October Capital Inflows Hit Record Highs

A Treasury Department report released last week shows that capital inflows into U.S. assets surged to $106.8 billion following last month’s revised record $101.7 billion figure. These numbers offset the October trade deficit of $68.9 billion, with room to spare. Analysts had expected the October figure to fall to $75.4 billion.

Foreigners increased their investments in U.S. equities and corporate bond holdings by $10.6 billion and $34.1 billion in net purchases, respectively, in October. Net official foreign purchasers picked up $4.9 billion in U.S. Treasuries for the month, while September sales amounted to a net $1.1 billion. Private foreign purchasers bought less in October, their purchases dropping to $97.3 billion from $113.8 billion in September.


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The U.S. dollar increased modestly against the euro with the release of the new data. The euro slipped to $1.1990 from $1.2005, according to Reuters. The U.S. dollar rose against the yen, too. Dollars went to 116.21 yen, from around 116.05.

While U.S. assets are still very favorable to foreign investors, Reuters reports that the nation’s ability to fund its escalating trade deficit is not reflected in this Treasury Department report because direct investment or bank accounts were excluded from the figures.

The Labor Department also reported the November Consumer Price Index (CPI) dropped 0.6 percent. It is the largest drop since July 1949, when it fell 0.9 percent. The rapid fall of energy prices helped drop consumer prices, although energy prices are edging back up.

Analysts are seeing higher home heating costs for both home heating oil and natural gas this winter, according to the Associated Press. MarketWatch reports that the CPI rose 3.5 percent in the past year, slowing from October’s 4.3 percent figure.

“Energy costs are off but still high and everywhere else prices are rising. Inflation is not out of control, but it is not tame either,” Joel Naroff, of Naroff Economic Advisors, told the Associated Press.

MarketWatch reports that energy costs have increased 18.3 percent in the past 12 months. They spiked at 12 percent in September alone but fell 8 percent in November.

The Federal Open Market Committee also raised the federal funds rate to 4.25 percent this week. It was the 13th time in a row they have raised the rate and the highest the rate has been since March 2001, according to CNN Money.

“It’s going to take more than a one-month decrease in consumer prices to knock the Fed off its rate-rise bandwagon,” Mark Mayland, chief economist at Clearview Economics, told MarketWatch.

Analysts see indications that such rate hikes may end soon, but inflationary pressures may accelerate, according to CNN Money. Richard Yamarone, chief economist at Argus Research, told the Associated Press that the announced price increases by food and consumer product-based companies may add to these pressures.

"The stock market may be overreacting to the Fed's statement," Michael Strauss, chief economist for Commonfund, told CNN Money. "The Fed may go a little further. Rates are approaching neutrality, but the Fed recognized the vibrancy of the economy. It doesn't look like the Fed is done."

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