U.S. economy is trending in the Fed’s direction, so expect Powell to tread carefully next week – MarketWatch

“If things go well the first time, might as well try it again” might be Federal Reserve Chair Jerome Powell’s mantra as he prepares for next week’s policy meeting, economists say.

Powell’s speech at the central bank’s annual summit in Jackson Hole, Wyo., last month seemed to satisfy both hawks and doves, with a combination of anti-inflation rhetoric and dovish details that revealed no concrete plans to raise interest rates again.

“The Jackson Hole speech was a genius stroke of messaging, because everyone heard what they wanted to from it,” Bill Adams, chief economist at Comerica Bank in Dallas, said in an interview.

He predicted that Powell, echoing that speech, will emphasize that the Fed is resolved to get inflation back to its 2% target, and that the central bank is firm in its belief that interest rates will remain at high levels for an extended period.

Read: 4 things to watch for at next week’s Fed policy meeting

Powell’s cautious approach has been echoed by other Fed officials.

Fed governor Christopher Waller told CNBC that “there is nothing that is saying we need to do anything imminent, anytime soon, so we can just sit there [and] and wait for the data.”

In an interview with MarketWatch, Boston Federal Reserve Bank President Susan Collins said the central bank had earned the right to take its time with interest-rate decisions.

The Fed can also be patient because the trend in inflation is moving in the right direction, Yelena Shulyatyeva, senior U.S. economist for BNP Paribas, said in an interview.

Even if the August consumer-inflation report wasn’t as benign as the June and July reports, “we’re seeing the level of inflation has downshifted,” she said.

At the same time, the labor market has held firm, with some very incremental signs of softening. A year ago, many economists said lowering inflation without a big jump in unemployment was not possible.

What will the Fed do next week?

Economists see the Fed holding rates steady when their meeting ends Wednesday, after having raised the policy rate 25 basis points to a range of 5.25%-5.5% at its last meeting in July.

The central bank is likely to suggest that it may hike rates by 25 basis points at one of its two remaining meetings this year, but make no commitment to do so.

Even if the Fed’s dot-plot forecast continues to show one more hike this year, the Fed “will not exercise the option to hike again unless progress on inflation and the labor market stalls out amid stronger growth,” said Krishna Guha, vice chair of Evercore ISI.

Many economists, including Michael Hanson, senior global economist at JPMorgan, think the Fed is done hiking altogether. Others think the central bank will follow through with one more hike before stopping, while only a few think it might have to do even more.

That debate will continue until the following Fed meeting, scheduled for Oct. 31-Nov. 1.

What Retail Sales and Other Data Say About China’s Economy – The New York Times

Consumers are spending a little more, but apartment prices and the pace of construction keep falling.

China’s trains, planes, stores and beaches were a little fuller last month than a year earlier, and the pace of activity picked up at factories, particularly those making mobile phones and semiconductors.

A batch of numbers released on Friday by China’s National Bureau of Statistics showed a modest improvement in the country’s overall retail sales and industrial production during August. A series of small steps taken by the government over the summer, including two rounds of interest rate cuts, seems to be yielding a slightly better-than-expected improvement in the country’s economy.

“The national economy has accelerated its recovery, production and supply have increased steadily, market demand has gradually improved,” Fu Linghui, China’s director of national economic statistics, said at a news conference.

But many foreign economists were more guarded.

“Some may be of the view that China’s economy has already bottomed out, but we remain cautious,” said a research note from Nomura, a Japanese bank.

The broad troubles of China’s real estate sector continue to cast a long shadow over the country’s economic prospects. Property investment in August plummeted nearly a fifth from a year earlier, an even steeper decline than in July.

Construction sites around China appear visibly less busy, although activity has not stopped entirely and tower cranes still dot the skylines.

Construction of apartment towers has faltered because of falling apartment prices.

Based on data released on Friday for prices of new apartments in 70 large and medium-size cities across China, Goldman Sachs calculated that prices fell in August at a seasonally adjusted annual rate of 2.9 percent, compared with 2.6 percent in July.

Construction sites around China appear less busy, although cranes still dot the skylines.Qilai Shen for The New York Times

The statistics for new apartments considerably understate the speed and extent of price declines, however, as local governments have put heavy pressure on developers not to cut prices.

Prices of existing homes in 100 cities across China fell an average of 14 percent by early August from their peak two years earlier, according to the Beike Research Institute, a Tianjin research firm. Rents have fallen 5 percent.

Construction and related activities, including public works projects, make up at least a quarter of the Chinese economy. The government has tried to offset the plunge in apartment construction by demanding that already deeply indebted local and provincial governments undertake a debt-fueled wave of large projects, including new subways, municipal water systems, highways, public parks, high-speed rail lines and other infrastructure.

Loans that China’s banks have made to property developers, dozens of which have defaulted on debt payments, are in trouble. So are loans to local governments and their financial affiliates involved in real estate. Banks are allowed to demand immediate repayment if work on a construction project has stopped, but they are reluctant to do so. Demand for new real estate loans remains weak.

The central bank, the People’s Bank of China, announced on Thursday that it was freeing banks to set aside smaller reserves and start extending more credit. The move was widely seen as intended to accommodate a large batch of bonds that local and provincial governments will issue to pay for their infrastructure projects.

Overall investment in what are known as fixed assets was up 3.2 percent for the first eight months of 2023 compared with a year earlier — infrastructure spending plus some manufacturing investment offset the property nosedive. The pace through August was a slowdown from 3.4 percent the prior month.

The value of China’s industrial production, a proxy for the activity of factories, rose 4.5 percent in August from a year ago.Agence France-Presse — Getty Images

The production of semiconductors rose 21.1 percent in August from a year earlier. The government has more heavily subsidized chip-making as the United States has restricted the export to China of a few of the highest-speed computer chips and of the gear to manufacture them.

The value of China’s industrial production, a proxy for the activity of factories, rose 4.5 percent in August from a year earlier after it was adjusted for considerable deflation in wholesale prices for factory goods over the past year. The increase was 3.7 percent in July.

Retail sales in August were up 4.6 percent from a year earlier, as rising energy prices most likely pushed up retail sales, Nomura said.

A main reason retail sales rebounded was that a year ago, people in China were still living under stringent “zero Covid” measures that restricted their activity.

Beer and wine production dropped from a year earlier, while output rose for bottled water, carried by many Chinese people during outdoor activities, and production of fruit and vegetable juices climbed sharply.

Americans are feeling gloomier about the economy – CNN

Washington, DC

Americans aren’t feeling gloomy about higher gas prices just yet, but they’re still on edge about inflation and the economy’s direction — and concerns are starting to surface about the possibility of a government shutdown.

Consumer sentiment tracked by the University of Michigan edged down in September from the prior month by 1.8 points, according to a preliminary reading released Friday.

“Both short-run and long-run expectations for economic conditions improved modestly this month, though on net consumers remain relatively tentative about the trajectory of the economy,” said the University of Michigan’s Surveys of Consumers Director Joanne Hsu in a release. “So far, few consumers mentioned the potential federal government shutdown, but if the shutdown comes to bear, consumer views on the economy will likely slide, as was the case just a few months ago when the debt ceiling neared a breach.”

Sentiment could start to sour soon, since gas prices are highly visible indicators of inflation. Sentiment fell to its lowest level on record last summer when gas prices topped $5 a gallon and inflation reached a four-decade high. The national average for regular gasoline stood at $3.87 a gallon on Friday, according to AAA, seven cents higher than a week ago and 17 cents higher than the same day last year.

Consumers’ expectation of inflation rates in the year ahead fell to a 3.1% rate in September, down from 3.5% in the prior month.

This story is developing and will be updated.

China’s Economy Still Faces Headwinds Despite Early Signs of Recovery – The Wall Street Journal

.css-dg1ipl-ReadNextStrap{max-width:780px;width:100%;text-transform:capitalize;border-bottom:1px solid #111111;}.css-1llpedq-ReadNextStrap{max-width:780px;width:100%;text-transform:capitalize;border-bottom:1px solid #111111;}@media screen and (max-width: 639px){.css-1llpedq-ReadNextStrap{padding-block-start:28px;padding-block-end:6px;}}@media screen and (min-width: 640px){.css-1llpedq-ReadNextStrap{padding-block-start:60px;padding-block-end:12px;}}

.css-o8uzk9{margin:0;color:rgba(17,17,17,1);}.css-o8uzk9 svg{fill:rgba(17,17,17,1);}@media screen and (max-width: 639px){.css-o8uzk9{font-family:Retina,Helvetica,Arial,sans-serif;font-size:18px;line-height:21.996px;font-weight:500;letter-spacing:0%;font-stretch:normal;text-transform:none;font-style:normal;padding:0.5px 0px;}.css-o8uzk9 fontMetrics fontWeight010{cap-height:700px;ascent:800px;descent:-200px;line-gap:200px;units-per-em:1000px;}.css-o8uzk9::before{content:”;margin-bottom:-0.211em;display:block;}.css-o8uzk9::after{content:”;margin-top:-0.311em;display:block;}}@media screen and (min-width: 640px){.css-o8uzk9{font-family:Retina,Helvetica,Arial,sans-serif;font-size:24px;line-height:28.008px;font-weight:500;letter-spacing:0%;font-stretch:normal;text-transform:none;font-style:normal;padding:0.5px 0px;}.css-o8uzk9 fontMetrics fontWeight010{cap-height:700px;ascent:800px;descent:-200px;line-gap:200px;units-per-em:1000px;}.css-o8uzk9::before{content:”;margin-bottom:-0.1835em;display:block;}.css-o8uzk9::after{content:”;margin-top:-0.2835em;display:block;}}

What to Read Next

UK economy shrinks at fastest pace in seven months, hit by strikes and wet weather – CNBC

  • The U.K. economy contracted 0.5% in July, below a forecast of 0.2%.
  • It is the latest sign of economic strain in the higher interest rate environment.
  • Though economists still expect the Bank of England to deliver one more hike in September.
Empty tables in the rain outside an Italian restaurant near a closed down pub in central London, UK, on Tuesday, Aug. 16, 2022. The Office for National Statistics are due to release the latest UK CPI Inflation data on Wednesday. Photographer: Jose Sarmento Matos/Bloomberg via Getty Images
Bloomberg | Bloomberg | Getty Images

LONDON — U.K. gross domestic product fell by 0.5% in July, below the 0.2% contraction forecast in a Reuters poll of economists.

Services output was the main drag, the Office for National Statistics said, declining 0.5%. The economy put in a better-than-expected performance for the second quarter as a whole, with the ONS reiterating its reading of 0.2% growth. July’s surprise dip meant the economy shrank at its fastest pace since December, according to ONS figures.

It is the latest sign of economic strain in the higher interest rate environment. On Tuesday, figures showed U.K. mortgages in arrears jumped to a seven-year high in the three months to June.

Major investment banks trimmed their U.K. growth expectations following the reading. Goldman Sachs revised its annual growth forecast to 0.3% from 0.5% and JP Morgan downgraded to 0.4% from 0.6%, Reuters reported.

However James Smith, developed markets economist at ING, said in a note that “cutting through the noise, the economy seems to be still growing, albeit fractionally.”

“We think the economy is likely to more or less flatline over coming quarters – and a mild recession can’t be ruled out,” he said.

Paul Dales, chief U.K. economist at Capital Economics, said the GDP figures may indicate a mild recession has already begun and “underlying growth has lost momentum since earlier in the year.”

Dales highlighted strikes and unusually wet weather as weighing on certain sectors, but said output declined more broadly, suggesting widespread weakness.

“Even so, with wage growth still uncomfortably strong, we suspect the Bank of England will still raise interest rates one final time next week, from 5.25% to 5.50%,” Dales said.

A potential concern for the central bank came Tuesday, when data showed annual growth in pay excluding bonuses remained steady at 7.8%, the highest on record. This was combined with a sign of slight cooling in the labor market, as unemployment rose 0.5 percentage points.

The British pound was 0.2% lower against the U.S. dollar at $1.245 at 8:40 a.m. London time Wednesday, as it also declined against the euro.

Jane Foley, head of FX strategy at Rabobank, said the BOE faced a “difficult predicament” given strong earnings data and slower U.K. growth.

“While the market is assuming that a September rate hike is a done deal, the uncertainty for following meetings is rising. Clearly too much tightening would risk a U.K. recession and this possibility appears a little stronger after today’s monthly GDP report,” she said via email.

“Weaker growth data thus increases the chances that Bank rate will reach its peak this month – an outlook which is weighing on the pound this morning.”

European Central Bank is set for hawkish pause as the economy turns south – CNBC

  • Shoppers in the region are holding back on spending as inflation eats up their disposable income.
  • While the manufacturing sector has been in decline since around mid-2022. 
  • More information on what the European Central Bank thinks about inflation and the growth trajectory will be revealed in a new round of staff projections on Thursday.
Christine Lagarde, president of the European Central Bank.
Bloomberg | Bloomberg | Getty Images

FRANKFURT — The European Central Bank is set to keep rates steady Thursday as economic activity in the euro area decelerates at a faster pace than previously expected. 

Shoppers in the region are holding back on spending as inflation eats up their disposable income, while the manufacturing sector has been in decline since around mid-2022. 

Economic theory would suggest that these two factors would drag inflation down. But whether this will prove to be the case is a still open debate inside the walls of the Frankfurt institution. 

“While doves will argue that it is just a question of time before weaker growth feeds into lower inflation, the hawks lean on part of the weakness in growth stemming from supply rather than demand,” said Paul Hollingsworth, chief economist with BNP Paribas, in a recent research note. 

“As a result, price pressures might be less sensitive to weaker growth than would typically be expected.”

Headline inflation for August was slightly higher than expected at 5.3%. But core inflation, which excludes energy and food and is closely watched by the ECB as a gauge of underlying price pressures, fell in line with expectations to 5.3% as well, down from 5.5% the month prior.

More information on what the ECB thinks about inflation and the growth trajectory will be revealed in a new round of staff projections on Thursday. The market expects revisions both to the ECB’s GDP and inflation outlook. 

“Given the recent data, the staff are likely to revise down the near-term outlook for growth,” said Deutsche Bank’s ECB watcher Mark Wall in a research note. 

“Tighter financial conditions and slower growth should translate into a lower level of core inflation by the end of the forecast horizon.” 

The outlook is still very uncertain. That’s what President Christine Lagarde stressed at Jackson Hole last month, the Federal Reserve’s annual conference. The past few years have seen numerous shocks which have caused lasting effects on the economic system and the transmission of monetary policy. 

“We have to form a view of the future and act in a forward-looking way,” Lagarde said in her speech at Jackson Hole. “But we will only ever truly understand the effects of our decisions after the fact,” she added.

Disgruntled Europeans hit out at banks for not passing on higher rates on savings

Oracle revenue misses estimates as tough economy hurts cloud spending – Yahoo Finance

(Reuters) -Oracle projected current-quarter revenue below Wall Street targets on Monday and narrowly missed expectations for the first quarter as a tough economy pressured cloud spending by businesses, sending its shares down 9% in extended trading.

After a surge in cloud demand during the pandemic, businesses are rethinking their digitization plans, hurting Oracle as it plays catch-up in a segment dominated by larger rivals such as Amazon Web Services and Microsoft.

Still, analysts have said that the rise in adoption of artificial intelligence (AI) applications could boost Oracle’s cloud infrastructure business because the advances made in its networking technology are more suited to take on AI workloads.

“As of today, AI development companies have signed contracts to purchase more than $4 billion of capacity in Oracle’s Gen2 Cloud. That’s twice as much as we had booked at the end of Q4,” Oracle Chairman and CTO Larry Ellison said.

Ellison, a self-described close friend of Elon Musk, announced that the Tesla CEO’s AI startup xAI had signed a contract to train AI models in Oracle’s Gen2 Cloud.

He also said all nine utility companies owned by Berkshire Hathaway will replace their existing enterprise resource planning systems with Oracle’s Fusion Cloud applications.

Shares of Oracle have gained about 55% so far this year.

The firm forecast second-quarter revenue growth of between 5% and 7%, lower than analysts’ average estimate of 8.2%, according to LSEG data. It also expects adjusted profit between $1.30 and $1.34 per share, compared with expectations of $1.33.

Revenue for the first quarter stood at $12.45 billion, slightly below estimates of $12.47 billion.

Excluding items, it earned $1.19 per share, compared with estimates of $1.15.

(Reporting by Akash Sriram in Bengaluru; Editing by Devika Syamnath)

Jamie Dimon says it’s a ‘huge mistake’ to think economy will boom with so many risks out there – CNBC

Jamie Dimon, chairman and chief executive officer of JPMorgan Chase & Co., speaks during the Institute of International Finance (IIF) annual membership meeting in Washington, DC, US, on Thursday, Oct. 13, 2022.
Ting Shen | Bloomberg | Getty Images

JPMorgan Chase CEO Jamie Dimon said Monday that while the U.S. economy is doing well, it would be a “huge mistake” to believe that it will last for years.

Healthy consumer balance sheets and rising wages are supporting the economy for now, but there are risks ahead, said Dimon, who was speaking at a financial conference in New York. Topping his concerns include central banks reining in liquidity programs via “quantitative tightening,” the Ukraine war, and governments around the world “spending like drunken sailors,” the executive said.

“To say the consumer is strong today, meaning you are going to have a booming environment for years, is a huge mistake,” he said.

The world’s largest economy has defied expectations for a downturn for the past year, including from prognosticators like Dimon, head of the biggest U.S. bank by assets. Last year, he warned that a potential economic hurricane was on the way, citing the same concerns around central banks and the Ukraine conflict. But the U.S. economy has proven resilient, leading more economists to expect that a recession might be avoided.

While JPMorgan and other banks have been “over-earning” on lending for years because of historically low default rates, strains were emerging in parts of real estate and subprime auto lending, Dimon said.

“If and when you have a recession, which you’re eventually going to have, you’ll have a real normal credit cycle,” Dimon said. “In a normal credit cycle, something always does worse than” expected, he added.

Dimon struck a note of caution throughout the panel discussion. JPMorgan is repurchasing stock at a lower level than before, a pace which might last through 2024, he said.

“I think the uncertainties out there ahead of us are still very large, and very dangerous,” Dimon said.

Among those risks is the deterioration in relations with China, he said.

“I don’t expect war in Taiwan, but this can go south,” Dimon said.

This story is developing. Please check back for updates.