Treasuries advanced on Wednesday as weaker-than-expected U.S retail sales and wholesale prices bolstered speculation that the Federal Reserve will delay until next year to hike interest rates. The benchmark 10-year note yield fell 5 basis points (bps) to 2.01 percent while the 30-year bond yield dropped 4 bps to 2.86 percent. The yield on the 2-year note, the maturity most sensitive to Fed rate expectations, slid 4 bps to 0.59 percent, the lowest level in nearly two weeks. Meanwhile, the probability that the Fed will wait until at least 2016 to raise rates has climbed to about 70 percent, according to Fed-funds futures data.
Kenyan stocks tumbled the most since August 2011 after the government placed a second bank in two months under receivership, prompting investor concern about the health of the country’s banking sector. The index of Kenya’s 25 largest and most liquid shares fell 3.5 percent on Wednesday, a fifth day of losses that drove it to the worst closing level since August 27. The gauge has fallen 12 percent since its previous high on September 16.
High Income Economies
U.S. retail sales softened in September, edging up by 0.1 percent (m/m, sa). August figures were revised down from a 0.2 percent increase to no change. Core retail sales excluding automobiles, gasoline, building materials and food services fell by 0.1 percent. Producer prices fell by 0.5 percent (m/m, sa), the largest decline in 8 months. The data suggest that the U.S. economy may be losing momentum and may push Fed interest rate hikes later into 2016.
Growth in Eurozone industrial production slowed to 0.5 percent in August (m/m, sa), as demand for cars and machine tools from China and East Asia weakened. The fall of industrial production in Germany was offset by a rise in France, but contractions in several other countries, including Czech Republic, Netherlands, Denmark and Spain weakened the results for the bloc as a whole.
The unemployment rate in South Korea fell to 3.5 percent in September (sa), compared with 3.6 percent in August. Employment rose by 1.3 percent (y/y), increasing the labor force participation rate.
East Asia and Pacific
Reflecting a slowdown in food inflation, China's consumer price inflation eased to 1.6 percent (y/y) in September from a 12-month high of 2.0 percent in August. It was forecast to fall to 1.8 percent. Separately, posting the 43rd consecutive month of decline, producer prices dropped 5.9 percent (y/y) in September, unchanged from August and matched expectations.
Europe and Central Asia
Posting the first increase in three months, Bulgaria’s consumer price index edged up 0.1 percent (y/y) in September, following stagnation in August. The largest increases were seen in utility charges and education costs, 3.6 percent and 3.1 percent, respectively. Meanwhile, health, transport and communication components registered declines.
Consumer prices in Ghana increased by 17.4 percent (y/y) in September, up from 17.3 percent in August and above market expectations. The rise was boosted by higher housing and utilities, education and food prices.