The Dow was down over 400 points and oil prices were tanking as data in the U.S. seemed to suggest that deflation was spreading faster than Ebola. With OPEC flooding the market with oil and a weak Producer Price Index that came in an a -0.1% and a sharp drop in the New York manufacturing and U.S. retail sales caused a spike in bonds and almost wiped out expectations for a 2015 interest rate increase. In fact the move was so sharp that at the height of the panic it almost suggested that the U.S. would have to forgo the taper and go back to QE. As deflation in Europe is being spread back in the USA.
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Then as more Ebola fears added to the selloff, an exclusive David Asman Fox Business Network interview with Dallas Federal Reserve President Richard Fisher seemed to bring back the market from the depths of despair at least for a little while. While traders seemed to think the Fed facing new deflationary pressures would have to move back to more accommodation, Richard Fischer basically told David Asman, no QE for you on Deirdre Bolton’s show.
He told David Asman that Wednesday’s stock market plunge does not mean the economic recovery has been derailed. Fisher said it’s “way too premature from my perspective, it’s much too early to even think about another quantitative easing, as we’ve been saying for a long time, we’ve already fed the market too much Ritalin. And now [with the tapering] the market is correcting itself without our involvement. It’s way too premature to talk about another QE because the market’s actually doing the work.”
David Asman wrote “The Fed is winding down its monthly bond purchases this month, yet the recent market selloff prompted speculation that the Fed might be considering introducing another asset purchasing program signs of a weakening economy spread. Fisher wanted to dispel those rumors. He told FOX Business that his views on there being no need for a new QE are shared by other central bankers, including Fed Chair Janet Yellen and European Central Bank President Mario Draghi. “There’s a limit to what monetary policy can do,” Fisher said. “And most central bankers say that…whether it’s me, or Janet Yellen, or the head of the European Central Bank [Mario Draghi] or the governor of the Bank of India.” What’s really needed in the economy, according to Fisher, is reform of regulatory and tax policies that impede growth. “The real need is for structural reform of fiscal policy,” he said. “It’s up to the politicians to make the government reforms necessary to spur growth. We in the United States do not need more monetary stimulus.”
The bottom line Asman says is that Fisher believes that a healthy market can withstand a market selloff. Said Fisher: “a market correction doesn’t mean the economy is in trouble.” Without mentioning any companies in particular, prices are getting more rational, and some very good companies are even being mispriced to the down side.”
Yet today the market may need some David Asman magic again. Deflation fears are reaching a fever pitch as the U.S. on Wednesday issued a renewed a warning that Europe risks falling into a downward spiral of falling wages and prices, saying recent actions by the European Central Bank may not be enough to ward off deflation. In a report to Congress, the U.S. Treasury Department also said Europe faces the risk of a prolonged period of substantially below-target inflation or outright deflation, and that they should take further steps to combat deflationary risks.
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But can those risks be contained? Japan, Europe, Russia and even China are getting deflationary like numbers that will start to freeze economic activity. Greek Bonds are rising and another Geek tragedy may be in the future. Yesterday’s data seems to suggest that the threat is spreading. With OPEC driving oil prices down it could enhance those effects in the short run but actually help it out in the long run if prices ever stabilize. Yet deflation is a fear that is growing and it is dominating every market.
We saw gold rebound as it appeared that the Fed would have to forgo easing. Copper sank as it saw demand drying up. The dollar broke hard and the euro rallied.
Today we get the Petroleum inventory report. The American Petroleum Institute played into the deflationary and slows down fears by reporting a whopping 10.2m bbl build in US crude stocks. Gas stocks did fall by of 3.1 million barrels.
Reports overnight that Gulf States will fight the calls for a production cut.
Price Links Video https://www.youtube.com/playlist?list=PLDq9JQANqxRxCBaHqunzBT4Frxitjw-XV.
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