Tag Archives: Economy

NAFTA demise fears fade as U.S. firms committed to Mexico: lobby

Frederic Garcia, president of the Executive Council of Global Companies (CEEG), gestures during an interview with Reuters in Mexico City, Mexico May 17, 2017. REUTERS/Carlos Jasso

By Dave Graham and Ana Isabel Martinez

MEXICO CITY (Reuters) – Companies no longer fear the North American Trade Agreement (NAFTA) will collapse and top U.S. multinationals in Mexico are committed to investing in the country going forward, the head of a global business lobby said on Wednesday.

Frederic Garcia, President of Mexico’s Executive Council of Global Companies (CEEG), said preparations to renegotiate NAFTA and growing awareness of the accord’s economic benefits had all but put an end to fears that the deal would be scrapped.

“There was a moment where the probability, or the perception that NAFTA would end, was very strong,” Garcia said in an interview in Mexico City. “But today I think there’s an awareness that it will continue. The big worry that the deal could come to an end is an issue that’s behind us.”

The CEEG represents a host of multinationals in Mexico including AT&T Inc <T.N>, Coca-Cola Co <K.O>, General Motors Co <GM.N>, Microsoft Corp <MSFT.O>, Exxon Mobil Corp <XOM.N>, Nestle, HSBC, Siemens and IBM Corp <IBM.N>, which it says account for around 40 percent of total foreign direct investment.

It and other business associations have been active in extolling the benefits of NAFTA to Americans to counter threats by U.S. President Donald Trump to dump the 23 year-old accord that binds the United States, Mexico and Canada.

Mexico’s Economy Minister Ildefonso Guajardo said on Tuesday he expected the U.S. government to notify Congress early next week of plans to rework the accord, yielding talks by late August.

It was not yet clear how NAFTA would be revamped, but if Mexico’s efforts to update its free trade deal with the European Union proved instructive, it could include provisions to boost corporate compliance and adherence to the law, Garcia said.

Trump said last month he was ready to renegotiate NAFTA with Mexico and Canada, though since taking the presidency in January he also has maintained that the United States could withdraw from the agreement if talks did not work in favor of his homeland.

Arguing the accord has destroyed U.S. jobs, Trump has menaced multinationals manufacturing in Mexico with punitive tariffs, and his threats to quit NAFTA. This sent the peso to a record low in January.

Earlier that month Ford abruptly canceled a $1.6 billion plant in central Mexico following verbal attacks by Trump. But as the rhetoric from the White House began to moderate, the peso has recovered somewhat, and fears for NAFTA’s future have eased.

Last week, a Mexican business lobby said it expected investment to drop slightly this year due to uncertainty over Trump, but Garcia said the CEEG would make no forecasts over projected outlays to avoid drawing attention to the matter.

“As far as the U.S. firms in the CEEG go, from the first day of the new U.S. administration they’ve stated their great interest to continue operating in Mexico (and) their great interest to continue investing in Mexico,” he said.

However, they had done so in such a way as to preserve their interests with the U.S. administration, Garcia added.

(Editing by Diane Craft)

Illinois’ unpaid bills reach record $14.3 billion

FILE PHOTO - Bruce Rauner talks to the media after a meeting with Barack Obama at the White House in Washington December 5, 2014. REUTERS/Larry Downing/File Photo

By Karen Pierog and Dave McKinney

CHICAGO (Reuters) – Illinois’ unpaid bill backlog has hit a record high of $14.3 billion as the legislature nears a May 31 budget deadline, the state comptroller’s office said on Wednesday.

The bill pile jumped from $13.3 billion after the governor’s budget office this week reported more than $1 billion in liabilities held at state agencies, the comptroller said.

Illinois is limping toward the June 30 end of its second straight fiscal year without a complete budget due to an impasse between Republican Governor Bruce Rauner and Democrats who control the legislature.

“It’s clear the Rauner Administration has been holding bills at state agencies in an attempt to mask some of the damage caused by the governor’s failure to fulfill his constitutional duty and present a balanced budget,” Comptroller Susana Mendoza, a Democrat, said in a statement, adding that the governor’s office was keeping lawmakers in the dark about the true size of the backlog.

Eleni Demertzis, Rauner’s spokeswoman, said instead of the “same tired partisan attacks,” Mendoza should be talking “to her party leaders about working with Republicans to pass a budget that is truly balanced and job-creating changes that will grow our economy.”

Lawmakers face a May 31 deadline to pass budget bills with simple-majority votes. The Senate on Wednesday passed pieces of a long-awaited package to stabilize state finances, including for the current and upcoming fiscal years, authorization to borrow $7 billion to pay down the bill backlog and an overhaul to state pensions.

But the House-bound legislation faces an unclear future. The Senate defeated legislation to implement the budget bill, putting its fate in doubt, while Rauner remains another question mark.

He has conditioned his support of a budget on passage of changes to workers compensation laws and a long-term freeze on property taxes. A bill for a two-year local property tax freeze fell four votes shy in the Senate, leaving a significant opening for the governor to reject the entire Democratic-crafted spending package.

The busy legislative day also included Senate passage of a gambling-expansion bill authorizing a Chicago-owned casino and a school funding revamp that allocates $215 million to help Chicago’s cash-strapped schools pay teacher pensions this year.

Rauner’s office rejected the school bill, but did not immediately comment on the other legislation.

Illinois’ reliance on continuing appropriations, court-ordered spending and partial budgets has caused the unpaid bill backlog to balloon from $9.1 billion at the end of fiscal 2016.

(Editing by Meredith Mazzilli and Matthew Lewis)

U.S. jobless claims fall; continuing claims at 28-1/2-year low

FILE PHOTO: Job seekers speak with potential employers at a City of Boston Neighborhood Career Fair on May Day in Boston, Massachusetts, U.S., May 1, 2017. REUTERS/Brian Snyder

WASHINGTON – New applications for U.S. jobless benefits unexpectedly fell last week and the number of Americans receiving unemployment aid hit a 28-1/2-year low, pointing to rapidly shrinking labor market slack.

Initial claims for state unemployment benefits decreased 4,000 to a seasonally adjusted 232,000 for the week ended May 13, the Labor Department said on Thursday. That pushed claims close to levels last seen in 1973.

Data for the prior week was unrevised and claims have now decreased for three consecutive weeks. Economists polled by

Reuters had forecast first-time applications for jobless benefits rising to 240,000.

Claims have now been below 300,000, a threshold associated with a healthy labor market, for 115 straight weeks. That is the longest such stretch since 1970, when the labor market was smaller. The labor market is close to full employment, with the

unemployment rate at a 10-year low of 4.4 percent.

A Labor Department official said there were no special factors influencing last week’s data and only claims for Louisiana had been estimated.

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 2,750 to 240,750 last week, the lowest level since February.

Last week’s claims data covered the survey week for May’s nonfarm payrolls. The four-week average of claims fell 2,000 between the April and May survey periods suggesting further job gains this month. The economy created 211,000 job in April after

adding only 79,000 positions in March.

Labor market strength and tightening could allow the Federal Reserve to raise interest rates next month.

Expectations of a June rate hike have also been supported by data such as retail sales and industrial production, which suggested that economic growth picked up early in the second quarter after rising at an anemic 0.7 percent annualized rate in

the first quarter.

The U.S. central bank increased its benchmark overnight interest rate by 25 basis points in March and has forecast two more increases this year.

Thursday’s claims report also showed the number of people still receiving benefits after an initial week of aid dropped 22,000 to 1.90 million in the week ended May 6, the lowest level since November 1988.

The so-called continuing claims have remained below 2 million for five straight week. The four-week moving average of continuing claims declined 20,000 to 1.95 million, the lowest level since January 1974.

((Reporting by Lucia Mutikani; Editing by Paul Simao))

Shock and shrug: U.S. stocks brush off latest round of global threats

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., May 15, 2017. REUTERS/Brendan McDermid

By Lewis Krauskopf

NEW YORK (Reuters) – Another global shock. Another collective yawn by U.S. stock investors.

Equity investors appeared to largely brush off the latest apparent threat to the world’s security: A global cyber attack, which began spreading on Friday that by Monday had infected computers in more than 100 countries. Adding to global jitters, North Korea said it had successfully conducted a mid- to-long-range missile test and would continue such launches “any time, any place.”

Yet major U.S. stock indexes moved higher on Monday, with the benchmark S&P 500 <.SPX> touching a record high, as stocks continued to rally even as many investors worry about unbridled optimism and expensive valuations.

“I am really on pins and needles to be honest with you because there are so many threats to this stability and this complacency which have not yet been priced into the market,” Peter Kenny, senior market strategist at Global Markets Advisory Group in New York.

“It is just a question of what straw is going to break the camel’s back and then there is going to be all sorts of reasons that the market should have sold off,” Kenny said.

While past cyber attacks may have had limited impact on the market, the WannaCry attack was described as having “unprecedented” global reach at a time people increasingly rely on technology to store their sensitive data. The attack follows hacking incidents during the U.S. and French elections.

“The cyber attack I would have imagined would have created some nervousness and anxiety, and throw in North Korea over the weekend, I’m confused on why the market is doing what it’s doing,” Ken Polcari, director of the NYSE floor division at O’Neil Securities in New York.

U.S. equities continued to move upward on Monday, a trend that has been firmly in place since the U.S. presidential election in November. Helped by higher oil prices, the benchmark S&P 500 <.SPX> rose 0.5 percent on Monday and set a new all-time high. In Europe, where the attack took center stage, investors also showed limited concerns. European shares closed higher while the UK’s FTSE 100 <.FTSE> edged up to end at a record high.

Indeed, the main impact from the attack appeared to be a rush to own shares of cyber security firms, the Purefunds ISE Cyber Security ETF <HACK.P> up 3.2 percent, U.S.-listed FireEye Inc <FEYE.O> up 7.5 percent and Symantec Corp <SYMC.O> gaining 3.2 percent.

To be sure, market watchers said that cyber threats have typically had limited impact on the market. Nicholas Colas, chief market strategist at Convergex, a global brokerage company based in New York, said for the market to become concerned, an attack would need to be more narrowly targeted, such as hitting a company that consumers depend on such as Apple Inc <AAPL.O> or major banks.

“If you want to get U.S. investors’ attention you’d have to shut down major banks’ ATM systems,” said Colas.

The market’s ability to push higher underscored worries about investors being overly complacent and optimistic about the direction of stocks.

The S&P 500 has risen more than 12 percent since the election of President Donald Trump spurred by expectations that his tax cut proposals and planned infrastructure spending will help economic growth. While threats to Trump’s plans have rattled investors they have failed to cause any significant pull back in stocks.

The CBOE Volatility Index <.VIX>, better known as the VIX and the most widely followed barometer of expected near-term stock market volatility, last week closed at 9.77, its lowest close since December 1993. On Monday, the VIX fell 0.11 point at 10.29.

“I’d say the market has been overly complacent for quite some time,” said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut. “There are a lot of people shorting volatility, which means investors are not worried about much of anything right now.”

(Additional reporting by Caroline Valetkevitch, Megan Davies, Sinead Carew and Chuck Mikolajczak in New York and Vikram Subhedar in London; Editing by Megan Davies and Lisa Shumaker)

Iran’s re-engagement with the world at stake in Friday presidential vote

Iran's President Hassan Rouhani registers to run for a second four-year term, in Tehran.

By Parisa Hafezi

ANKARA (Reuters) – Iranians vote for president on Friday in a contest likely to determine whether Tehran’s re-engagement with the world stalls or quickens, although whatever the outcome no change is expected to its revolutionary system of conservative clerical rule.

Seeking a second term, pragmatist President Hassan Rouhani, 68, remains the narrow favorite, but hardline rivals have hammered him over his failure to boost an economy weakened by decades of sanctions.

Many Iranians feel a 2015 agreement he championed with major powers to lift sanctions in return for curbing Iran’s nuclear program has failed to produce the jobs, growth and foreign investment he said would follow.

The normally mild-mannered cleric is trying to hold on to office by firing up reformist voters who want less confrontation abroad and more social and economic freedom at home.

In recent days he has adopted robust rhetoric, pushing at the boundaries of what is permitted in Iran. He has accused his conservative opponents of abusing human rights, misusing religious authority to gain power and representing the economic interests of the security forces.

Rouhani’s strongest challenger is hardline cleric Ebrahim Raisi, 56, who says Iran does not need foreign help and promises a revival of the values of the 1979 Islamic Revolution.

He is backed by Iran’s elite Revolutionary Guards, the country’s top security force, their affiliated volunteer Basij militia, hardline clerics and two influential clerical groups.

Another prominent conservative, Tehran Mayor Mohammad Baqer Qalibaf, withdrew from the race on Monday and backed Raisi, uniting the hardline faction and giving Raisi’s chances a boost.

Under Iran’s system, the powers of the elected president are circumscribed by those of the conservative supreme leader, Ayatollah Ali Khamenei, who has been in power since 1989. All candidates must be vetted by a hardline body.

Nevertheless, elections are fiercely contested and can bring about change within the system of rule overseen by Shi’ite Muslim clerics.

CLOSE ALLY

The main challenger Raisi is a close ally and protege of Khamenei, and was one of four Islamic judges who ordered the execution of thousands of political prisoners in 1988. Iranian media have discussed him as a potential future successor to Khamenei, who turns 78 in July.

Raisi has appealed to poorer voters by pledging to create millions of jobs.

“Though unrealistic, such promises will surely attract millions of poor voters,” said Saeed Leylaz, a prominent Iranian economist who was jailed for criticizing the economic policies of Rouhani’s hardline predecessor Mahmoud Ahmadinejad.

Although the supreme leader is officially above the fray of everyday politics, Khamenei can sway a presidential vote by giving a candidate his quiet endorsement, a move that could galvanize hardline efforts to get the conservative vote out.

“Raisi has a good chance to win. But still the result depends on the leader Khamenei’s decision,” said a former senior official, who declined to be identified.

So far in public Khamenei has called only for a high turnout, saying Iran’s enemies have sought to use the elections to “infiltrate” its power structure, and a high turnout would prove the system’s legitimacy.

A high turnout could also boost the chances of Rouhani, who was swept to power in 2013 on promises to reduce Iran’s international isolation and grant more freedoms at home. The biggest threat to his re-election is apathy from disappointed voters who feel he did not deliver improvements they hoped for.

“The result depends on whether the economic problems will prevail over freedom issues,” said an official close to Rouhani. “A low turnout can harm Rouhani.”

Polls taken by International Perspectives for Public Opinion on May 10 show Rouhani still leads with about 55 percent of the votes, although such surveys do not have an established record of predicting election outcomes in Iran.

If no candidate wins more than 50 percent of votes cast, the top two candidates will compete in a runoff election on May 26.

Because the conservatives are now mostly united behind Raisi, the result is likely to be closer than four years ago, when Rouhani won more than three times as many votes as his closest challenger en route to a victory in a single round.

SLOW PACE OF CHANGE

Opposition and reformist figures are backing Rouhani, and his recent fiery campaign speeches have led to a surge of public interest. But voters’ expectations of radical change are low.

“I had decided not to vote … Rouhani failed to keep his promises. As long as Khamenei runs policy, nothing will change,” said art student Raika Mostashari in Tehran.

But she eventually decided to vote for Rouhani, she said, because former president Mohammad Khatami, spiritual leader of the pro-reform movement, had publicly backed him.

Rouhani’s signature accomplishment has been his nuclear deal, which could be in jeopardy if he loses power, even though it was officially endorsed by Khamenei and all candidates say they will abide by it.

U.S. President Donald Trump has frequently called the agreement “one of the worst deals ever signed” and said Washington will review it.

Although the agreement lifted international sanctions, the United States continues to impose unilateral measures that have scared off investors. Washington cites Iran’s missile program, its human rights record and support for terrorism.

Some experts say Iranian establishment figures may want to keep Rouhani in power to avoid being cast back into isolation.

“With the deal in jeopardy, the system will be in vital need of Rouhani’s team of smiling diplomats and economic technocrats to shift the blame to the U.S. and keep Iran’s economy afloat,” said Iran analyst Ali Vaez of the International Crisis Group.

Polls expected to open at 03:30 GMT and close at 13:30 GMT, which can be extended. Final results are expected by Sunday.

(Writing by Parisa Hafezi; editing by William Maclean and Peter Graff)

U.S. housing starts unexpectedly fall for second straight month

FILE PHOTO -- Construction workers build a single family home in San Diego, California, U.S. on February 15, 2017. REUTERS/Mike Blake/File Photo

WASHINGTON – U.S. homebuilding unexpectedly fell in April amid a persistent decline in the construction of multi-family housing units and a modest rebound in single-family projects, pointing to a slowdown in the housing market recovery.

Housing starts dropped 2.6 percent to a seasonally adjusted annual rate of 1.17 million units, the Commerce Department said on Tuesday. That was the lowest level since last November and followed a downwardly revised rate of 1.20 million units in March.

Economists polled by Reuters had forecast groundbreaking activity rising to a rate of 1.26 million units last month from a previously reported rate of 1.22 million units in March.

Homebuilding increased 0.7 percent on a year-on-year basis.

Single-family homebuilding, which accounts for the largest share of the residential housing market, rebounded 0.4 percent to a pace of 835,000 units last month. That left the bulk of the 5.1 percent decline in March intact.

Single-family starts surged 19.4 percent in the Midwest and advanced 9.1 percent in the West. They fell 3.4 percent in the South and tumbled 29.2 percent in the Northeast.

Some of the drop in starts, especially in the Northeast, could be weather-related after a snowstorm lashed the region in March. Demand for housing remains underpinned by a tightening labor market, characterized by an unemployment rate at a 10-year low of 4.4 percent.

A survey on Monday showed homebuilders’ confidence rose in May, with bullishness about current sales and over the next six months.

Last month, starts for the volatile multi-family housing segment dropped 9.2 percent to a pace of 337,000 units. Multi-family starts have declined for four straight months.

Building permits fell 2.5 percent, driven by a 4.5 percent drop percent in the single-family segment. Multi-family permits rose 1.4 percent.

((Reporting by Lucia Mutikani; Editing by Paul Simao))

Wall Street rises with help from technology, financial, energy stocks

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S.,

By Sinead Carew

(Reuters) – The S&P 500 and the Nasdaq notched record closing highs on Monday, powered by demand for technology stocks after a global cyber attack and by rising oil prices.

Oil rose to the highest level in more than three weeks after top exporters Saudi Arabia and Russia said supply cuts needed to last into 2018, a step toward extending an OPEC-led deal to support prices for longer than originally agreed.

The rising oil prices and housing data drove optimism about the economy and helped make financial stocks &lt;.SPSY&gt; the second biggest driver for the S&amp;P 500, behind the technology sector.

“The oil markets are acting well and that’s helping,” said R.J. Grant, head of trading at Keefe, Bruyette &amp; Woods in New York, who also cited the strong corporate earnings season.

About 75 percent of S&amp;P 500 companies that have reported quarterly results so far have beaten Wall Street expectations, according to Thomson Reuters data.

While data for New York state’s manufacturing sector was weaker than expected, U.S. homebuilder sentiment gave investors some confidence in the economy.

“We need that because there’s been a tug-of-war in this market as to whether this economy is peaking,” Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey, said, referring to the housing sentiment.

The Dow Jones Industrial Average was up 85.33 points, or 0.41 percent, to the S&P 500 gained 11.42 points, or 0.48 percent, to 2,402.32 and the Nasdaq Composite added 28.44 points, or 0.46 percent, to 6,149.67. Johnson & Johnson & and Cisco Systems were the biggest drivers for the S&amp;P 500 after prominent analysts upgraded their ratings on the stocks.

Shares of cyber security firms jumped on expectations that they would benefit from greater spending after the global “ransomware” attack that began spreading across the globe on Friday. Shares of Fireye rose 7.5 percent, and Symantec and Palo Alto Networks  both gained around 3 percent. The 2.3 percent rise in Cisco was driven in party by its security technology business.

Nine of the 11 major S&P 500 sectors closed higher, with the materials index leading the percentage gainers.

Advancing issues outnumbered declining ones on the NYSE by a 3.10-to-1 ratio; on Nasdaq, a 2.04-to-1 ratio favored advancers.

The S&P 500 posted 46 new 52-week highs and 10 new lows; the Nasdaq Composite recorded 144 new highs and 53 new lows.

About 6.3 billion shares changed hands on U.S. exchanges on Monday compared with the 6.8 billion average for the last 20 sessions.

(Additional reporting by Caroline Valetkevitch in New York, Tanya Agrawal in Bengaluru,; Editing by Alistair Bell and Leslie Adler)

China says all welcome at Silk Road forum after U.S. complains over North Korea

Chinese Premier Li Keqiang meets Uzbek President Shavkat Mirziyoyev at the Great Hall of the People in Beijing, China, May 13, 2017. REUTERS/Thomas Peter

By Ben Blanchard

BEIJING (Reuters) – China welcomes all countries to a forum this weekend on China’s new Silk Road plan, the foreign ministry said on Saturday, after the United States warned China that North Korea’s attendance could affect other countries’ participation.

Two sources with knowledge of the situation said the U.S. embassy in Beijing had submitted a diplomatic note to China’s foreign ministry, saying inviting North Korea sent the wrong message at a time when the world was trying to pressure it over its repeated missile and nuclear tests.

The disagreement over North Korea threatens to overshadow China’s most important diplomatic event of the year for an initiative championed by President Xi Jinping.

Asked about the U.S. note, the foreign ministry said in a short statement sent to Reuters that it did “not understand the situation”.

“The Belt and Road initiative is an open and inclusive one. We welcome all countries delegations to attend the Belt and Road Forum for International Cooperation,” it said.

The ministry did not elaborate. It said on Tuesday North Korea would send a delegation to the summit but gave no other details.

The United States is sending a delegation led by White House adviser Matt Pottinger.

Despite Chinese anger at North Korea’s repeated nuclear and missile tests, China remains the isolated state’s most important economic and diplomatic backer, even as Beijing has signed up for tough U.N. sanctions against Pyongyang.

China has over the years tried to coax North Korea into cautious, export-oriented economic reforms, rather than sabre rattling and nuclear tests, but to little avail.

China has not announced who North Korea’s chief delegate will be, but South Korea’s Yonhap news agency said Kim Yong Jae, North Korea’s minister of external economic relations, would lead the delegation.

‘MISGIVINGS’

Leaders from 29 countries will attend the forum in Beijing on Sunday and Monday, an event orchestrated to promote Xi’s vision of expanding links between Asia, Africa and Europe underpinned by billions of dollars in infrastructure investment.

Delegates will hold a series of sessions on Sunday to discuss the plan in more detail, including trade and finance. China has given few details about attendees.

Some Western diplomats have expressed unease about both the summit and the plan as a whole, seeing it as an attempt to promote Chinese influence globally.

China has rejected criticism of the plan and the summit, saying the scheme is open to all, is a win-win and aimed only at promoting prosperity.

Zhang Junkuo, deputy director general of cabinet think-tank the State Council Development Research Centre told reporters there were “misgivings, misinterpretations and misunderstandings” about the initiative.

“We must increase communication and exchanges so as to broaden our areas of cooperation and consolidate the basis for cooperation,” Zhang said.

In an English-language commentary on Saturday, China’s state-run Xinhua news agency said the new Silk Road, officially called the Belt and Road initiative, would be a boon for developing countries that had been largely neglected by the West.

“As some Western countries move backwards by erecting ‘walls’, China is contriving to build bridges, both literal and metaphorical. These bridges are China’s important offering to the world, and a key route to improving global governance,” it said.

Some of China’s most reliable allies and partners will attend the forum, including Russian President Vladimir Putin, Pakistani Prime Minister Nawaz Sharif, Cambodian Prime Minister Hun Sen and Kazakh President Nursultan Nazarbayev.

There are also several European leaders coming, including the prime ministers of Spain, Italy, Greece and Hungary.

Xi offered Prime Minister Alexis Tsipras of deeply indebted Greece strong support on Saturday, saying the two countries should expand cooperation in infrastructure, energy and telecommunications.

(Additional reporting by Elias Glenn; Editing by Eric Meijer, Robert Birsel)

U.S. retail sales rise broadly; consumer prices rebound

FILE PHOTO - A employee walks by a meat cooler in the grocery section of a Sam's Club during a media tour in Bentonville, Arkansas, U.S. on June 5, 2014. REUTERS/Rick Wilking/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. retail sales increased broadly in April while consumer prices rebounded, pointing to a pickup in economic growth and a gradual rise in inflation that could keep the Federal Reserve on track to raise interest rates next month.

The reports on Friday added to labor market data in suggesting the near stall in economic activity in the first quarter was an anomaly. But a moderation in year-on-year inflation led financial markets to dial down expectations of at least two more rate increases this year.

“The economy picked it up a notch from the slow start earlier this year, but the inflation fires are not burning brightly and this will likely keep the Fed on just a gradual pace for interest rate hikes later this year,” said Chris Rupkey, chief economist at MUFG Union Bank in New York.

The Commerce Department said retail sales rose 0.4 percent last month after an upwardly revised 0.1 percent gain in March. Sales rose 4.5 percent in April on a year-on-year basis.

Economists had forecast overall retail sales increasing 0.6 percent last month. Excluding automobiles, gasoline, building materials and food services, retail sales gained 0.2 percent after advancing 0.7 percent in March.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

The economy grew at a 0.7 percent annualized rate in the first quarter, held back by the weakest increase in consumer spending in more than seven years. The Atlanta Fed estimates GDP will rise at a 3.6 percent pace in the second quarter.

In a separate report on Friday, the Labor Department said its Consumer Price Index rose 0.2 percent after dropping 0.3 percent in March. The rise in prices suggested that March’s decline, which was the first in 13 months, was an aberration.

In the 12 months through April, the CPI increased 2.2 percent. While that was a slowdown from March’s 2.4 percent increase, it still exceeded the 1.7 percent average annual increase over the past 10 years.

Financial markets are pricing in more than a 70 percent chance of a rate hike at the Fed’s June 13-14 policy meeting, according to CME Group’s FedWatch program. But the likelihood the U.S. central bank will raise rates twice before the end of the year fell after Friday’s data.

The Fed lifted its benchmark overnight interest rate by 25 basis points in March and has forecast two more hikes this year.

Prices of U.S. Treasuries rose and the U.S. dollar <.DXY> weakened against a basket of currencies after the release of Friday’s data. U.S. stocks were trading mostly lower, pulled down by weak financial and industrial sectors.

‘COMPETITIVE PRESSURES’

Gasoline prices jumped 1.2 percent in April after falling 6.2 percent in March. Food prices rose 0.2 percent as prices for fresh vegetables recorded their biggest increase since February 2011.

The so-called core CPI, which strips out food and energy costs, edged up 0.1 percent last month, reversing March’s 0.1 percent dip. The monthly core CPI was restrained by declines in the prices of wireless phone services, medical care, motor vehicles and apparel.

Rental costs increased 0.3 percent after a similar gain in March. The core CPI increased 1.9 percent on a year-on-year basis, the smallest gain since October 2015, after rising 2.0 percent in March. Still, April’s increase was above the 1.8 percent average annual increase over the past decade.

“To some extent, this new weakness in price inflation is due to competitive pressures rather than weak demand, so the Fed can afford to discount it,” said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

Consumer spending is being supported by a tightening labor market, marked by an unemployment rate at a 10-year low of 4.4 percent. A third report on Friday showed consumer sentiment rose in early May as the outlook for wages improved.

Motor vehicle sales increased 0.7 percent in April after three straight months of decreases.

There were hefty gains in sales at building material and electronics and appliance stores.

But sales at clothing stores fell 0.5 percent. Department store retailers have been hurt by declining traffic in shopping malls and increased competition from online retailers, led by Amazon.com <AMZN.O>.

Retailer J.C. Penney Co Inc <JCP.N> said on Friday its net loss widened to $180 million, or 58 cents per share, in the first quarter. On Thursday, Macy’s Inc <M.N> reported a 4.6 percent drop in first-quarter sales.

Sales at online retailers jumped 1.4 percent in April.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

World stocks retreat from record highs as valuations give cause for a pause

FILE PHOTO: Visitors looks at an electronic board showing the Japan's Nikkei average at the Tokyo Stock Exchange (TSE) in Tokyo, Japan, February 9, 2016. REUTERS/Issei Kato/Files

By Vikram Subhedar

LONDON (Reuters) – Global stocks paused near record highs as worries over China’s banking system provided an excuse for investors to lock in some profits. The dollar was set for its best week of the year on bets the Federal Reserve will raise U.S. interest rates in June.

A dip on Wall Street overnight on signs of weak consumer spending and waning enthusiasm over the recovery in European corporate earnings has put MSCI’s gauge of world stock markets <.MIWD00000PUS> on track for its first weekly loss in four.

The index trades at now trades at more than 16 times forward earnings, according to Thomson Reuters data, and above its long-term average of 15.6 times.

U.S. stock futures <ESc1> were down another 0.2 percent on Friday.

“We’ve had a nervous twitch about China, over this week,” said Sean Darby, chief global equity strategist at Jefferies. “We’ve had a bit more of a regulatory overhang coming through in the financial system.”

China’s banking regulator this week launched emergency risk assessments of lenders’ new business practices, sources told Reuters, as Beijing extends its crackdown on shadow banking.

With corporate earnings seasons in the U.S. and Europe drawing to a close investors, focus is likely to shift back to central banks, particularly in the United States, where inflation pressures are growing.

U.S. data on Thursday showed producer prices rebounded more than expected last month, leading to the biggest annual gain in five years.

Combined with a tightening labor market, firming inflation backs market expectations that the Federal Reserve will raise interest rates at its meeting next month. The central bank has forecast two more increases this year after raising rates a quarter of a point in March.

The stronger fundamentals in the U.S. helped offset uneasiness over political turmoil after President Donald Trump abruptly fired FBI chief James Comey.

The dollar index, which tracks the currency against a basket of six major rivals, was flat on the day at 99.622 <.DXY>, but was up 1 percent for the week.

Sterling was steady on the day at $1.2886 <GBP=> after dropping to a one-week low on Thursday following the Bank of England’s decision to keep interest rates unchanged. Policymakers indicated that rates were unlikely to rise until late 2019.

EUROPE’S SWEET SPOT

In Europe, stock markets steadied this week. Company profits are expected to grow 20 percent in the first quarter, the best corporate results in a decade, according to Morgan Stanley.

Their outperformance this year against global peers remains intact, with the benchmark’s <.STOXX> 10 percent gains outpacing the 7 percent rise on the S&P 500 <.SPX>.

Greek stocks <.ATG> snapped a their longest winning streak in two decades.

“European stocks are still in the sweet spot of basking in the removal of political risk in Europe for the time being, though it is somewhat ironic that we could see a modest decline on the week as investors take stock,” said Michael Hewson, chief markets analyst at CMC Markets.

European equity funds pulled in a record $6.1 billion in inflows in the week to May 10, according to data from EPFR, with centrist Emmanuel Macron’s win in the French presidential election seen as a trigger.

Concerns over valuations are beginning to emerge. Credit Suisse strategists cut their rating on Spain, the euro zone’s top performing market for the year, to “underperform,” saying the strong earnings and economic momentum was moderating.

At the same time, the collapse in volatility across asset classes to multi-year or record lows, is tempting more investors into making bets that markets will remain calm given the brighter outlook for global growth.

Bank of America Merrill Lynch said its high-net-worth clients cut cash and resumed buying low-volatility exchange-traded funds.

Yields for the euro zone’s weaker borrowers, such as Italy, Portugal and Spain, were all also 1 to 3 basis points lower as investors awaited announcements of the volumes for expected bond sales next week by France and Spain.

Oil prices held recent gains as traders expected OPEC-led production cuts to extend beyond the middle of this year and as U.S. crude inventories fell to their lowest levels since February.

International Brent crude futures <LCOc1> were at $50.78 per barrel. U.S. West Texas Intermediate crude futures <CLc1> were at $47.85 per barrel, both little changed on the day.

(Reporting by Vikram Subhedar, editing by Larry King)