I start off this episode of the Week End Blog with a shameless example of self-advertisement. This week I made it to Business Insider’s list of ‘the 128 finance people you have to follow on Twitter.’ That’s not a bad achievement, now is it? Especially when you look up some of the other people on the list, which you can find here, by the way.
Wow! Made the list @businessinsider (thanks @lopezlinette and @ShenLucinda ) twitter.com/businessinside…
—
jeroen blokland (@jsblokland) October 14, 2015
Enough already! This week, ‘lowflation’ was the main theme in financial markets. Confirmation that inflation is still way off target reached us from all over the globe. In China, inflation fell from 2.0% in August to 1.6% in September. Needless to say this was below expectations. Also, the headline CPI number has not topped 2% since July of last year.
#Lowflation hits #China! Inflation (+1.6%) falls more than expected. #CPI not above 2% since Jul '14. http://t.co/vAni3nzBma
—
jeroen blokland (@jsblokland) October 14, 2015
China’s PPI number, reported together with the CPI data, doesn’t bode well either. YoY producer prices fell 5.9% in September, the biggest fall since 2009. Overcapacity remains an issue in China.
Deflationary pressures linger in #China. #PPI down 5.9% YoY, negative for 43(!) consecutive months! http://t.co/EeDOQv21Zl
—
jeroen blokland (@jsblokland) October 14, 2015
In the UK, inflation, again unexpectedly, fell back below the zero threshold. After a couple of months of hovering marginally above or at 0.0%, deflation re-entered the UK economy. Hence, the UK rejoined the global deflation list.
The #UK rejoins the #deflation list as the #CPI unexpectedly falls 0.1% in September. http://t.co/4Lb69x1LCN
—
jeroen blokland (@jsblokland) October 13, 2015
From a longer term perspective the fall in inflation levels looks pretty impressive. After being structurally too high between 2010-2012, inflation has now lingered in lowflation area for over a year. As The Economist neatly describes, the UK experienced a genuine price crash!
UK #CPI, From 5% to below 0%! #deflation http://t.co/zD8jXyGXca
—
jeroen blokland (@jsblokland) October 13, 2015
In the US inflation also turned negative, although at a rounded level CPI came in at -0.0%. An awkward gap has opened up between the core CPI, which rose to the highest level since July last year, and the headline CPI. This headline headache made a number of Fed policymakers question the appropriateness of a rate hike lift off this year.
The #inflation gap! Headline #CPI back to zero, but core CPI at highest levels since July last year. http://t.co/rLSL5nJDUG
—
jeroen blokland (@jsblokland) October 15, 2015
Comparable to China, PPI numbers have been subdued in most parts of the worlds. From the PPI angle, significant inflationary pressures are not to be expected any time soon.
Chart of the Day! Global #deflationary pressures have yet to abate! #PPI falling faster around the globe. http://t.co/AfKahArRRv
—
jeroen blokland (@jsblokland) October 14, 2015
Central bankers worrying over inflation, it has become a familiar sight. And investors are comfortable adjusting to it. According to one measure, investors don’t expect the Fed to raise rates for another 7.5 months at least. This means the FOMC meeting of April next year is now the most probable time for the Fed to act. To put that into perspective: it has been just over a month when a September 2015 rate hike was still on the table.
Investors don't expect the first #Fed rate hike for another 7.5 months. By then it's May 2016! http://t.co/thJwLBWNPJ
—
jeroen blokland (@jsblokland) October 15, 2015
With Fed members hinting a lower rates for longer, ECB members can’t stay behind, of course. ECB decision makers have hinted strongly at the possibility of more QE, either by raising the amount of bonds bought, or by continuing the program after September next year. Or perhaps a combination of both. ‘Squeezed’ between all these dovish comments, the EURUSD exchange rate has become a toy of monetary policy. Day-to-day movements can be, almost fully, explained by (changing) expectations about relative monetary policy going forward.
The #EURUSD has become the ultimate goal in the #currency war between the #Fed and the #ECB. #QE http://t.co/8VCekfQHob
—
jeroen blokland (@jsblokland) October 15, 2015
The increasingly dovish stance of central banks has provoked ‘routine patterns’ in financial markets to continue. In recent days volatility collapsed, equities are grinding higher, while government bonds yields are down. Will central banks do it once more?
Chart! The #VIX index falls another 11% as confidence grows central banks will keep policy easier for longer! http://t.co/1dEiRf0qpK
—
jeroen blokland (@jsblokland) October 16, 2015
Historically, it would be no exception, in any case, if stock prices went up from here. The graph below shows that the recent rebound in stock markets shows an eerie resemblance to the average, historical return pattern after a crash.
Spooked by the Aug/Sep crash? No worries, the stock market is doing what it always does! via @businessinsider http://t.co/fNEOXXBEUw
—
jeroen blokland (@jsblokland) October 15, 2015
Finally, while stocks have historically gone up from here, the end of QE, or tighter monetary policy, is unlikely to be welcomed by investors. Over the last couple of years the S&P 500 index has gone sideways or down every time when the end of Fed QE was announced. With inflation going nowhere for now, the Fed could be enticed to keep rates lower for a bit longer!
One chart to explain why investors fear tighter monetary policy! #QE #Fed #sp500 http://t.co/VFAJ6XcOtl
—
jeroen blokland (@jsblokland) October 12, 2015
Thank you for reading the Week End Blog. Enjoy your weekend!
This week I made it to Business Insider’s list of ‘the 128 finance people you have to follow on Twitter.’ That’s not a bad achievement, now is it?
Well deserved! van harte gefeliciteerd.
Ik kwam vaak losse tweets van u tegen
Toen kwam ik de blog en de notification service tegen.
Prachtig, bedankt!
Het voelt wel een beetje vreemd dat u zoveel moeite doet voor zoveel onbekenden. gewaardeerd wordt het in elk geval en blijkbaar niet alleen door mij.