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| • The personal saving rate in the US is approaching a historical low • Stronger yen compels international investors to become unhedged to FX risk • Norway’s headline inflation lower than expected in August • Inflation surprises on the upside in Czechia, while easing more in Hungary • China’s corporate bond spreads widen to a one-year high • Selloff in Sri Lanka bonds intensifies on fear of change in political leadership |
European and US stock markets recovered some of last week's losses, easing recession concerns for now. Absent major US data releases today, investors are focused on tomorrow’s consumer price report and Thursday’s producer price data. Market contacts suggest that if inflation comes in lower than expected, it could give dovish Fed members more room to push for a larger rate cut, especially as labor market weakness gains attention. However, markets still expect a higher likelihood of quarter-point cuts, as larger cuts could spark self-amplifying fears that the US economy is deteriorating more rapidly than anticipated. In the UK, the labor market data release for July showed decelerating unemployment rates and wage growth. In the Euro Area, Italian industrial production for July came in softer than expected while the final release of Germany’s August inflation validated the flash estimate. Ahead of the ECB meeting on Thursday and amid well telegraphed issuance supply in primary markets, Bund yields remain well supported. In China, the August trade report highlights weak domestic demand despite rising production, a trend reflected in the widening yield spread between corporate and government bonds that appears driven by poor earnings and deflation concerns. Crude oil kept depreciating, underpassing $68/bbl while the Yen and gold were little changed.