US industrial production in September is projected to increase 0.2% vs. the previous month in tomorrow’s report from the Federal Reserve, according to The Capital Spectator’s median point forecast for several econometric estimates. The expected gain represents a modest revival relative to August’s 0.1% decline.
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Retail sales fell more than expected last month, according to this morning’s update from the US Census Bureau. Spending dropped 0.3% in September—a sharp reversal from August’s robust 0.6% gain and the first monthly dose of red ink since January. The news arrives in the wake of a hefty wave of selling in the stock market lately and so it’s tempting to see dark signals in today’s release. The weak data on retail spending could be the start of trouble for the macro climate in the US, but it may just as easily turn out to be noise. For the moment, the latter is a reasonable view, based on the year-over-year trend.
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The US stock market’s recent turbulence took a breather yesterday, providing a bit of calm to the VIX Index, a measure of the implied volatility of S&P 500. Nonetheless, the VIX closed yesterday at its highest level in more than two years. Since Sep. 19, the VIX has doubled to 22.79 as of Oct. 14. Clearly, volatility has taken a sharp swing higher, raising worries that the so-called fear index is flashing a warning sign for the market. But interpreting the VIX, and market volatility generally, can be tricky. For some perspective, let’s consider how the VIX and several alternative measures of market volatility compare in an apples-to-apples framework via percentile ranking. By that standard, there’s still room for debate for interpreting the latest spike in vol.
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● US-led air strikes intensify as Syria conflict destabilises Turkey | Reuters
American-led forces have sharply intensified air strikes in the past two days against Islamic State fighters threatening Kurds on Syria’s Turkish border after the jihadists’ advance began to destabilise Turkey.
● Oil Falls to Four-Year Low as Bond Yields Drop to Records | Bloomberg
Crude oil fell to the lowest level in almost four years and yields on government bonds from Germany to Spain dropped to records on evidence growth is slowing.
● U.K. Jobless Rate Lowest Since Late 2008 | RTT News
The jobless rate fell to 6 percent during June to August, the lowest since late 2008 and down from 6.5 percent seen in March to May period.
● German inflation steady but still low | MarketWatch
German inflation remained stable at a very low level in September, Germany’s Federal Statistics Office said Wednesday, keeping the European Central Bank under pressure to add further stimulus boost the eurozone economy.
● China inflation slows to near five-year low | BBC
Inflation in China eased to a near five-year low in September, adding to further evidence of a slowdown in the world’s second largest economy.

US retail sales are expected to rise 0.2% in tomorrow’s September report vs. the previous month, according to The Capital Spectator’s median econometric forecast. The prediction reflects a substantial deceleration in growth compared with the previous month’s 0.6% increase.
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● US stocks end Monday sharply lower on late selloff | MarketWatch
Volatile trading came on the heels of last week’s deep losses that had been triggered by global economic growth concerns.
● Eurozone industrial output falls more than expected in Aug | Reuters
Euro zone industrial production fell more than expected in August, mainly because of a slump in the output of capital goods that are used for investment, data from the European Union’s statistics office Eurostat showed on Tuesday.
● German investor morale tumbles as contraction looms | CNBC
German investor morale sharply in October, new data showed on Tuesday, raising fears that the euro zone engine could contact in the third quarter of 2014.
● IEA Revises World Oil Demand Growth Sharply Lower | NY Times
The world will see much weaker oil demand growth in 2015 than forecast previously, the International Energy Agency said on Tuesday, adding that oil prices may drop further.
● UK Inflation Rate Falls to Five-Year Low of 1.2% | Bloomberg
UK inflation slowed more than economists forecast in September as falling oil prices and a stronger pound lowered the cost of imports.
● Fed’s Evans: Biggest Risk to US Now is Premature Rate Hikes | Wall St Journal
Mr. Evans’s comments stood as a pushback to the rising speculation about the timing of Fed rate increases.

The crowd is getting anxious after the recent jump in stock market volatility, which typically accompanies falling prices. Last week the VIX Index—a widely followed measure of short-term expectations of market volatility—rose to 21.24 on Friday, the highest level since the spike in February to 21.44. The increase is “a dangerous sign because we’ll have broken through some resistance,” Donald Selkin, chief market strategist for National Securities Corp., tells Bloomberg.
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● IMF Warns of Global Financial Risk From Fiscal Policies | NY Times
As global leaders sounded the alarm about a slowing world economy, a more immediate concern drew the attention of policy makers at the International Monetary Fund’s semiannual meetings last week: inflated asset prices and increasing levels of debt overseas.
● China Trade Data Exceed Expectations | Wall Street Journal
China’s exports and imports rose faster than expected in September, providing a modicum of good news as the world’s second-largest economy searches for sources of growth to meet its 7.5% annual target.
● Draghi-Weidmann fight intensifies as ECB debates action | Irish Times
Mario Draghi and Jens Weidmann are clashing anew over how much more stimulus the ailing euro-area economy needs from the European Central Bank. As Europe’s woes again proved the chief concern at weekend meetings of the International Monetary Fund in Washington, President Draghi repeated he’s ready to expand the ECB’s balance sheet by as much as €1 trillion to beat back the threat of deflation.
● Fed Officials Say Slow World Growth Could Delay Rate Rise | Bloomberg
Federal Reserve policy makers said a slowdown in the world economy could undermine the U.S. expansion and prompt them to delay raising interest rates.
● Privately, Saudis tell oil market: get used to lower prices | Reuters
Saudi Arabia is quietly telling oil market participants that Riyadh is comfortable with markedly lower oil prices for an extended period, a sharp shift in policy that may be aimed at slowing the expansion of rival producers including those in the U.S. shale patch.
● Lower oil prices | Econobrowser
Thanks to horizontal drilling to get oil out of tight underground formations, U.S. field production of crude was 2 million barrels/day higher in 2013 than it had been in 2011. And the EIA’s new Short-Term Energy Outlook released this week expects we’ll add another 2 million b/d over the next two years. That’s unquestionably enough to start moving the world price.

● How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness
By Russ Roberts
Summary via publisher (Portfolio)
Adam Smith may have become the patron saint of capitalism after he penned his most famous work, The Wealth of Nations. But few people know that when it came to the behavior of individuals—the way we perceive ourselves, the way we treat others, and the decisions we make in pursuit of happiness—the Scottish philosopher had just as much to say. He developed his ideas on human nature in an epic, sprawling work titled The Theory of Moral Sentiments. In How Adam Smith Can Change Your Life, Roberts examines Smith’s forgotten masterpiece, and finds a treasure trove of timeless, practical wisdom. Smith’s insights into human nature are just as relevant today as they were three hundred years ago. What does it take to be truly happy? Should we pursue fame and fortune or the respect of our friends and family? How can we make the world a better place? Smith’s unexpected answers, framed within the rich context of current events, literature, history, and pop culture, are at once profound, counterintuitive, and highly entertaining.
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There are many risks with blindly following models, but one of the more pernicious hazards is overlooking the problems that arise from assuming that in-sample results will hold up with out-of-sample data. The pitfalls are well known, or at least they should be. In any case, the challenge boils down to an all-too-common problem: What looks good on paper doesn’t easily translate into real-world results. Why? Any number of answers apply. For now, let’s focus on one: the data set in a given study doesn’t age well. This stumbling block arises anew this week in an article from MarketWatch that points us to an eight-year-old study that finds a reasonably strong connection between the monthly return on oil prices and the next-month’s return on the stock market.
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