Tomorrow’s report on US retail sales for September is anticipated to show a modest rise of 0.2% compared to the previous month, according to the median econometric forecast by The Capital Spectator. This prediction indicates a noticeable slowdown in growth when compared to last month’s increase of 0.6%.
● US stocks end Monday sharply lower on late selloff | MarketWatch
Recent volatility followed last week’s significant losses, driven by fears surrounding global economic growth.
● Eurozone industrial output falls more than expected in August | Reuters
Industrial production in the Euro zone decreased more than anticipated in August, primarily due to a decline in capital goods intended for investment.
● German investor morale tumbles as contraction looms | CNBC
New data indicates a sharp drop in German investor morale in October, raising concerns about a possible contraction in the Eurozone’s economy in the third quarter of 2014.
● IEA Revises World Oil Demand Growth Sharply Lower | NY Times
The International Energy Agency has projected much weaker oil demand growth for 2015 than previously anticipated, suggesting that prices may decrease further.
● UK Inflation Rate Falls to Five-Year Low of 1.2% | Bloomberg
UK inflation slowed more than economists had expected in September, influenced by declining oil prices and a stronger pound, which have reduced import costs.
● Fed’s Evans: Biggest Risk to US Now is Premature Rate Hikes | Wall St Journal
Mr. Evans’s remarks counter the growing speculation about the timing of interest rate increases by the Federal Reserve.
Recent surges in stock market volatility have left investors feeling uneasy, a typical reaction when prices are on the decline. Last week, the VIX Index—a prominent measure of short-term market volatility expectations—climbed to 21.24 on Friday, the highest level since February’s spike to 21.44. Donald Selkin, chief market strategist for National Securities Corp., described the increase as “a dangerous sign,” indicating a breach through some levels of resistance.
● IMF Warns of Global Financial Risk From Fiscal Policies | NY Times
The International Monetary Fund has highlighted concerns about a slowing world economy and rising asset prices, as well as increasing debt levels abroad, during its recent semiannual meetings.
● China Trade Data Exceed Expectations | Wall Street Journal
China’s exports and imports saw an unexpectedly strong rise in September, offering a glimmer of hope for the world’s second-largest economy as it strives to meet its annual growth target of 7.5%.
● Draghi-Weidmann fight intensifies as ECB debates action | Irish Times
Mario Draghi and Jens Weidmann are in renewed conflict over the necessary level of stimulus the European Central Bank should provide to counteract the economic malaise impacting the eurozone. President Draghi reiterated his readiness to potentially expand the ECB’s balance sheet by €1 trillion to ward off deflation.
● Fed Officials Say Slow World Growth Could Delay Rate Rise | Bloomberg
Federal Reserve policymakers have noted that a slowdown in the global economy may hinder the expansion in the U.S. and lead to a postponement in interest rate increases.
● Privately, Saudis tell oil market: get used to lower prices | Reuters
Saudi Arabia has been subtly communicating to oil market participants that it is comfortable with significantly lower oil prices for an extended period, a noteworthy change in policy aimed at curtailing rival production, particularly in U.S. shale.
● Lower oil prices | Econobrowser
Thanks to advancements in horizontal drilling, U.S. crude oil production surged in 2013, reaching two million barrels a day higher than in 2011. The EIA’s latest Short-Term Energy Outlook indicates we will add another two million barrels per day over the next two years, which should significantly impact global pricing.
● How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness
By Russ Roberts
Summary via publisher (Portfolio)
While Adam Smith is often regarded as the father of capitalism due to his landmark work, The Wealth of Nations, many are unaware of his insights regarding human behavior and happiness found in his other significant book, The Theory of Moral Sentiments. In How Adam Smith Can Change Your Life, Roberts revisits this overlooked masterpiece, unveiling timeless advice on understanding human nature. Smith’s teachings on what yields true happiness and the importance of relationships are as relevant today as they were three centuries ago. What does it mean to pursue true happiness? Is it fame, fortune, or the respect of those around us? How can we contribute to making the world better? Smith’s unexpected perspectives, contextualized within modern events and culture, deliver profound, counterintuitive, and entertaining insights.
Relying solely on economic models can introduce various risks, including the serious issue of presuming that in-sample results will yield the same outcomes with out-of-sample data. The drawbacks are well understood, or at least they should be. Essentially, this challenge underscores a frequent dilemma: what seems ideal on paper doesn’t always reflect real-world performance. Why does this happen? There are several factors to consider, but let’s spotlight one: data sets from studies may not perform well over time. This concern has resurfaced this week with an article from MarketWatch referencing an eight-year-old research piece that identified a significant link between monthly oil price returns and stock market performance.
● The world economy: Weaker than it looks | The Economist
While growth is robust in the US and Britain, many regions of the world are facing economic challenges.
● OPEC Oil Price Lowest Since 2010 | Wall Street Journal
The average price of OPEC oil has dropped to its lowest point since December 2010, just before a wave of Arab uprisings caused prices to exceed $100 per barrel.
● Merkel Hints at Economic Policy Shift in Germany | NY Times
With indications that Germany’s economy, the largest in Europe, is beginning to falter, Chancellor Angela Merkel is signaling a growing willingness to use government spending to promote growth, potentially signaling a shift in eurozone policy.
● ECB’s Nowotny: would not rule out QE perpetually | Reuters
European Central Bank policymaker Ewald Nowotny has not ruled out the possibility of maintaining a policy of quantitative easing indefinitely.
● Is China’s Bubble the Next Financial Crisis? | Bloomberg
A new report from London’s Centre for Economic Policy Research warns that China’s rapid credit expansion has made it one of the developing world’s most indebted nations.
Correction: An earlier version of this post noted that claims had fallen to an eight-year low. This statement is accurate only regarding average monthly data; today’s claims total represents the lowest weekly figure since the week ending July 19, 2014, maintaining a current 14-year low.
Earlier this week, I raised the question of whether the deteriorating macroeconomic situation in the Eurozone might impact the US economy. While some degree of repercussions is likely, recent data, including this morning’s weekly update on initial jobless claims, shows no immediate signs of turbulence. It’s still early to identify signs of potential trouble from Europe, but it’s encouraging to see that the US jobless claims trend is holding strong as we face possible challenges from abroad. In fact, the latest numbers on unemployment benefit filings clearly illustrate the continued positive momentum in the US labor market.
The Federal Reserve recently introduced a new monthly index to gauge the US labor market—the Labor Market Conditions Index (LMCI). Starting this week, this new series is accessible on the St. Louis Fed’s FRED database, making it easier for analysts to download and analyze data. Does the LMCI provide insights beyond what traditional indicators like nonfarm payrolls and initial jobless claims already offer? Analysts are divided—economist Tim Duy, for example, has expressed skepticism about LMCI’s initial release. The true test will come as we evaluate the index in real-time moving forward. That process will require time. Meanwhile, let’s examine this new indicator for some context.
● German exports fall 5.8%, deepest since Jan. 2009 | MarketWatch
German exports in August saw their largest decline since January 2009, contributing to a series of disappointing economic indicators from Europe’s largest economy, as reported by the country’s Federal Statistics Office.
● Dollar hits fresh 2-week low in wake of dovish Fed minutes | Reuters
The dollar reached a two-week low against a basket of currencies after dovish remarks from the U.S. Federal Reserve’s recent meeting led markets to adjust expectations regarding the timing of interest rate hikes.
● Stagnation for 5 years is likely for eurozone, says Nobel laureate | Telegraph
Michael Spence argues that decisive actions are essential to stabilize the 18-nation bloc.
● Leading indicators: weakening Eurozone growth; stability elsewhere | OECD
Composite leading indicators meant to predict shifts in economic activity suggest a mixed outlook for major economies, with weakening growth in the Eurozone but relative stability in other regions.
● Time to Look at High Yield Again | Pimco
Given PIMCO’s forecast of a lower-growth global economy coupled with subdued interest rates for the foreseeable future, investing in high-yield bonds appears compelling from both tactical and strategic perspectives.
In summary, recent economic indicators reveal a nuanced picture of both the US and global economies, marked by rising concerns over growth prospects and fluctuating market conditions. As various factors come into play, it is crucial for investors and policymakers alike to remain vigilant and adaptive in order to navigate the evolving landscape.