In currency news, the British Pound fell against the US Dollar after data showed that U.K. consumer prices fell 0.1% in September. This is a fresh sign that the expansionary policies by central bankers around the world are not doing enough to stoke inflation. Inflation has been close to zero throughout the year in the UK. The Sterling lost 0.6% at $1.5243. However, these losses have been recouped in early Wednesday trading. The drop in consumer prices has led economists at BNP Paribas to shelve expectations on any interest rate hike by the Bank of England (BoE) anytime from February 2016 to May 2016. In a comment, BNP Paribas noted that the market may not price in a full rate hike until the Q1 2017.
In other currency news, The Reserve Bank of New Zealand has opened the door to further easing of its interest rate. This was made known by the RBNZ Governor Graeme Wheeler in a speech to the Institute of Financial Professionals NZ in Auckland on Wednesday. Mr Wheeler remarked that recent economic indicators in New Zealand have been more encouraging but reiterated that some further easing in the cash rate “seems likely.” Mr. Wheeler also noted the central bank is conscious of the impact that low interest rates can have on housing demand and its potential to feed into higher price inflation.
The RBNZ had cut its interest rate for the third time in 2015 to 2.75% in September in an attempt to curtail slowing growth, tepid inflation and crashing dairy prices. However, Governor Wheeler hinged any future rate cuts on the “emerging flow of economic data.” As such, market players and observers will be watching the inflation data for the third quarter to be released on Friday October 16 for any clues to further monetary easing in October or December 2015. Presently, inflation is well below the RBNZ’s target of between 1-3% at 0.4%.
In commodity news, the International Energy Agency on Tuesday issued a warning on the oil markets by saying that they will likely remain oversupplied in 2016, as Iranian oil hits the market amid global drop in oil demand. In contrast, the Organization of the Petroleum Exporting Countries (OPEC) had on Monday issued a more hawkish statement, stating that oil markets would start to rebalance themselves in 2016 as US production declines.
The IEA had in its monthly report, cut its forecast for oil demand growth for 2016 by as much as 200,000 barrels a day when compared with its assessment the previous month. The IEA now forecasts global oil consumption rising by 1.2 million barrels a day in 2016, when matched with a five-year-high growth of 1.8 million barrels a day in 2015. This has been attributed to the much anticipated arrival of Iranian oil into the market as a deal to ease the sanctions has been reached. Iran’s production is expected to increase to 3.6 million barrels a day once international sanctions are put on hold in early 2016.
The board of SABMiller PLC has agreed on the key terms of an improved takeover offer by Anheuser-Busch InBev NV. The deal, which has set the stafe for the merger of the world’s largest two brewers, is putting the valuation of SABMiller at £68 billion ($104.36 billion). This improved deal is coming a week after the board rejected previous offers.
In other news, Bank of America Corp. released its Q3 earnings report which showed that the bank achieved better-than-expected third-quarter profits, largely due to a marked reduction in legal expenses and improved trading revenue. Its shares were 1.5% to $15.75 premarket. The bank reported a profit of $4.51 billion, or 37 cents a share which was a much stellar performance when compared with a loss of $232 million, or 4 cents a share, recorded for Q3 2014 when the bank was embroiled mortgage-securities settlement with the U.S. Justice Department. Profits beat the expectation of analysts who had predicted earnings of 33 cents a share.
Cost-cutting has proved to be one of the bank’s key strategies in its dramatic recovery. Costs fell a whopping 31% in Q3 from $20.14 billion a year ago to $13.81 billion. Legal expenses fell to $231 million from $6 billion a year ago, when the bank had to pay the record $16.65 billion settlement with the Justice Department. Operating costs in the unit that handles bad, crisis-era mortgages also fell 32%, as the number of loans housed there that were more than 60 days behind on their payments shrunk by nearly half.
On a global scale, the bank’s global markets and global banking divisions have cut down on the risks they are taking in a balance that the CEO Mr. Moynihan has described as an appropriate balance between profit and stability.
Global stocks experienced a decline on Tuesday on worries about declining Chinese export data. The latest data simply add confirmation to previous data which show a slowing of the Chinese economy. Asian and European markets led the US stock futures to end lower after data showed that China’s exports dropped 3.7% in September year-on-year. The figures look ominous for China’s third-quarter GDP data which are due next week. Should this figure fall below Beijing’s target, this could lead to a renewed round of market sell-offs around the world. If GDP data were to beat estimates, this could provide renewed optimism for investors.