Morning Bid: Rate fever breaks, Alaska in spotlight
Lifting Treasury yields, buoying the dollar and stalling Wall Street stocks at record highs, the PPI report scotched any thought of a half point rate cut from the Federal Reserve next month and sowed a sliver of doubt it would ease at all.
Attention now switches to retail sales and industry updates on Friday, while next week's Fed conference in Jackson Hole comes onto the radar too.
* With some of the heat taken out of effervescent risk markets, U.S. retail sales are expected to show a brisk 0.5% gain last month but industrial production growth is forecast to have stalled, with import prices flat. June inventory readings and a consumer sentiment survey for August add to a busy diary. Fed officials threw cold water on talk of a 50 basis point cut in September, an idea that had been stoked by Treasury Secretary Scott Bessent the previous day.
* As hopes of a Ukraine ceasefire stirred with the Trump-Putin summit in Alaska due to get under way, European stocks and the euro advanced on Friday, while the European defence sector fell back 1.5%, crude oil slipped about 0.6% and gold prices remained subdued. Chinese stocks rallied despite another poor set of industry, retail and housing reports as speculation about some further stimulus there resurfaced, with reports of government support for troubled property developers in the mix. The yen firmed as Japan's Q2 GDP came in more than twice expectations at +1.0% annualised.
* Shares of Intel surged almost 5% in pre-market trading after Bloomberg reported the Trump administration was in talks with the struggling chipmaker on the U.S. government taking a stake in the company. The reported discussions follow a meeting this week between Trump and Intel CEO Lip-Bu Tan - just days after Trump called for Tan's resignation over alleged China-linked investments.
Today's Market Minute:
* Donald Trump and Vladimir Putin hold talks in Alaska on Friday, with the U.S. president's hopes of sealing a ceasefire agreement on Ukraine uncertain but with a last gasp offer from Putin of a possible nuclear deal that could help both men save face.
* The talks in Alaska mark the potential beginnings of a return of Russia - and its commodities - to the global arena following Moscow's recent international isolation. ROI columnist Gavin Maguire provides a guide on the potential market impacts should global relations with Russia return to normal.
* China's factory output growth slumped to an eight-month low in July, while retail sales slowed sharply, raising pressure on policymakers to roll out more stimulus to revive domestic demand and ward off external shocks to the $19 trillion economy.
* Wall Street's largest hedge funds, Bridgewater Associates, Tiger Global Management and Discovery Capital, increased their exposure to Big Tech in the second quarter amid a generational boom in the growth of artificial intelligence.
* The U.S. economy seems to be chugging along fairly smoothly, but ROI columnist Jamie McGeever discusses five charts that indicate the foundations of the resilient U.S. economy and booming stock market may be much shakier than they appear.
Chart of the day:
China's factory output growth slumped to an eight-month low in July, while retail sales slowed sharply, raising pressure on policymakers to roll out more stimulus to revive domestic demand and ward off U.S. tariff-related pressures. While reports of more official support for ailing property firms emerged, the housing sector remains a running sore. New home prices fell 2.8% in July year-on-year, versus a 3.2% drop in June.
Weekly reads:
* INDEPENDENCE AND LOYALISM: Pushing back on a view that Federal Reserve Chair Jerome Powell should resign to clear the air over Trump's repeated attacks on him, former Fed Vice Chair Roger Ferguson, opens new tab gives a stout defense of Fed Independence. "For the stability of the dollar and the entire U.S. financial system, it is critical that Powell does not resign prematurely," Ferguson wrote in a piece for the Council on Foreign Relations. "Equally important is that the next chair not be seen as a political loyalist of President Trump."
* WHO ARE 'BOND VIGILANTES'?: European Central Bank economists look at the role of investment funds, who they say hold up to a quarter of outstanding euro government debt in some countries, as the prime 'vigilantes' in times of stress, opens new tab. Foreign funds are the most jumpy and 'procyclical' of that grouping in offloading bonds due to credit, stability or interest rate concerns - while domestic households and insurance firms tend to buy the bonds investment funds sell, they explain.
* DEBT BURDENS LIFT RATES: As some puzzle over the relatively calm U.S. bond markets despite rising sovereign deficits and debts, IMF economists re-examine the links between debt burdens and higher borrowing rates and term premiums, opens new tab in a paper published on CEPR's VoxEU site. Updating the dataset from earlier studies, they conclude that a 10% of GDP increase in expected debt is associated with an increase in long-term rates of between 20 and 30 basis points, while a 1% of GDP increase in the fiscal and primary deficit has a similar impact.
* INVESTMENT SPENDING NOT ENOUGH: Using Japan's experience as a example, Daniel Gros at the Institute for European Policymaking at Bocconi argues that Europe just upping billions in investment spending may not be the spur, opens new tab to the economy that many assume. Ensuring the money is better spent on start-ups and its "innovation ecosystem" rather than via big companies alone would yield better results, he wrote on Project Syndicate.
* DARK SIDE OF AI CHATBOTS: Internal guidelines at Facebook owner Meta Platforms explicitly permitted its artificial intelligence chatbots to "engage a child in conversations that are romantic or sensual", according to a Reuters special report. Reuters' Jeff Horwitz illustrates some of the darker side of the AI revolution now sweeping tech and the broader business world.
Today's events to watch
* US July retail sales (0830 EDT) July import and export prices (0830 EDT) New York Fed's August manufacturing survey (0830 EDT) July industrial production (0915 EDT) June business/retail inventories (1000 EDT) University of Michigan August consumer sentiment survey (1000 EDT) Treasury's June TIC data on U.S. securities holdings (1500 EDT)
* U.S. President Donald Trump meets Russian President Vladimir Putin in Alaska to push for a ceasefire deal in the war in Ukraine
-- Want to receive the Morning Bid in your inbox every weekday morning? Sign up for the newsletter here. You can find ROI on the Reuters website, and you can follow us on LinkedIn
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, opens new tab, is committed to integrity, independence, and freedom from bias.
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