Tag Archives: inflation

Government Bonds Fall Worldwide on Trump-Fed Nexus

Bloomberg, Nov 16, 2016

* Dollar gains versus most peers; yuan sinks to eight-year low
* Stocks slip amid speculation on Trump policies’ rate impact

Government bonds tumbled around the world and the dollar rose on speculation that the economic outlook is sufficiently strong to allow the Federal Reserve to step up the pace of interest-rate hikes. Metals and crude oil fell.

Portuguese and Italian debt led declines in Europe, Treasuries also fell and Japan’s 10-year bond yield increased to the highest level since February. Russia’s ruble lost the most among emerging-market currencies as the dollar rallied. Crude oil reversed an earlier gain with U.S. stockpiles forecast to increase and optimism waning that OPEC’s latest push for a production-cutting deal will pay off. Zinc fell from a six-year high as industrial metals sank.
The S&P 500 Index retreated and European shares ended two days of gains.

Reaction to Donald Trump’s ascendancy to U.S. president has defied expectations. While analysts spent early November warning a Trump administration would hurt economic outlook and slow the pace of rate increases, his election has instead made Fed action a near certainty. The odds of a hike by December have risen to about a 96 percent probability, the highest level this year, from 68 percent at the start of November, on speculation the Republican’s policies will boost inflation.

“The inflation story is still in play,” said Birgit Figge, a fixed-income strategist at DZ Bank AG in Frankfurt. “The market is expecting an interest-rate hike in December, and there is no fundamental reason for the Fed” to disappoint, she said.

Wholesale prices in the U.S. were unexpectedly weak in October, with an unchanged reading in the producer-price index from the previous month that followed a 0.3 percent increase in September, a Labor Department report showed Wednesday in Washington. The median forecast of economists surveyed by Bloomberg called for a 0.3 percent increase.

St. Louis Fed President James Bullard says there’s a chance the U.S. economy could get a medium-term boost if Trump increases infrastructure spending and tax reforms. Fed President Patrick Harker is also scheduled to speak Wednesday and may shed more light on the likely trajectory of borrowing costs in the world’s biggest economy. Fed Chair Janet Yellen is scheduled to testify to the Joint Economic Committee of Congress on Thursday.

Bonds

The yield on Treasuries due in a decade rose two basis points, or 0.02 percentage point, to 2.24 percent as of 9:39 a.m. New York time, after retreating from its highest level of the year in the last session. It’s up more than 40 basis points since Trump’s election, having surged amid growing speculation the Fed will boost interest rates next month and beyond. The bond-market rout pushed Bank of America Corp.’s Global Broad Market Index down 1.5 percent in November, heading for the biggest monthly decline since May 2013.

The renewed selloff spread to Europe, with the yield on Portugal’s 10-year bonds adding 17 basis points to 3.64 percent. Italy’s 10-year yield increased seven basis points to 2.03 percent, while that on similar-maturity German bunds little changed at 0.31 percent.

Japan’s 10-year government bonds fell for a fifth day, lifting their yield to 0.027 percent. Tuesday marked the end of almost eight weeks of negative rates, the first time the bond market has tested the Bank of Japan’s resolve to contain 10-year yields since it shifted its focus to controlling the benchmark yield around zero.

The BOJ said after its September meeting that it could carry out unlimited bond-buying operations at a set rate, if needed, in order to control yield levels. After that meeting, the bond market rallied in search of a floor for the 10-year note yield, eventually settling just above the minus 0.1 percent policy rate.

Currencies

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 0.1 percent. It slipped on Tuesday after surging more than 3 percent in the four trading days following the Nov. 8 U.S. election.

Currencies of commodity-producing nations, including the Australian dollar and South African rand, were among the biggest losers.

The MSCI Emerging Markets Currency Index fell 0.2 percent and Russia’s ruble dropped 1.2 percent, after jumping 2.9 percent on Tuesday, the most since February. Turkey’s lira, Poland’s zloty and Mexico’s peso all dropped as higher U.S. yields boosted the dollar. The yuan fell to the weakest since December 2008.

Commodities

Crude oil fell 1 percent to $45.34 a barrel in New York, after earlier rising as much as 0.8 percent. Oil retreated for the past three weeks amid skepticism about the ability of OPEC to implement a deal at its Nov. 30 meeting. The group is seeking to trim output for the first time in eight years as Iran boosts production and Iraq seeks an exemption because of war with Islamic militants. Prices will probably remain around current levels if OPEC fails to cut, according to BP Plc Chief Executive Officer Bob Dudley.

Copper and aluminum declined in London, extending their retreats from one-year highs reached last week, and zinc retreated from its highest close since 2010. Metals rallied last week on a combination of increased speculative interest in China and optimism Trump’s pledge to spend as much as $1 trillion on infrastructure will boost demand. The 14-day relative strength index for the London Metal Exchange Index climbed as high as 87 last week, well above the 70 threshold that signals to some traders prices may have risen too far, too fast.

“Investors took the opportunity to lock in gains after some big moves over the past week,” ANZ Bank said in a note on Wednesday. “Skepticism grew about the impact that Trump’s infrastructure spending program would have on demand.”

Stocks

The S&P 500 Index fell 0.2 percent to 2,177.21. The gauge rose 0.8 percent yesterday, pushing its advance since Nov. 8 to 1.9 percent and closing within 0.5 percent of an all-time high set in August.

“We’ve seen the aftermath of the election and the results reflected in the market in a very short time so the market is likely to consolidate as fundamentals need to catch up to growth expectations,” said Carin Pai, director of equity management at Fiduciary Trust Company International in New York. The firm manages more than $75 billion. “It’s going to take a lot of time for these policies to get ironed out.”

The Stoxx Europe 600 Index declined, paring gains of as much as 0.6 percent. Nokia Oyj rebounded from a three-day losing streak, pacing technology stocks higher as Nordea Bank AB raised its recommendation on the Finnish network manufacturer to buy. Vodafone Group Plc contributed most to gains among telecommunications companies. Bayer AG sank 2.1 percent after issuing 4 billion euros ($4.3 billion) of convertible bonds.

The MSCI Asia Pacific Index added 0.3 percent. Japan’s Topix index rallied to a nine-month high, driven by gains in banking stocks as investors bet earnings at financial companies will benefit from the recent pickup in bond yields. The Topix Banks Index has jumped more than 20 percent in five days, the steepest surge since 2008.

Source

Japan Cuts Forecasts as Abe Advisers Urge Coordinated Stimulus

Bloomberg, July 13, 2016

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Shinzo Abe. Photor: Tomohiro Ohsumi/Bloomberg

Japan cut its forecasts for growth and inflation as two key advisers to Prime Minister Shinzo Abe urged coordinated stimulus from the government and the central bank to support the ailing economy.

Current thinking in the government is for a fiscal package of about 10 trillion yen ($96 billion), according to people familiar with the discussions. Koichi Hamada and Etsuro Honda, who helped the prime minister shape his Abenomics policies, said in separate interviews on Wednesday that any fiscal injection should be done in concert with a boost in monetary policy from the Bank of Japan, which meets later this month.

Hamada played down the likelihood of Japan employing so-called “helicopter money,” warning this strategy would be a “very risky gamble” as history has shown the dangers of unstoppable inflation. Japanese stocks have rallied this week while the yen has weakened amid intense speculation about the size of the fiscal package and the possibility that the central bank could turn to unorthodox policies like helicopter Money.

Bond Purchases

Honda said that the central bank should accelerate its already unprecedented government bond purchases rather than further reduce negative interest rates. He advocated action at the BOJ’s July 28-29 policy meeting and said options also include further purchases of exchange-traded funds and an expansion into regional government bonds. If the BOJ doesn’t act, the yen may strengthen, he added.

The Sankei newspaper reported earlier that officials around Abe are considering helicopter money as a policy option. Chief Cabinet Secretary Yoshihide Suga told reporters later this is not the case.

Japan’s gross domestic product will expand by just 0.9 percent in the fiscal year that started in April, compared with a January estimate of 1.7 percent, the Cabinet Office said. The consumer price index will rise 0.4 percent, compared with an earlier projection of 1.2 percent, it said.

These latest figures come as the yen’s gains in 2016 have undermined exporters while demand at home remains weak, given stagnant wages and pessimism about the economic outlook.

Election Win

Following an election over the weekend in which the ruling party and its coalition partner expanded their majority in parliament’s upper house, Abe has ordered his ministers to compile a fiscal spending package.

Abe, Hamada and other key government officials on Tuesday met former Federal Reserve chairman Ben S. Bernanke and discussed the Japanese economy. Abe told Bernanke he wants to speed up the nation’s exit from deflation, underscoring his commitment to implementing fresh economic stimulus. Hamada said there had been no discussion of helicopter money at the meeting.

Despite this week’s rally in stocks, Hamada said Japanese shares have been sold below their fundamental value. He said Japanese investors, not the central bank, have shown cowardice.

Hamada said that while he’s not sure what the BOJ will do at its next gathering, it doesn’t need to worry about volatile oil prices. Inflation excluding fresh food and oil has reached about 1 percent, he said.

Source

Fed Resists IMF Call to Allow Some Overshoot of Inflation Goal

Bloomberg, July 12, 2016

The Federal Reserve resisted a recommendation by the International Monetary Fund that the central bank be willing to let inflation modestly exceed its target, saying such a move could be counterproductive to its objectives, an IMF report showed.

The IMF last month recommended the Fed accept “some modest, temporary overshooting” of its 2 percent inflation target, given the risk that price increases will slow and the central bank may have to reverse course after raising its benchmark rate in December for the first time since 2006. The IMF made the call in a June 22 statement following the fund’s annual review of the world’s biggest economy.

The full version of the staff report released Tuesday revealed that U.S. authorities have “no intention to engineer an overshoot” and said the case for doing so wasn’t compelling. The Fed’s view also got support from “many directors” on the IMF’s board representing member countries, who “were concerned over the risks of de-anchoring inflation expectations and eroding monetary policy credibility.”

“Aiming to overshoot the medium-term target would create the risk of being behind the curve and potentially being faced with a need to raise rates more quickly especially if the labor market tightening led to a faster increase in inflation than seen until now,” according to the IMF report, which attributed the comments to U.S. officials. “This could be disruptive and undermine the achievement of the Federal Reserve’s mandates of maximum employment and stable prices.”

While the report, dated June 24, doesn’t specify if the U.S. officials were from the Fed or Treasury Department, IMF official Nigel Chalk told reporters on a conference call that monetary policy comments typically come from the central bank. As part of the fund’s consultations with the U.S., IMF Managing Director Christine Lagarde met with Fed Chair Janet Yellen and Treasury Secretary Jacob J. Lew in late-June, the report said.

“If incoming data shows economic growth continuing to pick up, labor market conditions continuing to strengthen, and inflation making progress toward 2 percent, then it likely would be appropriate to gradually increase the federal funds rate in the coming months,” according to a section that Chalk attributed to the Fed’s thinking when the IMF met with Yellen as well as with staffers in late May and early June.

The 24 executive directors of the fund, which was conceived during World War II to oversee the global monetary system, represent its 189 member nations.

While the impact on the U.S. of the British vote to leave the European Union should be small, risks are skewed to the downside, IMF staff said in an update dated July 8 and included in Tuesday’s release. If downside risks materialize, the Fed should delay interest-rate increases, IMF staff said.

Brexit hasn’t pushed up the dollar as much as expected, while declining Treasury yields have actually loosened financial conditions for consumers and businesses, muting the impact on the U.S., Chalk said. “The net effect on growth is pretty negligible,” he said.

Overall, the U.S. economy is in good shape, the IMF said. The U.S. faces anemic long-term growth, though, unless it takes steps to address a slow-growing labor force, weak productivity and a widening gap between the rich and poor, IMF staff said in the report.

The IMF reiterated its forecast from last month that the U.S. economy will grow 2.2 percent this year and 2.5 percent in 2017.

Rents Rise 10%. And 12%…

Bloomberg, May 04, 2016

If you’re looking for an apartment to rent in Atlanta, you might be dismayed to learn that local rents surged 14 percent during the year that ended in February—at least, if you go by the online listing service Zumper. According to Zillow, the increase was 4 percent. Data provided to Bloomberg by CoStar put the increase at 7 percent.

That wild range helps explain why the rents you’re seeing out there might differ from what you’ve been reading—or why you’re not making money hand over fist on that Buckhead mid-rise you scooped up to lease out. It also presents a thorny problem for policymakers seeking to track prices at a time when rising rents are an acute social and political issue.

As the chart below shows, Atlanta isn’t an isolated case. The three data sources tell consistently different stories about the pace of rent growth in cities across the U.S.

 There are a lot of sources1 on the rise in rents across the country, and they don’t measure the same thing. Zumper’s numbers, which reflect rents for two-bedroom units, are based on more than a million active listings from its website, a big number that nonetheless represents a fraction of all rental units. Zillow and CoStar take listing data as a starting point and then use statistical models to fill in the gaps.

The confusion starts with a growing cohort of online real estate services that have figured out they can get free publicity by publishing rent reports, wrote Daniel Hertz, who blogs about cities at City Observatory. Those reports are generally based on incomplete data, partly because rental markets are large and fragmented while the online services tend to focus on young, affluent audiences.

Hertz puts more faith in data compiled by the Census Bureau and the Department of Housing and Urban Development, but their figures tend to lag behind the real-time market by several years. That makes their data more useful to policymakers than to renters (or, say, journalists looking for a snappy headline).

It’s harder to measure trends in rent than in home sales, which typically involve a mortgage and a publicly registered transaction. Apartments can be rented by word of mouth, and rents often go up when a tenant renews his or her lease, without the increase being reflected in a listing service. Apartments that do get advertised once aren’t certain to be listed a second time, making it difficult to observe change over time.

A white paper presented by CoStar last month at a conference of the American Real Estate Society helps illustrate the challenge. After compiling information from its listing service Apartments.com, calling landlords, and scraping data from property management websites, CoStar’s researchers wound up with at least one data point for units in about 110,000 rental buildings. In that pool of properties, however, there were only 2,200 buildings with consecutive monthly data for the last two years.

So CoStar created a model for estimating the monthly changes in rent for every apartment in the data set, basing its estimates on local market trends and the pricing relationship for apartments of different sizes. In all, the modeled data include more than 10 million observations, said John Affleck, a CoStar analyst. “We’re using an order of magnitude more data than anyone else,” he said.

Is it a better mousetrap? Apartment hunters, real estate investors, and housing policy wonks will probably have to settle for comparing the theories behind the various rent studies.

Zumper’s chief executive, Anthemos Georgiades, said his company’s reliance on real-time data, representing what he called the “vast majority” of vacant apartments currently listed for rent across the U.S., is a virtue.

“Our data explicitly says, right now, in terms of vacant inventory, this is the median price,” he said.

“Simply taking the average listing price of what’s on the market now doesn’t provide a full and accurate picture of rents,” said Svenja Gudell, chief economist at Zillow, which, like CoStar, uses a statistical model to estimate rents for vacant and occupied units and provide a view of rent growth across cities and neighborhoods.

Hertz, who didn’t respond to a request for an interview, wrote in a March blog post that Zillow’s rent data are useful for tracking rough trends in the relative affordability of a given city or neighborhood, while Zumper’s data reflect only the units listed on Zumper’s site.

“Unfortunately,” Hertz wrote, referring to the field as a whole, “the vast majority of these rent estimates are completely made up.”

Source

John Rubino: Startling Inflation News Illustrates The Failure Of Easy Money

By John Rubino, Apr 13, 2016

Startling Inflation News Illustrates The Failure Of Easy Money

After three decades of epic deficit spending and three years of extraordinary money creation, Japan’s economy is enjoying a rollicking inflationary boom. Just kidding. Exactly the opposite is happening:

Japan households’ inflation expectations hit three-year low – BOJ

(Reuters) – Japanese households’ sentiment worsened in the three months to March and their expectations of inflation fell to levels before the Bank of Japan deployed its massive asset-buying programme three years ago, a central bank survey showed.

The survey’s bleaker outlook keeps alive expectations of additional monetary stimulus even as BOJ Governor Haruhiko Kuroda maintained his optimism that the world’s third-largest economy was recovering moderately.

Kuroda, however, warned that he was closely watching how a recent surge in the yen and slumping Tokyo stock prices could affect the outlook.

“Global financial markets remain unstable as investors are becoming increasingly risk averse due to uncertainty over the outlook of emerging and resource-exporting economies,” Kuroda said in a speech at an annual meeting of trust banks on Monday.

“The BOJ won’t hesitate to take additional easing steps if needed to achieve its inflation target,” he said.

The BOJ’s quarterly survey on people’s livelihood showed the ratio of households who expect prices to rise a year from now stood at 75.7 percent in March, down from 77.6 percent in December and the lowest level since March 2013.

A separate index measuring households’ confidence about the economy stood at minus 22.5 in March, worsening from minus 17.3 in December to the lowest level since March 2015.

The gloomy outcome underscores the dilemma the BOJ faces as it battles mounting external headwinds for the economy with its dwindling policy tool-kit.

The BOJ’s adoption of a massive asset-buying programme, dubbed “quantitative and qualitative easing,” in April 2013 was intended to spur public expectations that prices will rise, and in turn, encouraging households and firms to spend.

That has failed to materialise, forcing the central bank to add negative interest rates to QQE in January in a fresh attempt to accelerate inflation towards its ambitious 2 percent target.

The move has failed to arrest a worrying spike in the yen or boost business confidence. Japan’s economy contracted in October-December last year and analysts expect it to post only feeble growth, if any, in January-March. Inflation has also ground to a halt, keeping the BOJ under pressure to ease again in coming months.

A separate poll by private think tank Japan Center for Economic Research, among the most comprehensive surveys conducted on Japanese analysts, showed 39 of the 44 analysts surveyed projecting that the next BOJ move would be further monetary easing.

But Japan is a unique case; easy money is generating excellent growth and rising inflation pretty much everywhere else. Just kidding again. The US, after multiple QEs and a doubling of federal debt, is looking a lot like Japan:

Consumers’ Inflation Expectations Fell Again in March, Fed Says

U.S. consumers’ expectations for inflation declined in March following a rise from record lows the month before, according to Federal Reserve Bank of New York data released Monday.

The numbers, which have been highlighted recently as a potential cause for concern by top officials including Fed Chair Janet Yellen and New York Fed President William Dudley, may add to the debate over downside risks to the U.S. central bank’s 2 percent inflation target. These risks have contributed to policy makers’ cautious approach to tightening monetary policy this year following a decision in December to raise interest rates for the first time in almost a decade.

The median respondent to the New York Fed’s March Survey of Consumer Expectations expected inflation to be 2.5 percent three years from now, down from 2.6 percent in the February survey. In January, expected inflation three years ahead was 2.45 percent, marking the lowest level in data going back to June 2013.

Inflation expectations April 16
The New York Fed divides survey respondents into two groups based on a short aptitude test: high-numeracy and low-numeracy. Expected inflation among high-numeracy respondents, which tends to be more stable than that for low-numeracy respondents, declined to a record low in March.

The drop came despite a rise in expected gasoline prices. The median survey respondent in March expected the cost of gas to be 7.3 percent higher a year.

This is odd, since oil prices have stabilized and a consensus seems to be forming around the idea that inflation is about to pick up. Some talking heads are even wondering how the Fed will respond to the above-target inflation that’s coming. See Just how much of an overshoot on inflation will the Fed tolerate?

So what’s with all the pessimistic consumers?

Well, a data series from PriceStats (related to MIT’s Billion Prices project, I think) that measures a wide variety of prices in real time has the answer: Prices are actually falling faster than the official CPI number indicates, and have not picked up as oil has stabilized. In fact, the US has been in deflation for the past five months.

PriceStats inflation April 16

So it’s no surprise that people who are actually buying the stuff that’s falling in price would register this fact and answer surveys with deflationary sentiments. It’s also no surprise that central banks, which presumably see the same data, would be looking for ways to ease even further (Japan and Europe) or walk back their previous threats to tighten (the US Fed) — apparently in the hope that increasing the dose will cure the credit addiction.

This article is written by John Rubino of Dollarcollapse.com and with his kind permission, Gecko Research has been privileged to publish his work on our website. To find out more about Dollarcollapse.com, please visit:

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