Overview: Although the S&P 500 was unable to sustain early gains yesterday, the largely consolidative session was part of the stabilization of equities after last week’s jump in volatility. Asia and European stocks are also cautiously steadying. Most Asia equity markets advanced with the Nikkei’s 1.25% advance most bourses higher. China was a notable exception, The Shanghai Composite recorded new lows for the year and finished uninspiringly on its lows. Europe equities are mostly firmer, led by Italy and Spain. The Dow Jones Stoxx 600 is almost 0.5% in late morning turnover, with most sectors participating save energy and consumer staples. Core bonds yields are one-to-two basis points higher, while peripheral European 10-year benchmark bond yields are two-to-five basis points lower, led by Italy and Greece. The dollar is mostly softer, and the softness of the Swiss franc and Japanese yen also reflect the easing of investor anxiety. Emerging market currencies are mostly firmer, led by the South Korean won (~+0.6%) and the South Africa rand (+0.5%). The Turkish lira is struggling to extend its seven-day advance.

Asia-Pacific: There were fourth economic reports of note. First was China’s inflation. Its September CPI rose 2.5% from 2.3% in August. It is about food prices, which more than doubled to 3.6% from 1.7% in August. It reflects weather-induced shortages and unfavorable base effects. It may also be a sign of counter-tariffs imposed by China amid reports that US soybeans are headed there to meet the shortage. Non-food prices eased to 2.2% from 2.5%, helped by slower increases in medical costs (increase has been more than halved since reaching 6% at the start of the year). Producer prices slowed for the third consecutive month to stand at 3.6% and peaked this year in June at 4.7%. The yuan remained confined in narrow ranges (with the dollar mostly CNY6.9150-CNY6.9250). 

Second was the minutes of the Reserve Bank of Australia recent meeting. It essentially reiterated its stance. The weaker currency was a welcome development as it may help growth. Interest rates will continue to be held steady. It is closely monitoring the impact of weaker house prices on consumption, but it anticipates a firm Q3 GDP figure. Meanwhile, tomorrow the September employment report will be released. The Australian dollar continues to bump against a retracement objective and resistance in the $0.7145-$0.7150 area. If it does not succeed in establishing a foothold above it soon, short-term momentum players give up.