VIENNA 1:55amCDT
Austrian CPI Falls
The rise in Austrian prices continued to slow in September as the price for clothing fell, data from the country's
statistics office showed Thursday. Austria's consumer price index rose 1.6% on an annual basis in September. On
a monthly basis, prices increased 0.6%. In August, prices increased 1.7% on an annual basis. The main driver for
inflation were price increases for goods in the category housing, water and energy, which increased 1.7%
compared with a year ago, mainly due to a 4.5% increase in apartment rents. Household energy costs only
increased 0.1%, Statistik Austria said. Prices for food and non-alcoholic drinks also increased 2.2%, as food
prices increased 2.4%. The prices for the clothing and shoes, however, fell 2.4%. On a monthly basis, prices for
clothing and shoes increased 16.2% as seasonal sales came to an end. Write to Nicole Lundeen at
Nicole.Lundeen@wsj.com (END) Dow Jones Newswires
By Tommy Stubbington 3:23amCDT
European Market Review
Global stock markets remained under pressure Thursday following the previous day's sharp selloff, with
European indexes quickly surrendering early gains. The Stoxx Europe 600 was flat early in the session. The
index had plummeted 3.2% on Wednesday, as mounting worries about poor global growth were compounded by
some poor U.S. economic data. Investors rushed to safe-retreat German government bonds, pulling yields to
an all-time low. Moves were amplified as money managers were forced to exit money-losing trades as
markets moved against them, analysts said. After a brief stabilization early Thursday, stocks extended their
fall. "Markets are likely to be picking up the pieces today and trying to work out where we go from here," said
analysts at Rabobank. Investors were awaiting consumer price inflation data for the eurozone, expected to slow
to an annual rate of 0.3%, a long way below the European Central Bank's target. "To say that the market's
patience for weaker-than-expected reports will be limited is an understatement," said Rabobank.
Germany's DAX and the U.K.'s FTSE 100 were both up 0.3% but France's CAC 40 was 0.1% lower.
Italian and Spanish markets--which were hit particularly hard in the selloff--registered further sharp falls, declined
0.5% and 1.1% respectively. European benchmarks were initially helped by a late rebound on Wall Street, where
U.S. stocks closed well above their mid-session lows. Some long-term investors said they were sticking with
their bets on stocks despite the bumpy ride endured by markets. "While geopolitical risks, and the threat of the
Ebola virus, remain in the background, we believe the selloff is primarily attributable to a sharp downward
adjustment in market expectations of global growth," said UBS Wealth Management's chief investment office in a
note to clients.
UBS Wealth, which oversees around $2 trillion of assets advised clients to stick with equities given that U.S.
economic growth should continue, boosting earnings. "[The] longer term investment case for equities remains
intact," UBS Wealth said.
Bond markets saw a partial reversal of some of Wednesday's moves. German 10-year yields climbed slightly to
0.76%, having plummeted to an all-time low of 0.72% in the previous session. That echoed a wild ride in the U.S.
Treasury market, where yields sank sharply after the weak data prompted investors to reassess the view that the
Federal Reserve will hike interest rates next year, before picking up again. "Yesterday's market moves took place
on the back of huge trading volumes, and certainly illustrate that volatility had not been slaughtered for good. The
size of the moves also brings back memories of the depths of the financial crisis," said Jan von Gerich, chief
strategist at Nordea. But bond yields in the eurozone's former crisis spots, including Italy, Spain and Portugal,
continued to climb Thursday. Greek bonds also continued to weaken, with 10-year yields above 7.8%, having
spiked on Wednesday as the country's plan to make an early exit from its bailout program unnerved investors.
"The recent market action clearly implies Greece doesn't have the credibility or the capability to make it on its
own at this point," Mr. Von Gerich said. In currency markets, the dollar pared Wednesday's losses. The euro was
down 0.3% against the buck at $1.2776. In commodities, Brent crude was 0.8% lower at $83.44 a barrel.
Write to Tommy Stubbington at tommy.stubbington@wsj.com (END) Dow Jones Newswires
By Paul Hannon 4:00amCDT
EU Inflation Lowest in Five Years
The European Union's struggle to avoid a period of falling consumer prices suffered a setback in September, as
the annual rate of inflation across the bloc's 28 members fell to its lowest level in five years. The EU's statistics
agency Thursday confirmed that across the 18 countries that share the euro, consumer prices rose by just 0.3% in
the 12 months to September, the lowest annual rate of inflation since October 2009, and down from 0.4% in
August. That confirmed a preliminary estimate released at the end of last month.
But a more comprehensive set of figures showed consumer prices across the EU as a whole rose by 0.4% from
September 2013, slowing from a 0.5% rise in the previous 12-month period, and the lowest annual rate of
inflation recorded since September 2009. The figures showed that eight of the EU's members recorded a decline
in consumer prices over the 12 months, with five of those being members of the eurozone: Greece, Spain, Italy,
Slovenia and Slovakia. The three EU members that don't use the euro and which suffered the same fate were
Bulgaria, Hungary and Poland. The figures will likely cement investors' fears about the growing threat of
deflation--or a self-reinforcing fall in consumer prices--in Europe, concerns that have contributed to recent
declines in asset prices around the world. With inflation so low, it wouldn't take much of a shock--such as
weakness in Germany's economy or geopolitical tensions in nearby Ukraine--to tip the whole region into a
deflationary downturn.
European Central Bank President Mario Draghi acted against deflation risks in June and September, pushing the
central bank to slash interest rates to record lows each time--including a negative rate on bank deposits at the
ECB--and unveiling new bank-lending and asset-purchase plans for asset-backed securities and covered bonds.
But there is little consensus for more-dramatic measures--the kind of monetary stimulus the Fed, the Bank of
England and the Bank of Japan have deployed--namely large-scale purchases of government bonds to raise the
money supply.
There was a small sliver of good news in Thursday's figures. In its preliminary estimate, Eurostat had calculated
that the core rate of inflation for the eurozone--which strips out volatile items such as energy and food--had fallen
to 0.7% from 0.9% in August. Speaking in his monthly press conference, Mr. Draghi acknowledged that was a
worry, since it indicated the downward pressure on prices had spread beyond food and energy and may
increasingly reflect weak domestic demand. But Eurostat Thursday raised its estimate of core inflation to 0.8%.
Other figures released by Eurostat pointed to a weakening of domestic demand in August. Although the
eurozone's trade surplus widened to 9.2 billion euros ($11.68 billion) from EUR7.3 billion in August 2013,
seasonally adjusted figures showed that was driven by a decline in imports rather than a pickup in exports.
Indeed, exports fell 0.9% from July, the third straight month of decline, while imports fell by 3.1%.
The decline in exports is bad news for the eurozone economy, which relied on trade to help stave off a contraction
in the second quarter. With high unemployment, low growth in wages and government austerity programs still
keeping domestic demand anemic, many businesses have had to look outside the currency area.
Write to Paul Hannon at paul.hannon@wsj.com (END) Dow Jones Newswires
0955 GMT 4:56amCDT
USD Still Safehaven?
Does the sharp drop in the U.S. dollar on Wednesday indicate that it is losing its safe haven status? Derek
Halpenny, European head of currency research at Bank of Tokyo-Mitsubishi UFG says this is not necessarily the
case. "It certainly looks like the dollar has lost some of its safe-haven appeal but we believe it would be premature
to reach that conclusion just yet," he says. He adds that the momentum trade since July has been very much to
buy the dollar and Wednesday's sell off was likely nothing more than a slight correction. "We would argue that
the U.S. Dollar remains in the best position to ride out any financial market turmoil," he says.
(josie.cox@wsj.com) Contact us in London. +44-20-7842-9464 markettalk@wsj.com (END) Dow Jones
Newswires
By Laurence Norman 5:18amCDT
Italian Reforms?
MILAN--A combination of supply side reforms and domestic demand stimulus is needed to ward off a possible
slowdown in global growth, European Commission President José Manuel Barroso said Thursday.
Speaking at a business forum in Milan ahead of a meeting of leaders from Asia and Europe, the outgoing
Commission president acknowledged "some indications of a possible slowdown in global growth--not only in
Europe but in other parts of the world." "I believe that we need supply side measures for some, domestic demand
stimulus for others and structural reforms for all. And this is a collective effort that we have to pursue," he said.
Financial markets have fallen sharply in recent days on fears of a fresh recession and the specter of deflation in
the eurozone, as well as weak data from other emerging economies.
Within the EU, France and Italy have presented budget plans for 2015 that could set them on a collision course
with Brussels. France is seeking more time to pare back its budget deficit. Italy announced tax cuts in a bid to
kick-start economic growth. Mr. Barroso said the EU had pushed fiscal and structural reforms in recent years that
had helped it emerge from the crisis. But speaking alongside Italian Prime Minister Matteo Renzi, he said reform
efforts must continue. "We have repaired our institutional set up. We have regained financial stability and we
will pursue our economic reforms until we return to higher levels of growth," Mr. Barroso said.
"It's very important to have finances in order, but we have to insist on growth," Mr. Renzi said a few
minutes later. "We have to do it in Europe too, not just in Italy, and the new European leaders will have to
interpret this new phase and say that we have to exit this crisis all together." Mr. Barroso and his
Commission team leave office at end of October. Giovanni Legorano contributed to this article. Write to
Laurence Norman at Laurence.Norman@wsj.com (END) Dow Jones Newswires
LONDON, Oct 16 (IFR) 5:52amCDT
Bonds Rally Again
Bonds have bounced sharply again with the belly outperform from the start of London trading as distress in
European markets returns. Volume has been tremendous with 663k 10-year futures trading by 06:29 EST, whilst
the December 10-year has marked a range of 129-18/128-07, last at 129-08. Japanese accounts have lifted the
belly while central banks have sold the front-end, with the latter at least in part believed to be making room to
move out the curve. A few more block trades have gone through, featuring 2500 TYZ at 128-30 done about when
weak French and Spanish auction results were received, and is believed to have been a buyer, followed almost
immediately by 3500 FVZ at 121-00.2 which was also believed to be a buyer. Another block of 938 FVZ went
through a short time later.
Bunds have also rallied with 10-year futures up as much as 2/3 of a point, almost matching Wednesday’s highs,
before fading to be up only around 1/4 point now on the approach to early New York trading. 10s/Bunds
meanwhile has screamed back in to +126.3 bps on Tradeweb, from +132.5 bps on London’s open, and +127.5 bps
as of London’s close Wednesday. Within Europe peripheral markets have been hit again, led by Greece where 10year bonds are 110+ bps wider to Bunds. Somewhat alarmingly, the Greek curve continues to flatten viciously,
with the 7/17s up over 200 bps today, while prices have fallen about five full points. This leaves them trading
around a midmarket of EUR90.40, from over EUR98 at the start of the week. It’s still early to say these
valuations reflect distress, but further weakness and curve flattening will highlight this as a subject. Italian and
Spanish bonds are faltering again where 10-year spreads are 26+ and 22+ bps wider to Bunds with supply
weighing heavily amid a poor EUR3.2 bn 10- and 14-year tap from Spain and a EUR1 bn nine-year tap as part of
an exchange from Italy. Even French bonds are being caught in the crossfire as 10-year spreads are 10+ bps wider
to Bunds; EUR7.5 bn of front-end to five-year French paper was tapped this morning in auctions which went
okay by themselves, but featured weak price action into and out of the event, marking the first time OATs have
really been caught this latest round of European distress.
Stocks show S&P futures down another 23 points while Eurostoxx are down 2%, with banks trading especially
heavy again. The Nikkei shed 2.2% last night, and has fallen about 10% from its end of September highs. The
euro is getting slammed again, down a big figure to EUR/USD1.2736, and the pound is down over 1/3 of a big
figure to GBP/USd1.5979. The yen in contrast has firmed to USD/JPY105.68. Gold is slightly higher at
$1,242.10, while oil is down another $1.55 to $80.23, a shade better than Wednesday’s low but otherwise its
worst level since the summer of 2012. Michael.Cartine@thomsonreuters.com /ds Copyright (c) 2014 Thomson
Reuters – IFRMarkets
The Wall Street Journal's Daily Report on Global Central Banks for Thursday, October 16, 2014:
6:04amCDT
Highlights
-- Hannon's Take: How Clear and Present is the Eurozone's Deflation Threat?
-- Risk of Deflation Feeds Global Fears
-- EU Inflation Falls to Five-Year Low in September
-- Investors Expect the Fed to Wait Longer Before Raising Rates
-- Path Cleared for Fed to Hit 'Shadow Banks' with Margin Requirements
HANNON'S TAKE: HOW CLEAR AND PRESENT IS THE EUROZONE'S DEFLATION THREAT?
As my colleagues Jon Hilsenrath and Brian Blackstone explain in today's Journal, mounting deflation fears are
partly behind recent selloffs in a wide range of assets across a large part of the world.
Europe is the main focus of those concerns, and figures released Thursday by the European Union's statistics
agency show why: the annual rate of inflation across the 28-member bloc--18 of which use the euro, 10 of which
do not--fell to 0.4% in September, a five year low. Eight of the bloc's members had prices that were lower than in
the same month of 2013, five within the eurozone, three without.
But falling prices, or very low inflation rates, do not deflation make. Central bankers and economists aren't
worried so much about falling prices as about the threat that consumers and businesses will come to expect prices
to continue to fall and will postpone their purchases, weakening economic growth and pushing prices down
further.
There is as yet little hard evidence of that kind of behavior in Europe. Consider the kinds of purchases you would
delay if you expected prices to fall in coming months. Not food, because you have to eat, or energy, because you
have to heat or cool your home. But you might think about delaying the purchase of a new car--it's a big expense,
and you may not absolutely have to have the latest model right away.
However, figures from the European Automobile Manufacturers Association show new registrations were up
5.6% in July and 2.1% in August, continuing an upward trend that started a year ago.
One other sign that would send alarm bells ringing is an increase in savings. If you aren't spending what you earn
because you're waiting for a better deal some months hence, that should show up in the data as an increase in the
saving rate.
The alarm bells were certainly ringing in the months following the onset of the financial crisis, when the saving
rate surged across the eurozone, and elsewhere. But the household saving rate--or the share of gross income not
immediately spent by households--then fell steadily in subsequent years and has leveled off below its pre-crisis
level since mid-2013, although second-quarter figures will only be released at the end of this month. But
consumer spending picked up in the second quarter, and that suggests the saving rate didn't.
Of course, one sure way of generating expectations that prices will fall is if they already are doing so, or if the
inflation rate steadily creeps towards zero, which is where the eurozone and Europe is now. Given the difficulty
of getting back out of deflation once entered, policy makers should be anxious to stop that happening.
-By Paul Hannon
MORNING MINUTES: KEY DEVELOPMENTS AROUND THE WORLD
Risk of Deflation Feeds Global Fears. Behind the spate of market turmoil lurks a worry that top policy makers
thought they'd beaten back a few years ago: the specter of deflation. A general fall in consumer prices emerged as
a big concern after the 2008 financial crisis because it summoned memories of deep and lingering downturns like
the Great Depression and two decades of lost growth in Japan. The world's central banks in recent years have
used a variety of easy-money policies to fight its debilitating effects. Now, fresh signs of slow global economic
growth, falling commodities prices, sagging stock markets and declining bond yields suggest the deflation risk
hasn't gone away, particularly in the often-frenetic eyes of investors.
EU Inflation Falls to Five-Year Low in September. The European Union's struggle to avoid a period of falling
consumer prices suffered a setback in September, as the annual rate of inflation across the bloc's 28 members fell
to its lowest level in five years.
Investors Expect the Fed to Wait Longer Before Raising Rates. A world-wide equities sell off is driving investors
to expect the Federal Reserve will wait longer to start raising short-term interest rates from near zero. Participants
in the fed funds futures market, where investors go to bet on possible movements in the Fed's benchmark federal
funds rate, shifted on Wednesday to project the central bank will begin raising interest rates sometime in the late
third quarter or perhaps the fourth quarter of 2015. Markets now see almost no chance of a Fed increase in rates
coming next September, down from even odds a few weeks ago, said TD Securities economist Millan Mulraine in
a note to clients. He noted investors are now putting a 50-50 chance on the Fed raising rates in October, and a
63% chance the move comes at the 2015 December Fed policy meeting.
Fed Survey Finds Subdued Price Gains, Modest Wage Growth. Price gains remain "subdued" across the U.S.
economy and wage growth has been "modest" outside of a few high-demand fields, according to the Fed's latest
survey of regional economic conditions. The "beige book" released Wednesday offered a generally upbeat
outlook on the U.S. economy in September and early October.
Gems from the Beige Book. We read it, so you don't have to.
Stock Market Blowout Not Keeping Fed's Fisher Up At Night. Sinking global stock markets are no worry to
Dallas Fed President Richard Fisher. "A market correction doesn't mean the economy is in trouble," Mr. Fisher
said in an interview on Fox Business Network. "Without mentioning any companies in particular, prices are
getting more rational and some very good companies are even being mispriced to the down side," he said.
Yellen Said to Voice Confidence in U.S. Economic Expansion--Bloomberg. Fed Chairwoman Janet Yellen
voiced confidence in the durability of the U.S. economic expansion in the face of slowing global growth and
turbulent financial markets at a closed-door meeting in Washington last weekend, according to two people
familiar with her comments.
Path Cleared for Fed to Hit 'Shadow Banks' with Margin Requirements. Global regulators earlier this week struck
a deal on how to address risks in short-term funding markets that seized up during the 2008 financial crisis,
clearing the way for the Fed to move forward with rules that would impact hedge funds, money-market funds and
other so-called "shadow banks."
Regulators Likely to Finalize Relaxed Mortgage Rule. U.S. financial regulators are poised to finish long-delayed
mortgage market standards as soon as next week, adopting a relaxed set of rules designed to ensure credit is
broadly available.
ECB to Boost Liquidity to Greece's Banks, Says Greek Central Bank Official. In an effort to shield Greek banks
from the recent turmoil in financial markets, the European Central Bank has decided to boost the liquidity
available to Greek lenders who still depend on the ECB for their cash needs.
BOJ Kuroda: Weak Yen Offsetting Impact of Falling Oil on Prices. Bank of Japan Gov. Haruhiko Kuroda
countered speculation that plummeting global oil prices would weaken domestic inflation, making it harder for
the central bank to achieve its 2% price target. "International commodities markets have fallen quite sharply. The
prices of oil, minerals and grain are coming down at a very rapid pace," Mr. Kuroda said in a parliamentary
session. "[But] for now, the effect of a weak yen to raise the costs of imports are offsetting---not completely but to
some extent---the impact of the falling global prices of natural resources." - Dow Jones Newswires.
Chinese Banks Boost Lending. China's banks stepped up lending at an unexpected volume in September, in a sign
that the government wants to boost credit to re-energize an economy that is losing steam. The People's Bank of
China said Thursday that Chinese banks issued 857.2 billion yuan ($138.3 billion) of new yuan loans in
September, up from 702.5 billion yuan in August. Newly extended loans in September were higher than the 745
billion yuan forecast by a Wall Street Journal poll of 15 economists.
BOE's Weale Repeats Call for Rate Rise to Anticipate Wage Increase. The pace of decline in the U.K.'s
unemployment rate indicates that wages will start to rise more rapidly, a development that should be anticipated
by the Bank of England with a modest rise in its benchmark interest rate, Monetary Policy Committee member
Martin Weale said Wednesday.
Bank of England's Trouble With Predictive Texts. The Bank of England has recently repeatedly overestimated the
level of inflation -- something it has now done six quarters in a row. And analysts say this could indicate that
interest rates aren't likely to go up any time soon.
Bank of Russia Raises Ruble Trading Band to Let Currency Fall to New Lows. The Bank of Russia continued
adjusting the ruble trading band, letting the ruble weaken gradually to new all-time lows, the bank's data showed
Thursday. The central bank said it pushed the ruble's trading band 25 kopecks higher to 36.95-45.95 rubles per
euro-dollar basket on Wednesday.
GRAPHIC CONTENT
New data suggest activity for U.S. home purchase mortgages was stronger than previously believed last year,
raising questions about a leading measure of demand that has shown broad-based housing weakness this year.
Home Mortgage Disclosure Act data recently released by the Federal Reserve shows that mortgage applications
for home purchases rose 13% in 2013 from the prior year, and by 10% in 2012. But the Mortgage Bankers
Association's more timely mortgage applications index went up just 5% on average in 2013 and 3% in 2012.
FORWARD GUIDANCE
-Philadelphia Fed's Plosser speaks on the economic outlook in Allentown, Pa., at 8 a.m. EDT
-Atlanta Fed's Lockhart speaks at a conference on "Transforming U.S. Workforce Development Policies for the
21st Century" in New Brunswick, N.J., at 9 a.m. EDT
-Minneapolis Fed's Kocherlakota speaks on clarifying the objectives of monetary policy in Billings, Mont., at 10
a.m. EDT
-Kansas City Fed's George speaks in a video welcome at a conference on "Transforming U.S. Workforce
Development Policies for the 21st Century" in New Brunswick, N.J., at 12:30 p.m. EDT
-St. Louis Fed's Bullard speaks at a convention on "Millennials Rising" in Washington at 12:45 p.m. EDT
-Fed's Yellen visits the offices of CONNECT, a consortium of community organizations in Chelsea, Mass., at
12:45 p.m. EDT
-BOE's Bailey speaks at the Lord Mayor's Banquet in London at 2045 GMT
-Central Bank of Egypt releases a policy statement
RESEARCH
Returning to the Nest: Debt and Parental Co-residence Among Young Adults. More and more young American
adults are living with their parents, a trend that could reflect high indebtedness making it more difficult for them
to live on their own, Lisa J. Dettling and Joanne W. Hsu wrote in a paper from the Federal Reserve. "Our results
indicate that increases in indebtedness --as measured by larger account balances, declines in credit scores, and
delinquency on accounts-- are associated with statistically significant and economically meaningful increases in
the likelihood an individual will move into parental co-residence in the following period. The estimates indicate
that larger balances on student loans, credit cards and auto loans increase flows into parental co-residence, as do
declining credit scores and mild delinquency."
COMMENTARY
When Will They Learn? At the zero lower bound, there is plenty of room to raise interest rates if inflation runs
"uncomfortably high," but "no room" to reduce rates if inflation runs too low, Ryan Avent writes for the
Economist. "My question for the Fed is: what happens when disinflation continues in November and December
after the Fed has termintated its asset purchase programme? Is it prepared to start purchases up right away, or will
it wait to see whether things turn around? If so, how long is it prepared to wait? What is the plan here?
Employment growth is not going to continue at current rates for very long if inflation expectations continue to
behave this way while interest rates are at zero."
Writing for the Journal, David Malpas argues that the Fed's low interest rate policy has harmed rather than aided
growth by disrupting the normal functioning of credit markets. "The zero-rate problem is obvious to almost
everyone outside the Beltway," writes Mr. Malpas, who was deputy assistant Treasury secretary in the Reagan
administration and is now president of Encima Global LLC. "Credit markets don't function with prices set at zero,
and the economic results have been disastrous, with median incomes severely depressed five years into the
expansion."
BASIS POINTS
- Spending at U.S. retailers declined in September, raising concerns about the strength of American consumers
amid signs of a global slowdown.
- China's economic planning agency has stopped approving bond sales by state-owned companies, cutting off a
crucial fundraising channel for firms already struggling with high debt loads and a weakening economy.
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7:42 EDT 6:42amCDT
No Shortage Of Profits For The Gifted
Goldman Sachs (GS), perhaps unsurprisingly, smokes consensus EPS forecasts as the metric was 42% higher than
Wall Street anticipated. CEO Lloyd Blankfein is expecting good things to come, noting, "While conditions and
sentiment can shift quickly, the strength of our transaction backlog indicates our clients' desire to pursue and
execute their strategic plans for growth." Investment-banking revenue jumped 26% amid M&A activity while
FICC revenue surged 74% versus the "challenging" 3Q13. As the topline overall jumped 25%, operating expenses
only increased half that and the ratio of compensation and benefits to revenue slid to 40% from 43% in 1H. GS is
down 0.3% premarket to $176.74, holding up better than the broader market. (kevin.kingsbury@wsj.com;
@kevinkingsbury) (END) Dow Jones Newswires
By Michael S. Derby 7:00amCDT
Fed Speak Plosser: Raise Rates? Really?
Federal Reserve Bank of Philadelphia President Charles Plosser is calling again on the U.S. central bank to
prepare the way for interest-rate increases. "I would prefer that we start to raise rates sooner rather than later,"
Mr. Plosser said in the text of a speech prepared for delivery Thursday in Allentown, Pa. "This may allow us to
increase rates more gradually as the data improve rather than face the prospect of a more abrupt increase in rates
to catch up with market forces, which could be the outcome of a prolonged delay in our willingness to act," the
official said.
Mr. Plosser, currently a voting member of the monetary policy-setting Federal Open Market Committee, is one of
the strongest critics of the Fed's easy-money policy stance. Fed officials are currently debating the timing of
lifting rates off of their current level near zero. Key Fed officials favor raising rates in the middle of 2015, while
many in financial markets believe the increase could come even later. In his speech, Mr. Plosser repeated his
desire to keep the Fed from falling behind the curve.
"I am not suggesting that rates should necessarily be increased now," the official said. But he added that language
in the FOMC's official statement that indicates short-term rates will be kept very low for a "considerable time"
needs to be removed in favor of guidance that drives home the fact that rate policy will be driven by incoming
economic data.
In arguing for the Fed to edge toward rate hikes, Mr. Plosser noted the Fed has seen much more improvement on
the job market front than it expected. Because of this, "we must acknowledge and thus prepare the markets for the
fact that interest rates may begin to increase sooner than previously anticipated," he said.
Mr. Plosser said that holding off on rate hikes can generate big problems. "Raising rates sooner rather than later
reduces the chance that inflation will accelerate and, in so doing, require policy to become fairly aggressive with
perhaps unsettling consequences," he said. "Waiting too long to begin raising rates--especially waiting until we
have fully met our goals for maximum employment--is risky because we cannot know when we have arrived,"
Mr. Plosser warned. The official offered an upbeat view of the economy. He expects to see 3% growth for the
remainder of the year and through 2015. He says the current jobless rate of 5.9% is nearly consistent with full
employment, and inflation appears to be drifting back up to the Fed's 2% target. Write to Michael S. Derby at
Michael.derby@wsj.com (END) Dow Jones Newswires
7:332amCDT Clockwise: AUD/USD, GBP/USD, USD/CHF, EUR/USD, USD/CAD, USD/JPY, Brent Crude in
USD, EUR/CHF
By Jonathan House and Sarah Portlock 7:30amCDT
Weekly Claims Fall Again
WASHINGTON-The number of new claims for jobless benefits fell to a fourteen-year low last week, the latest
sign of an improving labor market. Initial claims for unemployment benefits fell by 23,000 to a seasonally
adjusted 264,000 in the week ended Oct. 11, the Labor Department said Thursday. That was below the 290,000
claims forecast by economists surveyed by The Wall Street Journal and the lowest level since the week of April
15, 2000, when it was 259,000. The Labor Department said there were no special factors affecting the data.
The four-week moving average for initial claims, which smooths out week-to-week volatility, fell 4,250 to
283,500. The report also showed the number of people filing continuing claims for unemployment benefits rose
7,000 to 2.4 million for the week ended Oct. 4. Those figures are reported with a one-week lag. Jobless claims
have been below 300,000 for five consecutive weeks, the longest such stretch since 2006, a sign that employers
are eager to hang on to their workers as the economic recovery gains traction. Hiring has also been picking up.
Employers added 248,000 jobs last month, rebounding from a weak August, the Labor Department said last week.
Payrolls have expanded by an average of 227,000 a month this year, putting 2014 on track to be the strongest year
of job growth since the late 1990s.
At 5.9%, the nation's unemployment rate remains high by historical standards, while many of those who do have
jobs are stuck in part-time employment. Citing these and other signs of an abundance of idled labor in the
economy, Federal Reserve officials have pledged to keep interest rates at their current level near zero for a
"considerable time." But anecdotal evidence is mounting that labor shortages are developing in some industries.
The Federal Reserve's latest "beige book" survey of regional economic conditions found that "some employers
had difficulty finding qualified workers for certain positions" in most parts of the country. The report released
Wednesday said that manufacturers in the Boston area, for example, were having trouble finding machinists,
while construction projects in Chicago were being delayed by skilled-labor shortages. Write to Jonathan House at
jonathan.house@wsj.com and Sarah Portlock at sarah.portlock@wsj.com (END) Dow Jones Newswires
By Paul Vieira 7:30amCDT
CAD Manufacturing Shipments Plunge
OTTAWA--Canadian manufacturing shipments plunged in August by the most in over five years, Statistics
Canada said Thursday, reversing gains recorded in the previous two months. Factory sales fell 3.3% to 52.05
billion Canadian dollars ($46.23 billion), whereas market expectations were for a 2% decline, according to
economists at Royal Bank of Canada. Volumes declined 3.7%. Write to Paul Vieira at paul.vieira@wsj.com
(END) Dow Jones Newswires
By Paul Vieira 7:30amCDT
CAD Investments Rise
OTTAWA--Foreigners added Canadian securities to their holdings in August, with a large chunk of the
acquisitions focused on bonds, Statistics Canada said Thursday. In August, foreign investors bought a net 10.28
billion Canadian dollars ($9.13 billion) in Canadian securities, following the purchase of C$5.20 billion in
securities in the previous month. Meanwhile, Canadians acquired a net C$33 million in foreign securities in
August, which marks the slowest pace of investment in nearly a year. The monthly international securities
transaction reports offer a gauge on foreign market sentiment toward the Canadian economy. For the first eight
months of 2014, foreigners purchased C$52.39 billion in Canadian securities, an increase from the C$24 billion
acquired in the same period a year earlier. Write to Paul Vieira at paul.vieira@wsj.com (END) Dow Jones
Newswires
8:35 EDT 7:35amCDT
Lowest Since 2000
Last week's drop in weekly jobless claims to 264K was the lowest in 14 1/2 years, when one week saw a 259K
figure. 259,000. The data series has been trending particularly low recently, remaining below 300K for 5
consecutive weeks--the longest such stretch since 2006. It's a sign employers are eager to keep their workers as
the economic recovery gains traction. Meanwhile, fewer people are collecting continuing unemployment benefits;
some 2.3M people filed to do so in the week ended Oct. 4, down from nearly 2.9M a year earlier. Those numbers
are reported with a 1-week delay. (sarah.portlock@wsj.com; @sarahportlock) (END) Dow Jones Newswires
8:15amCDT Clockwise: AUD/USD, GBP/USD, USD/CHF, EUR/USD, USD/CAD, USD/JPY, Brent Crude in
USD, EUR/CHF
BOSTON, Oct 16 (IFR) 8:15amCDT
Industrial Production Better Than Expected
September data from the Fed shows that industrial production jumped 1.0%, well above the consensus for a 0.4%
increase. August's rate was revised down slightly, to -0.2% from -0.1%. Factory output saw a smaller beat, up
0.5% as against the consensus of +0.3%. The other half of the increase came from sizable rises in mining (+1.8%)
and utilities (+3.9%) output. More to come.... Theodore.Littleton@thomsonreuters.com Copyright (c) 2014
Thomson Reuters – IFRMarkets
Philadelphia Fed Survey Reports Continued Growth in Manufacturing Sector
PHILADELPHIA--(BUSINESS WIRE)--October 16, 2014—9:00amCDT
Firms responding to the October Manufacturing Business Outlook Survey indicated continued growth in the
region's manufacturing sector this month. Most broad indicators of current growth, while positive, weakened from
higher readings last month. The current activity, shipments, and employment indexes declined, while the index
for new orders was at a higher level compared with September. A larger percentage of firms reported higher
prices for their own manufactured goods this month. The survey's indicators for future manufacturing conditions
fell from higher readings but continued to reflect general optimism about growth in activity and employment over
the next six months.
Indicators Reflect Continuing Growth
The diffusion index for current activity edged down from a reading of 22.5 to 20.7 this month (see Chart 1). More
than 34 percent of the firms reported an increase in activity; nearly 14 percent reported a decrease in activity. The
current shipments and employment indexes also declined but remained positive, while the current new orders
index increased 2 points. Firms reported an increase in inventories this month; the current inventory index
increased 9 points to its highest reading in 10 months.
The survey's indicators for labor market conditions suggest some moderation in employment growth this month.
Although positive for the 16th consecutive month, the employment index decreased 9 points. The percentage of
firms reporting increases in employment (20 percent) still exceeded the percentage reporting decreases (8
percent). For the first time in eight months, the workweek index was slightly negative.
Firms Report Higher Prices for Manufactured Goods
Input price pressures were reported to be nearly the same as last month: The prices paid index was nearly
unchanged from September, at 27.6 (see Chart 2). More than 29 percent of the firms reported higher input prices;
2 percent reported lower input prices. With respect to prices received for manufactured goods, 21 percent of the
firms reported higher prices, up from 13 percent last month. The prices received index increased 12 points, to
20.8, its highest reading since April 2011.
Future Indicators Weaken but Still Reflect Expected Growth
The diffusion index for current activity edged down 2 points, to 54.5 (see Chart 1). The future index for new
orders held steady, but the future shipments index decreased 7 points. Firms pulled back their expectations about
employment growth over the next six months. Nearly 33 percent of the firms are expecting growth in their
employment levels over the next six months, compared with 44 percent last month. The future employment index
decreased, from 39.6 to 28.0.
For this month's special questions, manufacturers were asked about current capacity utilization rates compared
with the same time last year, as well as their plans for different categories of capital spending next year (see
Special Questions). The average capacity utilization rate among the firms polled was slightly more than 78
percent, which was an increase from the rate indicated one year earlier (76.5 percent). The share of firms
expecting to increase spending on all capital categories (except structures) was higher than the share of firms
expecting decreases. For most capital spending categories, higher capacity utilization rates were associated with
expected increases in spending. For example, the current utilization rate among firms expecting to increase
spending on noncomputer equipment (84 percent) was notably higher than those expecting to decrease spending
(69 percent).
Summary
The October Manufacturing Business Outlook Survey suggests continued expansion of the region's
manufacturing sector. Firms reported continued increases in new orders but slower growth in activity, shipments,
and employment this month. The survey's future activity indexes remained at high readings, suggesting continued
optimism about manufacturing growth. Firms were less optimistic about employment increases over the next six
months, but one-third of the firms still expect to hire additional workers.
MANUFACTURING
BUSINESS
OUTLOOK SURVEY
October 2014
October vs. September
Now vs. October
-------------------------------------------------------------------------------------Previous
Diffusion
No
Diffusion
No
Diffusion
Six Months from
----------------------Previous
Diffusion
Index
Increase Change Decrease
Index
Index
Change Decrease
Index
----------------------- -------- ------ -------- --------- ------------ -------- --------What is your
evaluation of
the level of
general
business
activity?
22.5
34.2
50.4
13.5
20.7
56.0
31.1
3.3
54.5
---------------- --------- -------- ------ -------- --------- ------------ -------- --------Company
Business
Indicators
----------------------- -------- ------ -------- --------- ------------ -------- --------New Orders
15.5
36.2
43.1
18.9
17.3
51.7
32.7
6.6
51.4
---------------- --------- -------- ------ -------- --------- ------------ -------- --------Shipments
21.6
34.3
47.0
17.7
16.6
58.8
33.3
6.2
52.3
---------------- --------- -------- ------ -------- --------- ------------ -------- --------Unfilled Orders
5.0
24.0
63.5
12.4
11.6
19.6
62.9
11.6
12.1
---------------- --------- -------- ------ -------- --------- ------------ -------- --------Delivery Times
3.8
11.9
76.3
11.3
0.6
6.8
76.1
3.4
12.8
---------------- --------- -------- ------ -------- --------- ------------ -------- --------Inventories
6.1
29.1
55.4
14.3
14.8
11.9
46.7
18.4
8.9
---------------- --------- -------- ------ -------- --------- ------------ -------- --------Prices Paid
27.0
29.4
68.4
1.8
27.6
46.2
50.8
5.6
32.9
---------------- --------- -------- ------ -------- --------- ------------ -------- --------Prices Received
8.8
20.8
79.2
0.0
20.8
31.3
64.9
4.7
22.5
---------------- --------- -------- ------ -------- --------- ------------ -------- --------Number of
Employees
21.2
20.4
70.6
8.3
12.1
39.6
58.2
5.1
28.0
---------------- --------- -------- ------ -------- --------- ------------ -------- --------Average Employee
Workweek
4.4
12.6
70.1
13.9
-1.3
8.9
65.6
6.4
16.2
---------------- --------- -------- ------ -------- --------- ------------ -------- --------Capital
Expenditures
-----23.7
52.2
9.4
18.9
---------------- --------- -------- ------ -------- --------- ------------ -------- --------NOTES:
(1) Items may not add up to 100 percent because of omission by respondents.
(2) All data are seasonally adjusted.
Increase
--------
--
57.8
--------
--
--------
--
58.0
--------
--
58.5
--------
--
23.7
--------
--
16.1
--------
--
27.2
--------
--
38.5
--------
--
27.1
--------
--
33.1
--------
--
22.6
--------
--
28.3
--------
--
(3) Diffusion indexes represent the percentage indicating an increase minus the percentage
indicating a decrease.
(4) Survey results reflect data received through October 14, 2014.
-------------------------------------------------------------------------------------------------------------------
Special Questions (October 2014)
1. Which of the following best characterizes your plant's current and past capacity
utilization
rate?
Capacity
Utilization
Rate
-----------------Less than 60%
-----------------60%-65%
-----------------65%-70%
-----------------70%-75%
-----------------75%-80%
-----------------80%-85%
-----------------85%-90%
-----------------90%-95%
-----------------95%-100%
Current
(% of reporters)
----------------------------------------
Same Time Last Year
(% of reporters)
------------------------------
13.4
----------------------------------------
10.8
------------------------------
3.0
----------------------------------------
7.7
------------------------------
10.5
----------------------------------------
13.8
------------------------------
10.5
----------------------------------------
6.2
------------------------------
11.9
----------------------------------------
20.0
------------------------------
13.4
----------------------------------------
16.9
------------------------------
19.4
----------------------------------------
13.8
------------------------------
10.4
----------------------------------------
3.1
------------------------------
7.5
7.7
-------------------------------------------------------------------------------------Average
utilization
rate
78.1
76.5
-------------------------------------------------------------------------------------U.S.
utilization
rate*
78.0
76.9
-------------------------------------------------------------------------------------2. Do you expect the following capital expenditure categories over the next year to be
higher
than, the same, or lower than in the current year?
Higher
Same
Lower
(% of reporters)
----------------
(% of reporters)
--------------------
(% of reporters)
----------------
Index
----------
28.8
----------------
54.5
--------------------
16.7
----------------
12.1
----------
27.3
----------------
59.1
--------------------
13.6
----------------
13.6
----------
31.3
----------------
46.8
--------------------
21.9
----------------
9.4
----------
17.7
----------------
72.6
--------------------
9.7
----------------
8.1
----------
17.7
----------------
56.5
--------------------
25.8
----------------
-8.6
----------
Diffusion
-----------------Software
-----------------Computer &
related
hardware
-----------------Noncomputer
equipment
-----------------Energy-saving
investments
-----------------Structure
------------------
Exhibit 1: Average percent capacity utilization rates for firms in categories above.
Capacity
Capacity Utilization
Utilization
Rate
Capacity Utilization Rate
Rate
for Higher
for Same
Spending in Category
Spending in Category
--------------------
--------------------------------------
81.6
78.2
--------------------
--------------------------------------
78.8
78.5
--------------------
--------------------------------------
84.0
79.6
--------------------
--------------------------------------
78.2
78.2
--------------------
--------------------------------------
81.4
78.4
--------------------
--------------------------------------
for
Lower
Spending in
Category
-----------------Software
71.1
-----------------Computer &
related
hardware
74.4
-----------------Noncomputer
equipment
69.3
-----------------Energy-saving
investments
76.7
-----------------Structure
75.5
------------------
--------
--------
--------
--------
--------
--------
Average
utilization
rate
80.8
78.6
73.4
--------------------------------------------------------------------------------*Capacity Utilization: U.S. Manufacturing (NAICS)
"Current" shows rate for August 2014; "Same Time Last Year" shows rate for October 2013.
CONTACT:
Federal Reserve Bank of Philadelphia
9amCDT
Inventories Up
Manufacturers' inventories are well above year-ago levels, raising questions of overbuilding. The inventory index,
one of 12 indexes measured is a quarterly composite business outlook by the Manufacturers Alliance for
Productivity and Innovation, rose to 69 in October from 59 in July. Of 12 indexes measured, 8 fell, including
profit margins, backlog orders and prospective shipments both in the US and abroad. R&D spending and annual
orders indexes rose. "The decline in the composite index and most of the individual indexes point to a slowing of
the momentum the sector had coming out of the second quarter. With the exception of U.S. and non-U.S.
investment, however, the indexes remain at relatively high levels and point to continued growth," said Donald A.
Norman, Ph.D., MAPI Foundation director of economic studies and survey coordinator.
clare.ansberry@wsj.com) (END) Dow Jones Newswires
BOSTON, Oct 16 (IFR) 9:00amCDT
NAHB Sentiment Down
Homebuilder sentiment, as measured by the National Association of Homebuilders' Housing Market Index,
retreated sharply in October. The HMI fell five points to 54, two points below its Q3 average (56). In Q3'13, the
HMI averaged 57. October marked the first HMI decline in five months, though the 14-point gain since May was
aggressive. The latest data suggest moderation in the pace of new construction. The Commerce Department
releases September data on housing starts and building permits tomorrow at 08:30. The Reuters poll consensus
puts starts at a 1.004 mln SAAR and permits at a 1.029 mln SAAR.
The index rose four points to 59 in September, marking a fourth straight monthly gain and the highest level since
November 2005.
We remind readers once again that there is no longer a reliable correlation between the HMI and the contribution
from residential investment to GDP. From the time that the NAHB first introduced its HMI in January 1985 until
the end of the last recession in June 2009, the correlation between the quarterly average of the headline index and
the contribution to quarterly GDP growth from residential investment had been 75.9%. Since the recovery in
Q3'09, however, that correlation is down to 19.0%. Over the same initial span, the HMI component that measures
traffic of prospective homebuyers boasted an 80% correlation with the residential investment contribution to real
GDP. In the 20 quarters that have followed, however, that correlation has deteriorated to just 22.8%.
more to follow. Copyright (c) 2014 Thomson Reuters – IFRMarkets
Dow Jones Industrial Average 15,937.42 Down 204.32(1.27%) 10:17AM EDT
Dow Jones Transportation Averag 7,875.30 Down 62.18(0.78%) 10:18AM EDT
S&P 500 1,838.92 Down 23.57(1.27%) 10:20AM EDT