Although they backed up a bit on Friday, U.S. crude oil prices have plummeted this week – hitting four-month lows on Thursday on a mix of rising U.S. inventories and global demand levels that JP Morgan estimates is running at half their standing forecasts for November so far. Crude has now lost almost 25% in just six weeks – aided by the U.S. gradually lifting oil sanctions on Venezuela.
But the demand picture stateside was clearly softening too. Signs of a loosening of the U.S. labor market came in a surprising rise in jobless claims for the latest week, while other reports showed homebuilder sentiment ebbing sharply this month and there was an outsize retreat in manufacturing in October.
It wasn’t all bad news on Thursday – with a better reading on mid-Atlantic business optimism from the Philadelphia Federal Reserve than many had forecast.
But the real cause for relief is how the whole picture spurs new-found optimism on disinflation – and how it will dissuade the Fed from hiking interest rates again and, according to futures markets at least, ease them by up to 100 basis points next year.
The Labor Department said import prices fell a whopping 0.8% in October, the most in seven months amid a broad decline in the costs of goods – deepening the annual deflation of import prices to as much as 2.0%.
Although Walmart’s own stock fell almost 8% on Thursday as it flagged more cautious consumers heading into the holiday season – despite delivering an earnings beat and upping targets – its overall readout should please the Fed.
The giant retailer said shoppers were becoming more “choiceful and using discretion” and seeking big discounts that the firm plans to deliver, especially in food.
The net result on stock markets was that the S&P500 eked out yet another small gain on Thursday and stock futures – aided by the latest swoon in borrowing rates – were up again ahead of the bell today. The VIX was lower again.
Even though the dollar is taking a hit from the plunge in U.S. Treasury yields, the drop in sovereign borrowing rates was mirrored across the world in Europe, even Japan.
Mirroring the softening demand picture elsewhere, British retail sales volumes fell unexpectedly in October as stretched consumers stayed at home.
Italian yields and bond spreads also fell even as investors awaited a review of Italy’s sovereign credit ratings later in the day – although analysts see little risk that Moody’s will relegate the country’s debt to junk status. Italy’s FTSE MIB index was up 0.7%.
