Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051019a.jpg" width="353">
Following three consecutive months of decline, the National Association of Home Builders&#39; (NAHB) Composite Housing Market Index gained back in October all of the September drop with a 3.1% increase. Nevertheless the index remained 6.9% below the June peak.
During the last twenty years, year to year changes in the annual composite index had an 85% correlation with the change in single family housing starts.
The m/m increase reflected strong gain throughout the country except in the Northeast.
The October index for sales of single family homes in six months gained back one third of the prior month&#39;s 9.1% drop (-8.9% y/y) while the index for current sales reversed all of a modest September fall (-3.9% y/y).
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a> </th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Oct &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>67</td>
<td>65</td>
<td>69</td>
<td>68</td>
<td>64</td>
<td>61</td>
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Following three consecutive months of decline, the National Association of Home Builders' (NAHB) Composite Housing Market Index gained back in October all of the September drop with a 3.1% increase. Nevertheless the index remained [...]

NAHB Housing Market Index Improved

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051019c.jpg" width="353">
Housing starts remained firm last month and rose 3.4% m/m to 2.108M units.The prior month&#39;s figure was revised slightly higher and the September gain far outpaced Consensus expectations for a decline to 1.97M starts.
The Census Bureau indicated that the impact of Hurricane Katrina on the figures was minimal.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051019b.jpg" width="353">
Single-family starts rose 2.6% due to 6.2% gains in both the South (14.0% y/y) and in the Midwest (7.3% y/y). In the Northeast, single family starts rose 0.7% (17.2% y/y) and in the West single family starts fell 5.3% (+11.7% y/y).
Multi family starts rose 7.8% m/m after an upwardly revised 1.5% August gain.
Federal Reserve Board Vice-Chairman Roger W. Ferguson&#39;s speech on the Economic Outlook for the United States can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20051018/default.htm"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>2,108</td>
<td>2,038</td>
<td>10.3%</td>
<td>1,950</td>
<td>1,854</td>
<td>1,710</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,747</td>
<td>1,703</td>
<td>12.3%</td>
<td>1,604</td>
<td>1,505</td>
<td>1,363</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>361</td>
<td>335</td>
<td>1.1%</td>
<td>345</td>
<td>349</td>
<td>347</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>2,189</td>
<td>2,138</td>
<td>7.4%</td>
<td>2,058</td>
<td>1,8 88</td>
<td>1,749</td>
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Housing starts remained firm last month and rose 3.4% m/m to 2.108M units.The prior month's figure was revised slightly higher and the September gain far outpaced Consensus expectations for a decline to 1.97M starts. The Census Bureau [...]

Housing Starts Firm

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051019c.jpg" width="353">
Housing starts remained firm last month and rose 3.4% m/m to 2.108M units.The prior month&#39;s figure was revised slightly higher and the September gain far outpaced Consensus expectations for a decline to 1.97M starts.
The Census Bureau indicated that the impact of Hurricane Katrina on the figures was minimal.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051019b.jpg" width="353">
Single-family starts rose 2.6% due to 6.2% gains in both the South (14.0% y/y) and in the Midwest (7.3% y/y). In the Northeast, single family starts rose 0.7% (17.2% y/y) and in the West single family starts fell 5.3% (+11.7% y/y).
Multi family starts rose 7.8% m/m after an upwardly revised 1.5% August gain.
Federal Reserve Board Vice-Chairman Roger W. Ferguson&#39;s speech on the Economic Outlook for the United States can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20051018/default.htm"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
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<td class="firstcol">Total</td>
<td>2,108</td>
<td>2,038</td>
<td>10.3%</td>
<td>1,950</td>
<td>1,854</td>
<td>1,710</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,747</td>
<td>1,703</td>
<td>12.3%</td>
<td>1,604</td>
<td>1,505</td>
<td>1,363</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>361</td>
<td>335</td>
<td>1.1%</td>
<td>345</td>
<td>349</td>
<td>347</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>2,189</td>
<td>2,138</td>
<td>7.4%</td>
<td>2,058</td>
<td>1,8 88</td>
<td>1,749</td>
</tr>
</tbody>
</table>
NAHB Housing Market Index Improved 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 19, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051019a.jpg" width="353">
Following three consecutive months of decline, the National Association of Home Builders&#39; (NAHB) Composite Housing Market Index gained back in October all of the September drop with a 3.1% increase. Nevertheless the index remained 6.9% below the June peak.
During the last twenty years, year to year changes in the annual composite index had an 85% correlation with the change in single family housing starts.
The m/m increase reflected strong gain throughout the country except in the Northeast.
The October index for sales of single family homes in six months gained back one third of the prior month&#39;s 9.1% drop (-8.9% y/y) while the index for current sales reversed all of a modest September fall (-3.9% y/y).
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a> </th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">Oct &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>67</td>
<td>65</td>
<td>69</td>
<td>68</td>
<td>64</td>
<td>61</td>
</tr>
</tbody>
</table>
Mortgage Applications Rose Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 19, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051019d.jpg" width="353">
According to the Mortgage Bankers Association, the total number of mortgage applications rose 6.1% last week and reversed most of the declines during the prior three periods although applications so far in October remained 4.2% below the September average.
Purchase applications jumped 7.3% w/w and pulled this month&#39;s level 1.5% below September&#39;s which rose 1.0% from August. During the last ten years there has been a 49% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance reversed nearly all of the prior week&#39;s decline with a 4.5% rise.
The effective interest rate on a conventional 30-year mortgage rose further to 6.35% and is up from 6.03% averaged in September. The low for 30 year financing was 5.71% in late June. The effective rate on a 15-year mortgage rose to 5.95% and increased from the low of 5.33%. The interest rate on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">10/14/05</th>
<th scope="col">10/07/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>737.5</td>
<td>694.8</td>
<td>3.9%</td>
<td>735.1</td>
<td>1,067.9</td>
<td>799.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>503.9</td>
<td>469.5</td>
<td>9.2%</td>
<td>454.5</td>
<td>395.1</td>
<td>354.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,095.7</td>
<td>2,004.9</td>
<td>-2.8%</td>
<td>2,366.8</td>
<td>4,981.8</td>
<td>3,388.0</td>
</tr>
</tbody>
</table>
Foreign Buying of Securities in US Markets 3rd Largest in August 
by <a href="/comment/Stone.html">Carol Stone</a> October 19, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051019e.jpg" width="353">
Yesterday&#39;s report by the US Treasury of net purchases of securities by foreign investors indicated the third largest monthly amount ever in August, $91.3 billion. This followed two other sizable amounts, $87.5 billion in July and $81.8 billion in June, making a record large three-month total, $260.6 billion, nearly $20 billion more than the prior record cumulative volume in July 2003.
In one sense, the August data are quirky and may not be sustained. The big total resulted from enormous net purchases of foreign bonds in US markets. Although partly offset by sales of foreign equities, the foreign investor activity in &quot;Yankee&quot; bonds and stocks swung to $3.4 billion in net purchases after 17 consecutive months of net sales.The spurt in foreign bond acquisition to $17 billion is far out of line with prior experience, so it will be interesting to see whether it continues or is quickly reversed.Otherwise, transactions in US securities actually moderated a bit in August. They totaled $87.8 billion, down from $101.2 billion in July. Purchases of federal agencies, so-called &quot;GSEs&quot; (government-sponsored enterprises) dropped back, while corporate bond buying picked up and Treasury purchases continue near their 12-month average of $25.3 billion.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051019f.jpg" width="353">
Among countries, that swing in foreign securities apparently came from UK investors. It&#39;s important to point out here that these Treasury data represent transactions with the first non-US counterparty, regardless of the nationality of the final owner or seller. Since London is a major global financial center, it could well be investors from elsewhere -- perhaps the Middle East -- who moved out of foreign stocks and into bonds that trade in US markets.China&#39;s participation in US markets decreased to $5.7 billion in net purchases in August, but $13.8 billion in July and $14.7 billion in June made the largest two-month period by far; China&#39;s activity is quite erratic, and the let-up in August is actually fairly moderate compared with a sharp saw-tooth pattern that is frequently in evidence. Japan&#39;s net investments, by contrast, have slowed markedly the last several months after a large increase in 2004 and were only $1.2 billion in August.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Net Foreign Purchases of Securities in US Markets (Billions US$)</th>
<th scope="col">Aug 2005 </th>
<th scope="col">July 2005 </th>
<th scope="col">June 2005 </th>
<th scope="col">Last 12 Months&#39; Average </th>
Monthly Average
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004 </td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Total </td>
<td>91.3</td>
<td>87.5</td>
<td>81.8</td>
<td>66.3</td>
<td>63.6</td>
<td>55.3</td>
<td>47.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Treasuries </td>
<td>28.1</td>
<td>28.5</td>
<td>15.8</td>
<td>25.3</td>
<td>29.3</td>
<td>22.0</td>
<td>10.0</td>
</tr>
<tr>
<td class="firstcol">Federal Agencies (mostly &quot;GSEs&quot;) </td>
<td>15.6</td>
<td>37.8</td>
<td>20.3</td>
<td>19.8</td>
<td>18.9</td>
<td>13.0</td>
<td>16.3</td>
</tr>
<tr class="odd">
<td class="firstcol">US Corporate Bonds </td>
<td>40.3</td>
<td>24.9</td>
<td>54.4</td>
<td>29.6</td>
<td>25.1</td>
<td>22.1</td>
<td>15.2</td>
</tr>
<tr>
<td class="firstcol">US Corporate Stocks </td>
<td>3.8</td>
<td>10.0</td>
<td>4.4</td>
<td>5.1</td>
<td>2.4</td>
<td>2.9</td>
<td>4.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign Bonds </td>
<td>17.0</td>
<td>-5.1</td>
<td>-1.2</td>
<td>-4.3</td>
<td>-5.6</td>
<td>2.7</td>
<td>2.4</td>
</tr>
<tr>
<td class="firstcol">Foreign Stocks </td>
<td>-13.5</td>
<td>-8.7</td>
<td>-11.8</td>
<td>-9.4</td>
<td>-7.1</td>
<td>-7.4</td>
<td>-0.1</td>
</tr>
</tbody>
</table>
</body>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051018d.jpg" width="353">
The results of Germany&#39;s latest ZEW survey, released today, were below consensus, showing only a slight improvement in October in the balances between optimists and pessimists among German institutional investors and analysts regarding current economic conditions and those expected six months ahead. The disappointing results of the survey may be due, in part, to the uncertainty arising out of the inconclusive election held last month. A coalition government between the CDU/CSU (Christian Democratic Union, and Christian Social Union), with their narrow victory of four seats, and the SPD (Social Democratic Party) has been agreed upon with Angela Merkel as Chancellor.However, the process of selecting a cabinet, now underway is revealing what may be potentially serious differences among the possible candidates. The process is not expected to be over much before November 17 when the Bundestag formally installs the new Chancellor and pronounces the new government operational. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051018e.jpg" width="353">
Pessimists continue to outweigh optimists in their appraisal of current conditions. The balance between those expecting current conditions to improve and those who expect them to worsen rose a mere one-tenth of one percent from -58.1% to 58.0%. When they look ahead, the respondents to the survey are more optimistic. The balance between those expecting better conditions six months ahead and those expecting worse conditions rose by 0.8% in October to 39.4% from 38.6% in September. The contrast between the respondents&#39; appraisal of current conditions and their appraisal of expectations six months ahead is shown in the first chart.
Inflation is another factor that may be influencing sentiment among institutional investors and analysts.Eurostat published today the Harmonized Consumer Prices Index for the Euro Zone and the individual countries of the area. In addition, indexes of core inflation, defined as the total index excluding, energy, food, alcohol and tobacco, are also published. For Germany, the year to year increase in the total index was 2.61%, up from 1.89% in both August and July. Although core inflation also rose, it remains at low levels, lower than in some of the earlier months of the year. Core inflation was 0.56% in September, compared with 0.46% in August and 055% in July. The Harmonized Consumer Price index and its related Core Inflation index are shown in the second chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Percent Balance of Opinion German ZEW Survey</th>
<th scope="col">Oct 05&nbsp;</th>
<th scope="col">Set&nbsp; 05</th>
<th scope="col">Aug 04</th>
<th scope="col">M/M&nbsp; Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2004 &nbsp;</th>
<th scope="col">2003 &nbsp;</th>
<th scope="col">2002&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Conditions</td>
<td>-58.0</td>
<td>-58.1</td>
<td>-58.9</td>
<td>0.1</td>
<td>0.9</td>
<td>-67.7</td>
<td>-92.6</td>
<td>-83.3</td>
</tr>
<tr>
<td class="firstcol">Expectations 6-months ahead</td>
<td>39.4</td>
<td>38.6</td>
<td>31.3</td>
<td>0.8</td>
<td>8.1</td>
<td>44.6</td>
<td>38.4</td>
<td>45.3</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">German Harmonized Consumer Price Index&nbsp;</td>
<td>Y/Y&nbsp;&nbsp;&nbsp; %&nbsp;</td>
<td>Y/Y&nbsp;&nbsp;&nbsp; %&nbsp;</td>
<td>Y/Y&nbsp;&nbsp;&nbsp; %&nbsp;</td>
<td>Y/Y&nbsp;&nbsp;&nbsp; %&nbsp;</td>
<td>Y/Y&nbsp;&nbsp;&nbsp; %&nbsp;</td>
<td>Y/Y&nbsp;&nbsp;&nbsp; %&nbsp;</td>
<td>Y/Y&nbsp;&nbsp;&nbsp; %&nbsp;</td>
<td>Y/Y&nbsp;&nbsp;&nbsp; %&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td>Sep 05&nbsp;</td>
<td>Aug&nbsp; 05</td>
<td>July 05</td>
<td>Jun 05</td>
<td>May 05&nbsp;</td>
<td>Apr 05</td>
<td>&nbsp;Mar05</td>
<td>&nbsp;Feb 05</td>
</tr>
<tr>
<td class="firstcol">Harmonized CPI total</td>
<td>2.61</td>
<td>1.89</td>
<td>1.89</td>
<td>1.81</td>
<td>1.63</td>
<td>1.45</td>
<td>1.72</td>
<td>1.82</td>
</tr>
<tr class="odd">
<td class="firstcol">Harmonized CPI core</td>
<td>0.56</td>
<td>0.46</td>
<td>0.55&nbsp;</td>
<td>0.46&nbsp;</td>
<td>0.84&nbsp;</td>
<td>0.28&nbsp;</td>
<td>0.74&nbsp;</td>
<td>0.65&nbsp;</td>
</tr>
</tbody>
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The results of Germany's latest ZEW survey, released today, were below consensus, showing only a slight improvement in October in the balances between optimists and pessimists among German institutional investors and analysts [...]

Germany's ZEW Results Are Disappointing: Political Uncertainty and Inflation Causes?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051018c.jpg" width="353">
Chain store sales rose for the fourth consecutive week. Last week&#39;s 0.4% increase, according to the International Council of Shopping Centers (ICSC)-UBS survey, lifted sales 1.3% above the mid-September low. 
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC squeaked out a 0.1% (-2.5% y/y) increase.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">10/15/05</th>
<th scope="col">10/08/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>450.6</td>
<td>448.9</td>
<td>3.3%</td>
<td>4.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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Chain store sales rose for the fourth consecutive week. Last week's 0.4% increase, according to the International Council of Shopping Centers (ICSC)-UBS survey, lifted sales 1.3% above the mid-September low. During the last ten years [...]

Chain Store Sales Rose Again Last Week

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051018a.jpg" width="353">
The overall Producer Price Index jumped 1.9% last month, easily surpassing Consensus expectations for a 1.1% increase. The gain was the largest since January 1990 and was led by a 7.1% leap in energy prices which also was the strongest since 1990.
The so called &quot;core&quot; PPI index is focused on since it provides an indication of the degree to which pressures on energy or food prices may be &quot;spilling over.&quot; Finished goods prices less food &amp; energy increased 0.3% in September. The rise beat Consensus expectations for a 0.2% increase and followed no change in prices during the previous month.
And these spillover effects may indeed be now more apparent than earlier for several reasons. 1) The y/y change in core prices held at 2.5%, up from 0.1% and 0.2% during 2002 and 2003, respectively. 2) Prices for core consumer goods rose 0.2% and the y/y gain held at 2.6% versus a 0.1% increase in 2003. 3) Capital equipment prices rose 0.3%. The y/y gain rose to 2.3% from -0.4% during 2002 despite a 22.1% y/y decline in computer prices. That drop was comparable to the 22% and 25% price declines during 2001 and 2002.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051018b.jpg" width="353">
Consumer durable goods prices rose 0.4% (+1.5% y/y) led by increases in floor coverings (7.5% y/y), household furniture (3.6% y/y) and jewelry (3.8% y/y). Core consumer nondurable goods prices rose 0.2% (3.6% y/y).
Gasoline prices jumped 12.8% (63.6% y/y) while fuel oil prices surged 11.3% (57.1% y/y). Natural gas prices also posted a strong 8.1% (24.7% y/y) increase and in October the spot gas price has pushed nearly to $14.00/mmbtu, more than double the year ago level.
Intermediate goods prices surged 2.5%, the strongest monthly increase since 1980 while core intermediate goods prices rose 1.2%, the strongest gain since April of last year.
A 16.9% (64.4% y/y) spike in crude energy prices lifted overall crude goods prices by 10.2%.and that pulled the y/y gain to its highest since early 2003. Core crude prices jumped for the third straight month. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.
Federal Reserve Board Chairman Alan Greenspan&#39;s speech on Energy is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20051017/default.htm"> here</a>.
Inflation Expectations: How The Market Speaks from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-25.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>1.9%</td>
<td>0.6%</td>
<td>6.7%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.3%</td>
<td>0.0%</td>
<td>2.5%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>2.5%</td>
<td>0.7%</td>
<td>8.4%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.2%</td>
<td>-0.1%</td>
<td>3.5%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>10.2%</td>
<td>2.3%</td>
<td>28.5%</td>
<td>17.5%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>5.3%</td>
<td>4.6%</td>
<td>6.5%</td>
<td>26.6%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

The overall Producer Price Index jumped 1.9% last month, easily surpassing Consensus expectations for a 1.1% increase. The gain was the largest since January 1990 and was led by a 7.1% leap in energy prices which also was the [...]

September PPI Up 1.9%: Spillover Effects?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051018a.jpg" width="353">
The overall Producer Price Index jumped 1.9% last month, easily surpassing Consensus expectations for a 1.1% increase. The gain was the largest since January 1990 and was led by a 7.1% leap in energy prices which also was the strongest since 1990.
The so called &quot;core&quot; PPI index is focused on since it provides an indication of the degree to which pressures on energy or food prices may be &quot;spilling over.&quot; Finished goods prices less food &amp; energy increased 0.3% in September. The rise beat Consensus expectations for a 0.2% increase and followed no change in prices during the previous month.
And these spillover effects may indeed be now more apparent than earlier for several reasons. 1) The y/y change in core prices held at 2.5%, up from 0.1% and 0.2% during 2002 and 2003, respectively. 2) Prices for core consumer goods rose 0.2% and the y/y gain held at 2.6% versus a 0.1% increase in 2003. 3) Capital equipment prices rose 0.3%. The y/y gain rose to 2.3% from -0.4% during 2002 despite a 22.1% y/y decline in computer prices. That drop was comparable to the 22% and 25% price declines during 2001 and 2002.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051018b.jpg" width="353">
Consumer durable goods prices rose 0.4% (+1.5% y/y) led by increases in floor coverings (7.5% y/y), household furniture (3.6% y/y) and jewelry (3.8% y/y). Core consumer nondurable goods prices rose 0.2% (3.6% y/y).
Gasoline prices jumped 12.8% (63.6% y/y) while fuel oil prices surged 11.3% (57.1% y/y). Natural gas prices also posted a strong 8.1% (24.7% y/y) increase and in October the spot gas price has pushed nearly to $14.00/mmbtu, more than double the year ago level.
Intermediate goods prices surged 2.5%, the strongest monthly increase since 1980 while core intermediate goods prices rose 1.2%, the strongest gain since April of last year.
A 16.9% (64.4% y/y) spike in crude energy prices lifted overall crude goods prices by 10.2%.and that pulled the y/y gain to its highest since early 2003. Core crude prices jumped for the third straight month. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.
Federal Reserve Board Chairman Alan Greenspan&#39;s speech on Energy is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20051017/default.htm"> here</a>.
Inflation Expectations: How The Market Speaks from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-25.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>1.9%</td>
<td>0.6%</td>
<td>6.7%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.3%</td>
<td>0.0%</td>
<td>2.5%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>2.5%</td>
<td>0.7%</td>
<td>8.4%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.2%</td>
<td>-0.1%</td>
<td>3.5%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>10.2%</td>
<td>2.3%</td>
<td>28.5%</td>
<td>17.5%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>5.3%</td>
<td>4.6%</td>
<td>6.5%</td>
<td>26.6%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
Chain Store Sales Rose Again Last Week 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 18, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051018c.jpg" width="353">
Chain store sales rose for the fourth consecutive week. Last week&#39;s 0.4% increase, according to the International Council of Shopping Centers (ICSC)-UBS survey, lifted sales 1.3% above the mid-September low. 
During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC squeaked out a 0.1% (-2.5% y/y) increase.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">10/15/05</th>
<th scope="col">10/08/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>450.6</td>
<td>448.9</td>
<td>3.3%</td>
<td>4.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Germany's ZEW Results Are Disappointing: Political Uncertainty and Inflation Causes?  
by <a href="/comment/Curley.html">Louise Curley</a> October 18, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051018d.jpg" width="353">
The results of Germany&#39;s latest ZEW survey, released today, were below consensus, showing only a slight improvement in October in the balances between optimists and pessimists among German institutional investors and analysts regarding current economic conditions and those expected six months ahead. The disappointing results of the survey may be due, in part, to the uncertainty arising out of the inconclusive election held last month. A coalition government between the CDU/CSU (Christian Democratic Union, and Christian Social Union), with their narrow victory of four seats, and the SPD (Social Democratic Party) has been agreed upon with Angela Merkel as Chancellor.However, the process of selecting a cabinet, now underway is revealing what may be potentially serious differences among the possible candidates. The process is not expected to be over much before November 17 when the Bundestag formally installs the new Chancellor and pronounces the new government operational. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051018e.jpg" width="353">
Pessimists continue to outweigh optimists in their appraisal of current conditions. The balance between those expecting current conditions to improve and those who expect them to worsen rose a mere one-tenth of one percent from -58.1% to 58.0%. When they look ahead, the respondents to the survey are more optimistic. The balance between those expecting better conditions six months ahead and those expecting worse conditions rose by 0.8% in October to 39.4% from 38.6% in September. The contrast between the respondents&#39; appraisal of current conditions and their appraisal of expectations six months ahead is shown in the first chart.
Inflation is another factor that may be influencing sentiment among institutional investors and analysts.Eurostat published today the Harmonized Consumer Prices Index for the Euro Zone and the individual countries of the area. In addition, indexes of core inflation, defined as the total index excluding, energy, food, alcohol and tobacco, are also published. For Germany, the year to year increase in the total index was 2.61%, up from 1.89% in both August and July. Although core inflation also rose, it remains at low levels, lower than in some of the earlier months of the year. Core inflation was 0.56% in September, compared with 0.46% in August and 055% in July. The Harmonized Consumer Price index and its related Core Inflation index are shown in the second chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Percent Balance of Opinion German ZEW Survey</th>
<th scope="col">Oct 05&nbsp;</th>
<th scope="col">Set&nbsp; 05</th>
<th scope="col">Aug 04</th>
<th scope="col">M/M&nbsp; Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2004 &nbsp;</th>
<th scope="col">2003 &nbsp;</th>
<th scope="col">2002&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Conditions</td>
<td>-58.0</td>
<td>-58.1</td>
<td>-58.9</td>
<td>0.1</td>
<td>0.9</td>
<td>-67.7</td>
<td>-92.6</td>
<td>-83.3</td>
</tr>
<tr>
<td class="firstcol">Expectations 6-months ahead</td>
<td>39.4</td>
<td>38.6</td>
<td>31.3</td>
<td>0.8</td>
<td>8.1</td>
<td>44.6</td>
<td>38.4</td>
<td>45.3</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">German Harmonized Consumer Price Index&nbsp;</td>
<td>Y/Y&nbsp;&nbsp;&nbsp; %&nbsp;</td>
<td>Y/Y&nbsp;&nbsp;&nbsp; %&nbsp;</td>
<td>Y/Y&nbsp;&nbsp;&nbsp; %&nbsp;</td>
<td>Y/Y&nbsp;&nbsp;&nbsp; %&nbsp;</td>
<td>Y/Y&nbsp;&nbsp;&nbsp; %&nbsp;</td>
<td>Y/Y&nbsp;&nbsp;&nbsp; %&nbsp;</td>
<td>Y/Y&nbsp;&nbsp;&nbsp; %&nbsp;</td>
<td>Y/Y&nbsp;&nbsp;&nbsp; %&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td>Sep 05&nbsp;</td>
<td>Aug&nbsp; 05</td>
<td>July 05</td>
<td>Jun 05</td>
<td>May 05&nbsp;</td>
<td>Apr 05</td>
<td>&nbsp;Mar05</td>
<td>&nbsp;Feb 05</td>
</tr>
<tr>
<td class="firstcol">Harmonized CPI total</td>
<td>2.61</td>
<td>1.89</td>
<td>1.89</td>
<td>1.81</td>
<td>1.63</td>
<td>1.45</td>
<td>1.72</td>
<td>1.82</td>
</tr>
<tr class="odd">
<td class="firstcol">Harmonized CPI core</td>
<td>0.56</td>
<td>0.46</td>
<td>0.55&nbsp;</td>
<td>0.46&nbsp;</td>
<td>0.84&nbsp;</td>
<td>0.28&nbsp;</td>
<td>0.74&nbsp;</td>
<td>0.65&nbsp;</td>
</tr>
</tbody>
</table>


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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051017f.jpg" width="353">
Among industrial countries the rise in inflation as measured by the year over year increase in the consumer price index has, to date, been relatively well contained in spite of the rise in energy costs. Inflation at the wholesale and producer levels where the impact of higher energy costs are more directly felt has, however, begun to accelerate. If past relationships hold, the pace of consumer price inflation should begin to step up.
Denmark and Finland , two countries reporting wholesale and producer price indexes today are illustrative of these trends. Most countries no longer distinguish between wholesale and producer price indexes, publishing only the producer price index, but these countries still publish both indexes. The composition of the indexes are not strictly comparable. In September, the Danish index of fuel and oil in the wholesale index rose 47.32% over September, 2004 the wholesale index was up 5.32%, the producer price index, 7.12% and the consumer price index, 2.39%. The first chart shows the year over year increases in the producer price and the consumer price indexes for Denmark. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051017e.jpg" width="353">
The September Finnish index of energy costs was 15.50% above the index of September, 2004. The wholesale price index was up 3.83%, the producer price index, 2.67% and the consumer price index, 1.14% The second chart shows the year over year increases in the producer price and consumer price indexes for Finland. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051017g.jpg" width="353">
Inflation in Finland has been lower than that in Denmark since late 2001. One factor accounting for the difference could be different monetary policies in the two countries. As a member of the Euro Zone, Finland has been subject to a somewhat tighter monetary policy than that in Denmark, which is outside the Euro Zone. The third chart shows the official base rates in the two countries as an indicator of monetary policy. Since late 2001, the base rate in Finland has been above that in Denmark.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;Price Indexes (2000=100)</th>
<th scope="col">Sep 05&nbsp;</th>
<th scope="col">Aug 05</th>
<th scope="col">Sep 04</th>
<th scope="col">M/M&nbsp; %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2004 &nbsp;%</th>
<th scope="col">2003 %</th>
<th scope="col">2002 %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Denmark</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Fuel and Oil Prices (PPI)</td>
<td>165.8</td>
<td>157.9</td>
<td>116.5</td>
<td>5.04</td>
<td>42.33</td>
<td>107.8</td>
<td>92.9</td>
<td>89.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Producer Price Index</td>
<td>111.3</td>
<td>110.5</td>
<td>103.9</td>
<td>0.72</td>
<td>7.12</td>
<td>103.0</td>
<td>100.8</td>
<td>101.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale Price Index</td>
<td>110.9</td>
<td>110.3</td>
<td>105.3</td>
<td>0.54</td>
<td>5.32</td>
<td>104.5</td>
<td>102.3</td>
<td>102.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer Price Index</td>
<td>111.2</td>
<td>110.3</td>
<td>108.6</td>
<td>0.82</td>
<td>2.39</td>
<td>108.3</td>
<td>107.0</td>
<td>104.8</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Finland</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Energy Costs (WPI)</td>
<td>&nbsp;136.4</td>
<td>134.6&nbsp;</td>
<td>118.1</td>
<td>1.34</td>
<td>15.50</td>
<td>&nbsp;113.9</td>
<td>107.5&nbsp;</td>
<td>101.1&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Producer Price Index</td>
<td>96.1</td>
<td>65.6</td>
<td>63.6</td>
<td>0.52</td>
<td>2.67</td>
<td>93.1</td>
<td>92.8</td>
<td>94.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale Price Index</td>
<td>102.9</td>
<td>102.7</td>
<td>99.1</td>
<td>0.19</td>
<td>3.83&nbsp;</td>
<td>98.3&nbsp;</td>
<td>97.4&nbsp;</td>
<td>97.7&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer Price Index</td>
<td>&nbsp;106.9</td>
<td>106.3&nbsp;</td>
<td>105.7</td>
<td>.0.56</td>
<td>1.14&nbsp;</td>
<td>105.3&nbsp;</td>
<td>105.1&nbsp;</td>
<td>104.2&nbsp;</td>
</tr>
</tbody>
</table>
</body>
</html>

Among industrial countries the rise in inflation as measured by the year over year increase in the consumer price index has, to date, been relatively well contained in spite of the rise in energy costs. Inflation at the wholesale and [...]

Rising Producer and Wholesale Price Indexes: A Prelude to Rising Consumer Price Indexes?

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

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Andrew Cates

**Positive Growth Surprises, Negative Inflation Surprises—For Now**
The global macro backdrop heading into the latest Middle East shock was, by recent standards, relatively constructive. As the chart shows, growth data had been consistently surprising to the upside, while inflation surprises have been in negative territory—an unusually benign combination suggesting resilient activity alongside easing price pressures. What is striking, however, is that—at least through March and into early April—this pattern has not yet been meaningfully dislodged. For now, the data flow still reflects a world that was stabilising rather than deteriorating. That said, this is almost certainly a lagging signal. Supply-side shocks of this nature—particularly those centred on energy—tend to work with a delay but can be highly disruptive once they feed through. The risk, therefore, is that the current “goldilocks” surprise dynamic proves short-lived as higher energy costs, supply chain frictions and rising uncertainty begin to reshape the incoming data in the weeks ahead.

260409Z1.jpg

**Monetary Policy Expectations Shift as Easing Bets Are Repriced**
How policymakers respond to the evolving situation in the Middle East will be critical in shaping both market dynamics and the broader global outlook. This chart, based on the latest April Blue Chip Financial Forecasts survey, suggests that expectations are already beginning to shift. Forecasters are now less inclined to anticipate policy easing in the period ahead—particularly in the euro area, where expectations for rate cuts have been scaled back. Similarly, some of the easing previously priced for the Federal Reserve and the Bank of England has been pared back over the next 12 months. While this is not yet a full pivot toward tightening, it does point to a more cautious policy backdrop, reflecting the risk that renewed energy-driven inflation pressures could constrain central banks’ ability to support growth.

260409Z2.jpg

**Delay, Don’t Tighten: Central Banks’ Likely Playbook**
If the previous chart highlights a shift in policy expectations, this one gives a clearer sense of the reaction function underpinning it. When asked how central banks would respond if energy-driven inflation proves more persistent, most panellists point not to renewed tightening, but to a more cautious delay in easing. In other words, the hurdle for rate cuts has risen, even if the bar for  hikes remains relatively high. This distinction matters. It suggests that policymakers are likely to treat the shock as a supply-driven inflation impulse—one that complicates the outlook but does not automatically warrant aggressive tightening. At the same time, the responses underscore a second important theme: divergence. A sizeable share of forecasters expect policy paths to vary significantly across regions, reflecting differences in energy exposure, inflation dynamics and domestic growth conditions. Taken together, the message is one of constrained flexibility. Central banks may want to support growth, but persistent energy pressures could keep them on hold for longer than previously anticipated—reinforcing the more cautious policy outlook already evident in market pricing.

260409Z3.jpg

**Markets Signal Fiscal Concern, Not Inflation Panic**
If central banks are likely to proceed cautiously, financial markets are already beginning to draw their own conclusions. This chart shows that the recent adjustment in US Treasury markets has been driven primarily by a rise in real yields rather than a meaningful increase in inflation expectations. In other words, markets are not yet pricing a loss of monetary policy credibility or a sharp unanchoring of inflation expectations. Instead, the move points more toward concerns around the broader policy mix—particularly the fiscal backdrop and the potential for increased borrowing needs in an environment of heightened geopolitical risk. This distinction is important. A rise in inflation expectations would suggest fears of central banks falling behind the curve. What we are seeing instead is a repricing of real rates, consistent with tighter financial conditions and a higher risk premium. For now, at least, markets appear to view the shock less as a classic inflation spiral and more as a development that complicates the growth outlook and places greater strain on policy frameworks—especially on the fiscal side.

260409Z4.jpg

**Electricity Prices Reflect Energy Dependence**
The initial response in electricity markets since the Middle East disruption has followed a familiar pattern. Economies with greater domestic energy capacity—such as Scandinavia and, to a lesser extent, the US—have seen relatively contained electricity prices. By contrast, those more reliant on imported energy—most notably the UK and parts of Europe—continue to face significantly higher costs

260409Z5.jpg

**Generation Capacity Determines Energy Resilience**
These price dynamics are closely linked to underlying differences in electricity generation capacity. As the sixth chart shows, countries with higher per capita electricity production—again including Scandinavia and the US—are structurally better positioned to absorb external shocks. In contrast, economies with more limited domestic generation capacity, such as the UK and Germany, are inherently more exposed to fluctuations in global energy markets. This structural divide is likely to prove increasingly important in the period ahead, influencing not just near-term inflation outcomes but also the relative resilience of growth across economies as energy costs remain volatile.

260409Z6.jpg

Amid further tentative signs of de-escalation—most notably President Trump’s decision on April 7th to step back from further escalation—financial markets have stabilised somewhat, but the macroeconomic implications of the Middle East crisis remain highly uncertain. As our charts show, the global economy entered this shock from a position of relative strength, with positive growth surprises and easing inflation pressures still evident in the data (chart 1). However, that benign backdrop now looks vulnerable. Central banks are already reassessing the outlook, with expectations for policy easing being pared back (chart 2) and a growing consensus that any response to persistent energy-driven inflation will likely involve delaying cuts rather than tightening aggressively—albeit with significant regional divergence (chart 3). Financial markets, for their part, are not yet signalling a loss of inflation control, but the rise in real yields suggests increasing concern around the broader policy mix, particularly fiscal pressures (chart 4). Finally, the adjustment to the shock is unlikely to be uniform. Structural differences in domestic energy capacity are already driving wide divergences in electricity prices, leaving more import-dependent economies exposed to higher costs and sharper trade-offs between growth and inflation (charts 5 and 6). Taken together, the message is clear: even if geopolitical tensions ease, the economic aftershocks are likely to be uneven, persistent and increasingly shaped by structural constraints.

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Charts of the Week: From Oil Shock to Policy Dilemma

Kathleen Stephansen, CBE

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Mortgage applications declined 0.8% w/w (-5.6% y/y) in the week ending April 3. The weekly decline eased relative to the prior three weeks, when mortgage applications dropped by 10.4% w/w (+14.2% y/y) in the week ending March 27, and by 10.5% and 10.9% in the March 20 and 13 weeks, respectively, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house rose 1.1% w/w (-6.7% y/y) in the April 3 week, after declining 2.6% w/w (+0.8% y/y) in the week ending March 27.  Applications for loan refinancing dropped by a smaller 2.8% w/w (-4.3% y/y) in the latest week, following weekly declines of 17.3% (+33.2% y/y) in the March 27 week, 14.6% in the March 20 week, and of 18.5% in the week ending March 13.

The effective interest rate on a 30-year fixed-rate loan declined 8bps to 6.68% in the week ending April 3 from 6.76% in the week ending March 27 and after having risen by 52bps since the February 27 week. The rate on 15-year fixed-rate mortgages rose 1bp to 6.09% in the latest week from 6.08% in the prior week. The 30-year Jumbo rate declined 6bps to 6.65% in the week ending April 3 from 6.71% in the March 27 week. The rate on a 5-year ARM eased 3bps to 5.85% in the latest week from 5.88% in the week ending March 27.

The share of applications for refinancing an existing loan declined to 44.3% of total applications in the week of April 3, from 45.3% in the March 27 week. The adjustable-rate mortgage (ARM) share of activity rose to 8.6% in the week ending April 3 from 8.0% in the week ending March 27.

The average size of a mortgage loan edged up 0.2% w/w (-9.1% y/y) to $390,100 in the week ending April 3, after declining 1.3% w/w (-1.9% y/y) to $389,200 in the week ending March 27. The average size of a purchase loan edged down 0.3% w/w (-0.9% y/y) to $448,100 in the latest week, following a decline of 0.8% w/w (+0.4% y/y) to $449,400 in the March 27 week. The average size of a loan to refinance a mortgage edged up 0.1% w/w (-20.7% y/y) to $317,000 in the week ending April 3 after declining 5.5% w/w (+0.3% y/y) to $316,600 in the March 27 week. From the week ending February 27 to the week ending March 27, the average size of a loan to refinance a mortgage had declined 21.8%.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Signs of stabilization in mortgage applications emerged in the latest week.
- Applications for loans to purchase posted a small increase, while applications for loan refinancing posted a small decline in the latest week.
- Interest rate on 30-year fixed-rate loans eased 8bps to 6.68%. 
- Average loan size edged up.

U.S. Mortgage Applications Edged Down in the April 3 Week

Robert Brusca

260408E.jpg

**Chaotic trends**
Producer price trends for the European Monetary Union in February show great deal of weakness. The headline measure in February for total PPI prices (excluding construction) fell 0.5% after rising 0.5% in January. The three-month annualized change was -1.3%, over six months it was -0.7%, and year-over-year it was -3.1%. The trend is not particularly conclusive although the table also produces the trend for the HICP-core on the same timeline where there is acceleration in train. Despite this report and any trends, it may show that the risk to inflation in the PPI is now through elevated Brent crude prices, which we see in the chart has been historically well correlated with changes in the PPI.

**The past may not be prologue**
The chart offers some insight into this matter as we see that recently the spike in Brent crude is substantial—and the chart doesn't even take us up-to-date to what we're dealing with in the markets today! We can see that in 2021 when all prices went up sharply, that preceded a spike in the PPI as well. However, in 2017 when there was a short-lived spike, there wasn't much impact on producer prices at all. Then, later in 2018, when prices spiked not quite so high or suddenly, but had a bit more sustained growth, there also was a very small knock-on impact on producer prices. One of the key features for whether the Brent rise gets into producer prices or not is how long-lived the spike remains in force and how people perceive it. In this case, there's closing of the Strait of Hormuz and a war in place; there's a good chance that investors are going to treat this as a real event and one with potential longevity. That means that this spike will elevate producer prices.

**Overall PPI is tempered but, by country...not so much**
However, the table is based on data through February, and so oil spiking prices really haven't entered the picture as far as the table is concerned. On that basis, we're seeing a lot of price declines: an annualized three-month decline of 7.9% in Spain, 7.3% in Portugal, 3.6% in Germany, and so on. These figures clearly do not reflect what will be the lasting effect on oil prices as we get deeper into 2026. Even despite this weakness in headline inflation across countries in the monetary union, and in Europe generally, inflation is tempered year-over-year where it only rises compared to a year earlier for 7.7% of the reporters, but then over six months inflation accelerates for all of the reporters compared to its 12-month pace, and then, over three months it accelerates for about 70% of the reporters compared to the six-month pace.

**PPI headline vs. core... where available**
There are two observations at the bottom of the table for the PPI excluding energy—for France and Germany. In both cases, the difference between the excluding energy price and the headline price is remarkable. For Germany, the ex-energy price is rising and clearly accelerating; in contrast, the headline trends show prices declining or a tendency toward deceleration. For France, the ex-energy prices are rising and sustaining larger increases over six months and three months than over 12 months. However, for France, in the table, the total PPI headline inflation rate declines on all horizons although the pace of decline is undergoing erosion. Once we set aside the weighting scheme for the monetary union, the PPI is looking instead at the average result of the countries in the table (an average that includes some non-monetary union members) where the inflation rate is clearly headed higher, not lower.

260408.jpg

**The trend and the future**
Despite the controversies implicit in these data, at its last meeting the European Central Bank put markets on notice that, if the war were still ongoing, there was a high likelihood that the ECB would raise interest rates at its next meeting. It's easy to see why since the inflation picture isn't particularly glowing. Even before the new oil price impact is factored in, there is evidence of acceleration in producer prices.

**War! And price trends**
War creates a lot of uncertainty. In addition to oil prices, there are going to be knock-on effects for weakness across the global economy and also a tendency for oil prices to spread increases since the oil price increase is high enough that it's likely to have a significant impact on transportation costs for all goods. Central banks are clearly going to be on notice and wary. Even so, it's also true that spiking oil prices, even if they spread inflation, tend to spread economic weakness. Policymaking in 2026 is going to be far more contentious and difficult than it was in 2025, everywhere globally.

Europe

EMU PPI Trends Are Chaotic; It Could Get Worse

Winnie Tapasanun

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New orders for durable goods fell a more-than-expected 1.4% m/m in February, the fourth monthly fall in five months, after decreases of 0.5% in January (0.0% initially) and 0.9% in December (unrevised), according to today’s advance report by the U.S. Census Bureau. The Action Economics Forecast Survey had expected a 1.0% m/m February decline. The year-on-year rate eased to 7.3% in February, the lowest since October, from 9.9% in January, though remaining positive since January 2025. Durable goods orders excluding the transportation sector rose 0.8% (6.0% y/y) in February, the 10th straight m/m rise, after a 0.3% increase in January. Durable goods orders excluding defense fell 1.2% (+7.3% y/y) following a 0.2% January rebound.

The m/m fall in February durable goods orders was led by a 28.6% m/m plunge in orders for nondefense aircraft & parts following decreases of 1.7% in January and 22.7% in December. Orders for defense aircraft & parts fell 3.8% after a 27.2% January slump and an 11.8% December jump. Orders excluding aircraft rose 1.2% (6.6% y/y), the seventh m/m rise in eight months, after a 0.3% January increase.

Durable goods orders for transportation fell 5.4% (+10.1% y/y) in February, the fourth m/m fall in five months, after a 1.9% decline in January. In addition to February m/m drops in nondefense and defense aircraft orders, motor vehicles & parts orders rose 3.1% (7.6% y/y), the third consecutive m/m rise, after a 0.7% January gain. Orders for electrical equipment, appliances & components slipped 0.1% (+5.0% y/y) following a 1.0% January decline, while orders for primary metals advanced 2.2% (10.2% y/y), the third successive m/m increase, after a 1.1% January rise. Machinery orders climbed 1.5% (9.2% y/y), the 10th straight m/m gain, on top of a 0.6% January increase. Orders for fabricated metal products rose 0.5% (5.4% y/y), the seventh m/m rise in eight months, following a flat January reading. Orders for all other durable goods rose 0.5% (1.3% y/y), up for the sixth consecutive month, after a 0.3% January rise. Meanwhile, orders for computers & electronic products were essentially unchanged (+7.5% y/y) after five straight m/m gains.

Capital goods orders fell 6.6% (+11.5% y/y) in February, the fourth m/m fall in five months, after a 3.0% drop in January. Nondefense capital goods orders slid 7.4% (+9.5% y/y), the fifth m/m slide in six months, after a 1.0% January decrease. Core capital goods orders (i.e., nondefense capital goods orders excluding aircraft) rebounded 0.6% (5.1% y/y), the seventh m/m rise in eight months, following a 0.4% January decline. Defense capital goods orders fell 1.1% (+25.1% y/y), down for the fourth time in five months, after a 14.2% January drop. Notably, core capital goods shipments (core capex shipments)—a reliable coincident indicator of business spending on equipment in the national accounts—rose 0.9% (5.7% y/y), the fifth m/m increase in six months, after no change in January.

Shipments of all manufactured goods advanced 1.4% (3.5% y/y) in February, the fourth m/m gain in five months, after a 0.7% increase in January. Durable goods shipments rose 1.3% (6.8% y/y), up for the fifth time in six months, after a 0.9% January gain. Nondurable goods shipments climbed 1.4% (0.1% y/y), the third straight m/m rise, after a 0.5% January increase.

Unfilled orders of durable goods edged up 0.1% (11.1% y/y) in February, the seventh straight m/m gain, after a 0.6% rise in January. Excluding transportation, unfilled orders increased 0.2% (1.9% y/y), also up for the seventh consecutive month, following a 0.3% January rise.

Manufacturing inventories inched up 0.1% (0.8% y/y) in February, the fourth straight m/m increase, after a 0.1% uptick in January. Durable goods inventories edged up 0.1% (1.8% y/y) in February, the fifth consecutive m/m increase, after a 0.2% rise in January, while nondurable goods inventories were virtually unchanged (-0.8% y/y) following two successive m/m declines.

Manufacturers’ orders and shipments of durable and nondurable goods, along with unfilled orders and inventories, are compiled by the U.S. Census Bureau. They are available in Haver’s **USECON** database. The Action Economics forecast data are in the **AS1REPNA** database.

260407X35.jpg

260407Y35.jpg

- Headline orders -1.4% (+7.3% y/y) in Feb., fourth m/m decline in five mths.
- Nondefense aircraft & parts -28.6% m/m following January’s -1.7%.
- Transportation orders -5.4%, down for the fourth time in five mths.; orders ex transportation +0.8%, 10th straight m/m rise.
- Core capital goods shipments +0.9%, fifth m/m gain in six mths.
- Durable goods shipments +1.3%; unfilled orders +0.1%; inventories +0.1%.

U.S. Durable Goods Orders Fall in February, Led by a Plunge in Nondefense Aircraft Orders

260407E.jpg

The S&P composite PMIs in March weakened decisively across the board, with only four of 25 reporters showing an improvement in March compared to February. February had been a strong month, with only 10 of 25 monthly composite indicators weaker on a month-to-month basis. In January, 11 of the composite indicators weakened month-to-month. So, between January and March, the proportion of countries showing composite indicators as weaker month-to-month went up from 40% to 44% and then all the way up to 80%, a huge shift for the worse.

**Sequential trends**
Sequentially, looking at 12-months compared to 12-months ago, six-months compared to 12-months, and three-months compared to six-months, we see a similar progression. Over 12 months, 43.5% of the reporters were weaker; over six months, 39.1% of them were weaker period-to-period. And then over three months, that proportion jumped to 65.2% that were weaker month-to-month.

The war in Iran has been reflected in these numbers. We see it very clearly for the March data, the first full month after the attack. The average and median total PMI readings deteriorated from February to March: the average readings fell from 52.6 in February to 50.7 in March, and the median readings fell from 52.1 to 51.4.

The number of reporters with PMI values below 50, indicating contraction, jumped to 9 in March from 4 in February and 5 in January.

The data show that there has been broad weakening among these reporters. In addition, there has been a sharp rise in the number of them reporting outright economic contraction. The composite indexes are showing not just weakness month-to-month, but actual stepped-up contraction.

The queue percentile standings are also substantially degraded, with only eight of the 25 queue metrics that are reported above their historic medians on data back to January 2022. And the countries that are reporting good performance are often very small countries. Ghana and Zambia show very strong queue percentile standings. Sweden shows a high percentile standing. However, Japan and Hong Kong also show percentile standings in their 90th percentile, and Germany's standing has gotten to its 70th percentile. However, if oil prices climb and shortages in a variety of supply chains begin to be impacted because of the lack of oil, and in some cases, fertilizer and other commodities, we are going to start to see weakness spread.

In some developing countries, there's already a more generalized economic weakness being caused by fuel rationing because prices are so high. If the Strait of Hormuz is not open soon, these conditions are going to get demonstrably worse. Even though the U.S. economy has done relatively well and is unaffected by oil supply shortages—although prices in the U.S. certainly have risen—the U.S. composite PMI index has only a 19.6 percentile standing, not a terribly good place to say that the economy is largely unaffected by these events. The U.S. composite PMI has fallen for two months in a row.

Not surprisingly, three countries have reported the lowest composite PMI readings since 2022 when these rankings began. They are Saudi Arabia, Qatar, and the United Arab Emirates, all of whom are in the middle of this Middle East conflict.

The European Monetary Union posted a queue standing above its 50th percentile, at 54.9. And its diffusion reading on the month at 50.5 is similar to the U.S. at 50.3, indicating that economic activity is still expanding in the community—but barely. Both France and Italy logged composite PMI readings below 50; France has generated three sub-50 diffusion readings in a row, and in addition, three more of them sequentially over three months, six months, and 12 months. The queue standings may overstate the case for resiliency in some instances. There was plenty of weakness to go around across economies in March.

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Rising Producer and Wholesale Price Indexes: A Prelude to Rising Consumer Price Indexes?