The Fed keeps looking for inflation, keeps warning us about inflation, keeps telling everyone else to worry about inflation but this almost mythical beast just keeps on not showing up. The latest set of data is somewhat worrisome for the Fed’s latest thesis. But be warned, inflation is just around the corner. Well, maybe it’s just hiding.
The inflation number was somewhat worrisome in that apart from a hurricane induced fever of inflation on products such as cars and fuel, not a lot of inflation was seen. Trump is trying his best to induce inflation by removing subsidies that allow the poor to gain access to medical insurance, because medical insurance just went up.
Meanwhile, gas is giving it to coal as gas producers are hunting globally for buyers. Memo for gas producers: try Australia, I hear they have exported all the gas and need to sell some to the locals.
Friday and the weekend were dominated by news of Yellen warning about inflation even though there is an apparent lack of inflation. Geopolitics could continue to play out in due course following Tillerson’s comments about negotiating with North Korea until the “the first bomb drops”.
Otherwise, the weekend was the same old same old. Trump’s campaign funds paid $238,000 to the law firm that is defending his son in the Russia probe. Trump tweeted, rather bragged, that he just made a number of health insurance company’s share prices collapse after he removed a subsidy for the poor.
Meanwhile, Mnuchin chastised the IMF for placing too much cache in positive balance of payments. He also told the World Bank to think about its lending practices. All in a weekend’s work.
The Trump administration met with a number of Wall Street high frequency tyros to describe and discuss how hackers could intervene in markets and cause a savage dislocation in markets.
The big news on Friday, however, was inflation or rather the elusiveness of inflation. Inflation was soft at 0.5% for September, below the expected 0.6%. Retail sales adjusted upwards but that was technical because of car buyers replacing damaged property and increased fuel costs as a result of the hurricanes shutting down refineries.
After the release, equities rallied. The bid tone that was set the previous day in the 30-year auction followed through on Friday with treasuries rallying. European bonds rallied after the ECB said it may continue its purchases for another 9-months.
The $1 trillion float of Aramco, the Saudi Government’s oil company looks likely to be listed only in the Saud Kingdom. It appears as though regulators in the UK were wanting greater disclosure. The Kingdom apparently was unwilling to provide a level of disclosure that the regulators wanted. It is also possible that they had found buyers willing to purchase the percentage that the Saud’s were looking to sell. It would appear as though China has an interest.
Equities: the S&P 500 rose 0.1%, the Dow rose 0.1%. The Stoxx 600 rose 0.3%.
Currencies: were largely unchanged on the day.
Bonds: were slightly stronger. The U.S. 10-year closed at at 2.275% a rally of 4 bp. The two- year bond closed at 1.497% rallying 2bp. The 30-year closed at 2.806% down 5 bp on the day. The yield curve flattened about 4bp.
The U.S. bond curve flattened with the 2/10 closing at 77.6 bp, the 2/30 at 130.9 bp. The 10/30 closed slightly wider at 53.1bp as the curve flattened between 2-years and the longer dated maturities.
Commodities: Gold rose 0.7% and WTI rose 1.68%. Winter cuts in China will continue to plague the commodities market. Iron ore is expected to fall and so too a number of base metals. A key Chinese aluminium city is set to shut 2.57million tonnes of capacity this winter. Meanwhile, the Trump administration is demanding the use of regional steel and aluminium in NAFTA auto rules.
Aussie Market Today.
Aussie bonds will continue to trade in a tight range and are likely to rally after the strong lead from the U.S. Expect some short covering to continue. However, as the day progresses traders may square their books ahead of the U.S. CPI. Equity market to be slightly weaker on the day.