Asia:
China’s Factory Prices Give Global Inflation Unexpected Lift
Inflationary pressure emanating from the factory to the world is proving more resilient than economists have anticipated. China’s producer-price inflation accelerated to 6.3 percent in August from a year earlier, exceeding all but one of 38 estimates in Bloomberg’s survey of economists. That data released Saturday followed 5.5 percent readings in the prior three months and was unexpected for analysts, who have been forecasting more moderation in pricing pressures. The surprise strength gives support for global inflation spanning from metals to fuel and shows the effects of resilient domestic demand and reduced supplies of some commodities. China’s authorities have been closing mills and smelters to cut excessive industrial capacity and help curb pollution, in turn straining production of metals such as aluminum and steel. “The key driver has likely come from the supply side,” such as production cuts in response to intensified environmental enforcement in recent months, Robin Xing, chief China economist at Morgan Stanley in Hong Kong, wrote in a note. The bank last week raised its 2017 PPI forecast to 5.5 percent from 4.5 percent, citing stricter anti-pollution measures.
Europe:
Easy ECB policy to limit firming euro’s negative impact
European Central Bank policy will remain accommodative for longer than in previous cases of demand shock, likely limiting the negative impact of the euro’s appreciation, ECB Executive Board member Benoit Coeure said on Monday. Coeure’s comments suggest that policymakers are relatively relaxed about the currency’s 14 percent rise against the dollar EUR= this year, even as ECB President Mario Draghi singled out the exchange rate last week as a source of uncertainty which requires monitoring. “Compared with past demand shocks, policy will remain more accommodative for longer, thereby likely muting further the pass-through of any growth-driven exchange rate appreciation,” Coeure told a conference in Frankfurt. “And with the current recovery in the euro area being largely driven by domestic demand, euro strength may also have less of an impact on growth than, for example, after the Great Financial Crisis,” he added. The ECB targets inflation at almost 2 percent over the ‘medium term’, an undefined concept that is influenced by the size of any inflation shock. The bank has undershot its price growth target for four and a half years and will not raise inflation back toward 2 percent before 2020, its new projections from last week show.
U.S.:
Dollar Advances With Stocks as Irma Threat Recedes: Markets Wrap
The dollar gained, Treasuries retreated and stocks advanced as an appetite for risk returned after an anticipated North Korean missile test failed to materialize and Hurricane Irma struck the U.S. with less force than feared. Gold, the yen and the Swiss franc all fell. Bloomberg’s dollar index was headed for the first increase in eight days, while U.S. stocks rallied, Treasuries slipped and insurers jumped after Irma weakened and shifted direction to spare Miami a direct hit. The Stoxx Europe 600 Index climbed the most in more than three weeks as all the region’s major stock gauges advanced. Crude erased earlier gains even as Gulf Coast refining capacity continued to recover. Pyongyang warned of retaliation if the UN Security Council approves harsher sanctions over its recent nuclear test in a vote Monday. But speculation had mounted that the country would mark the anniversary of its founding with another missile over the weekend — and that didn’t happen. “The better risk environment has seen Treasury yields move higher while the yen retreated,” Chris Scicluna, the head of economic research at Daiwa Capital Markets in London, wrote to clients. Hurricane Irma appeared “not to be quite as catastrophic as had been feared last week” and “thankfully there was no bad weekend news out of North Korea.”