U.S Producer Price Indexes – July 2018

The Producer Price Index for final demand was unchanged in July, seasonally adjusted, the U.S.
Bureau of Labor Statistics reported today. Final demand prices advanced 0.3 percent in June and
0.5 percent in May. (See table A.) On an unadjusted basis, the final demand index increased 3.3
percent for the 12 months ended in July.

In July, a 0.1-percent rise in the index for final demand goods offset a 0.1-percent decline in
prices for final demand services.

The index for final demand less foods, energy, and trade services moved up 0.3 percent in July,
the same as in June. For the 12 months ended in July, prices for final demand less foods, energy,
and trade services climbed 2.8 percent.

Final Demand

Final demand goods: The index for final demand goods inched up 0.1 percent in July, the same as
in June. The July advance in prices for final demand goods can be traced to a 0.3-percent rise in the
index for final demand goods less foods and energy. In contrast, prices for final demand energy fell
0.5 percent, and the index for final demand foods decreased 0.1 percent.

Product detail: In July, a major factor in the increase in prices for final demand goods was the index
for pharmaceutical preparations, which rose 0.7 percent. Prices for eggs for fresh use, fresh fruits and
melons, motor vehicles, and liquefied petroleum gas also moved higher. Conversely, the electric
power index fell 1.6 percent. Prices for meats; hay, hayseeds, and oilseeds; and nonferrous scrap also
decreased. (See table 4.)

Final demand services: Prices for final demand services edged down 0.1 percent in July, the first
decline since falling 0.2 percent in December 2017. The July decrease is attributable to the index for
final demand trade services, which moved down 0.8 percent. (Trade indexes measure changes in
margins received by wholesalers and retailers.) In contrast, prices for final demand services less
trade, transportation, and warehousing and the index for final demand transportation and
warehousing services advanced 0.3 percent.

Product detail: Leading the July decline in prices for final demand services, margins for fuels and
lubricants retailing dropped 12.7 percent. The indexes for machinery and equipment parts and
supplies wholesaling, food retailing, hospital outpatient care, and airline passenger services also
moved lower. Conversely, prices for guestroom rental climbed 3.9 percent. The indexes for apparel,
jewelry, footwear, and accessories retailing; inpatient care; and truck transportation of freight also
increased.

U.S Bureau of Labor statistics

U.S unemployment insurance weekly claims

In the week ending August 4, the advance figure for seasonally adjusted initial claims was 213,000, a decrease of 6,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 from 218,000 to 219,000. The 4-week moving average was 214,250, a decrease of 500 from the previous week’s revised average. The previous week’s average was revised up by 250 from 214,500 to 214,750.

The advance seasonally adjusted insured unemployment rate was 1.2 percent for the week ending July 28, unchanged from the previous week’s unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending July 28 was 1,755,000, an increase of 29,000 from the previous week’s revised level. The previous week’s level was revised up 2,000 from 1,724,000 to 1,726,000. The 4-week moving average was 1,745,250, an increase of 3,000 from the previous week’s revised average. The previous week’s average was revised up by 500 from 1,741,750 to 1,742,250.

Read more Department of Labor

Turkish lira loses another 3%

Thursday August 9: Five things the markets are talking about

The geopolitical tension theme continues to dominate capital markets, now that China has responded to the U.S’s tariff onslaught with additional tariffs of its own.

In currencies, the market is again focused on sterling (£1.2852) as it encroaches on its new 12-month low as politics continues to provide the overriding direction for the currency.

And then there is the Turkish lira ($5.4210) as it makes it way towards record lows on market worries about President Erodgan’s grip on monetary policy and on a deepening dispute with the Trump administration.

Down-under, the kiwi (NZ$0.6645) has plummeted to a two-year low after the Reserve Bank of New Zealand (RBNZ) pushed out its forecast for a rate increase.

Elsewhere, oil has extended its drop as trade tensions again overshadow a decline in U.S crude stockpiles. Most industrial metals gained, while gold prices ease.

1. Stocks mixed reaction on low volumes

In Japan, the Nikkei edged lower overnight as a stronger yen (¥111.00) impeded investor risk appetite. Not helping was the auto sector, which saw a sell-off on news that certain automakers improperly conducted vehicle inspections in the domestic market. The Nikkei share average dropped -0.2%, while the broader Topix lost -0.3%.

Down-under, Aussie shares rallied overnight on a stronger earnings season. The S&P/ASX 200 index rose +0.5%. In S. Korea, the Kospi stock index produced a small gain, rallying +0.10%.

In Hong Kong and China, shares ended higher as tech firms rally on hopes of China policy boost. The Hang Seng index was up +0.88%, while the Hang Seng China Enterprises index rose +1.09%. In China, the Shanghai Composite index ended +1.9% higher, while China’s blue-chip CSI300 index closed up +2.5%.

In Europe, regional bourses are trading mostly lower in quite trading. U.S stocks are set to open little changed.

Indices: Stoxx600 -0.2% at 388.8, FTSE -0.6% at 7729, DAX 0.0% at 12633, CAC-40 -0.2% at 5492, IBEX-35 0.0% at 9755, FTSE MIB +0.0% at 21801, SMI -0.3% at 9149 S&P 500 Futures 0.1%

2. Oil finds some support after a -3% drop Wednesday, gold steady

Oil prices are a tad higher after yesterdays steep slide, when the first round of U.S sanctions against Iran came into effect. Not providing much support is investor worries that crude demand will and has been hit by the escalating Sino-U.S trade dispute.

Brent crude futures are up +14c at +$72.42 barrel, after having dropped by more than -3% yesterday. U.S crude futures (WTI) have rallied +8c to +$67.02 a barrel, having closed down -3.2% Wednesday.

With U.S sanctions against Iran, which shipped out +3M bpd of crude in July, officially came into effect on Tuesday and the market is anticipating that supply losses could range from +600K to +1.5M bpd.

Stateside yesterday, the weekly EIA report showed that crude inventories fell -1.4M barrels last week, less than half the -3.3M barrel draw the market had expected and that gas stocks rose by +2.9M barrels, compared with expectations for a drop of -1.7M barrel drop.

Ahead of the U.S open, gold prices are mostly steady in a range-bound overnight session, as a stronger dollar continues to weigh on upside momentum. Spot gold is up +0.1% at +$1,214.23 an ounce, having gained +0.2% Wednesday.

3. RBNZ Extra Cautious

Reserve Bank of New Zealand (RBNZ) Governor Orr left interest unchanged at +1.75% as expected, while moving the timing of any future increase to Q4 in 2020 from Q1 in the same year.

Assistant Governor McDermott indicated that the chance of a rate cut had increased and wanted the market to understand that they needed to see core-inflation above +2% for any rate hike. The direction of the next move could be “up or down,” he says. The cautious comments saw the NZD ($0.6650) weaken by -0.45% outright.

Elsewhere, the yield on 10-year Treasuries decreased -1 bps to +2.95%. In Germany, the 10-year Bund yield dipped -2 bps to +0.39%, while in the U.K, the 10-year Gilt yield also declined -2 bps to +1.299%.

4. Turkish lira loses another 3% outright

The Turkish lira has hit a new record low this morning as it weakens as much as -3% outright on souring relations with the U.S over the detention of an American pastor. USD/TRY is last up +2.3% at $5.3994, after it hit a record high of $5.4488 earlier.

EUR/USD (€1.1596) is holding below the €1.16 level as the techies continue to watch their significant support level at €1.15. A break opens the door for a possible test to €1.10 handle.

GBP (£1.2890) remains on the softer side on a ‘no-deal’ Brexit worries. The pair tested its 11-month low atop of £1.2850 earlier this morning.

USD/JPY (¥111.14) is a tad higher, but stable ahead of the U.S-Japan trade talks that begin in Washington later today.

RUB ($65.88) is weaker by -1%, testing its two-year low outright following the U.S State Department announcement on Russian sanctions related to a chemical agent being used in a U.K spy attack last March.

5. ECB economic bulletin highlight

According to the ECB in its regular economic bulletin released earlier this morning, the risks to global growth are growing.

“Downside risks to the global economy have intensified amid actions and threats regarding trade tariff increases by the United States and possible retaliation by the affected countries,” the ECB said in an assessment.

The ECB added that if all the threatened measures were to be implemented, the average U.S tariff rate would rise to levels not seen in the last 50-years.

Note: A fortnight ago, the ECB kept policy unchanged, staying on course to end its QE program by the close of the year and to raise rates for the first time since the euro zone debt crisis in the autumn of 2019.

Forex heatmap

Fed Barkin Says Gradually Raising Rates a Sensible Approach

The U.S. economy is strong enough to warrant further interest rate increases by the Federal Reserve, Richmond Fed President Thomas Barkin said on Wednesday.

In a speech on the U.S. economy, Barkin argued that the Fed’s benchmark interest rate was below normal levels, a suggestion that Fed policy was still stimulating economic growth, which he said was solid.



“It is difficult to argue that lower than normal rates are appropriate when unemployment is low and inflation is effectively at the Feds target,” Barkin said in Roanoke, Virginia.

The U.S. central bank kept interest rates unchanged last week, but its statement pointed to strength in the economy and bolstered expectations it would raise borrowing costs in September.

The Fed has been slowly raising interest rates since 2015. Barkin told reporters afterward that gradually raising rates was a “sensible” approach.

via CNBC

China to Add 25% Tariff on $16B of US Imports

China is slapping additional tariffs of 25 percent on $16 billion worth of U.S. imports from fuel and steel products to autos and medical equipment, the Chinese commerce ministry said, as the world’s largest economies escalated their trade dispute.



The tariffs will be activated on Aug. 23, the ministry said, the same day that the United States plans to begin collecting 25 percent extra in tariffs on $16 billion of Chinese goods.

via Reuters

Germany to Increase Oversight in Foreign Investment Deals

Germany is to increase its powers to block foreign investments by significantly lowering the threshold for deals that can be subject to ministerial veto, in a further sign of growing protectionist sentiment towards Chinese acquisitions.

Berlin can veto deals that involve the purchase of at least 25 percent of the equity of a German company by an entity from outside the EU, and only if they endanger public order or national security. Ministers now want to reduce that threshold to 15 per cent.

Peter Altmaier, economics minister, told the newspaper Die Welt that the threshold would be lowered “so that we can check more acquisitions in sensitive sectors of the economy”. Die Welt said the new bill could come into force this year.

via CNBC

Brexit Worries Take Pound Lower

The pound has fallen below $1.29 for the first time in almost a year on continuing worries Britain will leave the EU without a trade deal.

Sterling also hit a nine-month low against the euro, and was down against the yen and Swiss franc.

Bank of England governor Mark Carney said on Friday the chances of a no-deal Brexit were “uncomfortably high”.



On Sunday, international trade secretary Liam Fox put the odds at “certainly not much more than 60-40”.

The falls come despite a rise in UK interest rates, which usually pushes up the value of sterling.

Since the beginning of the month, the pound has fallen 1.7% against the dollar and 0.8% against the euro.

via BBC

Saudi Arabia sells off Canadian assets, loonie falls

It’s being reported by FT that the Saudi’s are selling off Canadian assets in response to Ottawa’s criticism of the arrest of a female activist last week.

Apparently, the Saudi central bank and state pension funds have been instructed to dispose of their Canadian equities, bonds and cash holdings.

There is no Canadian dollar amount being proposed, but its believed that Saudi funds have in excess of +$100B invested in overseas markets. Canada’s proportion should be a small percentage.

The loonie has been offered since yesterday, currently trading a tad shy of C$1.3100, down -0.3% at C$1.3082.

Currently, markets have been looking at Canada’s recent economic strength and wondering if Bank of Canada (BoC) is on target to hike rates at next months policy meeting.

Last weeks Canada’s GDP and Trade balance reports beat markets expectations and give CAD/USD a lift to C$1.2967 on Aug 3. Given Governor Poloz’s commitment to moving gradually and his concern over the economy’s sensitivity to rate rises, a September move is becoming more remote, especially without a signed Nafta deal.

Canadian employment

Friday’s Canadian employment numbers should have an impact, especially if we get another strong headline print – +18Ke vs. +31.5K for June. Many are also expecting the unemployment rate to improve a tad to +5.9% vs. +6%.

Politics takes down the pound

Wednesday August 8: Five things the markets are talking about

Trade concerns continue to hover over capital markets. Yesterday, the U.S indicated that it will begin imposing another +25% duties on an additional +$16B in Chinese imports beginning in a fortnight. On the first go around, China swore to retaliate, they have yet to give specifics, but at the very least, it will be an in-kind retaliation.

Data overnight showed that China’s exports grew faster than expected last month and imports surged, which suggest that the “ongoing” trade war has yet to have a material impact on the worlds second largest economy’s bottom line.

Nevertheless, the prospects for a full blown trade war has the U.S dollar remaining better bid on pullbacks in a relative tight summer range.

Sovereign yields, further out the curve, trade a tad higher as dealers make room to take down today’s record amount of 10-year Treasury debt worth +$26B, and an all-time high of +$18B in 30-year bonds tomorrow.

In currencies, the market is focused on sterling (£1.2904) as it encroaches on its 11-month low as politics continues to provide the overriding direction for the currency. And then there is the Turkish lira ($5.2923) as it makes it way towards record lows on market worries about President Erodgan’s grip on monetary policy.

On tap: The Reserve Bank of New Zealand’s (RBNZ) official cash rate decision and monetary policy statement is due this afternoon (05:00 pm EDT). No change in rates or accompanying statement is expected.

1. Stocks mixed overnight session

In Japan, the Nikkei edged lower overnight as the market waits for the start of U.S-Japan trade talks. Will the U.S be taking a hard stance, similar to that of China and Europe? Both the Nikkei and broader Topix ended -0.1% lower.

Down-under, Aussie shares rallied overnight, with financials higher after reporting a smaller fall in profit than expected, and while miners gained on strong import data from China. The benchmark S&P/ASX 200 index rose +0.2%, erasing most of Tuesday’s losses. In S. Korea, the Kospi index rose modestly, closing out 0.06% higher.

In Hong Kong, shares rise on tech and energy boost, but fears of a deeper trade war is capping gains. At close of trade, the Hang Seng index was up + 0.39%, while the Hang Seng China Enterprises index rose +0.32%. In China, the Shanghai Composite index closed down -1.23% while its blue-chip CSI300 index ended down -1.59% mostly on profit taking after Tuesday stellar session.

In Europe, regional bourses trade mostly lower, pressured generally by weaker earnings out of Europe.

U.S stocks are set to open little changed (+0.0%).

Indices: Stoxx600 -0.2% at 389.8, FTSE +0.3% at 7742, DAX -0.2% at 12627, CAC-40 -0.1% at 5517, IBEX-35 -0.10% at 9762, FTSE MIB +0.0% at 21863, SMI -0.4% at 9167 S&P 500 Futures 0.0%

2. Oil dips on weak China imports, but sanctions and weak U.S stocks support

Oil prices have dipped a tad overnight, pressured by Chinese weaker import data, although the market remains well supported on pull backs by falling U.S crude inventories and the introduction of sanctions against Iran.

Brent crude oil futures are at +$74.50 per barrel, down -15c, or -0.2% from Tuesday’s close. U.S West Texas Intermediate (WTI) crude futures are at +$69.15 per barrel, down -2c.

Data shows that China’s July crude oil imports recovered slightly last month after falling for the previous two-months, but are still amongst the lowest due to a drop-off in demand from the independent Chinese refineries.

With U.S sanctions against Iran, which shipped out +3M bpd of crude in July, officially came into effect yesterday midnight and the market is anticipating that supply losses could range from +600K to +1.5M bpd.

Dealers are also focusing on the U.S market, where yesterday’s API data showed that crude inventories fell by -6M barrels in the week to Aug. 3 to +407.2M.

The market will take its cues from today’s EIA inventory report (10:30 am EDT).

Ahead of the U.S open, gold prices are better bid, supported by a mixed U.S dollar. Spot gold is up +0.2% to +$1,213.02 an ounce, after rising +0.4% in Tuesday’s session.

3. Sovereign yields could back up further

Yesterday, the U.S Treasury Department sold +$34B three-year notes and it was the largest three-year auction in eight-years. Later today, the Treasury will sell a record amount of 10-year debt worth +$26B (1:01 pm EDT) and tomorrow an all-time high of +$18B in 30-year bonds. With so many products on offer, dealers are expected to again cheapen up the curve to make room ahead of the deadline.

The yield on 10-year Treasuries has rallied +1 bps to +2.97%, while Germany’s 10-year bund yield is holding steady at +0.403%. In the U.K, the 10-year Gilt yield has rallied +1 bps to +1.314%.

4. Sterling’s Wild West

Trading GBP/USD (£1.2903) is proving to be a bit like the Wild West – unpredictable – the pound is again threatening to penetrate yesterday’s record 12-month low now that its failed to benefit from last week’s Bank of England rate rise. Markets are now turning their attention to the Brexit process, which will likely dominate trends in GBP for the remainder of this year.

The Turkish lira ($5.2920) has recovered some lost ground after plummeting to new record lows Monday ($5.42), helped by the Central Bank of the Republic of Turkey (CBRT) announcing a cut in the foreign exchange reserve requirement ratio (RRR) for commercial banks, a measure which should boost dollar liquidity. However, this week’s necessary course of action reaffirms the central banks reluctance to hike rates. Nevertheless, the plunge in the currency over the past few weeks is now on a scale, which has, in the past, prompted the CBRT to hike interest rates aggressively.

Will the CBRT hike the repo rate this week? They need to, but will they dare defy President Recep Tayyip Erdogan?

Note: A Turkish delegation is visiting Washington this week to discuss the friction between both countries. But the U.S has stated that they remain at odds on its core demand that Turkey free American an evangelical pastor.

5. China’s trade balance tightens

Data overnight showed that China’s trade surplus narrowed sharply in July, with imports surging as trade tensions with the U.S escalated.

China reported a trade surplus of +$28.05B in July, compared with a surplus of +$41.61B in June. The market was expecting a surplus of +$39.10B.

Digging deeper, exports rose +12.2% y/y, following June’s +11.3% increase. The market was looking for a +10% growth number.

Imports were up +27.3% in July y/y, accelerating from a +14.1% increase the previous month.

China’s trade surplus with the U.S. narrowed to +$28.09B in July from a record monthly high of +$28.90B in June.

Forex heatmap

Cannot keep the ‘big’ dollar down

The European and Asian sessions were happy to book ‘long’ dollar profits, but North America has decided to renew their acquaintance with the dollar bulls.

A lack of major economic data releases and a stabilizing Chinese yuan overnight provided a temporary reprieve for risk assets and EM currencies.

Another strong JOLTS jobs opening report (+6.66M) has provided the dollar some early support, enabling it to retrace some of its overnight losses.

Sterling’s Wild West

Trading GBP/USD (£1.2943) is proving to be a bit like the Wild West – unpredictable – the pound is again threatening to penetrate yesterday’s record 12-month low now that its failed to benefit from last week’s Bank of England rate rise. Markets are now turning their attention to the Brexit process, which will likely dominate trends in GBP for the remainder of this year.

Loonie failing to fly

USD/CAD (C$1.3020) is another early looser against the dollar, despite crude oil prices remaining better bid now that the U.S has re-introduced sanctions against oil exporter Iran that is expected to tighten global supply.

The loonie has lost some appeal with the Can Ivey July PMI producing a disappointing headline (61.8 vs. 64.2). Dollar bulls want to see C$1.3040 break before adding to their ‘short’ CAD positions again.

Turkish lira takes a bath

The Turkish lira ($5.2492) has recovered some lost ground after plummeting to new record lows yesterday ($5.42), helped by the Central Bank of the Republic of Turkey (CBRT) announcing a cut in the foreign exchange reserve requirement ratio (RRR) for commercial banks, a measure which should boost dollar liquidity. Turkish 10-year bond yields have backed up +25 bps to +20%.

Yesterday’s necessary course of action reaffirms the central banks reluctance to hike rates.

However, the plunge in the currency over the past few weeks is now on a scale, which has, in the past, prompted the CBRT to hike interest rates aggressively. Will the CBRT hike the repo rate this week? They need to, but will they dare defy President Recep Tayyip Erdogan?

With little economic data to hang your hat on, low volumes and market participation, most investors prefer to wait for a significant breakout in any of the G7 pairs before participating with any gusto.