Expected U.S. Inflation Moves Up

October 17, 2016

Janet Yellen’s wide-ranging speech before the weekend appears to have lifted price expectations. The Fed Chair seemed to favor letting inflation exceed target temporarily.

Share and bond prices, as well as oil are generally softer. So is the dollar, sterling and some emerging market currencies like the Turkish lira. Turkey’s jobless rate jumped 0.5 percentage points to a 5-month high of 10.7% in July and reached 11.2% in seasonally adjusted terms.

Stock markets in the Pacific Rim fell 1.0% in New Zealand, 0.8% in Australia, 0.7% in Hong Kong and China, and 0.5% in India but rose 0.3% in Japan. Equities in Europe have declined 0.8% in the U.K., 0.7% in Greece and Switzerland, 0.4% in France and Germany and 0.2% in Spain. Italy’s market is up 0.2%, while U.S. stock futures are down.

The ten-year British gilt and German bund yields have risen six and two basis points.

West Texas Intermediate crude oil slipped 0.2% to $50.26 per barrel. Comex gold at $1,254.80 per ounce, is off 0.1%.

The dollar has appreciated 0.2% against sterling but otherwise shows losses overnight of 0.5% against the kiwi, 0.2% relative to the euro and Swiss franc, and 0.1% vis-a-vis the yen and Australian dollar. The loonie is steady, and the yuan has slid 0.1%.

New Zealand’s Performance of Services index fell 3.8 points to 54.1 in September, lowest in over a year.

August’s increase in Japanese industrial production was revised down to 1.3% from 1.5% reported initially. Output climbed 4.5% on year, turning around from a 12-month decline of 4.2% posted in July. July/August production exceeded the 2Q average level by 0.9% after dropping during the first half of 2016. Capacity usage jumped 2.6% in August, while industrial capacity held unchanged.

Consumer price inflation in the euro area accelerated to 0.8% in September according to revised figures from 0.2% in August. Energy prices jumped 1.0% on month and recorded a smaller 12-month drop of 3.0% compared to declines of 5.6% in August and 8.9% in September 2015. Non-energy and core inflation was also at 0.8% in September, compared to 1.0% and 0.9% in September 2015.

In the year to September, Czech PPI deflation of 2.4% constituted the smallest 12-month decline in 15 months. Danish producer prices fell 1.9%, same as in the year to August. Austrian consumer prices rose 1.1%.

Several countries reported trade figures. Singapore posted an SGD 7.06 billion surplus in September, 33% wider than the month before. Italy’s EUR 2.5 billion surplus was a bit more than 30% larger in August than a year earlier. Likewise, Ireland had a surplus of EUR 4.95 billion in August, 45% greater than a year before. But in Norway, an energy exporter, the surplus of NOK 3.20 billion in September was sharply down from NOK 14.9 billion in September of 2015 as exports dived 15.9%.

Today’s U.S. data releases feature industrial production and the Empire State manufacturing index. Fed Vice Chair Fisher speaks publicly. The Conference Board reports Britain’s index of leading economic indicators.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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