No Respite from Volatility

October 16, 2014

The dollar and yen were well bid overnight.  Japan’s currency climbed 0.3% against the greenback, which otherwise advanced 1.3% relative to the Australian dollar, 0.9% vis-a-vis the kiwi, 0.8% against the loonie, 0.6% versus the euro and Swissie but just 0.1% against sterling.

Stocks slumped overnight by 2.2% in Japan, 1.4% in Singapore, 1.3% in India, 1.0% in Hong Kong, 0.8% in China, and 0.6% in New Zealand.  Selling intensified in Europe, whose stocks are falling for an eighth straight session.  Equities are so far down 2.8% in Spain, 2.4% in Italy and Switzerland, 2.0% in France, 1.8% in the U.K. and 1.5% in Germany.

10-year sovereign debt yields stand at 1.96% in the U.K., 0.78% in Germany and 0.48% in Japan.  Euroland peripheral bond spreads vis-a-vis German bunds continued to widen after a poorly subscribed Spanish auction.  In futures trading, the 10-year Treasury yield touched as low as 1.98% and is currently showing a net 11-basis point decline.

WTI oil plunged 1.6% to $80.49 per barrel.  Comex gold, $1,242.70 per ounce, has eased 0.2% on balance.

This will be a busy day of U.S. data releases — industrial production, the Philly Fed manufacturing index, weekly jobless insurance claims, the National Home Builders Association housing index and Treasury-compiled capital flows — but the main thing to watch continues to be the turmoil of stocks, bonds, commodities and foreign exchange.

Chinese money and credit figures were better than expected.  Bank loans accelerated to the biggest gain, 857 billion yuan, in three months.  M2 money grew 12.9% in the year to September, up from 12.8%.  But M1 and M0 money slowed to 12-month rises of 4.8% and 4.2% from 5.7% and 5.6% rates posted in August.

In testimony before parliament, Bank of Japan Governor Kuroda defended the net benefits of yen depreciation, while German Chancellor Merkel reiterated her insistence that members of the common currency union follow the agreed fiscal guidelines.

The National Bank of Serbia retained an 8.5% benchmark interest rate, saying that global risks rule out more aggressive easing.  The rate was cut by 50 basis points in May.

Euroland consumer prices rose 0.4% on month but just 0.3% on year in September.  Core inflation stood at 0.8% for the third time in four months.  Energy prices tumbled 2.3% on year, but all other consumer prices were 0.7% higher.

Euroland’s seasonally adjusted trade surplus widened to EUR 15.9 billion in August from EUR 12.7 billion in July, as imports tumbled more sharply (3.1%) than exports (0.9%).  The year-to-August surplus of EUR 108.6 billion was 12.5% greater than the surplus in January-August a year earlier.

The Federal Reserve Beige Book released late Wednesday held no meaningful surprises, instead confirming positive modest to moderate growth in all districts with scant inflation.

New Zealand’s business purchasing managers index improved 1.1 points to a reading of 58.1 in September.

Expected inflation in Australia posted a 3.4% reading for September, down from August’s 3.5%.

Chinese foreign direct investment exhibited greater buoyancy in September than forecasts.  A 1.9% on-year gain reduced the on-year drop to 1.4% in January-September from 1.8% in the first eight months of this year.

Czech producer prices fell 0.3% both on month and on year in September.  South African WPI deflation narrowed to 2.2% in August from 4.2% in September.

Canada reports the monthly survey of manufacturing orders and shipments today, and Chile’s central bank is holding a policy meeting.  Many Fed officials, Kocherlakota, Plosser, Bullard and Lockhart, are slated to speak publicly.  Investors are wondering when it will be safe for the federal funds rate to be raised.

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

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