International equity markets remain mainly in negative territory thanks to the widespread uncertainty, which means risk-off, that was and remains caused by the Deutsche Bank after its U.S. shares slid to a record low and its market cap fell to 14 billion euros ($15.70 billion)

Regarding Deutsche Bank, it’s not all gloom and doom. The Financial Times, citing “two people familiar with the discussions” reports that the U.S. Department of Justice (DOJ) hopes to agree to an omnibus settlement with Barclays, Credit Suisse and Deutsche Bank over the alleged mis-selling of mortgage securities.

Please keep in mind, it’s from the governmental side that a solution for the ongoing problems should come, not from the central banks.

With what we know so far, Deutsche Bank is not comparable with the Lehman Brothers disaster.

Meanwhile in Mexico, the central bank has raised interest rates by 0.50 percent to 4.75 percent following a relatively prolonged period of weakness in the peso. The Mexican peso has shown itself to be vulnerable to the fluctuations of the U.S. opinion polls ahead of the U.S. presidential election. No currency wants to be dependent on the whims of the American electorate. The Mexican central bank was keen to stress that this was absolutely, definitively, positively not the start of a tightening cycle, but merely a pre-emptive move.

Over in the euro area, we got a rise in the annual inflation rate to 0.4 percent, up from 0.2 percent before. This comes after Germany’s preliminary consumer prices, harmonized to compare with other European countries (HICP), were up by 0.5 percent after an increasing 0.3 percent in August. On a non-harmonized basis, German inflation picked up to 0.7 percent.

However, we should not extrapolate from Germany’s experience too much. The correlation of core inflation measures across the euro area is extraordinarily low, even more extraordinarily low for a monetary union, but that’s a different problem.

Local factors create local price pressures that drive local inflation.

The oil price hits the headlines and it raises it automatically, but the details of core inflation give us some sense of the divergent economic pressures among the 19 euro member states.

Nevertheless, taking note of these little inflation moves in the euro area is important for long-term investors.

Why does this matter?

Because September is the start, at least in my opinion, of the long march back toward normal headline inflation as oil base effects slip away.

Indeed, they may even rush away if OPEC ever does manage to do anything about its production. The result therefore is likely to be a higher headline consumer price inflation rate. The pace of that increase will be worth watching.

Not all the base effects will disappear at once as it will take some time to come through, but this is the beginning of the end for the oil-induced low inflation illusion.

Finally, Japan came out with its regular monthly data dump, no doubt following the principle that if you throw a lot of information at the markets it will pay not too much attention to the bad news.

And yes, there was some bad news. Household spending was particular weak at negative 4.6 percent year-on-year, unemployment ticked up a little to 3.1 percent; inflation was negative at negative 0.5 percent year-on-year. The good news was that industrial production was OK rising 1.5 percent on a monthly basis in August and reaching 4.6 percent on a yearly basis.

We are obliged to come back on the fundamental problem of Japan however. Price inflation expectations are too high and wage inflation are too low. Consumers in Japan do not see the reality of declining prices and they expect rising prices. They expect that to eat away their diminishing incomes.

This is not an environment that encourages household spending. Fiddling around with the maturity profile of the Bank of Japan’s bond portfolio is not going to change any of this.  

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.