All the day’s economic and financial news,
as new Chinese trade figures beat expectations
A worker processes panda soft toys for export to American and European markets at a factory in Lianyungang, Jiangsu province,
China, this week.
...The cryptocurrency community is aware of the sheer energy consumption issue. Therefore, it is looking for alternative solutions to the Mad Max problem.
One alternative may be Proof of Stake. Miners are not asked to show they put in work (computing power) in validating but to commit valuable resources beforehand, indicating they have a stake in the proper outcome. For example, miners may have to put an amount of cryptocurrency in escrow which is only released if no fraud is detected, otherwise forfeited.
That sounds like a smart idea. However, it implies that only those wealthy enough to be able to put resources in escrow can join the mining process. This creates a plutocracy, which sits uncomfortably with cryptocurrency’s anarchistic and libertarian roots.
My conclusion is that finding a sustainable and fair solution to the Mad Max Problem is one of the biggest challenges for the cryptocurrency community today.
The US inflation figure was the main focus in the day’s data, says Connor Campbell, financial analyst at Spreadex,
and it came in below expectations:
The survey’s chief economist Richard Curtin said:
The October gain was broadly shared, occurring among all age and income subgroups and across all partisan viewpoints. The data indicate a robust outlook for consumer spending that extends the current expansion to at least mid 2018, which would mark the 2nd longest expansion since the mid 1800’s.
While the early October surge indicates greater optimism about the future course of the economy, it also reflects an unmistakable sense among consumers that economic prospects are now about as good as could be expected. This “as good as it gets” outlook is supported by a moderation in the expected pace of growth in both personal finances and the overall economy, accompanied by a growing sense that, even with this moderation, it would still mean the continuation of good economic times.
...Nothing in the latest survey indicates that consumers anticipate an economic downturn anytime soon - which contrarians may consider a clear warning sign of trouble ahead. Nonetheless, consumers anticipate low unemployment, low inflation, small increases in interest rates, and most importantly, modest income gains in the year ahead. It is this acceptance of lackluster growth rates in personal income and in the overall economy that signifies that consumers have accepted, however reluctantly, limits on the pace of improving prospects for living standards.
The dollar has weakened following the US data, in particular the inflation figures. But - barring political ructions - the Federal Reserve is still on track for a rate rise in February, says James Knightley,
chief international economist at ING Bank:
Inflation pressures are grinding higher and domestic activity is strong, suggesting that the main barrier to a higher Fed funds rate is political rather than economic.
The US CPI report shows inflation pressures are rising, but this is primarily an energy story reflecting higher oil prices and refinery shutdowns relating to Hurricane Harvey. At the headline level it rose 0.5% month on month/2.2% year on year (a tenth of a percentage point below what was expected). Energy prices rose 6.1% month on month, but excluding food and energy inflationary pressures were more muted, rising just 0.1% month on month/1.7% year on year (again a tenth of a percentage point below expectations).
In terms of core inflationary pressures, we are starting to see a bit more upward movement in the housing component, but medical care, apparel and education prices are very soft. Nonetheless, with the economy growing quite strongly, the jobs market looking tight with wage growth starting to show some signs of life we would expect inflation rates to creep higher....
September retail sales [data] has also been released and is strong, rising 1.6%MoM with small upward revisions to August’s data. Hurricane effects are clearly visible – higher gasoline prices boosted gasoline station sales 5.8%MoM while the fact unit car sales rose to a 12 year high helped boost the value of sales with a 3.6%MoM rise. Strength can also be seen in other components and it is likely that there was some uplift as households start to replace lost items following the recent hurricanes. This has come on top of what is already a strong story for the consumer with employment, wages and confidence all looking healthy.
We expect the positive story to continue into next week with industrial production rebounding following storm disruption. After all, the ISM manufacturing index is at a 13 year high, the dollar is making exports more competitive and we are seeing stronger global growth.
With overall economic growth looking good, inflation pressures gradually increasing and the Fed’s worries about asset valuations and financial stability becoming more prominent in speeches, a December rate hike is looking likely. The main risk remains the potential for an economically/market destabilising government shutdown.
Meanwhile US retail sales have bounced back in September, albeit just shy of expectations:
Newsflash: inflation across America rose last month, but by less than expected.The moment bitcoin hit a new all-time high over $5,800 today Photograph: Bloomberg But critics argue that the recent rally is a bubble, that could burst if there is a rush to the exits. Lee Wild, head of equity strategy at Interactive Investors, says anyone considering investing in
digital currencies needs to be cautious:
“The value of bitcoin has almost doubled in less than a month which is clearly attracting further interest from speculators. There’s evidence of growing institutional activity, too, and if China reopens cryptocurrency exchanges after the Communist Party Congress which starts next week, some believe the price could reach $10,000 by the end of the year.
“However, there could be near-term turbulence around changes to the code the bitcoin network runs on, due to be implemented in mid-November. “It is crucial that retail investors understand the many risks involved in cryptocurrency trading, not least the volatility - bitcoin has lost more than a third of its value on two occasions since June. It is clearly not for the faint-hearted.”
The pace of bitcoin’s rally in recent weeks is quite remarkable.As this chart from Bloomberg shows, it’s quadrupled in value this year, despite faltering last month when China announced a crackdown on bitcoin exchanges.Our economics editor, Larry Elliott, has been holding the World Bank to account at their
Annual Meeting with the IMF in Washington:
Chuck Reynolds
Marketing Dept
Contributor
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