Homepage / Investment / Low inflation crimps Fed's ability to hike interest rates this year
Amazon says this Prime Day was its biggest shopping event ever Kudlow says President Trump is 'so dissatisfied' with China trade talks that he is keeping the pressure on As stocks regain their footing, an ominous warning looms Goldman Sachs downgrades Clorox to sell, says valuation is 'unsustainably high' How Satya Nadella has spurred a tripling of Microsoft's stock price in just over four years Kudlow says economic growth could top 4% for 'a quarter or two,' more tax cuts could be coming The one chart that explains Netflix’s stunning comeback US housing starts plunge 12% in June to a nine-month low Aerospace titans Boeing and Airbus top $110 billion in orders at Farnborough Target uses Prime Day to its advantage, logging its 'biggest online shopping day' so far this year Billionaire Marc Lasry sees bitcoin reaching up to $40,000 as it becomes more mainstream and easier to trade These are the 10 US airports where you're most likely to be hacked Amazon shares slightly higher as investors await Prime Day results Wreck of Russian warship found, believed to hold gold worth $130 billion A bullish ‘phenomenon’ in bond market is weeks away from fading, top credit strategist says Stocks making the biggest moves premarket: MS, GOOGL, TXN, UAL, NFLX & more Twitter shares up 50% since late April means most upside priced in, analyst says in downgrade EU fines Google $5 billion over Android antitrust abuse Mortgage applications fall 2.5% as buyers struggle to find affordable homes America may not have the tools to counter the next financial crisis, warn Bernanke, Geithner and Paulson Investors are getting spooked as the risk of a no-deal Brexit rises EU expected to fine Google $5 billion over Android antitrust abuse Ex-FBI chief James Comey urges Americans to vote for Democrats in midterm elections Elon Musk apologizes to British cave diver following baseless 'pedo guy' claim Disney, Comcast and Fox: All you need to know about one of the biggest media battles ever Xiaomi shares notch new high after Hong Kong, mainland China stock exchanges reach agreement The trade war is complicating China's efforts to fix its economy European markets set for a strong open amid earnings; Google in focus Hedge fund billionaire Einhorn places sixth in major poker tournament The biggest spender of political ads on Facebook? President Trump Asian stocks poised to gain after Fed's Powell gives upbeat comments; dollar firmer Stocks are setting up to break to new highs Not all FAANG stocks are created equal EU ruling may be too little, too late to stop Google's mobile dominance Cramer explains how Netflix's stock managed to taper its drop after disappointing on earnings Airbnb condemns New York City's 'bellhop politics,' threatens legal retaliation Amazon sellers say they were unfairly suspended right before Prime Day, and now have two bad choices Investor explains why 'duller' tech stocks can have better returns than 'high-flying' tech names Elon Musk is 'thin-skinned and short-tempered,' says tech VC Texas Instruments CEO Brian Crutcher resigns for violating code of conduct Google Cloud Platform fixes issues that took down Spotify, Snapchat and other popular sites Uber exec: We want to become the 'one stop' transportation app 'What a dumb hearing,' says Democrat as Congress grills tech companies on conservative bias Amazon shares rebound, report says Prime Day sales jumped 89 percent in first 12 hours of the event How to put your medical history on your iPhone in less than 5 minutes Investment chief: Watch these two big events in 2018 Even with Netflix slowing, the market rally is likely not over Cramer: Netflix subscriber weakness debunks the 'sky's the limit' theory on the stock Netflix is looking at watch time as a new area of growth, but the competition is stiff Why Nobel laureate Richard Thaler follows Warren Buffett's advice to avoid bitcoin Rolls-Royce is developing tiny 'cockroach' robots to crawl in and fix airplane engines After Netflix plunge, Wall Street analysts forecast just tame returns ahead for the once high-flying FANG group Roku shares rise after analyst raises streaming video company's price target due to customer growth China is investing 9 times more into Europe than into North America, report reveals Amazon says US Prime Day sales 'so far bigger than ever' as glitch is resolved Netflix is on pace for its worst day in two years US lumber producers see huge opportunity, rush to expand San Francisco to consider tax on companies to help homeless Homebuilder sentiment, still high, stalls as tariffs, labor and land drive up costs Powell backs more rate hikes as economy growing 'considerably stronger' Netflix history is filled with big stock declines – like today – followed by bigger rebounds Intel shares get downgraded by Evercore ISI due to rising competition from Nvidia, AMD Petco aims to reinvent the pet store with something you can't buy online Genetic testing is coming of age, but for consumers it's buyer beware Tech 'FAANG' was the most-crowded trade in the world heading into the Netflix implosion, survey shows Netflix weak subscriber growth may indicate a 'maturity wall' that could whack the stock even more: Analyst This chart may be predicting the bull market's demise Wall Street says Netflix's stock plunge is a ‘compelling’ buying opportunity because the streaming giant ‘never misses twice’ Tesla sinks after Musk tweets, again Boeing announces new division devoted to flying taxis Stocks making the biggest move premarket: NFLX, UNH, GS, AMZN, WMT & more Deutsche Bank downgrades Netflix, but says big subscriber miss is not 'thesis changing' IBM is experimenting with a cryptocurrency that’s pegged to the US dollar North Korea and Zimbabwe: A friendship explained Virgin Galactic spinoff Orbit to launch rockets from the UK with space deal Artificial intelligence will create more jobs than it destroys? That’s what PwC says ‘Treasonous’ Trump and ‘Putin’s poodle:' Scathing headlines follow the Trump-Putin summit China’s fintech companies offer ‘enormous’ opportunity, investment manager says Trump's performance at summit with Putin was 'unprecedented,' experts say Walmart and Microsoft link up on cloud technology as they both battle Amazon European stocks seen mixed amid earnings; Fed’s Powell to address Congress How I knew I should quit my day job and run my start-up full-time: Viral website founder China's stocks have been trounced, but the trade war may ultimately be good news for those shares Billionaire tech investor Peter Thiel bets on crypto start-up Block.one Asian shares subdued open after mixed close on Wall Street; energy stocks under pressure Amazon cloud hits snags after Amazon Prime Day downtime Netflix isn't doomed by one quarter unless people start questioning the long-term investor thesis Tech stocks set to sink on Tuesday after rough evening for ‘FANG’ Netflix plummets after missing big on subscriber growth This wristband lets humans control machines with their minds The U.S. has a rocky history convincing Russia to extradite computer criminals Amazon suffers glitches at the start of Prime Day Jeff Bezos is now the richest man in modern history 'The United States has been foolish': Read Trump and Putin's full exchange Goldman Sachs recommends these 5 highly profitable companies — including Nvidia — to combat rising inflation Goldman Sachs releases 'tactical' stock picks for this earnings season Three red flags for Netflix ahead of its earnings report The bond market may be raising recession fears, but don't expect one anytime soon Cramer: Banks are 'making fortunes' but are still as hated as they were during the financial crisis Putin told Trump at summit: Russia never meddled in US election


Low inflation crimps Fed's ability to hike interest rates this year

Flat consumer inflation and a surprise drop in June retail sales triggered new doubts that the Federal Reserve will be able to raise interest rates again this year.

“This is a game change for market expectations. Now it’s when does the Fed respond and what does transitory really mean,” said Ian Lyngen, head of U.S. rates strategy at BMO. Lyngen said fed funds futures were reflecting odds for another rate hike this year of just 46 percent, down from 52 percent before the data, according to Lyngen.

Fed Chair Janet Yellen raised the level of anxiety about inflation when she said told a congressional committee this week that the central bank was concerned about low inflation and would change its policy path if it persists. That was a slight departure from previous Fed comments that the softening inflation is “transitory,” and likely due to temporary events like a drop in wireless charges or lower drug prices.

In the bond market, yields fell with the 10-year Treasury briefly dropping through the key 2.30 percent level, raising the prospect of a swift move to 2.20 percent. The yield was at 2.31 percent in late-morning trading. The stock market took the reports in stride and was higher.

Some economists changed their views on the likelihood of a third rate hike for this year. Goldman Sachs economists said the probability of another rate increase went to 60 percent from 70 percent before the CPI report. JPMorgan said a December rate hike now depends on second-half inflation data.

Michael Gapen, chief U.S. economist at Barclays, said the soft data does not change his view that the Fed will start unwinding its balance sheet in September and raise interest rates in December. Citigroup economists also stuck with that view of a December rate hike.

“The [Federal Open Market] Committee is already saying we expect weakness in inflation due to base effects through Q1 of next year,” Gapen said. “Our baseline is they still do the balance sheet in September, and they hike rates in December. I don’t think inflation is likely to alter their plans until early next year. The risk is they alter their path for next year.”

The consumer price index, measuring what consumers pay for everything from apparel to used cars, was unchanged in June from the prior month. From a year earlier, the CPI was up 1.6 percent, the fourth month of surprising weakness. Excluding food and energy, the core prices rose 0.1 percent, compared with expectations for 0.2 percent.

“What I think is happening is that consumer goods are in deflation from things like a structural shift in the retail sector, where e-commerce threatens brick and mortar in a way the traditional retail sector is cutting prices as they try to hold onto market share. It’s a structural threat to their existing business, and they’re competing against it,” Gapen said. He added that overproduction by the auto sector also resulted in lower new and used car prices in the report.

Retail sales fell 0.2 percent in June, down for a second month. That was the first time they fell two months in a row since last summer. The weak retail sales raised concerns in markets about the strength of the economy, but Gapen said he views the report as volatile and leaves his tracking of GDP in the second quarter unchanged at 2.5 percent.

“It just means easier monetary policy and lower rates for longer — that’s the narrative that the equity market is following at the moment. I still think the Fed has a good chance of following through on tapering and I always thought a hike in the second half of the year was going to be a challenge, to put it mildly,” said Lyngen.

But in the bond market, there remains consternation over the Fed’s seeming about-face on inflation concerns, and also Yellen’s comment that the neutral rate will remain below historic levels, suggesting fewer rate hikes in the current policy path.

Global sovereign yields had been rising for the few weeks before Yellen’s testimony on the belief that central banks were beginning to step away from extraordinary easing, led by the Fed.

“This has been a bewildering week as far as the message from the Fed is concerned. I think these inflation numbers have rattled their case somewhat. Janet Yellen’s description of inflation changed from idiosyncratic to unusual. I think she had a handle on what this CPI number was going to be,” said Ward McCarthy, chief financial economist at Jefferies.

The Fed has a target of 2 percent inflation, and core CPI had been at that level throughout 2016. But the central bank’s preferred inflation measure, the PCE deflator, has lagged and was at 1.4 percent.

“I think this has caused some consternation not just with Janet Yellen but with other people at the Fed, as well. It does look like it’s going to slow down the normalization process,” McCarthy said.

John Briggs, head of strategy at NatWest Markets, said investors will now wait for next week’s European Central Bank meeting to see if there is action there.

“People have been whipsawed by central bankers in the last couple of weeks,” he said.

Briggs said he does expect inflation to turn higher later in the year. “Low inflation is the theme of the summer,” he said.

Source: Investment Cnbc
Low inflation crimps Fed's ability to hike interest rates this year

Comments are closed.