Brussels, Italy’s La Repubblica newspaper quoted him as saying in an interview. A possible compromise is a British idea for Northern Ireland to technically leave Europe’s customs union but for the province to adhere to EU customs rules and tariffs, according to two officials. This would have the twin benefit of preventing a border on the island of Ireland and enabling the U.K. to strike trade deals around the world. It’s similar to a “customs partnership” plan the EU rejected in 2018, and would leave Northern Ireland with a different customs regime to the rest of the U.K. British authorities would have to collect tariffs on behalf of the bloc on goods crossing the Irish Sea. EU officials said the proposal is extremely complicated and needs work before it could be considered to be a solution, but didn’t rule out that it could emerge as the compromise. “Getting Brexit done by 31 October is absolutely crucial, and we are continuing to work on an exit deal so we can move on to negotiating a future relationship based on free trade and friendly cooperation with our European friends,” Johnson said in a statement.”
China Unexpectedly Injects $28 Billion of Cash as Growth Slows
“China caught traders off-guard with a surprise injection into the financial system via loans to banks, ahead of data on Friday which is expected to show a further slowdown in the domestic economy. The People’s Bank of China added 200 billion yuan ($28 billion) of one-year cash through the medium-term lending facility on Wednesday. It kept the interest rate steady. The move took traders by surprise as the authorities usually inject liquidity when previously offered loans come due, and the next batch won’t mature until Nov. 5. The Chinese economy has been under pressure amid a prolonged trade dispute with the U.S. and a slowing domestic economy, prompting the central bank to ease monetary policy by lowering corporate borrowing costs and cutting banks’ reserve ratios this year. Data released this week showed that China’s factory deflation deepened and imports and exports fell last month. “It’s not expected by the market,” said Becky Liu, head of China macro strategy at Standard Chartered Plc., referring to the cash injection. “They probably want to inject more long-term liquidity” to ensure ample supply during the tax payment season in mid-October and to support the economy, which is still facing growth pressure, she said. China is scheduled to release gross domestic product data for the third quarter on Friday. It’s expected to have grown at 6.1% from a year ago, which would be the slowest pace since at least 1992.”
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