As we entered October, the economic landscape in the United States continued to show positive trends, although the indicators hovered near the lower end of this year’s performance range. The Macro-Markets Risk Index (MMRI) registered at +7.9% as of October 7. While this figure marks a significant decline from the peak of +16.0% reached in late August, it still reflects anticipated economic growth. The sequence of consistently positive readings in recent history indicates that the risk of business cycle fluctuations remains minimal. A drop below 0% in the MMRI would signal rising recession risks, whereas any reading above 0% suggests that economic expansion is likely in the near future.
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● Concerns over Growth Affect Stocks and Oil | Reuters
European stock markets faced declines for the second consecutive day on Wednesday, nudging global share indexes closer to their lowest levels in six months as worries about global economic growth intensify.
● Fed’s Dudley: Mid-2015 Rate Hike Likely | Wall St Journal
William Dudley, President of the Federal Reserve Bank of New York, indicated on Tuesday that the U.S. central bank may delay raising short-term interest rates until 2015 based on the anticipated economic trajectory.
● Disappointment in Global Growth; Recovery Uneven | IMF
The IMF projects global growth to average 3.3% in 2014, remaining unchanged from 2013, with a rise to 3.8% anticipated in 2015.
● US Job Openings Reach 13-Year High in August | US Labor Dept
As of the last business day in August, there were 4.8 million job openings, an increase from 4.6 million in July, according to the US Bureau of Labor Statistics.
● US Consumer Credit Growth Hits Nine-Month Low in August | Federal Reserve
In August, consumer credit rose at an annual rate of 5% after adjusting for seasonal changes.
● Bundesbank Head Critiques ECB’s Stimulus Measures | Wall St Journal
Jens Weidmann, President of the German Bundesbank, criticized the European Central Bank’s plan to purchase private-sector bonds and admonished France for its lax budgetary practices, taking a tough stance against additional stimulus ahead of high-level International Monetary Fund discussions.
This week has seen Germany’s economic indicators take a downturn—an unmistakably negative trend. Within two days, two critical updates revealed significant setbacks for the continent’s largest economy. We learned yesterday that manufacturing orders declinedtoday’s announcement of a 4% drop in industrial output for the same month. Year-over-year comparisons show a staggering 3% decline in industrial activity in Germany. While it has been evident for some time that growth was slowing, these recent figures indicate the situation is much worse than anticipated.
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● German Industrial Output Falls Most Since 2009 in August | Bloomberg
The decline in German industrial production exceeded economists’ forecasts in August, further indicating a bleak outlook for Europe’s largest economy.
●Islamic State Advances in Southwest Kobani | Reuters
Reports indicate that Islamic State fighters moved further into the southwest of Kobani, a Kurdish town in Syria, gaining strategic positions.
● Are We Facing Secular Stagnation? | Vox
A recent monthly survey found that while many UK macroeconomists do not believe in secular stagnation, there is a general consensus that more expansionary policies are warranted.
● France Warns Germany on Austerity | Telegraph
France criticized the eurozone’s austerity measures, warning that they could trigger a political backlash that jeopardizes European stability.
● Currency Market Volatility Returns | Sober Look
The dollar lost much of its gains from Friday’s stronger-than-expected employment report, marking a significant return of volatility in the currency markets.
● Implications of Hong Kong Protests for Global Firms | Fortune
Concerns loom over the potential repercussions of a violent crackdown on protestors in Hong Kong from either local police or the Chinese government.
● Big Banks Anticipate New U.S. Charges | NY Times
Amid evidence of collusion among various banks to manipulate foreign currency prices, prosecutors aim to bring charges against at least one bank by the year’s end.
The anticipated risk premium for the Global Market Index (GMI) showed a slight decrease in September compared to August. The GMI, an unmanaged and market-value-weighted benchmark encompassing the major asset classes, is currently estimated to earn an annualized 4.3% over the “risk-free” rate in the long term (for more on the methodology, refer to the summary below). This new forecast is lower than last month’s estimate of 4.7%.
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● German Factories Experience Significant Order Drop | Wall Street Journal
August saw a sharp decline in German factory orders, suggesting weaker economic output or potential stagnation for the remainder of the year, experts warn.
● Investor Confidence in Eurozone Hits 17-Month Low | Investing.com
Confidence among investors in the eurozone has fallen to the lowest level seen in 17 months, highlighting concerns regarding the region’s economic prospects.
● Rising Dollar Poses Risks to U.S. Earnings | Reuters
The strengthening U.S. dollar presents a trifecta of challenges for American companies: increased costs for overseas operations, decreased value of foreign sales, and potential indications of weak international demand.
● Oil Price War Looming | New Zealand Herald
A sudden drop in crude prices has revealed significant divisions within the Organisation of Petroleum Exporting Countries (OPEC) ahead of next month’s meeting to determine oil production levels.
● The Deterioration of the Russian Ruble | Econospeak
Despite limited media coverage, the Russian ruble has seen a significant decline over recent months.
● The Euro Trap: On Bursting Bubbles, Budgets, and Beliefs
By Hans-Werner Sinn
Summary via publisher (Oxford University Press)
This book critically examines the euro’s history, its crises, and the European Central Bank’s rescue measures. The euro led to significant capital flows from northern to southern Eurozone nations, giving rise to an inflation-driven credit bubble in those regions, which diminished competitiveness and made them susceptible to the financial crisis of 2007-2008. As private capital fled these countries, the ECB intervened by extending credit through local money-printing mechanisms, leading to substantial risk exposure and requiring further government-backed bailouts. These actions often stretched the legal boundaries established by the Maastricht Treaty, which granted the ECB a limited mandate in the absence of a European federal state. This created a dependency that effectively positioned parliamentary bodies as proxies for the ECB’s governing council.
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In September, private-sector payroll growth exhibited a strong rebound, according to the latest report from the US Labor Department. While this recovery was anticipated (with expectations for notable improvement), the sharp increase in new jobs is encouraging after the previous month’s lackluster performance. Specifically, businesses added 236,000 jobs in September, a notable rise from August’s revised figure of 175,000 (initially reported as just 134,000). It remains uncertain whether this uptick signals sustained growth or if it’s merely a rebound following an unusually weak month. Only time will provide clarity. For now, the current figures appear promising.
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Recently, the U.S. stock market has experienced a downturn, likely due to escalating geopolitical and macroeconomic concerns that are finally impacting investors, who have typically remained optimistic despite various troubling headlines. However, regarding worries centered on the U.S. economy, current evidence does not support the most dire predictions. This week’s labor market updates, including today’s positive news on initial jobless claims through September 27, suggest that concerns may be somewhat exaggerated.
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Expectations indicate that private nonfarm payrolls in the U.S. will rise by 208,000 (seasonally adjusted) in tomorrow’s September update from the Labor Department, according to the median econometric point forecast from The Capital Spectator. This forecast signifies a sharp increase from the previously reported gain of 134,000 in August.
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