Economic Update – UK Inflation nears 3%, Fed Prepare to ‘Normalise’ Policy, US Commercial Loans Falling, more…

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So far this year central banks have purchased $1.5 trillion of ‘assets‘, the results from which have been record highs on global stock markets amidst increasingly poor economic data that illustrates a slowdown in productivity and most importantly the issuance of consumer credit.

As the Federal Reserve push on with their course of rate hikes (the next of which will likely come this Wednesday), others such as the European Central Bank and the Bank of England are beginning to soften their stance on continuing with the ‘ultra loose monetary policy‘ of the past decade.

Meanwhile, the trend of rising inflation in the UK continues along with wages falling further behind.


BBC: UK inflation rate at near four-year high

  • The rising cost of foreign package holidays and imported computer games helped to push the UK inflation rate up to 2.9% last month from 2.7% in April.
  • The latest inflation rate is the highest since June 2013, and above the Bank of England’s 2% target.
  • The Office for National Statistics said the price of food and clothing also went up slightly but fuel costs fell for a third month in a row.
  • The pick-up in inflation is likely to continue the squeeze on consumers.
  • Wage increases have not kept up with the rise in prices. The most recent ONS data on wages showed that average weekly earnings excluding bonuses increased by 2.1% in the three months to March.

Market Watch: U.S. wholesale inflation flat in May but still elevated, PPI shows

  • Lower costs of gasoline and other fuels kept wholesale U.S. inflation in check in May, but upward pressure on prices persisted in many areas of an economy whose expansion is the third longest in modern times.
  • The producer price index was flat last month following a sharp 0.5% increase in April, the government said Tuesday. Economists surveyed by MarketWatch had predicted no change in the PPI.
  • Still, inflation is more widespread after being largely invisible in 2016. The 12-month rate of wholesale inflation stood at a 2.4% in May, up from zero a year earlier and just a notch below a five-year high.

Bloomberg: The Fed Is Getting New Rules of the Road Ready for Balance Sheet Unwind

  • Federal Reserve officials surprised some onlookers by unveiling a rough plan for balance sheet runoff in the minutes for their May meeting. They were so on top of things, in fact, that many economists think more formal guidelines could come as early as this week.
  • To avoid unsettling financial markets, the Fed wants to clearly communicate its unwind strategy well in advance, and the next step in that process is releasing a fresh version of its “Policy Normalization Principles.”

Digital Look: Weak auto production weighs on Italian industrial output in April

  • Italian industrial production fell unexpectedly in April, weighed down by a drop in output of motor vehicles and transport.
  • According to economists at Barclays Research, the data belied the weak underlying tone of the economic expansion, despite the growth spurt seen at the tail-end of 2016.
  • Industrial production declined by 0.4% month-on-month and was ahead by 1.2% year-on-year, according to ISTAT.
  • That was significantly weaker than the rise of 0.2% on the month and 2.5% on the year which economists had forecast.

Bloomberg: The Party’s Ending for British Consumers

  • It’s finally happening. After they voted to leave the European Union, Britons did what they always do when times get tough. They went shopping.
  • But now signs are growing that consumers are running out of steam, or rather—with inflation rising ahead of wage growth—money.
  • The slowdown hasn’t showed up in the earnings of many of the larger retailers, yet. But over the past weeks there have been indications from smaller peers and industry surveys that the consumer is wobbling.
  • Pre-election jitters have weighed on consumer confidence. Usually, it could be expected to bounce back in the wake of  a decisive outcome. But the uncertainty created by a hung parliament and a fraught Brexit process means that’s unlikely.

Zero Hedge: U.S. Weeks Away From A Recession According To Latest Loan Data

  • After growing at a 7% Y/Y pace at the start of the year, which declined to 3% at the end of March and 2.6% at the end of April, the latest bank loan update from the Fed showed that the annual rate of increase in C&A loans is now down to just 1.6%, – the lowest since 2011 – after slowing to 2.3% and 1.8% in the previous two weeks.
  • Should the current rate of loan growth deceleration persist – and there is nothing to suggest otherwise – the US will post its first negative loan growth, or rather loan contraction since the financial crisis, in roughly 4 to 6 weeks.

Economic Prism: The Three Headed Debt Monster That’s Going to Rampage the Economy

  • While the U.S. government can seemingly borrow and spend without limits, the U.S. consumer appears to be nearing the end of its rope.  Somehow this always seems to happen at the worst possible time.
  • The problem, of course, is that U.S. consumer debt has gone parabolic since early 2009.  Student loans, auto loans, and credit card debt has all recklessly piled up to dizzying heights.  In reality, U.S. consumers have borrowed much more – nearly $13 trillion – than they can ever pay back.  Stagnating wages also exacerbate the problem.

Bloomberg: Central Banks Poised to Start Rowing in One Direction Again

  • The world’s central banks aren’t moving in harmony just yet, but at least the discord is beginning to fade.
  • The European Central Bank on Thursday ruled out further interest-rate cuts in a sign that it’s cautiously edging toward an exit from stimulus. Bank of England officials are considering gradually removing accommodation in coming years, though a move is some way off and the assessment will have to take into account the fallout from the country’s messy election outcome. And while Japan’s central bank has no intention of removing stimulus soon, it is said to be re-calibrating communications to acknowledge that it is thinking about how to handle an eventual policy change.

Zero Hedge: “Nothing Else Matters”: Central Banks Have Bought A Record $1.5 Trillion In Assets In 2017

  • The latest data means that contrary to previous calculations, central banks are now injecting a record $300 billion in liquidity per month, above the $200 billion which Deutsche Bank recently warned is a “red-line” indicator for risk assets.
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