Continuing Aversion to Risk in an Ultra-Low Global Inflationary Environment

September 29, 2015

Stock markets in the Pacific Rim fell overnight by 4.1% in Japan, 3.8% in Australia, 3.0% in Hong Kong, 2.0% in China and 1.7% in New Zealand.  In Europe prior to the U.S. open, there have been incremental losses of 1.1% in Greece and 0.4% in Switzerland and Britain but gains of 0.6% in Spain, 0.3% in Germany and 0.2% in France and Italy.

Although bouncing up 0.4%, WTI oil remains below $45 at $44.87 per barrel.  Comex gold slipped 0.4% to $1,127 per ounce.

The dollar is narrowly mixed, with drops of 0.3% vis-a-vis the kiwi, 0.2% against the Swiss franc and 0.1% relative to the yuan but gains of 0.2% versus the loonie and euro and 0.1% relative to the Australia dollar and sterling.  Dollar/yen is unchanged.

Ten-year British gilt and Japanese JGB yields edged a basis point higher, while the 10-year German bund dipped a basis point.

Analyst, who had predicted a 25-basis point interest rate cut by the Reserve Bank of India, instead learned of a 50-basis point reduction, defended by improved prospects for lower inflation and a need to complement government policy better.  This seemingly front-loaded reduction on top of three 25-basis point cuts implemented in the first half of 2015 sets the stage for a pause in monetary easing.

Chicago Fed President Evans in a speech overnight made the case for a later, rather than sooner, interest rate hike.  The FOMC is not unified in how members wish to proceed through rate normalization, but Chair Yellen is in the camp that wants to start in 2015, not 2016.

Small business sentiment in Japan edged up 0.2 points to a reading of 49.0 in September, a 2-month high.  The last reading to exceed 50 occurred in March 2014.

German consumer prices fell 0.2% in September, cutting the 12-month change to zero from 0.2% in July.  Harmonized German consumer prices were down 0.3% on month and 0.2% on year, lower than analysts had been forecasting.

German import prices tumbled 1.5% on month in August, most in more than a year, depressing the 12-month rate of decline to 3.1%, most since January.  Energy tumbled 8.6% on month and 29.8% on year.  Export prices fell 0.5% on month, most in more than a year, cutting the 12-month increase to 0.8%, lowest since February.

The CBI’s British distributive trades survey unexpectedly jumped 25 points to a 4-month high of 49 in September.  Bank of England data revealed a 0.1% on year rise in M4 money in August, a greater-than-expected 71K mortgage approvals in the month, and a smaller-than-expected 0.9 billion bounds of net consumer credit growth.

Eurozone economic sentiment printed in September at 105.6, up 1.5 points from August and constituting a 53-month high.  Among the currency union’s larger economies, the sentiment indices rose by 3.5 points in Italy, 1.9 points in Germany, 1.2% in The Netherlands, 0.9 points in France but fell 0.9 points in Spain.  Consumer confidence was at a 2-month low, but industrial sentiment climbed to a 50-month high.  Sentiment in construction, retail and services all improved in September.  The business climate index rose 0.14 points to a 2-month high of 0.34.

Spanish retail sales increased 3.1% on year in August, lowest since May.  Spanish CPI inflation was at negative 0.9% in September, the most intense deflation since February.  Belgian consumer price inflation, in contrast, accelerated slightly to 1.06% in August.

Austria’s manufacturing purchasing managers index climbed 2.0 points to a 19-month high of 52.5 in September.

Portuguese consumer confidence improved to the best level since mid-2001 during September, but manufacturing sentiment worsened.

Norwegian retail sales volume grew 0.9% in the year to August, half as much as in the year to July.  In August, unemployment rose 0.1 percentage point (ppt) to 12.4% in Portugal but edged down 0.1 ppt to 9.4% in IrelandHungarian joblessness in June-August was 6.7%.

Producer prices in Singapore fell 9.8% in the year to August, more than in July.  It’s been negative for more than a year.

The Case Shiller U.S. house price index gets released today along with the Conference Board index U.S. consumer confidence.  Canada reports producer prices.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.


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