Euro Zone Inflation Continues its Rebound

According to the latest figures reported by Eurostat, headline consumer prices edged higher to a 0.40% pace of increase on an annualized basis.  Besides accelerating to the fastest pace of price gains since October of 2014, an improving trend could foreshadow potential tapering of asset purchases when the existing program is set to expire 2017.  Although most economists and analysts are calling for an extension of the program, the problem lies in the supply of available assets for the current program.  Due to the ECB’s rules that it cannot purchase assets yielding less than the deposit rate of -0.40%, many potential assets are excluded.  Unless the terms of the program are adjusted, the ECB may run out of available assets to buy.  If that happens, the Euro may rally significantly as the Central Bank adds less liquidity to financial markets.

Although industrial production looked better on the headline basis after the Federal Reserve reported industrial production rising by 0.10% on a monthly basis during September, the annualized figures show an ongoing struggle for the sector.  Concerns about the pace of the US economic recovery remain abundant, especially in light of the most recent data which showed a 13^th straight monthly industrial contraction.  Most of the gains in the monthly figure were driven by an uptick in nondurables production, namely thanks to the increasing prices of gas and oil.  Nevertheless, the ongoing streak of declines on an annualized basis represent the longest period of non-recessionary declines in the sector ever recording, indicating a heightened potential for US growth metrics to slip in the coming quarters.  The dollar is taking a breather on the session, contributing to gold prices retaking the $1260.00 level to the upside.