Economy

The producer price index increased 0.4% for November, higher than the Dow Jones consensus estimate for 0.2%.
However, excluding food and energy, core PPI increased 0.2%, meeting the forecast.
First-time claims for unemployment insurance totaled a seasonally adjusted 242,000 for the week ending Dec. 7, versus the 220,000 forecast and up 17,000 from the prior period.

A measure of wholesale prices rose more than expected in November as questions percolated over whether progress in bringing down inflation has slowed, the Bureau of Labor Statistics reported Thursday.
The producer price index, or PPI, which measures what producers get for their products at the final-demand stage, increased 0.4% for the month, higher than the Dow Jones consensus estimate for 0.2%. On an annual basis, PPI rose 3%, the biggest advance since February 2023.

However, excluding food and energy, core PPI increased 0.2%, meeting the forecast. Also, subtracting trade services left the PPI increase at just 0.1%. The year-over-year increase of 3.5% also was the most since February 2023.
In other economic news Thursday, the Labor Department reported that first-time claims for unemployment insurance totaled a seasonally adjusted 242,000 for the week ending Dec. 7, considerably higher than the 220,000 forecast and up 17,000 from the prior period.
On the inflation front, the news was mixed.
Final-demand goods prices leaped 0.7% on the month, the biggest move since February of this year. Some 80% of the move came from a 3.1% surge in food prices, according to the BLS.
Within the food category, chicken eggs soared 54.6%, joining an across-the-board acceleration in items such as dry vegetables, fresh fruits and poultry. Egg prices at the retail level swelled 8.2% on the month and were up 37.5% from a year ago, the BLS said in a separate report Wednesday on consumer prices.

Services costs rose 0.2%, pushed higher by a 0.8% increase in trade.
The PPI release comes a day after the BLS reported that the consumer price index, or CPI, a more widely cited inflation gauge, also nudged higher in November to 2.7% on a 12-month basis and 0.3% month over month.
Despite the seemingly stubborn state of inflation, markets overwhelmingly expect the Federal Reserve to lower its key overnight borrowing rate next week. Futures markets traders are implying a near certainty to a quarter percentage point reduction when the rate-setting Federal Open Market Committee concludes its meeting Wednesday.
Following the release, economists generally viewed the data this week as mostly benign, with underlying indicators still pointing towards enough disinflation to get the Fed back to its 2% target eventually.
The Fed uses the Commerce Department’s personal consumption expenditures price index, or PCE, as its primary inflation gauge and forecasting tool. However, data from the CPI and PPI feed into that measure.
An Atlanta Fed tracker is putting November PCE at 2.6%, up 0.3 percentage point from October, and core PCE at 3%, up 0.2 percentage point. The Fed generally considers core a better long-run indicator. A few economists said the details in the report point to a smaller monthly rise in PCE inflation than they had previously expected.
“It appears that only an exogenous shock such as dramatic tariff policy shifts would be capable of derailing supply-side contributions toward inflation’s return to the Federal Reserve’s 2.0% average goal in the near term,” PNC senior economist Kurt Rankin wrote.
Stock market futures were slightly in negative territory following the economic news. Treasury yields were mixed while the odds of a rate cut next week were still around 98%, according to the CME Group.
One reason markets expect the Fed to cut, even amid stubborn inflation, is that Fed officials are growing more concerned about the labor market. Nonfarm payrolls have posted gains every month since December 2020, but the increases have slowed lately, and Thursday brought news that layoffs could be increasing as unemployment lasts longer.
Jobless claims posted their highest level since early October, while continuing claims, which run a week behind, edged higher to 1.89 million. The four-week moving average of continuing claims, which smooths out weekly volatility, rose to its highest level in just over four years. More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The IMF’s in-house watchdog has criticised the fund over a lack of consistency in some of its biggest bailouts of the past two decades, calling on officials to address claims they succumb to political pressures to back big, risky repeat borrowers.Rules for outsized loans to countries such as Argentina, Ukraine and Egypt needed an overhaul as “perceptions of a lack of even-handedness” were affecting the fund’s credibility, the IMF’s independent evaluation office said in a report on Thursday.The report casts light on one of the thorniest issues facing the IMF, as the Washington-based institution comes under pressure to balance mounting debt problems in more and more developing economies with the taxing of its resources by a small group of countries that it is struggling to wean off its support. The fund’s biggest lending commitment is to Argentina, where President Javier Milei is seeking a new $10bn loan, on top of $44bn the country tapped since 2018 under the exceptional access rules. The country’s obligations to the IMF are so large that last year it tapped a renminbi swap line with the Chinese central bank to help repayments.Ongoing IMF support for Ukraine is also a linchpin of Kyiv’s financing of its war effort against Russia’s invasion, while a fund loan to Egypt this year was seen as stabilising a key economy on the frontline of fallout from the Gaza war.Kristalina Georgieva, the IMF managing director, said in response to the assessment that a fund review of the rules governing its biggest bailouts was “needed to ensure that the policy remains fit for purpose in an evolving global context”.But she cautioned that the IMF still needs space for flexibility and that too many sweeping reservations about its commitments to countries such as Argentina and Ukraine could backfire, and weaken countries’ ability to return to markets. The fund introduced a so-called “exceptional access policy” in 2002 to better regulate large bailouts that put bigger risks on IMF resources.While the watchdog acknowledged the fund’s policy for so-called “exceptional access” cases, where a country borrows many times more than usual limits, has worked better than previous use of discretion, it “has not provided a substantively higher standard” compared to normal bailouts, the office said.“The use of the [policy] at times may have led to delaying debt resolution problems and it has not catalysed private financing to the extent the fund envisaged when it was adopted,” it added.Under a long-standing policy, countries have had to pay surcharges, or extra interest, on IMF lending above a set quota, in order to discourage large repeat borrowings. The fund reformed the surcharges this year, including a cut to the rate.“Outside the fund, there is a strong perception of political pressures in some high-profile cases affecting the assessment” of bailouts under the exceptional access rules, the IEO said.The IMF often faces criticism that it bows to big shareholders that often are also large lenders to countries in trouble. In October, Brent Neiman, the US Treasury Assistant Secretary for International Finance, said the fund needed to be firmer in assessing bailouts where China was a big creditor.The IEO report said its evaluation “confirms that pressures on staff and management, exerted directly or indirectly, were strong in high-stakes cases”.The review did not find evidence that confirmed concerns that economic assumptions behind bailouts were “reverse-engineered” in order to get loans approved.But it identified weaknesses in processes, such as when the IMF relied on political assurances ahead of elections that bailout conditions such as big spending cuts will be delivered.It added that the fund also tended to wrongly assume that big bailouts would boost investor confidence in countries. “The expected confidence effects relied more on assumption than on analytical explanation,” the report said. The assessment reviewed cases from 2002 up to the middle of last year, such as the IMF’s bailout of Greece at the start of the Eurozone crisis in 2010, and a 2015 loan to Ukraine after Russia annexed Crimea. It also looked at so-called “grey zone” cases where the fund judges that a country’s debts are sustainable before it lends but cannot say so with high probability.For grey zone cases in particular, Georgieva said “further reflection and review based on more recent data” was useful. “We do not want to increase the risk of inadvertently raising prospects of deeper debt restructurings and increased losses,” Georgieva said. More

The central bank for the 20 countries that share the euro reduced the rate it pays on bank deposits, which drives financing conditions in the bloc, to 3.0% from 3.25%. It was at a record 4.0% only in June.It also signalled that further cuts are possible by removing a reference to keeping rates “sufficiently restrictive”, economic jargon for a level of borrowing costs that curbs economic growth.”Financing conditions are easing, as the Governing Council’s recent interest rate cuts gradually make new borrowing less expensive for firms and households,” the ECB said. “But they continue to be tight because monetary policy remains restrictive and past interest rate hikes are still transmitting to the outstanding stock of credit.”There is no universal definition of what constitutes a restrictive rate but economists generally see neutral territory, which neither fuels nor cools growth, at between 2% and 2.5%.With Thursday’s decision, the ECB also cut the rate at which it lends to banks for one week – to 3.15% – and for one day, to 3.40%. These facilities have barely been used in recent years as the ECB has supplied the banking system with more reserves than it needs via massive bond purchases and long-term loans.But they may become more relevant in the future as those programmes end. The ECB confirmed on Thursday it would stop buying bonds under its Pandemic Emergency Purchase Programme this month. More

The ECB cut its benchmark deposit rate by 25 basis points to 3.0%, while the interest rate on its main refinancing operations fell to 3.15%.The ECB has already cut rates at three of its last four meetings. Nevertheless the debate has shifted to whether it is easing policy fast enough to support an economy that is at risk of recession, facing political instability at home and the prospect of a fresh trade war with the United States.Eurozone inflation came in at 2.3% in November, marginally above the ECB’s 2.0% target, but the central bank’s fresh projections are likely to show inflation back at target in a few months’ time. At the same time, economies within the region are barely growing, with gross domestic product rising 0.4% in the third quarter, according to data released earlier this month, while political turmoil in France and Germany’s upcoming election add to the uncertainty.Additionally, the election of Donald Trump as the incoming US president raised the possibility of a trade war, as he has previously threatened the bloc with high tariffs, particularly on the auto industry.  With this all in mind, investors see a cut at every meeting in 2025 until June, followed by at least one more move in the second half of 2025, taking the deposit rate to at least 1.75% by year-end.The Swiss National Bank cut its key interest rate by 50 basis points earlier Thursday, as it attempted to tackle a strong Swiss franc as well as depressed inflation. More

BEIJING (Reuters) -China pledged on Thursday to increase the budget deficit, issue more debt and loosen monetary policy to maintain a stable economic growth rate as it gears up for more trade tensions with the United States as Donald Trump returns to the White House.The remarks came in a state media readout of an annual agenda-setting meeting of the country’s top leaders, known as the Central Economic Work Conference (CEWC), which was held on Dec. 11-12.”The adverse impact brought by changes in the external environment has deepened,” national broadcaster CCTV said following the closed-door CEWC.This year’s meeting comes as the world’s second-largest economy is stuttering due to a severe property market crisis, high local government debt and weak domestic demand. Its exports, one of the few bright spots, are facing the threat of higher U.S. tariffs. The CEWC pledges match the tone of one of the Communist Party leaders’ most dovish statements in more than a decade, which was released on Monday after a meeting of the Politburo, a top decision-making body. The Politburo said China would switch to an “appropriately loose” monetary policy stance, “more proactive” fiscal levers, and step up “unconventional counter-cyclical adjustments.”In the same vein, the CEWC summary flagged a higher budget deficit and more debt issuance at a central and local government level. Leaders also vowed to reduce bank reserve requirements and cut interest rates “in a timely manner”.”The direction is clear, but the size of stimulus matters, which we probably will find out only after the U.S. announces the tariffs,” Zhiwei Zhang, chief economist at Pinpoint Asset Management, said.This dovish shift in messaging shows China is willing to go even deeper into debt, prioritising, at least in the near term, growth over financial risks, analysts said.At CEWC, Beijing sets targets for economic growth, the budget deficit, debt issuance and other variables for the year ahead. The targets are agreed at the meeting, but won’t be officially released until an annual parliament meeting in March. Reuters reported last month that government advisers recommended that Beijing keep its growth target of around 5% unchanged next year.The CEWC readout said it was “necessary to maintain steady economic growth,” but did not mention a specific number.”Maintaining 5% will be quite challenging in 2025, given that the extra ‘Trump shock’ will hit exports” and capital expenditure, Xu Tianchen, senior economist at the Economist Intelligence Unit, said.”However, a good level of stimulus will prevent a freefall, and I don’t think growth will tank below 4.5%.”TARIFF THREATSTrump’s tariff threats have rattled China’s industrial complex, which sells goods worth more than $400 billion annually to the United States. Many manufacturers have been shifting production abroad to escape tariffs.Exporters say the levies will further shrink profits, hurting jobs, investment and growth in the process. They would also exacerbate China’s industrial overcapacity and deflationary pressures, analysts said.A Reuters poll last month predicted China will grow 4.5% next year, but also suggested that tariffs could impact growth by up to 1 percentage point.If exports take a hit, China needs to look internally for a new growth engine. But consumers feel less wealthy due to falling property prices and minimal social welfare. Low household demand is a key risk to growth.Beijing has issued increasingly forceful statements on boosting consumption throughout the year, but it has offered little in terms of policies apart from a subsidy scheme for purchases of cars, appliances and a few other goods.The CEWC summary said the scheme would be expanded and that efforts would be made to increase household incomes and “vigorously boost consumption.””Markets could be encouraged,” Lynn Song, ING’s chief economist for Greater China, said. “The call to vigorously boost consumption is a good sign.” More

LONDON (Reuters) -Stocks nudged up on Thursday and the euro rose ahead of a European Central Bank monetary policy decision, while investor sentiment was supported by U.S. consumer inflation data that cemented bets for a Federal Reserve interest rate cut next week. In a busy day for central bank decisions, the Swiss franc weakened after the Swiss National Bank cut rates by half a point, its largest reduction in nearly 10 years, which hit the franc. Markets had priced a good chance of a half-point cut in the run-up to Thursday’s meeting.The dollar eased against a range other currencies, as investors took profit on some of the market’s strength ahead of Wednesday’s inflation reading, which showed the consumer price index (CPI) rose exactly in line with expectations in November.Europe’s STOXX 600 edged into positive territory, while Swiss stocks rallied sharply following the SNB’s rate cut. U.S. stock index futures were down 0.1-0.2%Overnight, the tech-focused Nasdaq shot up 1.8% to close above 20,000 for the first time, while the S&P 500 climbed 0.8%. “The U.S. CPI print lit a flame in U.S. equity,” said Chris Weston, head of research at Pepperstone.”The market has essentially seen one of the last remaining obstacles that could derail sentiment out of the way”, he said, “seeing the coast somewhat clearer for the illustrious seasonal chase of returns to play out into year-end.”Traders now place a 97% chance on a quarter-point Fed cut on Dec. 18.Higher U.S. Treasury yields prevented the dollar from straying too far below two-week highs, after data showed an increase in the U.S. budget deficit.Ten-year Treasury yields rose on Thursday by 2 bps to 4.291%, set for a rise of nearly 14 bps this week, their largest weekly increase since late October.CENTRAL BANK FOCUSThe dollar reversed early losses against the Japanese yen to hold steady at 152.46 after Reuters reported that BOJ policy makers were inclined to forgo a hike on Dec. 19 and wait for more data on wages at the start of next year.The Australian dollar surged on unexpectedly strong employment data, rebounding from Wednesday’s weakness following a Reuters report that Beijing is considering allowing the yuan to depreciate further next year. China is Australia’s top trading partner and the Aussie is often used as a liquid proxy for the yuan.The yuan held its ground above a one-week low after the central bank kept the official midpoint for the currency stable, to last trade at 7.268, leaving the dollar down 0.18% in offshore trading.The Swiss franc was last down 0.5% at 0.888 to the dollar, following the SNB decision. Against the euro, the franc was down nearly 0.7% at 0.9339. “Cutting the policy rate by 50 basis points is the right decision, as inflation risks are on the downside and the economy is growing below potential, while Switzerland’s main export are struggling with structural and cyclical problems,” Karsten Junius, chief economist at J Safra Sarasin, said.The euro ticked up 0.2% to $1.0509 after dipping to a one-week trough overnight. The ECB is widely expected to cut euro zone rates by 25 basis points later in the day.Traders will focus on what central bank President Christine Lagarde signals about the outlook for growth and inflation in the months to come, given the political instability in France and Germany right now, as well as the risk of tariffs from the incoming U.S. administration led by Donald Trump.Gold briefly traded at a more than one-month high, driven by the prospect of more rate cuts from the Fed and lower bond yields. It was last steady at $2,717.25 an ounce, having earlier risen to $2,725.79 for the first time since Nov. 6.Crude oil extended its rally this week, lifted by the threat of additional sanctions aimed at stifling Russian oil output.Brent crude futures rose 0.35% to $73.77 a barrel, while U.S. crude futures were up 0.3% at $70.50. More