United States

* Philadelphia Federal Reserve Bank President Charles Plosser said the labor force participation rate is declining because of a change in demographics, and that he is seeing a mismatch between the skills jobseekers have and employers want. He said "some are skeptical" of the March drop in the unemployment rate to 6.3% "because the decline in the unemployment rate reflects not only increases in employment but declines in labor force participation." "Yet, labor force participation rates can also decline for demographic reasons." [12:16 ET]

* Expectations have increased that inflation will be neither too high nor too low in coming years, according to research at the San Francisco Federal Reserve Bank released Monday. Expectations of a "favorable outcome" for inflation, as measured both by "inflation derivative" contracts and surveys, have risen while uncertainty has lessened, and since the Fed relies heavily on "well-anchored" inflation expectations as a constraint on actual inflation, the findings tend to lend comfort to central bank officials who believe inflation will return to its 2% target in coming years - without accelerating much beyond it.

* Meanwhile Cleveland Federal Reserve Bank President Sandra Pianalto said in a letter released Monday that "Persistently low" inflation can be just as bad as high inflation, but current below-target inflation should rise if the economy continues to improve. Pianalto, cited research done at the Bank suggesting "appropriate" monetary policy should accommodate "steady" economic growth to get inflation back up to the Fed's 2% objective. [15:52 ET]

* Although strong year-over-year price growth continued in most U.S. metropolitan areas in the first quarter, increases were somewhat smaller, according to the latest quarterly report by the National Association of Realtors. The median existing single-family home price increased in 74% of measured markets, with 125 out of 170 metropolitan statistical areas showing gains based on closings in the first quarter compared with the first quarter of 2013. In the fourth quarter of 2013, price increases were recorded in 73% of metro areas from a year earlier, with 26% rising at double-digit rates, but 89% of markets were showing year-over-year gains in the first quarter of 2013. [10:00 ET]

* Atlanta Federal Reserve Bank President Dennis Lockhart said Sunday he expects the U.S. central bank will begin to raise its policy rate in the latter half of 2015, with rate normalization coming gradually after liftoff. "Based on my outlook, I think that conditions in the U.S. economy will justify beginning the process of raising rates in the latter half of 2015," Lockhart said in a speech in Dubai, United Arab Emirates. Lockhart, who will on the Fed's policymaking Federal Open Market Committee in 2015, said "assuming continued recovery of the U.S. economy and the closing of employment and inflation gaps, the Fed's policy interest rate would begin to rise at some point next year." [Repeated 07:16 ET]

U.S. Markets

* U.S. Treasuries ended lower after a late mild recovery off the lows after stronger stocks pressured Treasuries as some equity indexes crawled toward new highs. There was some late bargain-hunting and the cash 10-year note is at 2.657%.

* Euro-dollar opened at $1.3758 confined within a $1.3749-$1.3775 range, caught between demand for euro-yen and supply in euro-stg, reaching $1.3757 late afternoon.

* US stocks set a new all-time high, seemingly unfazed by a potential escalation of tension in Eastern Ukraine. Both the DJIA and the S&P 500 also set record closing highs. The closing levels show the DJIA up 112.13 points (+0.68%) at 16.695.47, the S&P 500 up 18.17 points (+0.95%) at 1,896.65 and the Nasdaq up 71.99 points (1.77%) at 4143.85. Earlier the DJIA had traded at a record high of 16,704.84 and the S&P 500 traded at 1897.13, just short of its April 4 high of 1897.28. The Nasdaq's 2014 high remains at 4,371.706


* European Central Bank Vice-President Vitor Constancio said Monday that ECB Staff projections for medium term inflation will be the main criteria for any interest rate decision take at next month's policy meeting in Frankfurt. Speaking to the media, along with Austrian Central Bank Governor Ewald Nowotny, during a brief press conference at an Economics conference in Vienna, Constancio also said that a too-prolonged period of low inflation could dis-anchor medium term consumer price expectations. Constancio would not be drawn into speculation as to how - or, indeed, if - the ECB will react when it meets next month, but reminded journalists that the Bank was considering a "large set of possible measures." [05:30 ET]

* Spain has mandated Barclays, BNP Paribas, Caxia Bank, Deutsche Bank, Santander and SG CIB as lead managers for its inaugural 10-year inflation linked bond, sources tell MNI. The new 10-year bond will mature Nov 30, 2024 and be tied to Euro area HICP added the source. The deal is expected to launch this week, subject to market conditions. [03:51 ET]


* Interest rates rose across a wide range of mortgages products in April, a Bank of England survey showed Monday. The BOE's Quoted Rates survey suggests mortgage rates have troughed and are now on their way back up. Regulators are pushing to cool the housing market, and average rates on new mortgages were largely higher in April compared to March. The average rate on a 75% loan-to-value sterling two year fixed rate mortgage rose to 2.53% in April from 2.37% in March. [Updated 05:03 ET]


* The European Union Monday applied new sanctions against individuals it said were responsible for escalating tensions in Ukraine and also froze the assets of two companies in Crimea and Sevastopol. EU foreign ministers meeting in Brussels agreed to widen the scope of Europe's restrictive measures in response to the situation in Ukraine by adding an additional 13 people to the list of those subject to a travel ban and a freezing of assets, according to an official statement. The EU Council "decided to add 13 persons to the list of those subject to a travel ban and a freeze of their assets within the EU. This brings the total number of persons subject to sanctions in connection with the crisis in Ukraine to 61," the statement said. "At the same time, two confiscated entities in Crimea and Sevastopol will be subject to an asset freeze." [09:36 ET]


* China's President Xi Jinping said that the fundamentals of China's economic development have not changed and pledged to deepen reforms to ensure sustainable growth. Xi said the government would continue to promote structural adjustments and improve livelihoods, according to state media. Speaking during a visit to Henan province, Xi also said the government should take measures in a timely manner to mitigate the negative impact of any risks. [Repeated 18:36 ET Sunday]

* A senior Chinese central bank official can "trash talk" the interbank market's speculative excesses but there's only so much the authorities can do to clean them up if they want to keep the economic ticking along, market participants said Monday. The unusually harsh comments from People's Bank of China Vice-Governor Liu Shiyu may eventually impact liquidity conditions, but the government's room for manoeuvre is limited by the need to maintain stable growth, they said. Liu addressed the problems with the interbank market in a speech at Tsinghua University at the weekend in which he said that a healthy economy would "detest" 18% financing costs and that the government should "make the decision to clean up interbank businesses and various wealth management businesses." Liu, who is one of six deputies to governor Zhou Xiaochuan, said that the market's usurious loan rates instil an "extreme gambling mentality" that threatens to retard capital market development. [Repeated 07:12 ET]

* New yuan loans and total social finance - which is the People's Bank of China's measure of system-wide credit activities - were slightly below forecast. M2 again grew above the official full-year target at 13% in April, following March's dip below. The data is unlikely to trigger any major shift in the government's policy stance. The PBOC warned in its first quarter monetary policy report that M2 is growing faster than its historical average, suggesting that the authorities are wary about doing anything that could accelerate it further. [04:02 ET]


* The Cabinet Office Monday released Japan's Economy Watchers' Survey for April, which was conducted between April 25 and April 30. The index gauges whether respondents with jobs most sensitive to economic conditions - taxi and truck drivers, department store sales staff as well as restaurant and shop owners - believe economic conditions have improved or worsened from three months before. The key sentiment index for Japan's current economic climate posted the first drop in two months, plunging by 16.3 points to 41.6 in April from a record high of 57.9 in March, as the April 1 sales tax hiked dampened sales among some retail shops. The April figure was the lowest since 40.0 marked in November 2012. [01:00 ET]

--MNI Washington Bureau; tel: +1 202-371-2121; email: hscott@mni-news.com

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