The US economy is showing resilience. In Japan, there is a decrease in inflationary pressure

Fed spokesman Neel Kashkari continued his aggressive stance on monetary policy yesterday, stating the potential need for another Fed interest rate hike. The US second quarter GDP was revised downward, and home sales fell more than expected in August. On the positive side, Thursday was a weaker dollar and dovish comments from Chicago Fed Chairman Goolsbee, who said policymakers risked raising interest rates too much.

The head of the largest US bank, Jamie Dimon, said yesterday that the world is not ready for a 7% rate along with stagflation and that going from 5% to 7% would be much more painful than 3% to 5%. In fact, even 5% is already a pain that no one has fully felt yet, as current actual US government debt service rates are only approaching 3%. The cost of servicing private sector debt is also far from rates consistent with 5%.

Recent data shows that Reverse Repo volumes are actively declining. This suggests that banks are no longer “parking” excess liquidity with the Fed and are beginning to actively buy short-term Treasury bills. In periods of such rotations, the capital flow of investors does not go into shares, and it leads to the weakness of stock indices.

US GDP in Q2 amounted to 2.1% (annualized q/q), which was weaker than expectations of a 2.2% increase. But overall, the US economy continues to show economic resilience. The second quarter personal consumption reading was revised downward to 0.8% from the previously announced 1.7%. US weekly initial jobless claims rose by 2,000 to 204,000, indicating a robust labor market. US home sales in August fell by 7.1% m/m, weaker than expectations of 1.0% m/m and the largest decline in 11 months.

The Eurozone Economic Confidence Index for September fell by 0.3 to 93.3, which was stronger than expectations of 92.4. The German Consumer Price Index (EU harmonized) fell from 6.1% to 4.5% y/y, the lowest level in two years. ECB Governing Council representative and Bundesbank President Nagel said that additional ECB interest rate hikes could be imminent “if the data show that further action is warranted.” Eurozone inflation data will be released today. Overall inflation is expected to fall from 5.2% to 4.5% y/y, while core inflation (excluding food and energy prices) is expected to fall from 5.3% to 4.8% y/y. Such data would be a dovish factor for ECB policy.

Natural gas prices rose to a 1-week high on Thursday and closed moderately higher. Forecasts of colder weather that will spur demand for natural gas for heating helped push prices higher after WSI Trader reported that below-normal temperatures could spread to the central US by the middle of next month. But natural gas price gains were capped yesterday after the EIA’s weekly natural gas inventories rose 90 bcf, exceeding expectations of 89 bcf. As of September 25, natural gas storage in Europe was 95% full, well above the 5-year seasonal average of 87% for this time of year. The US natural gas inventories as of September 22 were 6.0% above the 5-year seasonal average.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) decreased by 1.54% for the day, China’s FTSE China A50 (CHA50) fell by 0.58%, Hong Kong’s Hang Seng (HK50) was down by 1.36% for the day, and Australia’s ASX 200 (AU200) was negative 0.05% for Thursday. Today is a bank holiday in China.

Core inflation in Japan’s capital slowed in September for the third consecutive month, mainly due to lower fuel costs. Tokyo’s core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, came in at 2.5% y/y in September, while the median market forecast called for a 2.6% y/y figure. Other data showed factory output was unchanged in August, suggesting that companies are feeling the pain from weaker global demand and weak signs in China’s economy. Despite slowing inflation, the continued rise in food and service prices is likely to force the Bank of Japan to phase out its massive stimulus, analysts said.