Financial Markets… High-yielding assets from stocks to commodities rallied while the dollar dipped further to a four-month low versus the euro on Friday after the Federal Reserve announced a third round of quantitative easing in an effort to spur economic growth. The Fed said it would make open-ended purchases of $40 billion of mortgage debt per month.
The benchmark MSCI World stock index gained 1.3%, with European shares surging to a 14-month high, and the S&P GSCI index of 24 commodities rose to its highest level in five month led by a surge in oil prices.
In bond markets, the yield on the benchmark 10-year Treasury note rose 10 basis points (bps) to 1.82%, and the rate on comparable German bunds climbed 13 bps to 1.69%. Meanwhile, the Italian 10-year bond yield slipped as much as 6 bps to 4.95%, falling below 5% for the first time since March.
High-income Economies… Euro Area inflation accelerated for the first time in 11 months to 2.6% (y/y) in August from 2.4% in July mainly due to rising prices of energy products. Core inflation however fell to 1.5% (y/y) from 1.7% suggesting weak demand in the Eurozone.
US consumer prices rose 0.6% (m/m) in August due to a 9% jump in gasoline prices, with the inflation rate accelerating to 1.7% (y/y) from 1.4% in July. US retail sales rose 0.9% (m/m) in August following a 0.6% increase in July, mostly due to robust demand for automobiles and service station sales.
Japan’s industrial output fell 1.0% (m/m) in July following a 0.4% increase in June, according to revised data.
Singapore’s retail sales contracted 2.9% (y/y) in July following a 0.9% (y/y) fall in June. Excluding motor vehicles, sales fell 0.7% (y/y).
Israel’s consumer price inflation rose 1.0% (m/m) in August following a 0.1% increase the previous month, with the annual rate rising to 1.9% (y/y) from 1.4% in July.
Latvia’s central bank cut its key refinancing rate by 50 basis points to 2.5%.
Developing Economies… In Latin America and Caribbean, Brazil’s economic activity index rose 2.34% (y/y) accelerating sharply from a 0.99% gain in the previous month.
The central bank of Chile kept its benchmark interest rate unchanged at 5.0%. Inflation remains below 3.0%, within the bank's target of 3% +/-1%. The central bank cut its interest rate by 25 basis points in January.
In South Asia, India's wholesale price index based inflation increased to 7.55% (y/y) in August from 6.87% in July. Yesterday’s 14% increase in diesel prices and the consequent increase in freight charges will add to inflationary pressures.
Inflationary pressures leave little room to the central bank to cut interest rates next week from the current 8% benchmark repurchase rate.