US futures were little changed, with European shares lower, and Asian stocks higher as caution returned after last night's Chinese economic data did little to clear up how the world's second largest economy is performing, and provided few positives for investors ahead of the third and final U.S. presidential debate; imminent announcements from both the ECB and the Fed also will keep traders on their toes today.
Dear Americans, if you feel like healthcare costs are soaring, that's because it's true. However, the reason why the Fed may not be sharing your pain and keeping rates "lower for longer" is that it may be simply looking at a parallel series that shows virtually no healthcare inflation at all.
Consumer Price rises broadly met expectations across the board with headline CPI jumping from +1.1% YoY to +1.5% YoY - the highest since Oct 2014. Core CPI (at +2.2% YoY) has now run 11 straight months above The Fed's mandated 2% inflation target. Once again prescription drug costs rose notably but 'Shelter', 'Rent', and 'Gasoline' costs surged.
The key economic releases this week include industrial production on Monday, CPI on Tuesday, and housing starts on Wednesday. There are several scheduled speeches from Fed officials this week. The Beige Book for the November FOMC period will be released on Wednesday.
One day after a slump in Chinese trade sparked a global market selloff on concerns the world's second biggest economy had once again hit a downward inflection point, overnight China surprised once again, this time to the upside when the latest inflationary data printed hotter than expected, sending European and Asian stocks higher and pushing the yen lower after China’s producer price index rose for the first time since March 2012.
In addition to higher reimbursements, consumers are paying more out of their own pockets. A shift to high-deductible health insurance plans in recent years means that consumers are contributing more to the cost of health care. In August, medical care services prices in the South surged by 1.2% NSA, the biggest increase in any August since at least 1990.
The week ahead is striking in the sheer number of central bank speakers, but with the Fed on hold until December and the BoJ’s new framework now revealed, focus turns squarely from central banks to US politics. The first US presidential debate at the start of the week will be a key focus.
We are speaking, of course, of the Fed’s decision to punt yet again, and for a reason that is not mysterious at all. To wit, our financial rulers are petrified of a stock market hissy fit, and will go to any length of dissimulation and double-talk to avoid triggering a crash of the very bubbles their policies have inflated.
Currently no-one expects the Fed to hike today and it probably won’t. It is definitely possible though that the FOMC statement will contain a strong hint regarding a likely rate hike in November or December, since the Fed for some reason no longer wants to surprise markets. Such an announcement could well have the same effect on the markets as an actual hike though.
University of Michigan survey results show Current Economic Conditions plunged to 103.5 - the lowest since Oct 2015. The biggest driver of this weakness is tumbling inflation expectations (with 1Y outlook dropping to 2.3% - the lowest since Sept 2010).
"The Fed is increasingly F#ked," exclaimed one veteran market participant as Core CPI - among The Fed's favorite inflation indicators - surged to +2.3% YoY, the highest since Sept 2008. This is the 10th month in a row above the Fed's mandated 2% 'stable' growth as shelter and healthcare costs continue to surge.
The spotlight turns to US data and Fed speakers ahead of the Fed blackout period this week. The BoE and SNB meet to decide policy but consensus expect no change from either. Elsewhere we get inflation data from the US, UK, Sweden & EZ (F), Q2 GDP from NZ & SW and labor market data from the UK & AU.