We’re finishing the week with another round of sovereign bond selling and a rally in the dollar. Let’s highlight again Japan as what happens with the yen and eventually yield curve control will be the next market earthquake to work its way around the globe. September CPI rose 3% headline as did the ex food figure. Ex food and energy saw prices up 1.8% y/o/y from 1.6% in August and as expected while the headline was one tenth more. Go back 32 years the last time we saw a core/core rate this hot when not including value added tax hikes.
In response, the 40 yr JGB yield jumped 10 bps to 1.84%, a 9 yr high and best reflecting market expectations of Japanese inflation and the unwind of the great bond bubble. Because the 10 yr yield is still capped at .25%, the yen is where the other inflation pain point is being felt as it busts above 151, a 31 yr low vs the dollar. The Nikkei fell .4% and with the help of the weak yen is down just 6.6% ytd.
Core/Core Japan CPI y/o/y
40 yr JGB Yield
Yen
This week we’ve seen softer export data out of Singapore and Taiwan and today exports from South Korea in the first 20 days of October fell by 5.5% y/o/y after an 8.7% drop in September. Chip exports were down by 13% and overall exports to China fell 16.3% y/o/y. Asian stock markets were mixed with the Kospi down .2% and by 26% ytd.
Consumer confidence in the UK rose 2 pts but to a still deeply negative -47 and that was 5 pts better than feared. These remain ugly numbers in the 40 yr history of this survey. Thanks to still weak confidence, falling real wages and the holiday in tribute to the Queen, retail sales ex fuel fell 1.5% m/o/m and 6.2% y/o/y, more than estimated. GFK said this about the UK consumer, “Households are not just running scared of burgeoning energy and food prices, and the prospect of further base rate rises increasing mortgage costs. They are now facing the likelihood of tax rises and even austerity measures. For ordinary consumers, this web of uncertainty and turmoil amounts to a ‘new normal.’ The negative environment will deflate future spending plans, and cautious consumers could easily slow the UK economy still further.”
Wait, what? Consumers are worried about tax rises and Liz Truss wanted to cut taxes and then was thrown to the wolves in response?
GFK UK Consumer Confidence
We’ll watch today the updated H.8 release from the Federal Reserve to see how much further bank deposits fell for the week ended October 12th and to the theme I keep talking about. As of last Friday, this is a chart of bank deposits and US banks.
Bank Deposits week ended October 5th
With the higher end customer that American Express has, although they are making a big push to reach Millennials and Gen Z customers, they said this in today’s earning release, “Our credit metrics also remained strong even as we steadily rebuild loan balances, with delinquencies and write-offs continuing to be low. We have not seen changes in the spending behaviors of our customers, but we are mindful of the mixed signals in the broader economy and have plans in place to pivot should the operating environment change dramatically, as we have done in the past.” Where the S&P 500 goes from here will influence the spending behavior of many of their customers.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.