The full prepared text from Fed Powell’s testimony to the Joint Economic Council

Chair Powell’s prepared remarks

Chairman Lee, Vice Chair Maloney, and members of the Committee, I appreciate the opportunity to testify before you today. Let me start by saying that my colleagues and I strongly support the goals of maximum employment and price stability that Congress has set for monetary policy. We are committed to providing clear explanations about our policies and actions. Congress has given us an important degree of independence so that we can effectively pursue our statutory goals based on facts and objective analysis. We appreciate that our independence brings with it an obligation for transparency and accountability. Today I will discuss the outlook for the economy and monetary policy.

The Economic Outlook
The U.S. economy is now in the 11th year of this expansion, and the baseline outlook remains favorable. Gross domestic product increased at an annual pace of 1.9 percent in the third quarter of this year after rising at around a 2.5 percent rate last year and in the first half of this year. The moderate third-quarter reading is partly due to the transitory effect of the United Auto Workers strike at General Motors. But it also reflects weakness in business investment, which is being restrained by sluggish growth abroad and trade developments. These factors have also weighed on exports and manufacturing this year. In contrast, household consumption has continued to rise solidly, supported by a healthy job market, rising incomes, and favorable levels of consumer confidence. And reflecting the decline in mortgage rates since late 2018, residential investment turned up in the third quarter following an extended period of weakness.

The unemployment rate was 3.6 percent in October-near a half-century low. The pace of job gains has eased this year but remains solid; we had expected some slowing after last year’s strong pace. At the same time, participation in the labor force by people in their prime working years has been increasing. Ample job opportunities appear to have encouraged many people to join the workforce and others to remain in it. This is a very welcome development.

The improvement in the jobs market in recent years has benefited a wide range of individuals and communities. Indeed, recent wage gains have been strongest for lower-paid workers. People who live and work in low- and middle-income communities tell us that many who have struggled to find work are now getting opportunities to add new and better chapters to their lives. Significant differences, however, persist across different groups of workers and different areas of the country: Unemployment rates for African Americans and Hispanics are still well above the jobless rates for whites and Asians, and the proportion of the people with a job is lower in rural communities.

Inflation continues to run below the Federal Open Market Committee’s (FOMC) symmetric 2 percent objective. The total price index for personal consumption expenditures (PCE) increased 1.3 percent over the 12 months ending in September, held down by declines in energy prices. Core PCE inflation, which excludes food and energy prices and tends to be a better indicator of future inflation, was 1.7 percent over the same period.

Looking ahead, my colleagues and I see a sustained expansion of economic activity, a strong labor market, and inflation near our symmetric 2 percent objective as most likely. This favorable baseline partly reflects the policy adjustments that we have made to provide support for the economy. However, noteworthy risks to this outlook remain. In particular, sluggish growth abroad and trade developments have weighed on the economy and pose ongoing risks. Moreover, inflation pressures remain muted, and indicators of longer-term inflation expectations are at the lower end of their historical ranges. Persistent below-target inflation could lead to an unwelcome downward slide in longer-term inflation expectations. We will continue to monitor these developments and assess their implications for U.S. economic activity and inflation.

We also continue to monitor risks to the financial system. Over the past year, the overall level of vulnerabilities facing the financial system has remained at a moderate level. Overall, investor appetite for risk appears to be within a normal range, although it is elevated in some asset classes. Debt loads of businesses are historically high, but the ratio of household borrowing to income is low relative to its pre-crisis level and has been gradually declining in recent years. The core of the financial sector appears resilient, with leverage low and funding risk limited relative to the levels of recent decades. At the end of this week, we will be releasing our third Financial Stability Report, which shares our detailed assessment of the resilience of the U.S. financial system.

Monetary Policy
Over the past year, weakness in global growth, trade developments, and muted inflation pressures have prompted the FOMC to adjust its assessment of the appropriate path of interest rates. Since July, the Committee has lowered the target range for the federal funds rate by 3/4 percentage point. These policy adjustments put the current target range at 1-1/2 to 1‑3/4 percent.

The Committee took these actions to help keep the U.S. economy strong and inflation near our 2 percent objective and to provide some insurance against ongoing risks. As monetary policy operates with a lag, the full effects of these adjustments on economic growth, the job market, and inflation will be realized over time. We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market, and inflation near our symmetric 2 percent objective.

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OPEC Barkindo: Could see sharp supply fall in 2020 from US shale output

OPEC Secretary-General Barkindo

OPEC Secretary-General Barkindo is on the news wires:
  • likely C# downward revisions of supply going into 2020 especially from United States shale output
  • fundamentally global economy range strong
  • there is no sign of global economic recession
  • Demand numbers for 2020 has potential for an upside swing
  • confident OPEC+ members will continue with their agreement in 2020
  • some US oil companies see shale output growth in 2020 only up by around 300,000-400,000 BPD. That it is not as high as OPEC optimistic estimates
  • Saudi authorities have reassured US that Aramco IPO won’t affect kingdom’s role within OPEC as the biggest producer
  • no one in OPEC+ wants to return to where we came from during oil prices downturn
  • The Aramco IPO won’t affect Saudi Arabia’s participation in supply adjustments to ensure oil market stability

Key Apple suppliers ready more non-China production

The world’s two largest contract electronics suppliers, Foxconn and Quanta Computer, said on Wednesday that they will continue to move production capacity out of China to cope with the protracted trade war.

“The U.S.-China trade war is very dynamic and our clients are monitoring the situation closely,” Foxconn Chairman Young Liu told reporters. “We have to be well prepared and expand capacity at the fastest pace when our clients make decisions [to move].”

Formally traded as Hon Hai Precision Industry, Foxconn’s other key clients include China’s Huawei Technologies, Google, Amazon and Tesla. The company makes a wide range of goods such as smartphones, PCs, servers and electronics components, many of which have been hit by Washington’s tariffs.

Foxconn has manufacturing facilities in 16 countries, but 75% of its capacity is in China. It is the country’s largest employer and exporter. But now the company’s decadeslong production portfolio has begun to change owing to the trade tensions. Continue reading »

CPI, Powell, Trump on the schedule today

Powell addresses the joint economic committee of Congress

The schedule today is full with a few more releases and events than the prior 2 days (when there were no economic releases scheduled).

The scheduled for the day includes:
  • US CPI for the month of October.  8:30 AM ET/1330 GMT. MoM estimate 0.3% versus 0.0% last month.  Ex food and energy MoM 0.2% versus 0.1% last month. YoY headline 1.7% estimate versus 1.7% last month. Ex food and energy YoY 2.4% estimate versus 2.4% last month.
  • Real average weekly earnings for October and real average hourly earnings YoY will be released with the CPI.  Last month they rose by 1.0% at 1.3% respectively
  • Yesterday, Pres. Trump address the Economic Club of New York. Today the public impeachment inquiry will begin at 10 AM ET/1500 GMT.
  • At 11 AM ET/1600 GMT, Fed chair Jay Powell will address the joint economic committee of Congress.  The Federal Reserve as cut rates 3 times (25 basis points each) in 2019 after last raising rates by 25 basis points in December 2018.  The Pres. remains critical of the policy by the Fed.  The prepared text is not expected to be released ahead of his scheduled testimony at 8:30 AM ET (but will be prepared anyway just in case).
  • The monthly budget statement will be released at 2 PM ET/1900 GMT.  The estimate is for a budget deficit of $-130 billion. That compares to your co-level of $-100.5 billion

USD/JPY falls to four-day low as bond yields sink further on the day

USD/JPY falls to a low of 108.80, below the 200-hour moving average

USD/JPY H1 13-11

As the risk mood continues to soften, it is dragging yen pairs lower now as we move towards US trading. 10-year Treasury yields are now down by over 7 bps to 1.862% and that is helping to keep the yen bid at the moment.
There isn’t really any fresh catalysts for the continued nudge softer in the risk mood today but as mentioned earlier, the lack of progress in US-China trade talks appear to be breeding contempt and is starting to weigh on markets.
For USD/JPY, price is now tracking under the 200-hour MA (blue line) as sellers look to seize near-term control. The 7 November low @ 108.65 will be the next key support level to watch out for in case of a push lower later today.

Eurozone September industrial production +0.1% vs -0.2% m/m expected

Latest data released by Eurostat – 13 November 2019

  • Prior +0.4%
  • Industrial production WDA -1.7% vs -2.3% y/y expected
  • Prior -2.8%
Factory output nudges up against expectations and that is very much a relief for the manufacturing sector in the euro area. That said, the data here pertains to Q3 data and is largely factored into the report here.
Let’s see if this can keep up in Q4 but for now, at least there’s still some hope.

OPEC’s Barkindo: Too early to say if there is a need for further output cuts

Comments by OPEC secretary general, Mohammed Barkindo

  • Premature to discuss OPEC+ decision in December
  • OPEC still to hold five technical meetings before December meeting in Vienna
  • OPEC is following progress in US-China trade talks closely
They don’t sound too committed to deeper cuts next month. As such, I think expectations will be low going into the decision so oil prices may have little to cheer about in the build up. However, a surprise decision could yet give oil a decent boost in such a case.

Hong Kong government announces suspension of all schools for tomorrow

The civil unrest in Hong Kong is getting worse by the day

The protests continue to grow in the city and offices/banks’ operations are already being affected today. As the situation is starting to get further out of hand, we’re now seeing schools closed for safety reasons.

To all those affected, be safe out there.