Tag Archives: Economy

World stocks reach new peak in world full of surprises

Traders work in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, August 4, 2017.

By John Geddie

LONDON (Reuters) – World stocks breached record highs on Monday as better-than-expected company earnings and economic data from the United States stole the focus from rising geopolitical tension over North Korea’s nuclear program.

The U.S. dollar  dipped slightly but held on to most of Friday’s gains – its biggest daily rise this year – made after data showed the United States created more jobs than forecast last month.

For those watching second quarter corporate results in recent weeks, there have been many such surprises. Of the nearly 1000 companies in the MSCI world index that have reported, 67 percent have beaten expectations, according to Reuters data.

These two factors helped nudge the flagship share index above a peak breached late last month, setting a new all-time high of 480.09 on Monday.

The Dow Jones, which recorded its eighth consecutive record high on Friday, was set to open up slightly on Monday.

“Global equities remain the preferred asset class for investors and this can be clearly seen in the new highs hit by world indices today,” said Edward Park, investment director at Brooks Macdonald.

“Whilst the headline beat in non-farm payrolls was the primary positive for the market … equity prices are supported by a strong earnings season and relatively low event risk over the next few months.”

Aside from a slight weakening in the Korean won, there was little financial market reaction to the news over the weekend that the U.N. Security Council unanimously imposed new sanctions on North Korea aimed at pressuring Pyongyang to end its nuclear program.

South Korean President Moon Jae-in and his U.S. counterpart, Donald Trump, agreed in a telephone call on Monday to apply maximum pressure and sanctions on North Korea, while China expressed hope that North and South Korea could resume contact soon.

Yields on U.S. and German government bonds – seen as a safe haven in times of stress – held above one-month lows hit at the tail end of last week.

 

ASIAN GAINS

A strong rise in U.S. and Asian stocks propelled the world index to a new high, with the strength of the euro providing a bit of a headache for European markets.

Earlier in Asian trading, MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.5 percent while Japan’s Nikkei added 0.5 percent.

Chinese blue chips were bolstered by data showing the country’s foreign exchange reserves rose twice as much as expected in July.

A dramatic reduction in capital outflows – which are seen as one of China’s biggest risks – has helped boost confidence in the world’s second largest economy ahead of a key political leadership reshuffle in coming months.

The euro zone’s main stock index edged lower, however, as the single currency headed back towards 20-month high, a trend which appears to be denting profitability in certain sectors.

Of the MSCI Europe companies having reported, 61 percent have either met or beat expectations. But focusing on industrial firms – of which many depend on exports, and are sensitive to a stronger euro – the beat ratio is just 37 percent.

“The euro is likely to have an impact in the third quarter, with a 10 percent appreciation of the euro lowering earnings per share by around 5 percent,” said Valentin Bissat, senior strategist at Mirabaud Asset Management.

DOLLAR DOUBTS

The upbeat U.S. jobs data offers policymakers some assurance that inflation will gradually rise to the central bank’s 2 percent target, and likely clear the way for a plan to start shrinking its massive bond portfolio later this year.

But market pricing shows investors are still about evenly divided over whether the Fed will also opt to raise rates again in December.

For some analysts, Monday’s pull back in the dollar backs some views in markets that Friday’s rally may not have legs.

The dollar index, which tracks the greenback against a basket of six global peers, inched back 0.2 percent to 93.361. It rallied 0.76 percent on Friday, its biggest one-day gain this year.

The dollar slipped 0.2 percent against the euro to $1.1796 per euro, after surging 0.8 percent on Friday.

“The most logical view here is the moves on Friday were clearly just a sizeable covering of USD shorts, from what was one of the biggest net short positions held against the USD for many years,” Chris Weston, chief market strategist at IG in Melbourne, wrote in a note.

For the dollar rally to gain momentum, the market needs to change its interest rate pricing, Weston added.

In commodities, oil prices slid back from nine-week highs hit on Aug. 4 as worries lingered over high production from OPEC and the United States.

Global benchmark Brent crude futures were down 60 cents, or 1.14 percent, at $51.82 a barrel. They traded as low as $51.56 a barrel earlier in the day.

Gold  steadied as the dollar surrendered some of its gains, but remained under pressure. The precious metal was marginally lower at $1,257.41 an ounce, extending Friday’s 0.8 percent loss.

 

(Reporting by John Geddie in London and Nichola Saminather in Singapore Additional reporting by Helen Reid in London; Editing by Richard Balmforth)

 

Strong U.S. jobs report bolsters case for further Fed tightening

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. employers hired more workers than expected in July and raised their wages, signs of labor market tightness that likely clears the way for the Federal Reserve to announce a plan to start shrinking its massive bond portfolio.

The Labor Department said on Friday that nonfarm payrolls increased by 209,000 jobs last month amid broad-based gains. June’s employment gain was revised up to 231,000 from the previously reported 222,000.

Average hourly earnings increased nine cents, or 0.3 percent, in July after rising 0.2 percent in June. That was the biggest rise in five months. On a year-on-year basis, wages increased 2.5 percent for the fourth straight month.

“The Fed set a low bar for balance sheet normalization to begin in September, and today’s number cleared that bar with elan,” said Michael Feroli, economist at JPMorgan in New York.

Although the economy is near full employment, wage growth has not been strong in part because many of the jobs being created are in low-wage industries. Last month, restaurants and bars added 53,100 jobs.

July’s monthly increase in earnings could, however, offer Fed policymakers some assurance that inflation will gradually rise to the U.S. central bank’s 2 percent target.

Economists expect the Fed will announce a plan to start reducing its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities at its next policy meeting in September. The Fed bought these securities to lower interest rates in the wake of the 2007-2009 financial crisis.

Sluggish wage growth and the accompanying benign inflation, however, suggest the Fed will delay raising interest rates again until December. It has increased borrowing costs twice this year and its benchmark overnight interest rate is in a range of 1 percent to 1.25 percent.

The dollar rose and was set for its biggest one-day gain versus a basket of currencies this year, while prices for U.S. Treasuries fell. Stocks on Wall Street edged higher. [.N]Economists had forecast payrolls increasing by 183,000 jobs and wages rising 0.3 percent in July.

Republican President Donald Trump, who inherited a strong job market from the Obama administration, cheered Friday’s employment data. “Excellent Jobs Numbers just released – and I have only just begun,” Trump said on Twitter. “Many job stifling regulations continue to fall. Movement back to USA!”

Trump has pledged to sharply boost economic growth and further strengthen the labor market by slashing taxes, cutting regulation and boosting infrastructure spending.

But after six months in office the Trump administration has failed to pass any economic legislation and has yet to articulate a plan for much of its economic agenda.

 

UNEMPLOYMENT RATE FALLS

Wage growth is crucial to sustaining the U.S. economic expansion after output increased at a 2.6 percent annual rate in the second quarter, an acceleration from the January-March period’s pedestrian 1.2 percent pace.

The economy also got a boost from another report on Friday showing a sharp drop in the trade deficit in June.

The unemployment rate dropped one-tenth of a percentage point to 4.3 percent in July, matching a 16-year low touched in May. It has declined five-tenths of a percentage point this year and is now at the most recent Fed median forecast for 2017.

“Stable year-on-year wage growth should decrease the perceived risk of further slowing in wages and prices,” said Andrew Hollenhorst, an economist at Citigroup in New York.

“Strong payroll gains that place downward pressure on the post-crisis low unemployment rate will keep the center of the Fed comfortable with increasing policy rates in December.”

July’s decline in the jobless rate came even as more people entered the labor force, underscoring job market strength.

The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, rose one-tenth of a percentage point to 62.9 percent. The share of the population that is employed climbed to 60.2 percent, matching an eight-year high touched in April.

A broad measure of unemployment, which includes people who want to work but have given up searching and those working part time because they cannot find full-time employment, was unchanged at 8.6 percent last month. This alternative gauge of unemployment hit a 9-1/2-year low in May.

Monthly job growth this year has averaged 184,000, close to the 2016 average of 186,000. The economy needs to create 75,000 to 100,000 jobs per month just to keep up with growth in the working-age population.

Manufacturing payrolls advanced by 16,000 jobs in July, the largest gain since February. Employment in the automobile sector rose by 1,600 despite slowing sales and bloated inventories that have forced manufacturers to cut back on production.

U.S. auto sales fell 6.1 percent in July from a year ago to a seasonally adjusted rate of 16.73 million units. General Motors Co and Ford Motor Co have both said they will cut production in the second half of the year.

Construction payrolls rose 6,000 last month as hiring at homebuilding sites increased 5,100. The professional and business services sector added 49,000 workers last month.

Retail employment rose by 900 as hiring at motor vehicle and parts dealerships as well as online retailers offset a drop of 10,000 in employment at clothing stores.

Companies like major online retailer Amazon are creating jobs at warehouses and distribution centers. Amazon this week held a series of job fairs to hire about 50,000 workers. Government payrolls rose by 4,000 in July.

(Reporting by Lucia Mutikani; Editing by James Dalgleish and Paul Simao)

 

U.S. payrolls increase more than expected, wages rise

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. employers hired more workers than expected in July and raised their wages, signs of labor market tightness that likely clears the way for the Federal Reserve to announce next month a plan to start shrinking its massive bond portfolio.

The Labor Department said that nonfarm payrolls increased by 209,000 jobs last month amid broad gains. June’s employment gain was revised up to 231,000 from the previously reported 222,000.

Average hourly earnings increased nine cents, or 0.3 percent, in July after rising 0.2 percent in June. That was the biggest increase in five months. Wages increased 2.5 percent in the 12 months to July, matching June’s gain.

Average hourly earnings have been trending lower since surging 2.8 percent in February. Lack of strong wage growth is surprising given that the economy is near full employment, but July’s monthly increase in earnings could offer some assurance to Fed officials that inflation will gradually rise to its 2 percent target.

Economists expect the Fed will announce a plan to start reducing its $4.5 trillion portfolio of Treasury bonds and mortgage-backed securities in September.

Sluggish wage growth and the accompanying benign inflation, however, suggest the U.S. central bank will delay raising interest rates again until December. The Fed has raised rates twice this year, and its benchmark overnight lending rate now stands in a range of 1 percent to 1.25 percent.

Economists polled by Reuters had forecast payrolls increasing by 183,000 jobs in July and wages rising 0.3 percent.

Wage growth is crucial to sustaining the economic expansion after output increased at a 2.6 percent annual rate in the second quarter, an acceleration from the January-March period’s pedestrian 1.2 percent pace.

The unemployment rate dropped one-tenth of a percentage point to 4.3 percent, matching a 16-year low touched in May. It has declined four-tenths of a percentage point this year and matches the most recent Fed median forecast for 2017. July’s decline in the jobless rate came even as more people entered the labor force.

The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, rose one-tenth of a percentage point to 62.9 percent.

Still, some slack remains in the labor market, which is restraining wage growth. A broad measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, was unchanged at 8.6 percent last month.

July’s employment gains exceed the monthly average of 184,000 for this year. The economy needs to create 75,000 to 100,000 jobs per month to keep up with growth in the working-age population.

Republican President Donald Trump, who inherited a strong job market from the Obama administration, has pledged to sharply boost economic growth and further strengthen the labor market by slashing taxes, cutting regulation and boosting infrastructure spending.

But after six months in office, the Trump administration has failed to pass any economic legislation and has yet to articulate plans for tax reform and infrastructure spending as well as most of its planned regulatory roll-backs.

The jobs composition in July mirrored June’s. Manufacturing payrolls increased by 16,000 jobs. Employment in the automobile sector rose by 1,600 despite slowing sales and bloated inventories that have forced manufacturers to cut back on production.

U.S. auto sales fell 6.1 percent in July from a year ago to a seasonally adjusted rate of 16.73 million units. General Motors Co and Ford Motor Co have both said they will cut production in the second half of the year.

Construction firms hired 6,000 workers last month. Retail payrolls increased by 900 in July as hiring by online retailers more than offset job losses at brick-and-mortar stores.

Companies like major online retailer Amazon are creating jobs at warehouses and distribution centers. Amazon this week held a series of job fairs to hire about 50,000 workers.

Government payrolls gained 4,000 in July.

(Reporting by Lucia Mutikani; Editing by James Dalgleish and Paul Simao)

Dow at record on strong earnings; Apple earnings awaited

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., July 19, 2017. REUTERS/Brendan McDermid

By Tanya Agrawal

(Reuters) – U.S. stocks were higher in late morning trading on Tuesday, with the Dow coming within spitting distance of the 22,000 mark, helped by strong corporate earnings.

The Dow pierced through the historic 20,000 milestone in January and the 21,000 mark barely one and a half months later.

All eyes will now be on the quarterly performance of Dow-component Apple <AAPL.O>, which reports after the closing bell. The iPhone maker’s shares were up 0.25 percent.

Tech has been the best performing sector this year, despite recent bouts of volatility on rising valuation concerns. The tech index’s <.SPLRCT> 0.49 percent rise on Tuesday led the major S&P sectors.

Amazon <AMZN.O> provided the biggest boost to the S&P 500 and the Nasdaq with its 1.5 percent rise.

“While valuations overall and for the tech sector isn’t cheap, some of the most powerful earnings growth has come from large-cap technology names,” said Bill Northey, chief investment officer at U.S. Bank Wealth Management.

Investors have been counting on earnings to support high valuations for equities. The S&P 500 is trading at about 18 times earnings estimates for the next 12 months, above its long-term average of 15 times.

S&P 500 earnings are expected on average to have grown 10.8 percent in the second quarter, according to Thomson Reuters I/B/E/S.

“We are two-thirds through the earnings season and estimates are going only higher, including for the full year, which is helping support the fundamentals-driven market.” said Northey.

At 10:58 a.m. ET (1458 GMT), the Dow Jones Industrial Average <.DJI> was up 89.92 points, or 0.41 percent, at 21,981.04 and the S&P 500 <.SPX> was up 5.6 points, or 0.22 percent, at 2,475.90.

The Nasdaq Composite <.IXIC> was up 16.49 points, or 0.26 percent, at 6,364.61.

A 0.22 percent fall in healthcare <.SPXHC> led the laggards. Pfizer <PFE.N> was down 1.10 percent after the drugmaker’s quarterly revenue missed expectations.

Regeneron <REGN.O> fell 3.58 percent following a rating downgrade by a brokerage. The stock was the top drag on the Nasdaq.

Economic data showed U.S. consumer spending barely rose in June as income failed to increase for the first time in seven months.

The core PCE numbers – the Federal Reserve’s preferred metric to gauge inflation – for June edged up 0.1 percent following a similar increase in May.

In the 12 months through June, the so-called core PCE price index increased 1.5 percent after advancing by the same margin in May, remaining below the Fed’s 2 percent target rate.

Under Armour <UA.N> fell 6.41 percent after the sportswear maker cut its full-year sales forecast.

Sprint <S.N> jumped 9.78 percent after swinging to a quarterly profit for the first time in three years.

Advancing issues outnumbered decliners on the NYSE by 1,599 to 1,113. On the Nasdaq, 1,376 issues fell and 1,282 advanced.

(Reporting by Tanya Agrawal in Bengaluru; Editing by Anil D’Silva)

Turkey PM tweaks cabinet, keeps economic teams largely in place

Turkish President Tayyip Erdogan meets with Prime Minister Binali Yildirim in Ankara, Turkey July 19, 2017. Kayhan Ozer/Presidential Palace/Handout via REUTERS

ANKARA (Reuters) – Turkish Prime Minister Binali Yildirim announced a limited cabinet reshuffle on Wednesday, keeping the government’s economic management team largely in place and replacing most of the deputy premiers.

Speaking to reporters after meeting President Tayyip Erdogan at the presidential palace, Yildirim said that 15 ministers remained in their posts with five new ministers joining the cabinet and six of its members reshuffled.

Mehmet Simsek, a figure widely respected by investors, remained a deputy prime minister, Naci Agbal stayed on as finance minister, while the economy, customs and development ministers also kept their posts.

“Simsek remaining as the one and only deputy PM in charge of the economy is positive, since it hints that sound policies and structural reforms might continue to be on the agenda,” said Ozgur Altug of BGC Partners in a note to clients.

The lira briefly eased slightly to 3.5322 against the dollar after the announcement but soon recovered to its previous level around 3.5259.

Mevlut Cavusoglu kept his job as foreign minister and Berat Albayrak, Erdogan’s son-in-law, remained as energy minister. Numan Kurtulmus, who had been a deputy prime minister and government spokesman, was appointed tourism minister.

A reshuffle had been widely expected since May, when Erdogan resumed his leadership of the ruling AK Party following an April 16 constitutional referendum giving him sweeping new powers. The changes had been anticipated in part with an eye on presidential and parliamentary elections scheduled for 2019.

(Reporting by Tuvan Gumrukcu and Ece Toksabay; Writing by Daren Butler; Editing by David Dolan)

U.S. allows more seasonal workers as Trump pushes ‘hire American’

President Donald Trump looks at Sikorsky helicopters miniature models. "Your drivers are very good," Trump said to a representative of Ping, the Arizona-based maker of golf clubs, noting that he had golfed with British pro golfer Lee Westwood, who is a fan. He discussed sales of Sikorsky helicopters - "I have three of them!" he said, lifted horseshoes made with Nucor Corp steel, and strolled past vacuum-sealed Omaha steaks.

By Doina Chiacu and David Shepardson

WASHINGTON (Reuters) – The U.S. government cleared the way on Monday for thousands more foreign workers to enter the country under temporary seasonal visas, just as President Donald Trump declared this “Made In America” week and pledged to stand up for U.S. workers.

Advocates of stricter limits on immigration criticized the additional visas, saying American workers should get job openings.

Trump, a former New York real estate magnate who has relied on seasonal workers at his hotels and resorts, campaigned on promises to restore American jobs. On Monday, he showcased “Made in America” products at the White House and made an impassioned defense of America First policies.

“We’re going to stand up for our companies and maybe most importantly for our workers,” the Republican president said. “Clearly it’s time for a new policy, one defined by two simple rules: We will buy American. And we will hire American.”

Federal officials said there were not enough qualified and willing American workers available to perform certain types of temporary nonagricultural work.

As a result, the government will allow 15,000 additional visas for temporary seasonal workers, meant to help American businesses in danger of suffering irreparable harm because of a shortage of such labor, the Department of Homeland Security said in a statement.

“As a demonstration of the administration’s commitment to supporting American businesses, DHS is providing this one-time increase to the congressionally set annual cap,” Secretary of Homeland Security John Kelly said in a statement.

Many seasonal businesses such as resorts, landscaping companies and seafood harvesters and processors had sought permission to temporarily hire more immigrants.

Congress originally set the cap at 66,000 workers for the fiscal year ending Sept. 30. In May, lawmakers gave Kelly authority to approve up to an additional 70,000 temporary visas and pleaded with him to use his authority to issue as many of them as he thought appropriate.

Roy Beck, president of NumbersUSA, a group that supports immigration controls, said in a statement the decision “threatens to reverse the trend of reports emerging around the country of employers working harder and raising pay to successfully recruit more unemployed Americans for lower-skilled jobs.”

Beck said it was “yet another example of the administration and Congress failing to keep the Trump campaign promise of putting American workers first.”

‘MINIMAL RELIEF GRANTED’

Trump campaigned on an “America First” platform of favoring Americans for hiring. Trump’s golf resorts in Florida have used the visas, however, to hire temporary guest workers (http://reut.rs/1R4pKma).

The clothing line of the president’s older daughter and adviser, Ivanka Trump, uses foreign factories employing low-wage workers in countries such as Bangladesh, Indonesia and China, a recent Washington Post report showed.

A group of U.S. companies that use the visas, called the “the H-2B Workforce Coalition,” praised the “minimal relief granted.”

It said: “From landscapers in Colorado to innkeepers in Maine to seafood processors along the Gulf Coast to carnivals nationwide, we hope the visa expansion will help some businesses avoid substantial financial loss, and in some cases, prevent early business closures during their peak season.”

A report on Monday by the Economic Policy Institute, a liberal think tank, found, however, there was little evidence of worker shortages in H-2B jobs at the national level.

“Expanding the H-2B program without reforming it to improve protections and increase wages for migrant workers will essentially allow unscrupulous employers to carve out an even larger rights-free zone in the low-wage labor market,” said Daniel Costa, director of immigration law and policy research at the institute.

Kelly has acknowledged that many temporary workers “are victimized when they come up here, in terms of what they’re paid.”

DHS said the government had created a tip line to report any abuse of the visas or employer violations.

(Reporting by Doina Chiacu and David Shepardson in Washington; Additional reporting by Mica Rosenberg in New York; Editing by Marguerita Choy and Peter Cooney)

Weak U.S. inflation, retail sales data dim rate hike prospects

FILE PHOTO - Prices are seen on replica Statues of Liberty figures in a shop window in New York City, November 14, 2011. REUTERS/Mike Segar

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer prices were unchanged in June and retail sales fell for a second straight month, pointing to tame inflation and soft domestic demand that diminished prospects of a third interest rate increase from the Federal Reserve this year.

Still, the economy likely regained speed in the second quarter after a sluggish performance at the start of the year. Other data on Friday showed industrial production picked up in June, driven by a surge in oil and gas drilling.

“Today’s reports imply that the Fed will go very slowly normalizing rates, but it also means that businesses will have to really hustle to find ways to keep earnings growing strongly,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

The Labor Department said the unchanged reading in its Consumer Price Index came as the cost of gasoline and mobile phone services declined further. The CPI dropped 0.1 percent in May and the lack of a rebound in June could trouble Fed officials who have largely viewed the recent moderation in price pressures as transitory.

Policymakers are confronted with benign inflation and a tight labor market as they weigh a third rate hike and announcing plans to start reducing the central bank’s $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities.

In the 12 months through June, the CPI increased 1.6 percent – the smallest gain since October 2016 – after rising 1.9 percent in May. The year-on-year CPI has been retreating since February, when it hit 2.7 percent, which was the biggest increase in five years.

The so-called core CPI, which strips out food and energy costs, edged up 0.1 percent in June, rising by the same margin for three straight months. The core CPI increased 1.7 percent year-on-year after a similar gain in May.

The Fed has a 2 percent inflation target and tracks a measure which is currently at 1.4 percent.

Financial markets were pricing in a 47 percent chance of a 25 basis point rate hike in December, down from 55 percent before the data, according to CME Group’s FedWatch program.

As a result, the dollar fell, briefly touching a 10-month low against a basket of currencies. Prices for U.S. government bonds rose and stocks on Wall Street edged higher.

Fed Chair Janet Yellen told lawmakers on Wednesday that the recent cool-off in inflation was partly the result of “a few unusual reductions in certain categories of prices” that would eventually drop out of the calculation.

“We expect a little more cautious language from Fed officials on the inflation outlook going forward,” said Michael Hanson, chief economist at TD Securities in New York.

BROAD WEAKNESS

In June, gasoline prices fell 2.8 percent, decreasing for a second straight month. Food prices were unchanged after rising for five consecutive months. The cost of cellular phone services fell 0.8 percent, extending their decline amid price competition among service providers.

There were also decreases in airline fares and prices for apparel, household furnishings, new motor vehicles, and used cars and trucks. But rental costs rose, with owners’ equivalent rent of primary residence increasing 0.3 percent after advancing 0.2 percent in May.

Americans also paid more for hospital visits and prescription medication, as well as motor vehicle insurance.

Low prices are hurting retailers. A second report from the Commerce Department showed retail sales fell 0.2 percent last month, weighed down by declines in receipts at service stations, clothing stores and supermarkets.

Sales at restaurants and bars, as well as at sporting goods and hobby stores fell. May’s retail sales were revised to show a 0.1 percent dip instead of the previously reported 0.3 percent drop. Retail sales rose 2.8 percent year-on-year in June.

Excluding automobiles, gasoline, building materials and food services, retail sales slipped 0.1 percent last month after being unchanged in May. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Despite two straight months of decreasing retail sales, consumer spending likely gained steam in the second quarter after a helping to restrict economic growth to a 1.4 percent annualized rate in the first quarter. However, that could negatively impact third-quarter GDP.

“The weak trajectory of consumer spending at the end of second quarter adds some challenges to the third-quarter consumption outlook, which reinforces our view that growth will step down modestly in the current quarter,” said Michael Feroli, an economist at JPMorgan in New York.

That was supported by a third report showing a measure of consumer sentiment fell to a reading of 93.1 in early July from 95.1 in June. It has declined from a high of 98.5 in January.

The Atlanta Federal Reserve lowered its second-quarter growth estimate by two-tenths of a percentage point to a 2.4 percent rate following the inflation and retail sales data.

Still, growth in the second quarter likely got a lift from the industrial sector of the economy.

In a fourth report on Friday, the Fed said industrial production increased 0.4 percent in June amid robust gains in oil and gas drilling after nudging up 0.1 percent in May.

Industrial production increased at a 4.7 percent rate in the second quarter.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)

Dollar edges lower versus yen before Yellen testimony; sterling off lows

A U.S. five dollar note is seen in this picture illustration June 2, 2017. REUTERS/Thomas White/Illustration

By Saikat Chatterjee

LONDON (Reuters) – The U.S. dollar fell against the yen and languished at 14-month lows against the euro on Wednesday ahead of Federal Reserve Chair Janet Yellen’s appearance in Congress to give testimony on monetary policy.

As investors sought to take profits after a recent dollar rally on the back of a broadly mixed session for risky assets, the greenback’s rise was also halted thanks to a softening of U.S. Treasury yields this week.

The dollar edged 0.4 percent lower against the yen to 113.43 &lt;JPY=EBS&gt; in early trades after rising more than 5 percent over the last month. It was trading at 1.14565 against the euro, its lowest level since early May. &lt;EUR=EBS&gt;

“The Yellen testimony remains the key event risk in today’s session but we remain optimistic about the dollar’s outlook and putting on a long position against sterling is the best way to execute that view,” said Adam Cole, head of FX strategy at RBC Capital Markets in London.

Yellen will give her semi-annual monetary policy testimony before Congress later on Wednesday and on Thursday, and investors will be parsing it for clues on when the Fed will start reducing its massive balance sheet.

Strategists at Brown Brothers Harriman don’t expect Yellen to break new ground in her testimony.

The Fed raised rates last month to a range of 1 percent to 1.25 percent and market expectations are roughly of a 50 percent probability that interest rates will rise again before the end of the year, according to the CME’s Fed watch data.

UK PROSPECTS

While there is a 50 percent probability for the Bank of England to raise interest rates too before the end of the year, markets are expecting the central bank to strike a dovish stance after recent soft data and comments from policymakers.

In an interview for a Scottish newspaper, the Press and Journal, published on Wednesday, Bank of England Deputy Governor Ben Broadbent said that while there was reason to see the bank moving towards higher rates, there were “a lot of imponderables”.

His comments pushed sterling to a two-week low against the dollar &lt;GBD=D3&gt; and to its lowest in eight months against the euro in early trading on Wednesday.

While subsequent wages data pulled sterling from the day’s lows, the outlook remained wary.

In other currencies, the Canadian dollar &lt;CAD=&gt; was slightly higher against its U.S. counterpart as investors awaited a Bank of Canada interest rate decision later on Wednesday.

(Editing by Gareth Jones)

U.S households see spending up, job prospects improving: New York Fed survey

- A shopper walks down an aisle in a Walmart Neighborhood Market in Chicago

WASHINGTON (Reuters) – Consumers expect to boost spending in the months ahead and voiced confidence they are more likely to find a job and less likely to lose one in a strong labor market, the New York Federal Reserve reported Monday in its latest monthly survey of consumer expectations.

Nearly 35 percent of the 1,300 heads of household included in the June poll said they were better off economically than a year go, a record in the four years the survey has been conducted.

The results bolster the current Fed outlook of an economy that continues to generate jobs despite tepid overall growth and some concern about a recent dip in inflation, improving chances the central bank can follow through with plans for a further interest rate increase later this year.

Though household expectations of inflation for the year ahead did dip slightly from the May survey, to 2.5 percent from 2.6 percent, respondents expect strong price increases of 2.8 percent over the coming three years. That’s consistent with the Fed’s current outlook that the recent weakness in inflation will prove temporary.

The survey also bolstered the view of continued strong consumption growth. Half of those polled said they expected to spend at least 3.3 percent more in the coming year, compared to median expected spending growth of 2.6 percent in the May survey. One-year-ahead expected earnings growth increased to 2.5 percent in the June survey from 2.2 percent in May.

Respondents also showed broad faith in the strength of the labor market, with a slight dip to 13.5 percent from 13.6 percent in the perceived probability of losing a job in the next year, and a jump to 59.2 percent from 56.7 percent in the probability of finding employment.

More than a fifth of respondents said they might leave a job voluntarily in the next year, up from 19.4 percent in May. Voluntarily job exits are considered a sign of a strong labor market that offers employees choices.

The online poll is designed to be a representative sample of the U.S. population. The New York Fed did not provide the margin of error for the poll.

 

(Reporting by Howard Schneider; Editing by Andrea Ricci)

 

Seven U.S. states still without budgets a week into new fiscal year

FILE PHOTO: A general view of the joint session of the General Assembly in the House Chambers of the Illinois State Capitol in Springfield, Illinois February 1, 2012. REUTERS/Sarah Conard/File Photo

By Robin Respaut and Karen Pierog

(Reuters) – Seven U.S. states are still without budgets, nearly a week into the new fiscal year that started July 1.

Legislatures in Connecticut, Illinois, Massachusetts, Pennsylvania, Oregon, Rhode Island and Wisconsin remain in disagreement about how to close ongoing budget gaps in their states or fund new budget initiatives.

“We always have some states that go into the new fiscal year without budgets, but the number is a bit high this year,” said Eric Kim, a director at Fitch Ratings.

Weak revenues complicated budget negotiations in several states, while idiosyncratic issues pushed others beyond their June 30 deadlines.

The Illinois House was poised to take final budget action on Thursday by attempting to override the governor’s vetoes of a $36 billion spending plan and $5 billion tax hike approved by the Democratic-controlled legislature over the Fourth of July holiday weekend. A hazardous materials situation in the state Capitol in Springfield delayed the House session, but officials determined the substance was harmless and lawmakers were returning.

If enacted, the budget would mark Illinois’ first complete budget since 2015. No other U.S. state has lacked a budget for that long.

Thirty-three of the 50 U.S. states reported revenues that came in below projections in fiscal year 2017, the highest number of states since the recession decimated budgets in 2010, according to the National Association of State Budget Officers.

Connecticut and Pennsylvania have the most challenging revenue situations, according to Fitch, as lower-than-anticipated tax collections exacerbated budget gaps and led to disputes over how to close them.

Massachusetts, also amid a revenue shortfall, enacted a one-month interim budget for July to provide additional time to negotiate a full-year budget. Wisconsin legislators are working to close a transportation funding shortfall.

Oregon’s budget process includes multiple bills, most of which have been approved. But the legislature is still debating several measures, including changes to hiring practices.

Rhode Island had appeared ready to finalize a budget by June 30, but late last week the state Senate amended a House proposal to phase out an automobile tax, causing the House to halt the budget process.

Many states retain the authority to make debt service payments without enacted budgets.

Over the holiday weekend, several states came to last-minute budget agreements.

New Jersey and Maine ended partial government shutdowns just in time for the Fourth of July holiday on Tuesday, while governors of Washington state and Alaska signed new operating budgets late last week, hours before deadlines that would have triggered partial government shutdowns.

(Reporting by Robin Respaut in San Francisco and Karen Pierog in Chicago; Editing by Leslie Adler)