Date: September 12, 2019
U.S. Core Inflation Picks Up More Than Forecast to One-Year High
“A measure of underlying U.S. inflation accelerated by more than forecast to a one-year high in August, signaling inflation was already firming ahead of fresh tariffs on Chinese goods this month that may push prices higher for Americans. The core consumer price index, which excludes food and energy, rose 0.3% from the prior month and was up 2.4% from a year earlier, a Labor Department report showed Thursday. That exceeded the median estimates in a Bloomberg survey, while the broader CPI climbed 0.1% on the month and a below-forecast 1.7% annually. The core reading reflected the biggest monthly rise in medical-care costs since 2016. Sustained increases in inflation could give some Federal Reserve policy makers pause as they weigh additional interest-rate cuts this year, though the central bank is expected to make a second straight reduction next week as the global growth outlook dims and uncertainty over trade policy damps business investment. Inflation may pick up further this month following the latest escalation in the tariff battle, as President Donald Trump’s levies on a range of consumer goods from China took effect Sept. 1. Late Wednesday, Trump delayed the next round of tariff increases by two weeks to Oct. 15 as the U.S. and China try to resume face-to-face talks.”
ECB Cuts Rates, Restarts QE to Fight Slowdown as Draghi Era Ends
“The European Central Bank cut interest rates further below zero and will start open-ended bond purchases after President Mario Draghi overcame critics of his stimulus policies to make a final run at reflating the euro-area economy. The Governing Council reduced the deposit rate to minus 0.5% from minus 0.4%, and will buy debt at 20 billion euros ($22 billion) a month starting Nov. 1. Banks will get exemptions from the negative rate for some of their deposits after an outcry from lenders about the squeeze on profitability. Draghi will hold a press conference at 2:30 p.m. in Frankfurt. European government bonds rallied on the announcement, led by a surge in Italian securities that sent 10-year yields to a record low, and credit spreads tightened. The dovish policy shift weighed on the euro, which weakened against its major counterparts, while the Stoxx Europe 600 Index rose to its highest level since July. The ECB also changed its guidance on interest rates to say they’ll stay at present or lower levels until the outlook for inflation “robustly” converges to its goal of just below 2%. It previously expected borrowing costs to stay unchanged until mid-2020. It also scrapped a 10-basis point rate premium previously attached to its long-term loan program. U.S. President Donald Trump tweeted that the ECB is “acting quickly” while the Federal Reserve “sits, and sits, and sits.” He has previously cited loose ECB policy in his calls for the Fed to cut rates aggressively. The Fed is likely to lower borrowing costs next week for the second time this year, as central banks around the world ease to combat the spreading weakness.”
China, U.S. Are Showing a Little Goodwill as Trade Talks Near
“The U.S. and China are taking baby steps to ease tensions in their trade war, as negotiators prepare for the resumption of face-to-face talks in Washington in the coming weeks. On Wednesday, U.S. President Donald Trump said he was postponing the imposition of 5% extra tariffs on Chinese goods by two weeks, meaning Chinese officials can celebrate their Oct. 1 national day without a fresh escalation. Meanwhile, China is considering whether to permit renewed imports of American farm goods including soybeans and pork, according to people familiar with the situation, potentially taking some pressure off U.S. states with large numbers of Trump supporters. The Ministry of Commerce said Thursday Chinese companies have started inquiring about prices for U.S. agricultural products including soybeans and pork. Taken together, the measures pale in comparison to the oncoming hit from U.S. tariff increases still in the pipeline for October and December, the fruit of a rapid escalation in tensions between the two sides last month. At the same time, as evidence mounts in both nations of the economic damage that the trade war is doing, there’s more urgency for a deal. Trump escalated the U.S.-China trade war in August when he announced an increase in levies on Chinese goods. That was in response to higher Chinese tariffs which were a reaction to a previous increase by the U.S. China welcomes the postponement of U.S. tariffs as a goodwill gesture, Ministry of Commerce spokesman Gao Feng said at Thursday’s regular briefing. Mid-level teams will meet soon to prepare for higher level talks, he said, reiterating that both sides are communicating without giving a date for the meeting between the top negotiators. Any further agricultural purchases are yet to be made and the volumes are still undecided, the people said. China had halted U.S. farm-product imports in August after negotiations deteriorated.”
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