The crowd’s been repricing Treasuries lately on expectations that deflation risk is on the rise… again. But there’s no sign of it in the latest economic reports for the US. Why the disconnect? Treasuries, for good or ill, reflect fear and greed for a global audience as well the folks in Peoria. As a result, America’s relatively upbeat macro profile is an afterthought these days for traders in the Treasury market. Is that about to change?
Continue reading →

● Stocks Stage Positive Reversal, Wiping Out Early Losses | IBD
US stocks made several U-turns Thursday, eventually closing just above the break-even line.
● Data shows U.S. economy’s pulse is still strong | Reuters
The number of Americans filing new claims for jobless benefits fell to a 14-year low last week and industrial output rose sharply in September, positive signals that helped ease fears over the economic outlook.
● WTI Rebound Above $80 Holds as Goldman Sees No Oil Glut | Bloomberg
West Texas Intermediate crude held gains above $80 a barrel as Goldman Sachs Group Inc. said the market isn’t oversupplied. Brent was steady in London.
● World braces as deflation tremors hit Eurozone bond markets | The Telegraph
Eurozone fears have returned with a vengeance as deepening deflation across Southern Europe and fresh turmoil in Greece set off wild moves on the European bond markets.
● Bank of England says keep interest rates low for now | BBC
Interest rates should remain low to avoid long-term economic stagnation, the chief economist at the Bank of England has said.

The sharp losses in the stock market lately suggest that the US economy faces a new round of headwinds. Yet there’s no sign of trouble in today’s updates on jobless claims and industrial production. In fact, the numbers du jour delivered substantially better-than-expected results. Taken at face value, today’s data implies that economic growth is accelerating. That’s probably assuming too much at this point, although it’s safe to say that the macro trend still looks encouraging after reviewing this morning’s releases.
Continue reading →

Housing starts are expected to increase to an annual pace of 999,000 in tomorrow’s update for September, based on The Capital Spectator’s median econometric point forecast for several econometric forecasts. The projection represents a moderately higher number of starts vs. 956,000 for August.
Continue reading →

● Risk of Deflation Feeds Global Fears | Wall Street Journal
Falling Commodities Prices Pressures Central Banks
● Bond Yields Worldwide Plunge to Record on Global-Growth Woes | Bloomberg
U.S. 10-year Treasuries rose for an eighth day, the longest winning streak in two years, after yields yesterday slid as much as 34 basis points, or 0.34 percentage point, when retail sales fell more than analysts forecast.
● Falling oil prices shake up global economies | AP
A sudden plunge in the price of oil is sending economic and political shockwaves around the world. Oil exporting countries are bracing for potentially crippling budget shortfalls and importing nations are benefiting from the lowest prices in four years.
● Fed survey finds moderate growth nationwide | AP
The U.S. economy was strengthening in most regions of the country in September to early October, helped by gains in consumer spending, manufacturing and commercial construction, according to the Federal Reserve’s latest survey of business conditions.
● Analysis: Risk Gauges Flashing Warning Signs; Red or Yellow? | MNI
The various instruments the market uses to gauge risk have been flashing warning signs this week, although the jury is out about whether the signals are blinking red for “stop” or yellow “to proceed with caution.”

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.
Continue reading →

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.
Continue reading →

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.
Continue reading →

● 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.
Continue reading →