Economy

Americans’ incomes rose more slowly last month — but, for once, those gains weren’t swallowed up by higher prices.Personal income, after taxes, rose 0.2 percent in July, the Commerce Department said Friday. That was slower than the 0.7 percent gain in June. But while the gains in June were more than offset by sharply higher prices, in July, Americans saw their inflation-adjusted incomes rise 0.3 percent as lower gas prices led to a respite from inflation.Consumer spending also cooled in July, as Americans pulled back on purchases of goods. Overall consumer spending rose 0.1 percent, the weakest showing since a decline in December and down from a 1 percent gain in June. Spending on services, which has rebounded sharply as the pandemic has ebbed, continued to rise, but more slowly than in prior months.The moderation in spending could be welcome news for policymakers at the Federal Reserve, who have been trying to tamp down demand without pushing the recovery into reverse.Income and spending, adjusted for inflation, are also among the indicators that economists at the National Bureau of Economic Research use to determine when a recession has begun. The gains in July are the latest evidence that the economy, though slowing, is not in a recession.Economists warn that the reprieve from inflation may prove temporary. But they say households should be able to keep spending as long as employers keep hiring and pay keeps rising. Income from wages and salaries rose 0.8 percent in July, the biggest gain since February. The Labor Department will provide data on employment and wages for August at the end of next week.Diane Swonk, chief economist at the accounting firm KPMG, said the underlying strength of the consumer economy reflected a handoff from the government, which helped support households and businesses with record spending earlier in the pandemic, to the private sector, which has roared back over the past year and a half.“We have seen the private sector really pick up that baton, which has been amazing,” she said. More

(Reuters) – Atlanta Federal Reserve Bank President Raphael Bostic on Thursday said that with Friday’s data showing U.S. inflation is slowing, he is “leaning” toward supporting a 50 basis point rate hike in September on the way toward getting the policy rate to 3.5%-3.75% by year end. Once rates are at that “restrictive” level, Bostic told CNBC in an interview on the sidelines of the Jackson Hole central bankers conference, he would be comfortable keeping them there for a while to allow inflation to come down closer to the Fed’s 2% goal. More

The Public Company Accounting Oversight Board (PCAOB) said it was the most detailed and prescriptive agreement the regulator has ever reached with China.U.S. regulators have for long been demanding access to audit papers of Chinese companies listed in the United States, but Beijing has been reluctant to let overseas regulators inspect accounting firms, citing security concerns..The decision marks a major thaw in U.S.-China business relations and will be a huge relief for hundreds of Chinese companies and investors who have invested billions of dollars in the firms that have a chance to retain access to the world’s deepest capital markets.By Friday, 163 companies, including Alibaba (NYSE:BABA) Group, JD (NASDAQ:JD).Com Inc, and NIO INC had been identified by the U.S. regulator as facing trading prohibition risks for not complying with audit requirements.In a statement, the PCAOB said the agreement would allow it “sole discretion to select the firms, audit engagements and potential violations it inspects and investigates – without consultation with, nor input from, Chinese authorities.”The U.S. regulator added its inspectors would be able to “view complete audit work papers with all information included and for the PCAOB to retain information as needed.””The PCAOB has direct access to interview and take testimony from all personnel associated with the audits the PCAOB inspects or investigates,” it said.China’s Securities Regulatory Commission said the agreement was an important step towards addressing the auditing issue.It added keeping Chinese companies listed in the United States benefited investors, companies and both countries.The signing of the protocol between China and the U.S. signals that both sides have “made a crucial step to solve the audit regulatory issue of U.S. listed Chinese companies through enhanced cooperation”, according to the CSRC statement.”It is in line with the hope and expectation of the markets…if cooperation afterwards satisfies each side’s regulatory needs, there is hope that the audit issue will be resolved, and passive delisting will be avoided.”Current U.S. rules stipulate that Chinese companies that are not in compliance with audit working papers requests will be suspended from U.S. trading in early 2024, but that deadline could get brought forward. Securities and Exchange Commission (SEC) chairman Gary Gensler said Chinese companies still faced delisting if their accounts could not be accessed by U.S. authorities.”Make no mistake, though: The proof will be in the pudding,” he said.”This agreement will be meaningful only if the PCAOB actually can inspect and investigate completely audit firms in China.”Major Chinese companies listed in the United States rose in premarket trading, with Alibaba Group Holdings up 2.6%, Pinduoduo (NASDAQ:PDD) gaining nearly 6% and Baidu Inc (NASDAQ:BIDU) up 3.3%.”This is seen as a positive first step. However, things are not fully cast in stone yet, as seen from the various sudden reversals in the past,” said Samuel Siew, market specialist at CGS-CIMB. More

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1% last month, the Commerce Department said on Friday. Data for June was revised slightly down to show outlays advancing 1.0% instead of 1.1% as previously reported.Economists polled by Reuters had forecast consumer spending would gain 0.4%. The national average gasoline price dropped to about $4.27 per gallon in the last week of July after hitting an all-time high just above $5 in mid-June, according to data from motorist advocacy group AAA. That likely freed money for spending elsewhere.Prices of apparel and services like air travel, hotel and motel accommodation also declined in July, curbing inflation.A moderate pace of consumer spending in the second quarter helped to blunt the drag on the economy from a sharp slowdown in inventory accumulation caused by supply chain bottlenecks. Gross domestic product contracted at a 0.6% annualized rate last quarter after shrinking at a 1.6% pace in the first quarter.The economy is, however, not in a recession. When measured from the income side, the economy grew at a 1.4% pace, slowing from the January-March quarter’s 1.8% rate, the government reported on Thursday.Risks of a downturn remain as the Federal Reserve aggressively tightens monetary policy to control inflation. There is, however, cautious optimism that the U.S. central bank could slow the pace of its rate hikes if inflation continues to moderate.The personal consumption expenditures (PCE) price index dipped 0.1% last month after surging 1.0% in June. In the 12 months through July, the PCE price index increased 6.3%. The PCE price index shot up 6.8% on a year-on-year basis in June.Excluding the volatile food and energy components, the PCE price index gained 0.1% after racing 0.6% in June. The so-called core PCE price index increased 4.6% on a year-on-year basis in July after rising 4.8% in June. Fed officials are closely watching the PCE price indexes, in addition to the consumer price index. Though oil prices have dropped significantly, rental costs have remained hot, leaving some economists hesitant to declare that inflation has peaked. Fed Chair Jerome Powell’s address on Friday at the annual Jackson Hole global central banking conference in Wyoming could shed more light on how much further U.S. borrowing costs need to rise. More

The Federal Reserve’s preferred measure of inflation eased in July as gas prices fell following a sharp run-up earlier in the summer, a widely expected moderation that could nevertheless provide policymakers positive news as they battle the most rapid price gains in decades.The Personal Consumption Expenditures index, which the Fed tries to keep climbing at a 2 percent annual rate on average over time, was up by 6.3 percent in July compared to a year earlier. While that is still far more inflation than the central bank wants, it is a slowdown from 6.8 percent increase over the year through June.And on a monthly basis, the price index declined by 0.1 percent, an even bigger pullback than economists had expected.Because part of the decline was a result of falling gas prices, which are volatile and could jump again, officials may not take the cool-down in headline inflation alone as a major signal. But economists closely watch a so-called core inflation measure that strips out fuel and food prices to get a better sense of underlying price pressures, and that measure also offered some encouraging news.Core inflation slowed to a 4.6 percent annual increase, compared with 4.8 percent in June. And on a monthly basis, the core index slowed to a 0.1 percent gain, a pullback from the prior month and less than the 0.2 percent economists in a Bloomberg survey had expected.Inflation F.A.Q.Card 1 of 5Inflation F.A.Q.What is inflation? More

BEIJING/SHANGHAI (Reuters) -China’s Bank of Communications (BoCom) on Friday warned of liquidity risks in the property sector after it posted an almost 5% rise in first half net profit. “Asset quality control in the second half of the year still faces fairly large challenges and pressures, such as the liquidity problems seen in the real estate industry,” said Chief Risk Officer Lin Hua in a press conference, adding that risk could spread to other industries. Lin also expects the quality of retail credit assets to fluctuate in the second half with the risk on credit card debt fairly high. The results come after a gloomy first half in which rising developer defaults dampened the property market as COVID shut-downs in some cities brought business to a halt.But despite this, Vice President Zhou Wanfu said housing projects that were delayed only accounted for 1.55% of the bank’s mortgage loan book at the end of July, or 23.6 billion yuan ($3.44 billion) of outstanding mortgages. Overdue loans accounted for just 0.03% of total mortgage lending. The lender reported a 1.46% non-performing loan ratio at the end of the second quarter compared to 1.47% at the end of the previous one. “Since the beginning of this year, under the context of changes unseen in a century intertwined with unprecedented pandemic outbreak, the complexity, severity and uncertainty encountered by the country’s economic environment have increased with more risks and challenges,” BoCom said in a statement to the Hong Kong stock exchange. BoCom reported a 4.8% rise in first-half net profit despite what it referred to as the unprecedented coronavirus pandemic. Profit rose to 44.04 billion yuan for the January to June period from 42.02 billion yuan a year earlier, the bank said in its statement. Net interest margin (NIM) – a key indicator of profitability – was 1.53% at the end of June compared with 1.56% at the end of March, though vice president Guo Mang warned that commercial lenders face downward pressure on their NIM.($1 = 6.8627 Chinese yuan renminbi) More

LONDON (Reuters) – U.S. stock futures were indicating a lower open on Wall Street on Friday while world stocks were heading for a small drop on the week, as investors wait to see if Federal Reserve Chair Jerome Powell will indicate further rate hike pain.Investors have pared back expectations that the Fed could pivot to a slower pace of rate hikes, as U.S. inflation remains at 8.5% on an annual basis, well above the central bank’s 2% target.But Powell’s speech at 1400 GMT at the Fed’s annual conference at Jackson Hole will be scrutinised for any indication that an economic slowdown might alter its strategy.Interest rate futures now imply a 60% chance of a 75 basis point (bps) Fed hike in September.”The Fed and other central banks have been falling asleep at the wheel over inflation, now they are desperate to regain credibility,” said Luca Paolini, chief strategist at Pictet Asset Management.”Economists are clearly calling for the Fed not to blink, and if anything accelerate the pace of tightening.”U.S. S&P futures fell 0.35% after the S&P 500 index gained 1.4% on Thursday.The MSCI world equity index was steady on the day and was heading for a 0.5% drop on the week.European stocks dropped 0.44%, while Britain’s FTSE 100 was steady.Consumer morale in the euro zone’s two biggest economies diverged starkly in August as French consumers benefited from fresh government measures while concerns over rising energy bills hit their German counterparts, surveys showed on Friday.Investors pulled money from both equity and bond funds in the week to Wednesday, with European equity funds seeing their 28th consecutive week of outflows in the longest streak since 2016, BofA said in a research note citing EPFR data.MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.55% to one-week highs. Fed officials on Thursday continued hammering the point that they will drive rates up and keep them there until inflation has been squeezed from the economy.”So it is a fair bet that the Powell speech will take a similar turn today,” said Robert Carnell, regional head of Research, Asia-Pacific, at ING.”If so, the most likely market reaction would be a rise in yields at both the front and back of the yield curve, a sell-off in equities and dollar strength, as markets seem to have been positioning themselves for a more supportive set of comments.”The yield on benchmark U.S. 10-year Treasury notes rose 5 bps to 3.0706%, while the two-year yield was flat at 3.3742%. Germany’s 10-year bond yield rose 2 bps to 1.344% after hitting its highest level since early July on Thursday at 1.39%.Currency markets were relatively calm after the dollar recently hit 20-year highs against a basket of currencies on the U.S. rate hike expectations.The dollar index dipped 0.25% on Friday, while the euro rose back above parity with the dollar, up 0.4% to $1.0013. The dollar gained 0.3% to 136.89 yen. The pound was steady at $1.1831, holding above recent 2-1/2 year lows, after Britain’s energy regulator said energy bills will rise 80% to an average 3,549 pounds ($4,200.95) from October.RBC analysts forecast annual energy price caps to rise to more than 6,000 pounds in April 2023. As wholesale gas and electricity prices surge, millions of people in Europe are now spending a record amount of their income on energy, data shows.”The huge rise in energy prices in Europe and demand destruction will cause massive disruptions to global supply chains,” said Tim Ash, strategist at BlueBay Asset Management.However, oil rose on Friday on signs of improving fuel demand, although further gains were capped as the market awaited Powell’s speech. [O/R]Brent crude rose 1.66% to $100.99 per barrel and U.S. crude gained 1.42% to $93.84 a barrel.Spot gold was at $1,746 per ounce, down 0.70%. [GOL/]($1 = 0.8448 pounds) More

According to Refinitiv Lipper data, U.S. bond funds witnessed outflows worth a net $8.81 billion, the most in a week since June 22. Fund flows: US equities, bonds and money market funds https://fingfx.thomsonreuters.com/gfx/mkt/zgpomgonwpd/Fund%20flows%20US%20equities%20bonds%20and%20money%20market%20funds.jpg U.S. yields across the curve, from two-year notes to 30-year bonds, hit highs last seen between five and 10 weeks ago as market participants positioned for hawkish comments from Powell.Investors jettisoned U.S. taxable bond funds worth a net$7.67 billion, the biggest amount in nine weeks, while municipal bond funds saw net outflows of $1.36 billion. U.S. high yield funds also suffered $4.72 billion worth of net selling, the biggest outflow in over two months, while general domestic taxable fixed income, and short/intermediate government & treasury funds recorded net withdrawals of $1.7 billion and $883 million respectively. Fund flows: US bond funds https://fingfx.thomsonreuters.com/gfx/mkt/lgvdwydonpo/Fund%20flows%20US%20bond%20funds.jpg However, safer money market funds drew their biggest weekly net inflow since July 6 at $11.07 billion.U.S. equity funds were also out of favour, posting a net weekly outflow of $2.19 billion after two weeks of net purchases.Investors sold U.S. growth funds worth a net $3.31 billion in their biggest weekly disposal since July 20, while also exiting $1.75 billion in value funds. Fund flows: US growth and value funds https://fingfx.thomsonreuters.com/gfx/mkt/byvrjygqlve/Fund%20flows%20US%20growth%20and%20value%20funds.jpg Tech and industrials recorded net outflows of $1.77 billion and $723 million, respectively, although financials attracted $1.87 billion in net buying. Fund flows: US equity sector funds https://fingfx.thomsonreuters.com/gfx/mkt/akvezkbozpr/Fund%20flows%20US%20equity%20sector%20funds.jpg More