China slips back into deflation

China recorded deflation of -0.2% y/y in October, a weaker reading than the predicted -0.1% and down from flat growth in September. Despite an upside surprise in imports data earlier in the week, Chinese demand has been lacklustre this year and this is weighing on price growth: inflation was negative in July also and has hovered around zero in the intervening months. Factory gate inflation was also weaker than expected, with the PPI down -2.6% y/y, compared with the predicted -2.5% and down from -2.5% in September.

Central bank watchers looking to glean some indication as to the FOMC’s next move from Chair Jerome Powell’s address at an event celebrating the centenary of the Federal Reserve’s Research and Statistics division overnight will have been disappointed. Powell did not comment on monetary policy or the economic outlook but instead focused on encouraging forecasters to use tools beyond the complex mathematical models it usually uses for predicting the economy. Tonight, however, Powell is speaking at an IMF event where he will be on a panel discussing monetary policy challenges in the global economy, which should throw more light on his current thinking.

Bank of England Governor Andrew Bailey was also talking yesterday. Addressing a conference at the Central Bank of Ireland, he pushed back on reports that the BoE was contemplating rate cuts, saying that ‘We are very clear, we are not talking about that.’

Today’s key economic data and events

• 17:30 US initial jobless claims, week to November 4. Forecast: 219,000
• 23:00 US Jerome Powell speaks on an IMF panel on global monetary policy challenges

Fixed Income

• Yields on the 2yr UST rose 1bps to 4.9320% yesterday, but treasuries rallied on the longer end as the  10yr UST slipped 7bps to 4.4925% after a disappointing auction, while the 30yr yield fell 11bps to a month low 4.6148%.
• In the UK, 10yr gilt yields fell 3bps to 4.240%, while 10yr bunds were down 4bps to 2.615%. The 2yr gilt yield fell 1bps while the 2yr bund rose 1bps.

FX

• The dollar recorded its third day of wins yesterday as the DXY index closed up 0.1% against its basket of peers to 105.593, although this streak appears to have broken in early morning trading.
• The dollar’s losses were driven by the EUR which gained against the greenback yesterday as it closed up 0.1% to 1.0709. CHF also added 0.1%.
• On the other hand, GBP lost 0.1% to 1.2285, while JPY settled 0.4% lower at 150.98. Commodity currencies also closed lower as oil prices struggled, with CAD closing 0.2% lower.

Equities

• There were further losses for Asian equity indices yesterday, with the Nikkei dropping 0.3% and the Hang Seng closing 0.5% lower.
• In the US, the S&P 500 recorded its eight consecutive gain but at just 0.1%, while the NASDAQ also edged up just 0.1%, there were signs that the rally was petering out, especially as the Dow Jones dropped 0.1%.
• Locally, the ADX closed down 0.1% while the DFM lost 0.6%.

Commodities

• There were further falls in global oil prices yesterday with demand concerns still to the fore, and Brent futures closed back down below the USD 80/b mark for the first time since July as they fell 2.5% to USD 79.5/b. WTI fell by a similar 2.6% to USD 75.33/b.
• The official weekly EIA report on US inventories has been delayed due to a systems upgrade.