● 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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● The world economy: Weaker than it looks | The Economist
Growth is healthy in US & Britain. But most of the world economy is in trouble
● OPEC Oil Price Lowest Since 2010 | Wall Street Journal
The average price of OPEC oil has fallen to its lowest level since Dec 2010, just before a string of Arab uprisings pushed oil prices above $100/bbl.
● Merkel Hints at Economic Policy Shift in Germany | NY Times
As evidence grows that the German economy, the largest in Europe, is beginning to stall, Chancellor Angela Merkel expressed a growing willingness on Thursday to use government spending to stimulate growth, a possible shift in position that could ripple across the entire eurozone.
● ECB’s Nowotny: would not rule out QE perpetually | Reuters
European Central Bank policymaker Ewald Nowotny would not rule out forever a policy of quantitative easing, or printing money to buy government bonds.
● Is China’s Bubble the Next Financial Crisis? | Bloomberg
The Chinese credit boom has rapidly turned the country into one of the developing world’s most indebted, according to a new report from London’s Centre for Economic Policy Research.

Correction: An earlier version of this post noted that claims fell to an 8-year low, which is true only in terms of average monthly data–a detail that was left out previously. On a weekly basis, today’s claims total is the lowest since the week through July 19, 2014, which is the current 14-year low. Sorry for the confusion.

Earlier this week I wondered if the deteriorating state of macro in the Eurozone would eventually pinch the US economy. Some degree of blowback is likely, although for the moment there’s no sign of turbulence, according to this morning’s weekly update on initial jobless claims. It’s still early in the game for detecting signs of imported trouble from Europe. But it’s certainly encouraging to see that the US trend by way of claims looks robust as we head into a period that may be challenged with a nasty storm from abroad. Indeed, today’s numbers on new filings for unemployment benefits clearly show that positive momentum in the US labor market remains intact.
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The Federal Reserve recently introduced a new monthly measure of the US labor market—the Labor Market Conditions Index (LMCI)—and starting this week the series is available on the St. Louis Fed’s FRED database, an addition that makes it easy to download, analyze and monitor the data. Does LMCI offer deeper insight beyond what’s already available in the usual suspects, such as nonfarm payrolls and initial jobless claims? In particular, will LMCI dispense a superior set of timely and reliable signals for tracking critical changes in the US business cycle? Some analysts are skeptical—economist Tim Duy, for instance, isn’t impressed with LMCI’s debut. The acid test, of course, is evaluating the index on a real-time basis going forward. That’s going to take time. Meanwhile, let’s take a closer look at this newly minted series for some perspective.
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● German exports fall 5.8%, deepest since Jan. 2009 | MarketWatch
German exports in August suffered their biggest monthly fall since January 2009, adding to a recent spate of dismal economic indicators from Europe’s largest economy, data from the country’s Federal Statistics Office showed.
● Dollar hits fresh 2-week low in wake of dovish Fed minutes | Reuters
The dollar hit a two-week low versus a basket of currencies on Thursday, after minutes from the U.S. Federal Reserve’s last meeting prompted markets to push out expectations for the likely timing of an interest rate rise.
● Stagnation for 5 years is likely for eurozone, says Nobel laureate | Telegraph
Michael Spence says bold decisions are needed to lift the 18-nation bloc out of its moribund state
● Leading indicators: weakening Eurozone growth; stability elsewhere | OECD
Composite leading indicators, designed to anticipate turning points in economic activity relative to trend, point to a mixed outlook across major economies, characterised by weakening growth in the Euro area and stable growth in most other major economies.
● Time to Look at High Yield Again | Pimco
Given PIMCO’s view for a lower-growth global economy and subdued interest rates over the foreseeable future – an outlook we call The New Neutral – the case for high yield bonds is a compelling one, both as a tactical and strategic allocation.

The US economic trend remained positive through early October, albeit at readings near the lower range posted so far this year, according to a markets-based estimate of macro conditions. The Macro-Markets Risk Index (MMRI) closed at +7.9% yesterday (October 7). Although that’s well down from the year-to-date peak of +16.0% in late-August, the current levels are still associated with economic growth. The consistent run of positive numbers in recent history suggests that business cycle risk remains low. A decline below 0% in MMRI would indicate that recession risk is elevated. By comparison, readings above 0% imply that the economy will expand in the near-term future.
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