Sinking Commodities Squelching Any Threat of Higher Inflation

October 15, 2014

WTI oil at $80.83 per barrel is down 1.2% on the day, bring its cumulative drop since June 20 to 24.4%.  Comex gold at $1,223.20 per ounce is down 0.9% on the day and 31% below its level of two years ago.  The Bloomberg Commodity index hit a 5-1/4 year low today.  The International Energy Agency forecast the lowest rise in global oil demand since 2009.

Chinese CPI inflation fell 0.4 percentage points (ppts) to 1.6% in September, lowest since the start of 2010.  The 12-month change in producer prices has been negative without interruption since March 2012.  PPI deflation was 1.8% in the year to September after 1.2% in the year to August.  This was the biggest on-year drop since April. 

German consumer prices were unchanged on month in September and posted a 0.8% on-year advance for a third straight month.  This is the smallest level of inflation since February 2010 otherwise.  In the year to September, food rose 0.9%, energy fell 2.2%, and services increased 1.5%.

British wages in the year to June-August rose 0.7% overall and by 0.9% for regular pay only.  Danish producer prices were 2.0% lower than a year earlier in September.

A second health worker caring for patient zero in the United States has tested positive for the Ebola virus in Texas.

The slide in equities resumed in Europe after a mixed performance Wednesday in the Pacific Rim.  Share prices have so far fallen today by 1.2% in Italy, 0.9% in the U.K., 0.7% in France, 0.6% in Germany, 0.5% in Switzerland and 0.4% in Spain.  Japan’s Nikkei recovered 0.9% to move back slightly above 15K, and share prices closed up 0.8% in Indonesia and 0.7% in Australia and China.  But such posted losses of 1.3% in Taiwan, 0.2% in South Korea and 0.1% in India.

The dollar has appreciated 0.6% against the commodity-sensitive Canadian currency, touching a 5-year, 3-month high of C$ 1.1376 but is otherwise little changed, with 0.1% upticks versus the yen, euro, Swiss franc and kiwi, a 0.1% downtick relative to sterling and the Aussie dollar and no change against the yuan.

Ten-year Japanese JGB and British gilt yields eased by two and one basis points.

The Bank of Korea cut South Korea’s one-week repo rate by 25 basis points to a record low of 2.0%, declaring that inflation pressure will be somewhat weaker than expected previously.  This was the fourth such cut within the past two years.  The other three reductions were implemented in November 2012, May 2013, and August 2014.

The Peoples Bank of China sliced 10 basis points off its 14-day repo.

Japanese August industrial production was revised to a drop of 1.9% from one of 1.5% reported initially.  Output was 3.3% lower than a year earlier in August and was 2.5% less in July-August on average than the 2Q mean.  Shipments and inventories were also revised lower.  The ratio of inventories to shipments leaped 8.6% between July and August.  Japanese plant capacity was unchanged on month but 1.5% lower on year in August, while the rate of capacity usage fell 1.7% on month and 1.4% on year.

The Conference Board reported a huge 1.0% slump in Germany’s index of leading economic indicators in August, along with a 0.3% drop in the index of coincident economic indicators. The LEI had declined 0.5% in July.

Dutch retail sales sank 1.7% on month and edged just 0.1% higher on year in August. 

The Swiss ZEW expectations index, a measure of investor confidence, plunged 23 points to a 61-month low of -30.7 in October.

According to Westpac, Australian consumer confidence rebounded just 0.9% in October following a 4.6% plunge in September.  A separate report said that new Australian motor vehicle sales were just 0.8% higher in September than a year earlier.

A rare piece of good news came from Singapore that reported a greater-than-forecast 5.3% on-month rise in retail sales, which also exceeded their year-earlier level by 5.4%.

The British unemployment claimant count dropped less in September (18.6K) than August (33.2K).

U.S. mortgage applications rose 5.6% last week.  Still to come: U.S. producer prices, retail sales, business inventories, Empire State manufacturing index and September and fiscal 2014 federal budgets.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.


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