Monday October 19

Stocks rise marginally following China’s economic data. The S&P500 added 0.03% to 2,033 while the Dow Jones gained 0.1% to 17,230. Investors were cautious after China released their economic data for the third quarter, and commodities traded downwards. Chinese GDP grew 6.9% in the third quarter compared to the 6.8% which was expected. Retail sales rose 10.9% year on year which slightly beat expectations, while industrial production fell 5.7% from the previous month which missed expectations. However uncertainty in China’s economy lingers and as usual there are questions regarding the authenticity and validity of the numbers that come out of China. WTI oil dropped to $46.19 and Brent dropped to $48.93 and energy company drag down US equity indexes as a result. The US 10 year yield fell 1 basis point to 2.02% while the dollar index rose 0.5%. The euro fell to $1.1323, the yen was flat at Y119.46, however the pound gained to $1.5467.

China experiences an estimated $500bn of capital outflows throughout this year so far. This reflects China’s rationale for abandoning the peg, as it was becoming increasingly expensive to maintain the peg with the volume of outflows. This estimate comes out of the semi annual report on the global economy. The Treasury believes the Renminbi is below it’s appropriate valuation, however this categorization is a change from “significantly undervalued” before. This indicates the shift in China’s monetary policy. The Treasury still expects the Renminbi to strengthen over the long term in spite of short term headwinds.
Gas prices ar down after China’s data and increasing supply levels. Gasoline futures have fallen 10% so far in October. This is beneficial for US households which are expected to save hundreds of dollars this year in gasoline expenses. Inventories are high, and US demand is slowing down after reaching an all time high this summer. Overseas demand is not as high as expected. The average national gas price is at $2.26.
Pressure is mounting on Dilma Rousseff. The probe into the government’s 2014 public accounts is being progressed by Congress. This is the first time that the national accounts tribunal has recommended congress to reject the fiscal accounts. This could lead to the basis for impeachment if Congress votes in favor of progressing with the impeachment process. Rousseff’s government allegedly used money from state sponsored banks to pay budget expenses, in a way making the fiscal deficit look more attractive. There are $27bn (or R$106bn) in expenses that are not accounted for. Rousseff is already not very well liked among Congress and constituents.
Monday October 19

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