U.S. consumer prices rose more than expected in November, which could further support the Federal Reserve's intention not to cut interest rates again in the near term after reducing borrowing costs three times this year.
The Labor Department said on Wednesday its consumer price index increased 0.3% last month as households paid more for gasoline. The CPI advanced 0.4% in October. In the 12 months through November, the CPI rose 2.1% after gaining 1.8% in October.
Economists polled by Reuters had forecast the CPI climbing 0.2% in November and rising 2.0% on a year-on-year basis.
Excluding the volatile food and energy components, the CPI rose by 0.2%, matching October's increase. The so-called core CPI was up by an unrounded 0.2298% last month compared to 0.1572% in October. It was lifted by gains in healthcare and prices of used cars and trucks, recreation and hotel and motel accommodation.
In the 12 months through November, the core CPI increased 2.3% after a similar gain in October.
The Fed tracks the core personal consumption expenditures (PCE) price index for its 2.0% inflation target. The core PCE price index rose 1.6% on a year-on-year basis in October and has undershot its target this year. November PCE price data will be published later this month.
Customers pump gasoline at a gas station in the Bronx, where gas prices are over $3.00 per gallon, June 1, 2018 in New York.
Don Emmert | AFP | Getty Images
Fed officials were due to conclude a two-day policy meeting later on Wednesday. The U.S. central bank is expected to keep rates on hold after reducing borrowing costs in October for the third time this year. It has signaled a pause in the easing cycle that started in July when it cut rates for the first time since 2008.
November's firmer inflation readings followed a report last Friday showing the economy added a robust 266,000 jobs in November and the unemployment rate fell back to 3.5%, its lowest level in nearly half a century. Other data on housing, trade, and manufacturing have also been relatively upbeat and suggested the economy was growing at moderate speed rather than stalling. In November, gasoline prices rose 1.1% after rebounding 3.7% in October. Food prices edged up 0.1%, rising for a third straight month. Food consumed at home gained 0.1%.
Owners' equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, increased 0.2% last month, matching October's rise. The rent index gained 0.3% after edging up 0.1% in October, which was the smallest gain since April 2011. It was lifted by a 1.1% rebound in the cost of hotel and motel accommodation after tumbling 3.8% in October.
Healthcare costs rose 0.3% in November after surging 1.0% in October, which was the most since August 2016. Apparel prices nudged up 0.1% last month after declining 1.8% in October.
New vehicle prices fell for a fifth straight month, likely because of deep discounting by automakers trying to get rid of stocks of older models. Used motor vehicles and truck prices increased 0.6% after rising 1.3% in October.
Saudi Arabia's giant state-owned oil monopoly last week pulled off the biggest IPOin history, raising $25.6 billion by selling 1.5% of the company. That exceeded even Alibaba's 2014 market debut in New York.
The IPO on Saudi Arabia's Tadawul stock exchange in Riyadh valued Aramco at roughly $1.7 trillion, making it the most valuable publicly traded company in the world ahead of Apple(AAPL), which is worth nearly $1.2 trillion.
Shares in Saudi Aramco shot up to 35.20 riyals ($9.39) following their debut on Wednesday, the maximum daily increase allowed by the exchange. That brought the company's valuation to $1.88 trillion.
The vast majority of buyers for the stock are in Saudi Arabia. Samba Capital, which managed the IPO, said Tuesday that 97% of retail investors who received shares were from the country. More than 75% of shares sold to institutional investors went to Saudi companies, funds and government institutions.
First promoted in 2016, the company's partial privatization was supposed to usher in a new era of economic liberalization in Saudi Arabia.
The Saudi government initially discussed floating 5% of the company in 2018 in a deal that would raise as much as $100 billion. It was looking at international markets such as New York or London, as well as Riyadh, signaling that the country was open to global investment.
Yet the project was shelved amid concerns about legal complications in the United States, doubts about the $2 trillion valuation, and international outrage triggered by the murder of journalist Jamal Khashoggi in a Saudi consulate in Turkey.
The deal was revived earlier this year, but received muted interest from international investors. Concerns included lower oil prices, the climate crisis and geopolitical risks associated with the company.
The price of shares will likely be supported in coming days by last week's decision from OPEC, Russia and other oil producing nations to deepen production cuts in an attempt to shore up prices. Brent crude, the international benchmark, is up 1.8% in the past week.
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How low can unemployment go?
The Federal Reserve's final policy meeting of the decade concludes today.
The central bank will release its latest monetary policy decision at 2 p.m. ET and Fed Chair Jerome Powell will hold a press conference at 2:30pm ET. No changes to the Fed’s benchmark interest rate policy are expected. And as Brian Cheung notes, the central bank is likely to set a “high bar” for future changes in the target policy range, which currently sits at 1.5%-1.75%.
But along with its 2:00 p.m. ET announcement, the Fed will also release an updated edition of its Summary of Economic Projections (SEP). The SEP includes Fed forecasts for GDP, unemployment, inflation, and interest rates over the next one-, two-, and three-year periods, as well as over the longer term.
And while investors most closely will look for the Fed's interest rate forecasts included in its dot plot, staff projections on unemployment are worth paying close attention to this afternoon. Last week, the November jobs report showed the unemployment rate fell to 3.5%, matching the 50-year low first hit in September.
As of September, Fed officials estimated that NAIRU — the non-accelerating inflation rate of unemployment — stood at 4.4%. NAIRU is the unemployment rate below which it is expected inflation would begin rising and higher rates would be necessary. In other words, when unemployment falls below NAIRU, it would be expected that — all else equal — inflation and wages would increase and higher rates and economic growth would follow.
And yet as we’ve seen for some time now, the unemployment rate has consistently moved lower and inflation pressures have remained muted.
If we take a look back at the Fed’s SEP released in December during each of the last five years, a clear theme emerges when it comes to the labor market: the Fed has been too conservative in judging the health of the labor market. And they’ve been too conservative for years. It’s part of why Neil Dutta at Renaissance Macro said that if the Fed doesn’t lower its NAIRU estimate in today’s SEP they are “nuts.”
Federal Reserve Chairman Jerome Powell attends a panel at the Federal Reserve Board Building in Washington. (AP Photo/Jacquelyn Martin)
Earlier this year, Minneapolis Fed president Neel Kashkari said the Fed had “misread” the labor market given its history of NAIRU estimates that were too high. “It seems clear to me that we are not yet at maximum employment,” Kashkari said back in May. And with the labor market having averaged job gains of 205,000 over the last three months and wage gains having flattened out after accelerating to post-crisis highs in 2017 and’18, it seems we are still not at maximum employment.
Inflation, meanwhile, has consistently run below the Fed's 2% target. This has led to questions about the efficacy of the Phillips Curve, which purports to show the relationship between falling unemployment and rising wages, and has been declared by none other than Jay Powell to have but a "faint heartbeat."
In December 2014, when the Fed was a year out from its first interest rate increase since the crisis, the SEP estimated that longer-run NAIRU was between 5.2% and 5.5%. As of December 2014, the actual unemployment rate was 5.4%. A year later, the Fed's median NAIRU estimate was 4.9% and the actual unemployment rate stood at 5%.
By December 2016, the state of play had flipped and actual unemployment moved below longer run estimates of what would be required for the Fed to meet its objectives of 2% inflation and maximum employment. Since then, this dynamic has remained.
The Fed’s NAIRU estimate moved down to 4.8% in the final month of 2016 and the unemployment rate had dropped to 4.7%. In 2017, the Fed raised rates three times.
In December 2017, SEP estimates for NAIRU continued chasing actual unemployment lower, with longer run estimates of steady state unemployment sitting at 4.6% while actual unemployment hit 4.1%. By the end of 2018, with the Fed having raised rates seven times in 21 months, estimated long run unemployment had declined to 4.4% while the unemployment rate stood at 3.9%.
Expected tweaks from the Fed to its employment outlook, however, are modest.
Economists at Deutsche Bank think the Fed could tweak its NAIRU estimate by 0.1%, pushing its median longer run expected unemployment rate to 4.1% today from 4.2% in December. Economists at Wells Fargo don’t foresee any “meaningful adjustments” to the Fed’s unemployment estimates.
8:30 a.m. ET: CPI month-on-month, November (0.2% expected, 0.4% in October); CPI excluding Food and Energy month-on-month, November (0.2% expected, 0.2% in October); CPI year-on-year, November (2.0% expected, 1.8% in October)
2 p.m. ET: Federal Open Market Committee interest rate decision
Earnings
Post-market
4:05 p.m. ET: Lululemon (LULU) is expected to report adjusted earnings of 94 cents per share on $899.44 million in revenue
Other notable report: American Eagle Outfitters (AEO)
Saudi stock market officials watch the market screen displaying Saudi Arabia's state-owned oil company Aramco after the debut of Aramco's initial public offering (IPO) on the Riyadh's stock market in Riyadh, Saudi Arabia, Wednesday, Dec. 11, 2019. (AP Photo/Amr Nabil)
The new mid-engined Corvette Stingray will debut with GM's new "digital vehicle platform," which it shares in common with these super-sized SUVs and allow the vehicles to receive over-the-air updates that add new features in the future. As Autoblog pointsout, the 2021 Tahoe and Suburban enjoy a refreshed appeal with more interior space and improved ride, mostly thanks to some added length, adaptive suspension tech and a switch to independent rear suspension.
We'll focus on the tech inside these trucks though, which starts with a 10-inch color infotainment system up front that supports both Android Auto and Apple CarPlay. Higher end trim levels have an 8-inch screen in the instrument cluster, and there's even an available 15-inch Heads-Up Display, standard on the High Country edition and available on Premier SUVs that even has a small 3x7-inch color display.
For folks in the back, an available rear seat entertainment option adds two 12.6-inch LCDs. They have independent HDMI connections to view different things at the same time, plus they have the ability to mirror Android phones, send content from one to the other, or allow riders to pick out spots on the map and send them to the navigation system up front. There's also a bunch of USB ports and on most models, wireless chargers with charger cooling.
Safety and driver assist tech in these SUVs will include an HD rear vision camera that puts video right in the rearview mirror, automatic emergency braking and HD surround vision. There's no word on pricing yet, but the new Tahoe and Suburban will go on sale in mid-2020.
All products recommended by Engadget are selected by our editorial team, independent of our parent company. Some of our stories include affiliate links. If you buy something through one of these links, we may earn an affiliate commission.
FILE - This Sept. 15, 2019 file photo, shows storage tanks at the North Jiddah bulk plant, an Aramco oil facility, in Jiddah, Saudi Arabia. Saudi Arabia's state-owned oil company Aramco on Thursday, Dec. 5, 2019, set a share price for its IPO — expected to be the biggest ever — that puts the value of the company at $1.7 trillion, more than Apple or Microsoft. (AP Photo/Amr Nabil, File)Associated Press
Shares in Aramco, the Saudi-owned oil giant, spiked 10% Wednesday when they hit the market in the world's biggest-ever IPO.
The spike came as shares began trading on Riyadh's Tadawul stock exchange, after years of wrangling over where they would list.
Due to regulations on the Tadawul, a 10% spike was the maximum possible for the debut.
The offering raised $25.6 billion, according to the Financial Times, putting it just ahead of the previous record IPO, which was the $25 billion amassed by Alibaba in 2014 in the New York Stock Exchange.
Saudi Aramco, the world's largest initial public offering (IPO), surged past expectations as it debuted on the country's stock exchange on Wednesday morning.
Shares of the state-owned oil company rose to 35.2 Saudi riyals ($9.38) from 32 riyals in early deals in Riyadh, up 10% and hitting their daily limit. It gives it a valuation of $1.88 trillion and makes it the largest listed company in the world.
Aramco's public debut, which listed 1.5% of its shares locally on the Saudi Tadawul, is the largest on record — topping the $25 billion Alibaba raised when it went public in September 2014.
The oil giant's IPO has surpassed its earlier valuation of $1.7 trillion, announced when share pricing was disclosed last week at the top of market range. But the $1.88 trillion valuation remains below what the kingdom had initially been targeting and relied heavily on local investors after canceling international roadshows due to lackluster foreign interest.
Aramco CEO Amin Nasser told reporters at the event that the company was pleased with the day's results.
"We are progressing based on what was decided, which is to (price) Aramco at 32 riyals per share, which was agreed based on full analysis and evaluation," Nasser said.
"We are happy on the results today. And you have seen the market responds to our results, the company will continue to be the leader globally when it comes to the energy sector and at the same time we are looking at sustained and growing dividends to our investors. At the same time we continue our growth strategy, increasing profitability across cycles."
The long-awaited IPO of world's most profitable company forms the centerpiece of Crown Prince Mohammed bin Salman's Vision 2030 aimed at transforming the Saudi economy. The crown prince first floated the idea in 2016, stunning market observers by suggesting a head-spinning valuation of $2 trillion. That figure was brought down by financial advisors and banks earlier this year to a range of between $1.5 trillion and $1.7 trillion.
The launch follows a weeks-long local roadshow around the Middle East that saw Aramco's local listing many times oversubscribed, according to banks advising the listing.
But regional and market experts have thrown cold water on the celebrations, calling the valuation a "hollow win" and acknowledging that while historic, much of the local investor demand was "manufactured."
Gulf allies the United Arab Emirates and Kuwait are believed to have made substantial commitments to the Saudi project, with the Kuwait Investment Authority and Abu Dhabi reportedly investing up to $1 billion and $1.5 billion in the public offering, respectively, though they have not commented publicly on the matter.
Samba Capital, one of Aramco's advisors, said in a statement last week that 10.5% of the offers came from foreign investors, while most were from Saudi funds and companies. Saudi Arabia has also turned to wealthy local families and Saudi billionaires to drum up support for the listing, according to reports.
More obvious risks include the supply, demand and price of crude or how much oil the Saudi government decides to produce, as the country is the largest producer in OPEC.
Security risks remain high on that list — Aramco's oil production was hit by drone attacks in September, which forced Riyadh to cut output by 50%. It took weeks for the Saudi government to restore capacity, though the recovery was far quicker than markets expected. Other risks include climate change and the company's dependence on demand from Asia, its prospectus said.
The biggest holdup in the U.S.-China negotiations is Washington’s demand that China guarantee its pledge to buy more American soybeans, as well as poultry and other agricultural products.
Photo:
derek r. henkle/Agence France-Presse/Getty Images
U.S. and Chinese trade negotiators are laying the groundwork for a delay of a fresh round of tariffs set to kick in on Dec. 15, according to officials on both sides, as they continue to haggle over how to get Beijing to commit to massive purchases of U.S. farm products President
Trump
is insisting on for a near-term deal.
In recent days, officials in both Beijing and Washington have signaled that Sunday is not the final date for reaching a so-called phase-one deal—even though that is the date President Trump has set for tariffs to increase on $165 billion of Chinese goods. That date could be extended, as has happened several times when the two sides thought they were on the verge of a deal. Those prior deals, though, never held and tariffs continued to mount.
Chinese and U.S. officials involved in the talks say they don’t have a hard deadline. On Friday, White House economic adviser
Larry Kudlow
said on two television appearances that there were “no arbitrary deadlines.” Such remarks from Mr. Kudlow—especially when they are restated several times—often reflect the president’s views and have been echoed privately by other U.S. officials.
With both sides hinting that negotiations could be extended beyond Dec. 15, Mr. Trump himself has gone back and forth in his public remarks between threatening a prolonged trade battle and trying to calm jittery investors. White House adviser
Jared Kushner,
the president’s son-in-law, has recently become involved in trying to help the two sides reach a trade agreement.
At The Wall Street Journal CEO Council meeting on Monday, Mr. Kushner said the talks are “heading in a good direction.” Asked if President Trump would follow through with more tariffs on Dec. 15, Mr. Kushner said: “I don’t know what his decision will be.”
U.S. Trade Representative Robert Lighthizer, left, with Chinese Vice Premier Liu, the lead negotiators for each side.
Photo:
mark schiefelbein/Agence France-Presse/Getty Images
President Trump, however, hasn’t yet made his decision, and he has overridden his advisers on trade several times to add tariffs.
The talks are dragging on. Working-level negotiators talk on most days, but as of Friday, lead negotiators on both sides hadn’t spoken for 10 days. U.S. Trade Representative
Robert Lighthizer
has been tied up trying to get Mexico to agree to terms on the U.S.-Mexico-Canada Agreement.
The biggest holdup in the U.S.-China negotiations is Washington’s demand that China guarantee its pledge to buy more American soybeans, poultry and other agricultural products.
For the Americans, purchases are the centerpiece of the limited deal. Mr. Trump has made clear that more farm buys from China are his top priority for a near-term deal with Beijing. The American farmers who would benefit are Mr. Trump’s key supporters in his re-election bid next year. A recent study by
Chad Bown
of the Peterson Institute for International Economics and
Emily Blanchard
and
Davin Chor
of Dartmouth argues that Republicans lost five seats in the 2018 Congressional elections because of the tariff war. Privately, administration officials generally agree with the assessment and are looking for a China deal they can claim as a victory.
Other issues at the heart of the trade war include Chinese subsidies to domestic companies and pressure on U.S. firms to hand over technology. They are largely being pushed back for future negotiation.
Specifically, U.S. negotiators, led by Mr. Lighthizer, have asked their Chinese counterparts to commit to some agricultural purchases up front, according to people briefed on the talks. The Chinese side wants to tie the size of the upfront commitment to how much tariff relief the U.S. would be willing to extend immediately. It is unclear how much the U.S. is pressing for, though Treasury Secretary
Steven Mnuchin
has said that China had committed to annual purchases of between $40 billion and $50 billion a year within the second year of a deal.
President Trump, left, met with China's President Xi Jinping, right, at the G-20 leaders’ summit in Osaka, Japan, on June 29.
Photo:
kevin lamarque/Reuters
In addition, the people said, the U.S. side is pressing China to specify in the text of the deal that there would be a quarterly review of promised purchases and that the purchase amount wouldn’t drop by 10% in any quarter. Chinese negotiators, led by Vice Premier Liu He, have been pushing back against the demand while arguing that any guaranteed purchases would violate the rules of the World Trade Organization and cause friction between China and its other trading partners.
Mr. Liu’s team has also been trying hard to get the U.S. not just to eliminate the December levies but also to relax portions of the existing tariffs on the $360 billion of Chinese imports. But Mr. Lighthizer has so far held firm on not rolling back tariffs—a point of leverage seen as key to keeping the Chinese side engaged in negotiations over knottier issues such as subsidies and forced technology transfers. Other senior officials have indicated they are willing to eliminate the last round of tariffs, on $110 billion of Chinese goods.
“Neither side wants to blink first,” said Myron Brilliant, the U.S. Chamber of Commerce’s executive vice president, who consults with officials in both capitals. “But both governments realize they need to bank the progress being made and finalize a deal before tensions could rise further.”
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Beijing is giving Washington a concession in the trade talks: regulations that would level the playing field for foreign companies in China. But there are doubts about Beijing’s true commitment to opening its market. Photo: Johannes Eisele/AFP via Getty Images
The U.S. is scheduled to add 15% tariffs on roughly $165 billion of Chinese products on Sunday—unless the two sides cut a deal, or Mr. Trump decides to suspend the tariffs to allow negotiations to continue. Neither the Chinese nor many on the American side want those tariffs to go into effect. They would hit mobile phones, laptops, toys and clothing with 15% tariffs.
For the Chinese, fresh tariffs would deepen the country’s economic problems. The latest official data show China’s exports to the U.S. plunged 23% in November from a year earlier, continuing a trend of double-digit percentage declines that is exacerbating a slowdown in the Chinese economy. For the Americans, the tariffs could prompt a consumer reaction in the U.S., Messrs. Lighthizer, Mnuchin and Kudlow worry, undermining political support for the trade battle.
In recent weeks, the relationship between the U.S. and China has been strained further in the wake of two bills in the U.S. Congress supporting human rights in Hong Kong and in the northwestern Chinese region of Xinjiang. Beijing vehemently denounced both actions.
Even though both sides are keeping the trade talks separate from geopolitical issues, the increased tensions are emboldening hardline voices in both capitals advocating a harsher stance toward the other side.
Analysts at Eurasia Group, a New York-based consultancy, estimate that there is a 65% chance that the phase-one agreement will be reached early next year. “The key risk at this point is not re-escalation, but drift,” the firm wrote in a Dec. 6 report to clients.
In China, after several months of official propaganda aimed at Washington, the leadership under President Xi Jinping appears to be showing concern about losing control of the fast-deteriorating bilateral relationship. In a notable shift, a People’s Daily editorial on Monday called for coolheadedness in dealing with the U.S. And some Chinese officials are saying privately that trade, the issue over which bilateral relations first began to crumble, could now help to put a floor under worsening ties.
For the U.S., insisting on a guaranteed purchase is a big change from past administrations, which have tried to encourage China to rely more on market forces, not government fiat, to manage its economy. But such managed-trade requirements are necessary, some experts argue, because China is far from a free-market economy.
“The United States has to deal with China as it is, not as we would like it to be,” said
Stephen Vaughn,
a former general counsel at the USTR’s office during the Trump administration who now works for law firm King & Spalding LLP.
Others say that the Trump administration is treating China in much the same way that the U.S. sought to deal with Japan in the 1980s and early 1990s. The U.S. figured that Tokyo had so much control over the Japanese economy that the U.S. had to insist on guarantees—in particular, that Japan would purchase a set amount of U.S. semiconductors.
“That’s the way we’re acting with China,” said
Douglas Irwin,
a trade historian at Dartmouth College. “We don’t trust it will be a market economy, so we have to guarantee outcomes, not just negotiate rules.”
