Central Banks Criticized as Oil Prices Jump
July 19, 2017
There is increasing murmurs that the Federal Reserve and ECB may be prolonging their easing policies too long and may be creating excesses in the economy. Oil prices also jumped on news that U.S. inventories decreased by almost 5%. Further, housing is rebounding following three months of decline.
- Caustic view of the Fed gains prominence among markets. Bond yields worldwide have surged since the European Central Bank hinted last month that bond buying was coming to an end, catching markets off guard. Among markets, the perspective that bonds have ceased to be an independent reflection of economic fundamentals is gaining prominence, believing that detailed guidance on future monetary policy can result in market manipulation on a grand scale. The critique states that too much Fed involvement can result in the misallocation of capital and create excesses that can come undone violently. This view is shared by potential nominees for the chair of the Federal Reserve by the Trump administration, as Janet Yellen’s term ends next February. [WSJ]
Economic Indicators & News
- Oil jumps around 1.5% with U.S. inventory draws surprise. Oil prices increased almost 1.5%, extending gains after a report indicated a bigger weekly draw than forecast in crude and gasoline stocks and a surprise decrease in distillate inventories. The EIA reported that U.S. crude stocks decreased by 4.7 million barrels during the week ended July 14, exceeding estimates. Brent futures for September were up 69 cents at $49.53 a barrel and the U.S. West Texas Intermediate crude for August rose 64 cents to $47.04. Before the report, both were up around 0.6%, supported by strong gasoline demand. The 5% decrease in gasoline inventories is also a strong indicator of healthy demand. U.S. gasoline and distillates futures were both up 2% after the data making it the highest since November 2016. [Reuters]
- U.S. housing starts rebounds in June. U.S. homebuilding rebounded more than forecasted in June after a consecutive three-month decline. Construction activity, however, still remains constrained by rising resource prices and labor and land shortages. Housing starts increased to 8.3% to a seasonally adjusted annual rate of 1.22 million units, the highest since February, due to the increase of both single-family and multi-family constructions. The sales pace in May was revised to 1.12 million units from the previously reported 1.09 million units. Even with June’s rebound, home building has lost momentum after strong gains in both the fourth and first quarters, attributed to supply bottlenecks. Single-family home building surged 6.3 percent and the multifamily housing segment increased 13.3 percent. Building permits shot to 7.4% and single-family home permits rose 4.1% after a three-month decline. Permits for multi-family homes increased by 13.9% in June. [Reuters]