Evans doubts inflation rising; urges patience on Fed rate hike

29 Sep 2015 | Author: | No comments yet »

Euro zone’s inflation, U.S. jobs to determine health of major economies.

Glencore shares fall to record low as Investec warns that if commodity prices remain at low levels, almost all the company’s equity value would disappear without major restructuring.

Euro zone inflation and United States (U.S.) jobs data will offer clues to the health of major developed economies in the coming weeks while the malaise gripping emerging markets is expected to prompt India to cut interest rates. China may release monthly foreign exchange reserve data indicating how much more the central bank has spent on steadying the yuan following August 11’s surprise devaluation. The S&P materials sector led the decliners as prices of commodities fell after Chinese data showed an 8.8 per cent decline in profits at industrial companies. “The broad healthcare sector and China are hurting the market. Catalans vote on Sunday in a regional election which separatist parties are framing as a proxy referendum on independence from Spain while polls point to no clear winner in Portugal’s October 4 election.

Wednesday’s flash reading of September’s yearly euro zone inflation is expected at zero, although core inflation, which excludes volatile energy prices, is seen at 0.9 percent for a third consecutive month. A negative headline inflation reading, which would be the first since March, would fuel speculation about further European Central Bank stimulus, six months after the euro zone’s central bank launched a 1 trillion-euro-plus asset-purchase programme. However, a surprisingly hawkish-sounding Mario Draghi said the ECB needed more time to assess whether China’s slowdown, particularly its impact on commodity prices, cheap oil and a rising euro, would slow inflation further. The Dow Jones industrial average was down 265.41 points, or 1.63 per cent, at 16,049.26, the S&P 500 was down 43.28 points, or 2.24 per cent, at 1,888.06 and the Nasdaq Composite was down 131.80 points, or 2.81 per cent, at 4,554.70. Even if inflation turns negative again, deflation risks remain low, Unicredit analysts said in a note, with a fading of the base effect from 2014’s plunge in energy prices likely to push the headline rate higher by year-end.

The Standard & Poor’s/TSX Composite Index fell 320.82 points to 13,057.75 at 1:55 p.m. in Toronto, extending declines in September to 5.8 percent, the worst drop since 2012. The index is headed for its worst quarter in four years. “What we have here is a jittery market, and with two days left to the quarter I don’t see much of a change in direction,” said Peter Cardillo, chief market economist at Rockwell Global Capital in New York. Buoyant labour market data would revive expectations of a first U.S. interest rate rise in nearly a decade, after a sharp selloff in global financial markets sparked by worries about China’s economy prompted the Fed to hold fire this month. Fed Chair Janet Yellen said on Thursday she expects the U.S. central bank to begin raising rates this year as long as inflation remains stable and the U.S. economy is strong enough to boost employment. The $93.9 billion decline in China’s reserves in August, reflecting central bank intervention around the yuan’s devaluation, was the biggest monthly fall on record and marked an 11 percent drop from a June 2014 peak.

Capital outflows have escalated as fears grow that the world’s second-largest economy is slowing as U.S. interest rates look set to rise, although at $3.557 trillion in August, China’s FX reserves remain the world’s biggest.

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