Fed Frets About Low Inflation

Analisi Giornaliera - 23/11/2017

US Dollar Skids in Response to Weaker Price Growth Outlook


The greenback hit a two-month low against the Japanese Yen early Thursday, after minutes from the Federal Reserve’s latest policy meeting showed some officials were worried about persistently low inflation. The US dollar slipped to as low as 111.067 Yen in thin Asian trading as US markets close for the Thanksgiving holiday.

US Rate Hawks Suffer a Blow

Some Federal Reserve policymakers think inflation could remain below their 2.00% target for longer than currently anticipated, raising fresh question marks about the pace of interest rate increases next year.  Apart from minutes from the Central Bank's November 1st meeting, investor confidence in the US currency was further dented by several weaker than anticipated macroeconomic data points.

New orders for long-lasting factory goods made in the country unexpectedly declined in October after three consecutive months of strong growth, while the University of Michigan’s consumer sentiment report revealed a dip in expectations for long-term inflation. Trading volumes are likely to be thinner than normal on Thursday, with US financial markets shuttered for the Thanksgiving holiday and Japanese markets closed for a public holiday as well.


UK Slashes 2017 Growth Forecast

UK Chancellor of Exchequer Philip Hammond unveiled a more downbeat assessment of the economy, saying that growth will ease more than estimate as the country hurtles towards Brexit. The Office for Budget Responsibility now expects gross domestic product to expand by 1.50% this year compared to a projection of 2.00% made in March. Britain’s budget forecasters also lowered their GDP growth expectations for 2019 and 2020 to 1.30%.

The OBR's more pessimistic view on the economy was largely based on weak productivity growth amid shortfalls in infrastructure and skills training. The OBR now expects business investment to grow by around 12.00% between the first quarter of 2017 and the first quarter of 2022, significantly lower than the 19.00% predicted in March. The Pound initially fell as Hammond announced the weaker economic forecasts, but later rose to touch a more than one-month high against the US dollar on Wednesday.


Key US Storage Hub Reports Big Crude Drawdown

US crude oil supplies fell last week, with most of the contraction coming out of the Cushing, Oklahoma distribution hub.  The weekly oil inventories report published by the Energy Information Administration highlighted crude stockpiles declining by -1.90 million barrels during the week ended November 17th, smaller than the -6.36 million barrel tumble posted by the American Petroleum Institute.

It was also below a consensus forecast for a drop of -2.10 million barrels taken from an S&P Global Platts survey of analysts. An outage on TransCanada’s Keystone pipeline following a leak last week prompted a large -1.80 million barrel draw at the Cushing delivery point. US WTI futures for January delivery settled at a two-year high of $58.05 a barrel on Wednesday as the inventory drop added optimism to a rally bolstered by investor hopes for an OPEC output deal extension.


New Zealand Retail Sales Growth Slows Sharply

A decline in household purchases of major items saw retail sales in New Zealand decelerate significantly during the third quarter.  Figures compiled by the federal statistical agency showed that the slowdown was magnified by one-off factors including an inconclusive election outcome and a pullback from an earlier sports tourism boom. Sales volumes increased a mere 0.20% in the three months to September 30th following a 2.00% surge in the second quarter. The value of retail sales edged 0.10% higher compared to the 1.60% gain reported a quarter prior.

Growth was dragged lower by a -3.10% slump in food and beverages spending, while sales of motor vehicles dropped -0.80% during the period. The weaker-than-expected figures should likely reinforce the Reserve Bank of New Zealand’s resolve to leave the official cash rate at a record low of 1.75%. NZDUSD is stuck within a narrow range around 0.6880 in Thursday Asian trade.


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