Stocks jumped to new record highs and the Dow shot past 20,600 on Wednesday after more reports showed the U.S. economy continues to strengthen.
The Dow Jones industrial average climbed 107 points, up 0.5% to a new closing high of 20,611.86.
Also building upon their record highs set in the previous session were the S&P 500 and Nasdaq composite, up 0.5% to 2349.25 and 0.6% to 5819.44, respectively.
The encouraging data could push the Federal Reserve to raise interest rates more aggressively from the record lows marked during the Great Recession.
Wednesday’s economic reports give the Federal Reserve more encouragement to raise interest rates, and economists said the possibility is increasing that it may happen at the central bank’s next meeting in March. Retailers had stronger sales in January than economists expected, and inflation at the consumer level was the highest in years. Consumer prices rose 2.5% in January from a year earlier, the highest rate since March 2012.
Fed Chair Janet Yellen said in testimony before a Congressional committee that the strengthening job market and a modest move higher in inflation should warrant continued, gradual increases in interest rates, echoing her comments from a day earlier. The central bank raised rates in December for just the second time in a decade, after keeping rates at nearly zero to help lift the economy out of the Great Recession.
Verbatim on what Trump said on currencies in his press conference with Abe
Exactly what Donald Trump said regarding currency devaluation.
“As far as currency devaluations, I’ve been complaining about that for a long time. I believe that we will all eventually and probably very much sooner than a lot of people understand or think; we will be all at a level playing field. Because that’s the only way it’s fair. That’s the only way you can fairly compete on trade and other things. And we will be on that field and we will all be working very hard to do great for our country. But it has to be fair and we will make it fair. I think the United States is going to be an even bigger player than it is right now, by a lot, when it comes to trade. A lot of that will have to do with our tax policy, which you’ll be seeing in the not-too-distant future. We’ll have an incentive-based policy, much more so than we have right now. Right now nobody even knows what policy we have. We’re working with Congress, we’re working with Paul Ryan, we’re working with Mitch McConnell and I think people are going to be very, very impressed.”
This morning, Minneapolis Fed Chairman Neel Kashkari penned an essay “Why I Voted to Keep Rates Steady” in which the former Goldmanite says that while core inflation “seems to be moving up somewhat, it is doing so slowly, if at all.” He adds that “financial markets are guessing about what fiscal and regulatory actions the new Congress and the Trump administration will enact. We don’t know what those will be, so I don’t think we should put too much weight on these recent market moves yet.”
Repeating a on often heard lament about the lack of rising wages, Kashkari points out that “the cost of labor isn’t showing signs of building inflationary pressures that are ready to take off and push inflation above the Fed’s target” and adds that “it seems unlikely that the United States will experience a surge of inflation while the rest of the developed world suffers from low inflation.”
The Bank of Japan is poised to upgrade its three-year economic growth outlook in the final days of January in light of strong recent indicators, though stronger inflation forecasts will be a harder sell.
The central bank will compile its quarterly outlook on economic activity and prices at a two-day policy meeting beginning Monday. The report will outline the BOJ’s forecast for each of the three years through fiscal 2018,
The last report, released in November, pegged gross-domestic product growth at 1% for fiscal 2016, 1.3% for fiscal 2017 and a slim 0.9% for fiscal 2018. Discussions this time are expected to center on the first two years, with the fiscal 2017 growth forecast thought to be headed for the mid-1% range.
Signs for an upgrade are strong. The BOJ in December boosted its outlook for Japan’s economy as a whole for the first time in 19 months. Such goods as smartphone parts and automobiles are driving up exports and industrial production, while consumer spending on durable goods such as cars is on the rebound as well. Changes made late last year to the GDP calculation method will also give the figure a boost: companies’ research and development spending, which has shown consistent growth over the years, now counts as investment.
BOJ Gov. Haruhiko Kuroda said at a World Economic Forum panel discussion Jan. 20 that he expects Japan’s economy to grow by around 1.5% in fiscal 2016 and fiscal 2017, significantly exceeding the country’s potential growth rate.
With Yellen hell-bent on tightening into Trump’s fiscal stimulus, and inflationary impulses popping up all around the world, ECB president Mario Draghi better note some serious downside looming (after leaving rates/taper unchanged) that opens the door to his un-tapering or the stagflationary pressures building everywhere willcome back to bite his precious asset prices.
As we noted earlier, with the market not expecting any changes from the ECB this morning, so far that is precisely what it got, when moments ago the ECB announced that it kept all of its rates unchanged as expected, keeping the rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility at 0.00%, 0.25% and -0.40%, respectively.
In additional language relating to non-standard measures, the ECB also said that “it will continue to make purchases under the asset purchase programme (APP) at the current monthly pace of €80 billion until the end of March 2017 and that, from April 2017, the net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond, if necessary” and “in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.“
It also said that “the net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the APP” and cautioned that “if the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration.”
In other words, it may move QE up or down, depending on what happens with inflation, in line with the ECB’s December announcement.
The eurozone’s annual inflation rate climbed above the 1 per cent mark for the first time since 2013 in December, underscoring the impact of climbing energy costs on consumer prices which have lagged at worryingly low levels for the last three years.
At 1.1 per cent, year-on-year inflation in December was confirmed in a second reading from Eurostat, which also showed an uptick in core inflation to 0.9 per cent.
But the inflationary performance across the 19-country bloc remains mixed – a development that could pose a headache for the European Central Bank, which targets average price growth of just below 2 per cent.
Germany, Europe’s largest economy, recorded a more than three-year high of 1.7 per cent last month while Italy remained more sluggish at 0.5 per cent.
Careful what you wish for central bankers and fiscal policy makers. Though we don’t see signs of “rollover risk” in any of the G5 or G20, it’s all about confidence and you know what Joe said about confidence:
Confidence is a very fragile thing. – Joe Montana
.The World Economic Forum reports this about Zimbabwe’s ghost of hyperinflation past,
Zimbabwe was once so gripped by hyperinflation that the central bank could no longer afford paper on which to print practically worthless trillion-dollar notes.
The government reported in July 2008 that Zimbabwe was experiencing inflation of 231 million percent (231,000,000%). However, the Libertarian think tank, the Cato Institute, believes that the real inflation rate was 89.7 sextillion percent or 89,700,000,000,000,000,000,000%.
It is interesting to note that the country is now grappling with the opposite problem.
Like Britain, Japan, the US and other nations dealing with the consequences of weak demand and cheap oil, Zimbabwe is threatened more by the prospect of falling prices. But that doesn’t mean its people are ready to trust that hyperinflation won’t happen again.
In a decision that will bring big cheer to the common man, the RBI (Reserve Bank Of India) has hiked the daily ATM withdrawal limit to Rs 4,500 per card. This would come as a huge relief to people who stand in queues for a long time and still manage to get only Rs 2,500.
In its latest notification, the RBI said, “The daily limit of withdrawal from ATMs has been increased (within the overall weekly limits specified) with effect from January 01, 2017, from the existing Rs 2500/- to Rs 4500/- per day per card. There is no change in weekly withdrawal limits.Such disbursals should predominantly be in the denomination of Rs 500.”
The current withdrawal limit per bank account per week has not been revised, a fact that is likely to disappoint people.
The Narendra Modi government’s move to demonetise old Rs 500 and Rs 1000 notes has largely been supported by the common man, though most agree that the implementation could have been better planned and executed. Long queues at banks and ATMs were a common sight in the first few days since the historic decision was announced by PM Modi on November 8. The situation has admittedly improved since then, but with increase in the daily limits, the government and banking system must work to ensure that ATMs have enough cash. But even as the central bank has eased the ATM withdrawal limit, the government is leaving no stone unturned to promote cashless transactions.
Companies are going to face a potentially peculiar situation following demonetisation, if the recently released inflation data are any indication. While a demand slowdown following the cash crunch could force producers to either cut or hold prices, their input prices are tending to go up owing to rising global commodity rates.
Latest data revealed retail inflation touched a two-year low of 3.63% in November, while wholesale price inflation eased to 3.15% from 3.39% in October. However, the Thomson Reuters/CoreCommodity CRB Commodity Index, which tracks the movement of 19 major commodities, has advanced 11.1% in the past one year and 8.6% so far in 2016.
Pronab Sen, former chairman of the National Statistical Commission, told FE: “The demand slowdown following demonetisation should put a downward pressure on prices, while the increase in input prices due to rising global commodity rates will put an upward pressure on prices. And what the net effect will be is very difficult to predict now. But companies may have to recalibrate their (pricing) decisions accordingly.”
Key global oil-producing countries’ decision to cut back on output has already driven up crude oil prices. Also, although China’s appetite for raw materials has been strained since last year, a renewed focus on manufacturing (along with services) by the US under President-elect Donald Trump has only complicated outlook of global commodity demand. “As more firms shift from the informal to the formal sector following demonetisation, “there is also a risk that tax increases are passed to consumers,” Nomura’s Sonal Varma said.