• The U.S. dollar leaped to its highest levels this year against a basket of currencies on Friday despite disappointing U.S. employment data for April, before dropping back to trade little changed.
The U.S. economy added fewer jobs than expected and although the unemployment rate dropped to near a 17-1/2-year low of 3.9 percent, this was because some jobless Americans left the labor force.
Average hourly earnings rose 4 cents, or 0.1 percent, last month after gaining 0.2 percent in March. That left the annual increase in average hourly earnings at 2.6percent.
The dollar index .DXY jumped to 92.90, the highest level since Dec. 28, before falling back to 92.566, near where it was trading before the data was released. The greenback also broke above parity with the Swiss franc CHF=, rising as high as 1.0022 francs.
The dollar has gained as investors bet that the Federal Reserve will continue raising rates while other central banks, including the European Central Bank (ECB), will act more slowly.
The sharp recent rise in the dollar - it broke above a 200-day moving average this week for the first time in a year - took hedge funds and other investors by surprise. They had built up record short bets on the dollar and were forced to cover some of those positions, lifting the greenback even more.
• Fed's Dudley sees U.S. economy on solid path, inflation near Fed's goal
New York Federal Reserve President William Dudley said on Friday the U.S. economy is on a solid footing with inflation closing in on the central bank’s 2-percent goal, though he was not yet ready to “declare victory” on inflation.
• Fed's Williams: I don't see any rapid increase in inflation coming
The Federal Reserve should continue to raise interest rates in a gradual way and there appears to be no abrupt rise in inflation on the horizon even as price gains have moved toward the central bank’s target, San Francisco Fed President John Williams said on Friday.
Williams, who in June is set to become the head of the New York Fed, seen as the second-most influential position at the U.S. central bank, also said that he is comfortable with inflation overshooting the Fed’s 2 percent target for a period of time.
• Fed's Bostic says he's open to four rate hikes, or two
The Federal Reserve should raise interest rates twice more this year, though upside potential from tax cuts and new government spending and a “rosy” economic outlook could require a bit more tightening, Atlanta Fed President Raphael Bostic said on Friday.
“I’m pretty firmly a three right now,” Bostic told Reuters in an interview on the sidelines of the Hoover Institution’s annual monetary policy conference, referring to the total number of rate hikes he expects the Fed to deliver this year. “I’m open to going either direction, going back to two (rate hikes) or going to four, depending on what the data show.”
• Fed's Kaplan says he sees wage pressures ahead
Dallas Federal Reserve President Robert Kaplan said on Friday that wage pressures are set to rise and that the U.S. central bank should continue to gradually raise interest rates.
“My guess is if we look over three to six months, we’ll see some wage pressure,” Kaplan said in an interview with broadcaster CNBC. “I think this may be just a one-month aberration. Everything I see tells me there’s more wage pressure out there.”
• Banks should boost capital, not leverage: Fed's George
Now that the Federal Reserve has reached its employment and inflation goals, the time is right for the U.S. central bank to take a broad look at its policy approach and its balance sheet, Kansas City Fed President Esther George said on Friday.
But it is not the time to go easier on big banks, she said at the Hoover Institution’s annual central banking conference, in what appeared to be pushback against comments made by Fed Governor Randal Quarles earlier in the day at the conference.
“We should take advantage of the current economic conditions to bolster resilience in the financial system,” George said in remarks prepared for delivery at the conference, where she is sharing a panel with Dallas Fed President Robert Kaplan and Atlanta Fed President Raphael Bostic. The rule proposed last month would have the effect of lowering capital requirements, she said.
• Fed's Quarles says Fed does not target stock-market values
Federal Reserve Board Governor Randal Quarles on Friday said the U.S. central bank does not target asset prices and will not cut rates simply if the stock-market tanks.
• Chinese state media struck an optimistic note on trade talks between Chinese and U.S. officials after U.S. President Donald Trump threatened to impose tariffs on up to $150 billion in Chinese goods over allegations of intellectual property theft.
The English-language China Daily saw a “positive development” in the two days of talks in an agreement to establish a mechanism to keep the dialogue open, despite “big differences”, as part an effort to resolve trade disputes.
People familiar with the talks said on Friday the Trump administration had drawn a hard line, demanding a $200 billion cut in the Chinese trade surplus with the United States, sharply lower tariffs and advanced technology subsidies.
The lengthy list of demands was presented to Beijing before the start of talks on Thursday and Friday to try to avert a damaging trade war between the world’s two largest economies.
• Senior Chinese and American officials concluded two days of negotiations on Friday with no deal and no date set for further talks, as the United States stepped up its demands for Chinese concessions to avert a potential trade war.
Here are the highlights of the demands:
China must …
1) Cut its trade surplus by $100 billion in the 12 months starting in June, and by another $100 billion in the following 12 months.
2) Halt all subsidies to advanced manufacturing industries in its so-called Made In China 2025 program. The program covers 10 sectors, including aircraft manufacturing, electric cars, robotics, computer microchips and artificial intelligence.
3) Accept that the United States may restrict imports from the industries under Made in China 2025.
4) Take "immediate, verifiable steps" to halt cyberespionage into commercial networks in the United States.
5) Strengthen intellectual property protections.
6) Accept United States restrictions on Chinese investments in sensitive technologies without retaliating.
7) Cut its tariffs, which currently average 10 percent, to the same level as in the United States, where they average 3.5 percent for all "noncritical sectors."
8) Open up its services and agricultural sectors to full American competition.
The United States also stipulated that the two sides should meet every quarter to review progress.
Chinese officials put the talks in a positive light. "The two sides agreed that a sound and stable China-U.S. trade relationship is crucial for both, and they are committed to resolving relevant economic and trade issues through dialogue and consultation," Xinhua, the official news agency, said soon after the talks ended.
• President Donald Trump will host South Korean President Moon Jae-in at the White House on May 22, and the two will discuss the upcoming summit between Trump and North Korean leader Kim Jong Un, the White House said on Friday.
• President Donald Trump on Friday said the date and location have been set for a meeting with North Korean leader Kim Jong Un, building suspense for the unprecedented talks, as South Korea said it would oppose a withdrawal of U.S. troops from the area.
• North Korea said on Sunday its intention to denuclearize, unveiled at a historic inter-Korean summit, was not the result of U.S.-led sanctions and pressure, warning the United States not to mislead public opinion.
• Turkey will retaliate if the United States enacts a proposed law that would halt weapons sales to the country, Foreign Minister Mevlut Cavusoglu said on Sunday.
Lawmakers in the U.S. House of Representatives released details on Friday of a $717 billion annual defense policy bill, including a measure to temporarily halt weapons sales to Turkey.
• Oil prices rose about 2 percent on Friday, with U.S. crude hitting its highest in more than three years, as global supplies remained tight and the market awaited news from Washington on possible new U.S. sanctions against Iran.
U.S. light crude settled up $1.29 at $69.72 a barrel. It touched a session peak of $69.97 for the first time since November 2014. It was on track to gain just over 2.3percent on the week.
Brent crude oil settled up $1.25 at $74.87 a barrel. The global benchmark was set to end the week up 0.3 percent.
• Iran’s foreign minister said on Thursday that U.S. demands to change its 2015 agreement with world powers were unacceptable. Trump has said European allies must rectify “terrible flaws” in the international accord by May 12.
European powers want to hand Trump a plan to save the Iran nuclear deal next week. But they have also started work on protecting EU-Iranian business ties if Trump makes good on his threat to withdraw.
• ANZ analysts Daniel Hynes and Soni Kumari said Brent could reach $80 a barrel by the end of this year, attributing recent strength to rising geopolitical risks and tighter global supply.
“We expect the market to tighten even further in second half 2018,” they wrote in a note to clients.
Still, growing U.S. crude supplies have been capping price gains.
Reference: Reuters, CNBC
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