Economic Comments, week ending Oct. 21

By John W. Davidson | Oct 23, 2011

This past week's releases show some signs of gradual improvement but also the start of a pick-up of inflationary pressures in the headline measurements, including food and energy. Third quarter corporate earnings reports have been strong. None of this mattered to capital market participants who were mesmerized by the soap opera surrounding the sovereign debt crisis in Europe. In this environment the equity and bond markets were mixed, the U.S. dollar traded lower, and most commodities prices were lower.

 

Perspective

In absence of clear direction of economic growth or action in making progress in solving the European sovereign debt crisis, my attention turned to personal matters this week. Yet, the personal experience was so compelling that even had this been the week of the Lehman collapse or a Presidential election, my attention still would have been riveted on my daughter's marriage to an RAF pilot. The weekend sealed a close bond between our family and that of our British in-laws. Our daughter's description of "perfect wedding" day was gratifying to my wife, who worked so hard with her to make it so. My son-in-law's squadron mates told me how much they appreciate being in the U.S. One who is stationed in the U.S. says that every day he is in uniform, someone thanks him for his service. A week like this confirms my optimism outlook on life.

 

Economic Releases

The September report for CPI showed inflationary pressures creeping into the headline data. The monthly CPI rose +0.3 percent, but the core (less food and energy) rose only a tick. As shown below, on a year-over-year basis CPI September CPI rose to 3.9 percent, a tick higher than it registered in August. In the near term rising, CPI is an acceptable outcome of the monetary tightening, but, in the long run will need to be dealt with.

 

Source: Federal Reserve Bank of St. Louis FRED I-phone app

 

 

Other Economic Releases

 

In other signs of inflationary pressure, September PPI rose +0.8 percent, above the range of expectations; Core PPI (ex food and energy) rose only +0.2 percent. Canada's CPI rose +0.2 percent and 3.2 percent YOY. In the UK, September CPI rose +0.6 percent from the previous month and 5.2 percent YOY. Germany's September PPI rose +0.3 percent.

 

China's third quarter GDP rose 2.3 percent from the previous quarter and 9.1 percent from the previous year, in line with expectations. China's Retail Sales rose 1.35 percent in September and 17.7 percent from the previous year. China's Industrial Production rose 1.2 percent in September and 13.8 percent YOY.

 

Germany's Zew indices for Current Conditions and Business Expectations fell for the first reading in October. The Ifo Surveys for Economic Sentiment, Current Conditions and Business Expectations also fell in October.

 

Retail Sales rose +0.6 percent In September in the UK.

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Equities Markets

Equity markets were mixed, but gave little back from the recent weeks of gains.

 

 

Bond Markets

Most bond yields fell on the week, with the exception of possible downgrade of French debt putting some pressure on their bonds.

 

 

 

Currencies and Commodities

The U.S. dollar declined against the other currencies this week. With the exception of WTI, energy and metals prices declined.

 

 

 

 

Data Source: Bloomberg App for I-phone

 

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