Wednesday October 14

Stocks fall after weak earnings and China concerns. The S&P500 fell 0.5% to 1,994 and the Dow Jones fell 0.9% to 16,924. Concerns out of China continue after consumer prices rise by less than expected. Prices rose 1.6% in September from the previous year which is less than the 2% increase that was reflected in August. Producer prices fell for the 43rd straight month which in part shows low demand on behalf of Chinese producers. Some analysts speculate that the downbeat outlook for the global economy may force the Fed to sit on zero for a longer period of time. Data in the US reflected similar trends as US retail sales rose just 0.1% last month and August’s reading was revised downward to reflect no increase. Producer prices fell 0.5% in September, and the core index was down 0.3%. The two year yield fell 6 basis points to 0.56% while the ten year yield was down 7 basis points to 1.98%. The dollar index fell 0.9% and the euro gained 1% to $1.1483. Similarly the yen rose to Y118.71. All of these movements reflect investors expecting the Fed to hold off in raising interest rates. Weak earnings from companies including JP Morgan and Walmart also contributed to downward movements.

The Fed appears to be split on when the best time will be to raise interest rates. This increases monetary policy uncertainty over the next few months. Two Fed board members this week articulated that they may be opposed to interest rate hikes in 2015. Today’s producer price and retail sales data further supports the case for those who are against tightening this year which is what pushed yields down today. In the meantime the ECB and the BoJ may be forced to act and push down their own currencies in the interim. Janet Yellen and Stanley Fischer both members of the board have in recent weeks been in support of a rate hike in 2015. However Lael Brainard and Daniel Tarullo also members of the board voiced opposing opinions this month.

Larry Fink believes that Fed members are contributing to volatility in the markets as a result of their conflicting statements. BlackRock’s assets under management and profits fell in the third quarter as the asset manager suffered from market turmoil which were unfavorable to net inflows. According to Fink, “Some of the official authorities are guilty of, instead of being a calming influence, through their mixed messages, inflaming the markets.” He expects volatility to be a trend over the next few years and global disparity in growth and economic health would lead to “big winners and big losers.” BlackRock’s performance related fees were stronger than expected which was why fee income was able to increase in spite of large outflows from Asian clients. BlackRock was able to benefit from it’s diversified structure as most other business areas experienced net inflows in spite of market turmoil.

Wednesday October 14

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