Europe isn’t looking very good:
U.K. 10-year government bonds rose with their German counterparts as a report showed factory orders in Europe’s largest economy plunged the most since 2009 in August, underlining risks to the euro area’s recovery.
Five-year gilts advanced for the fifth time in six days. The yield fell last week to the lowest level since February as reports signaled the U.K. economy was losing momentum, fueling speculation the Bank of England will delay interest-rate increases. The pound declined versus the euro as Business Secretary Vince Cable said Britain’s currency was still too strong and stifling exports.
…
U.K. house prices fell for the first time in almost a year and a half in September, Nationwide Building Society said on Sept. 30, while a Markit Economics report on Oct. 3 showed services growth cooled more than economists forecast, further signs that the recovery may be losing enough momentum for the Bank of England to refrain from increasing borrowing costs. That has fueled gains in government bonds and slowed the rally in the pound.
… and there are renewed deflation fears:
Inflation in the euro area has fallen yet again and now stands at 0.3 percent. Prices are already falling in several of the European Union’s weaker economies. Even so-called core inflation, which excludes temporary factors and reveals the underlying trend, stands at less than 1 percent, a full percentage point below the ECB’s target.
… which is causing some to criticize Draghi and the ECB:
European Central Bank President Mario Draghi has disappointed investors and economists by failing to detail the size of the expansion he’s seeking in the central bank’s balance sheet. This much is clear from today’s investment bank research reports. Parsing Draghi’s comments from yesterday, as his favorite inflation measure fell to a record today, raises the chilling prospect that it may already be too late to avert deflation in the euro region — and that he knows it.
For the first time, Draghi has abandoned the incantation he’s used for months against the perceived evils of falling prices: “Inflation expectations for the euro area over the medium to long term continue to be firmly anchored.” That’s how he put it in his opening remarks at the August monetary policy press conference, and then followed it up, at the question-and-answer session, with, “Long-term expectations remain anchored at 2 percent.”
…
Yesterday, in addition to dropping the mantra from his speech, Draghi also demurred when he was directly asked if he thought inflationary expectations were anchored:Well, first of all, the inflation expectations — first of all, we don’t use — let me get this clear, because there has been a certain amount of misunderstanding in the last few weeks — we don’t use one single measure of inflation expectations. We use a broad range of indicators. And our inflation expectations measures have gone down especially on the short horizons and are now around 8 points below 2 percent on the five-year on five-year, and so we look at that with — definitely with great attention. I would say that the measures we’ve taken have been determined exactly because our medium-term outlook on inflation expectation has worsened and we see that the risks have increased.
Lena Komileva, the chief economist at G Plus Economics in London, a research company, interpreted the absence as a sign the ECB is aware that the euro region risks what she calls “Japanification.” Annual inflation was just 0.3 percent last month; it hasn’t touched 2 percent since January 2013.
All this gloom had an effect:
Stocks tumbled and bonds rallied, sending yields to the lowest since May 2013, as the International Monetary Fund cut its global outlook and German industrial production plunged. Oil slid to a 17-month low.
The Standard & Poor’s 500 Index (SPX) fell 1.5 percent to 1,935.10 at 4 p.m. in New York, the lowest level since Aug. 12. The Dow Jones Industrial Average lost 1.6 percent, the most since July. The yield on 30-year Treasuries retreated 8 basis points to 3.05 percent as investors sought safety. Oil tumbled 1.7 percent to the lowest since April 2013, while gold futures climbed 0.4 percent. Volatility rose, with the VIX jumping to the highest since March.
The IMF cut its outlook for global growth in 2015 and warned about the risks of rising geopolitical tensions and a financial-market correction as stocks reach “frothy” levels. German industrial production dropped 4 percent in August in the biggest decline since 2009.
With Hallowe’en fast approaching, I would be remiss if I didn’t alert Assiduous Readers to the BEST PRANK EVER:
A lewd statue of the devil that seemingly popped up overnight in East Vancouver has been taken down by city officials after raising eyebrows — among other things.
The statue stood about eight to nine feet tall on a pedestal near the intersection of 4th Avenue and Clark Drive for several hours Tuesday.
It was removed by city crews at around 3:15 p.m.
The statue also appeared to sport a full erection, a detail that likely raised hell with some of the commuters who use the station.
Click for … um … big
It was a positive day for the Canadian preferred share market, with PerpetualDiscounts winning 18bp, FixedResets gaining 1bp and DeemedRetractibles up 2bp. Volatility was minimal. Volume was low.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 3.12 % | 3.11 % | 24,499 | 19.46 | 1 | 0.0416 % | 2,677.1 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1513 % | 4,130.2 |
| Floater | 2.88 % | 3.03 % | 58,295 | 19.68 | 4 | 0.1513 % | 2,773.3 |
| OpRet | 4.04 % | 1.67 % | 116,196 | 0.08 | 1 | -0.0788 % | 2,732.5 |
| SplitShare | 4.29 % | 4.03 % | 91,336 | 3.85 | 5 | 0.2738 % | 3,152.4 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0788 % | 2,498.6 |
| Perpetual-Premium | 5.46 % | 2.11 % | 78,060 | 0.08 | 18 | 0.1157 % | 2,451.6 |
| Perpetual-Discount | 5.31 % | 5.15 % | 96,080 | 15.12 | 18 | 0.1817 % | 2,592.1 |
| FixedReset | 4.21 % | 3.73 % | 171,024 | 16.38 | 73 | 0.0061 % | 2,554.7 |
| Deemed-Retractible | 5.01 % | 2.10 % | 102,459 | 0.23 | 42 | 0.0200 % | 2,563.6 |
| FloatingReset | 2.57 % | -6.56 % | 65,011 | 0.08 | 6 | -0.0261 % | 2,553.6 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| PWF.PR.R | Perpetual-Premium | 1.43 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-30 Maturity Price : 25.00 Evaluated at bid price : 26.31 Bid-YTW : 4.77 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| SLF.PR.E | Deemed-Retractible | 108,841 | National crossed 78,800 at 22.21. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.29 Bid-YTW : 5.97 % |
| MFC.PR.A | OpRet | 56,550 | TD crossed two blocks of 26,000 each, both at 25.39. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-11-06 Maturity Price : 25.25 Evaluated at bid price : 25.35 Bid-YTW : 1.67 % |
| BMO.PR.W | FixedReset | 52,939 | TD crossed 40,000 at 25.08. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-07 Maturity Price : 23.18 Evaluated at bid price : 25.08 Bid-YTW : 3.71 % |
| ENB.PF.G | FixedReset | 40,120 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-07 Maturity Price : 23.11 Evaluated at bid price : 25.00 Bid-YTW : 4.21 % |
| HSE.PR.A | FixedReset | 28,350 | Nesbitt crossed 25,000 at 22.92. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-07 Maturity Price : 22.45 Evaluated at bid price : 22.85 Bid-YTW : 3.71 % |
| FTS.PR.M | FixedReset | 28,344 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-07 Maturity Price : 23.19 Evaluated at bid price : 25.12 Bid-YTW : 3.95 % |
| There were 19 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TRP.PR.A | FixedReset | Quote: 22.35 – 22.65 Spot Rate : 0.3000 Average : 0.1872 YTW SCENARIO |
| MFC.PR.C | Deemed-Retractible | Quote: 22.68 – 22.95 Spot Rate : 0.2700 Average : 0.1837 YTW SCENARIO |
| TD.PR.Q | Deemed-Retractible | Quote: 25.91 – 26.19 Spot Rate : 0.2800 Average : 0.2001 YTW SCENARIO |
| PWF.PR.P | FixedReset | Quote: 23.00 – 23.22 Spot Rate : 0.2200 Average : 0.1572 YTW SCENARIO |
| BAM.PF.E | FixedReset | Quote: 24.51 – 24.78 Spot Rate : 0.2700 Average : 0.2080 YTW SCENARIO |
| MFC.PR.F | FixedReset | Quote: 22.41 – 22.79 Spot Rate : 0.3800 Average : 0.3205 YTW SCENARIO |