Afternoon Note
After digesting the October jobs data over the weekend, and embracing lower oil prices, the major equity indices continued to rally in today’s session. Both the Dow Jones Industrial Average and the S&P 500 once again managed to touch new all-time intraday highs. In fact, the Dow is now only about 400 points away from reaching the 18,000-level, of which many economists are starting to believe will be a reality by the end of the year.
In the absence of major economic releases, and bellwether stocks reporting earnings, the market is left exposed to geopolitical and international market movements and news. The Russian ruble was on a tear today after the Russian central bank announced that it was abandoning its attempts to prop up the currency and allowing it to free float. There was a pickup in data out of China, namely in the level of consumer prices. For the month of October, China’s annual rate of inflation was recorded at 1.6%, which was unchanged from September, but remains relatively low compared to the rest of the year.
The politically sensitive food prices accelerated to 2.5% while non-food costs rose at a slower 1.2% rate. Among food prices, the highest increases came from eggs (+16.4% in October from +12.9% increase in September) and fresh fruits (+15.2% from +16.7%). Cost of fresh vegetables (-7.2%t from -9.4%) and pork (-3.1% from -2.9%) dropped further. In other categories, prices were stable for clothing (+2.4%) and transportation and communications (-0.3%), while higher costs were seen for household equipment and maintenance services (+1.2% from +1.1%) and health care and personal products (+1.3% from +1.2%). For 2014, the government has set the inflation target at around 3.5% and it appears that it may actually reach this target. On a month-over-month basis, consumer prices were relatively unchanged compared to a 0.5% in September over August.
Despite the apparently massive jump in food prices, overall inflation in China is lower for 2014.
Over the weekend, China’s money-market rates fell and interest-rate swaps traded near a two-year low on speculation the central bank will need to make sure that there is an ample supply of funds to counter an economic slowdown if necessary. While the talk of stimulus has been thrown around over the last year, it appears that the dust may be settling for China after all.
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