Important developments today:
1. Treasuries continue to tumble following last week’s sell-off
2. U.S. inventories rise by the highest in two years
Treasuries continue to tumble following last week’s sell-off. U.S. Treasury prices fell for a fourth day on Monday, pushing 30-year bond yields to a one-month high. Higher-than-forecasted industrial production in China and a slower phase-in of bank capital requirements boosted investor sentiment for riskier assets, undermining demand for perceived safe-haven government debt. Treasury prices are likely to fall further in the days ahead as analysts speculate tomorrow’s report will show U.S. retail sales advanced for a second month, an indication of the economic recovery taking hold.
Yields on 30-year bonds climbed 3 basis points (bps) to as high as 3.93% this morning, the highest since August 13, while the 10-year note yield was little changed at 2.8%. Supply concerns have also fueled an increase in U.S. Treasury yields after last week’s $67 billion worth of government bond auctions as well as a strong corporate bond issuance.
U.S. inventories rise by the highest in two years. U.S. wholesale inventories increased by 1.3% in July, the highest since July 2008 [see chart]. The increase was broad-based (durable and non-durable goods), reflecting confidence by wholesalers in the economic recovery.
Wholesalers account for about 30% of all business inventories in the United States, with manufacturers and retailers making up the rest. In Q1 and Q2, the change in real private inventories added 0.63% and 2.64% to U.S. GDP growth. The continued rise in business inventories augurs well for growth in Q3. However, given the fast replenishments of stocks, the ability of inventories to contribute to growth will be limited. A pick-up in the labor market, which should boost consumer spending, will create a more sustainable growth path.
Source: World Bank DEC Prospects Group and Thomson Reuters.
Among emerging markets:
In East Asia and the Pacific, China’s industrial production growth increased by 13.9% y/y in August with a 0.5% increase m/m. Chinese retail sales also increased 18.4% y/y and 0.5% m/m, while the accumulated growth YTD compared to 2009 for the same period is 18.2% higher. The Consumer Price Index (CPI) grew 3.5% y/y and 0.2% m/m in August while Producer Prices for manufactured goods reached 4.3% y/y and 0.5% m/m.
In Latin America and the Caribbean, Peru’s central bank increased its reserve requirement for short-overseas loans to 75% of borrowings abroad from a previous 65%. This measure was put in place to limit credit growth from driving inflation.
In the Middle East and North Africa, Jordan’s inflation decreased to 3.2% from 4.8%, according to a release by the Jordan Department of Statistics.
In sub-Saharan Africa, South Africa’s consumer confidence index increased from 14 to 15, the highest level since 2007. This was released in a report by the First National Bank and the Bureau for Economic Research.