Global

World Food Prices Fall Sharply in August. World food prices fell sharply in August, dragged down by ample supplies and external factors including a slump in energy prices and concerns about an economic slowdown in China, the United Nations food agency said on Thursday. The Food and Agriculture Organization's (FAO) food price index, which measures monthly changes for a basket of cereals, oilseeds, dairy, meat and sugar, averaged 155.7 in August, down 8.5 points or 5.2% from July. FAO said this was the sharpest monthly drop since December 2008. (Reuters)

Malaysia

July IPI Rebounds 6.1% despite Manufacturing Weakness. The Industrial Production Index (IPI) expanded 6.1% YoY in July, beating the consensus and house estimate of 5.0% growth. This is a remarkable pick-up in growth from the preceding three months (2Q15), when industrial production grew just 4.3% YoY. A closer look at the component indices of the IPI however reveals that the rebound is less than convincing. Manufacturing output, accounting for about two-thirds of the index, was up just 4.2% YoY, slowing from 4.9% growth in July. A low-base effect and 14.0% YoY growth in mining output were responsible for most of the gains in the IPI. (See Economic Viewpoint: Malaysia Industrial Production)

Asia-Pacific

China Deflation Fears Grow as Producer Prices Sink Most in Six Years. China's manufacturers slashed prices at the fastest rate in six years in August as commodity prices fell and demand cooled, signaling stubborn deflation risks in the economy. The producer price index (PPI) fell 5.9% in August from the same period last year, its 42nd consecutive month of decline and the biggest drop since the global financial crisis in late 2009, data showed on Thursday. The CPI rose 2% from a year earlier to a one-year high, the National Bureau of Statistics said, but the gain was due largely to soaring food prices, not an improvement in economic activity. (Reuters)

Japanese Producer Prices Sink the Most Since 2009. The decline in business-to-business transactions in Japan blew out in August, contracting by the most in just over four-and-a-half years as the falling price of energy continues to weigh on inflation. The producer price index fell 3.6% in August from a year earlier, the fastest pace of decline since a 3.8% drop in the year to December 31 2009. It's the fifth straight month of producer price deflation. The August result was down from a 3.1% drop in July. It undershot economists' expectations for a 3.3% decline. (Financial Times)

Surprise Slide in Japan Machinery Orders. Japanese machinery orders unexpectedly fell for a second straight month in July, ratcheting up pressure on the Bank of Japan to offer fresh stimulus. Core machinery orders, a data series regarded as an indicator of capital spending in the coming six to nine months, fell 3.6% in July, the Cabinet office data showed on Thursday. That followed a 7.9% month-on-month decline in June. A poll showed in July that two in five Japanese firms plan to boost capital spending this business year. (Reuters)

Big Japanese Manufacturers’ Mood Turns Positive in Q3. Big Japanese manufacturers turned positive in July-September, a government survey showed on Friday, suggesting that they were taking China's slowdown and the ensuing market rout in stride. The poll, the first comprehensive business confidence survey for July-September, will be among data to be closely scrutinised by Bank of Japan policymakers at their rate review next week. (Reuters)

New Zealand Cuts Interest Rates for a Third Time. New Zealand’s central bank lowered interest rates for the third time in three months. “At this stage, some further easing in the OCR seems likely,” Reserve Bank Governor Graeme Wheeler said Thursday in Wellington after cutting the official cash rate a quarter percentage point to 2.75%. Wheeler is responding to new RBNZ forecasts that show growth in the 12 months to March will be the weakest in three years, while inflation is projected to hold below his 2% target midpoint for a fifth straight year. (Bloomberg)

Australian Unemployment Falls on Weaker Currency. Australian employers added jobs in August, indicating record-low interest rates, a falling currency and weak wage growth is encouraging hiring. The employment rose by 17,400 from July, beating economists’ forecast of a 5,000 increase. The jobless rate dropped to 6.2%, matching economists’ estimates. The participation rate, a measure of the labor force in proportion to the population, fell to 65% from 65.1%. (Bloomberg)

Americas

U.S. Import Prices Fall 1.8% in August. Prices for imported goods fell in August, posting their largest drop since January, a sign that the strong dollar and ongoing weakness in oil prices are keeping inflation at bay. Import prices fell 1.8% in August, the Labor Department said Thursday. Economists surveyed had expected a 1.7% decline. August’s fall was led by a steep monthly decline in the price of imported fuel, which plunged 13.3. Overall import prices are down 11.4% from a year earlier, the biggest annual decline since September 2009. (WSJ)

U.S. Unemployment Benefit Applications Dropped to 275,000. Fewer Americans applied for unemployment benefits last week, keeping this key indicator of labor market health near historic lows. The Labor Department said Thursday that weekly applications for unemployment benefits dropped 6,000 to a seasonally adjusted 275,000. Benefit applications had risen 11,000 in the previous week to 281,000. But even that temporary uptick left benefit claims, a proxy for layoffs, below

the 300,000 mark. Applications have been below the 300,000 mark for the past six months, a stretch last seen 42 years ago. (AP)

U.S. Wholesale Stockpiles Slipped in July. Expectations for U.S. consumer spending appear to have dimmed in July, as wholesalers cut their inventories slightly and sales fell. Wholesale stockpiles slipped 0.1%, while sales dropped 0.3%, the Commerce Department said Thursday. This follows a solid 0.7% gain in inventories and 0.4% sales increase in June. The combination of falling inventories and sales are generally signs of slower economic growth. (AP)

Brazil Downgraded to Junk Rating by S&P. Standard & Poor's downgraded Brazil's credit rating to junk grade, further hampering President Dilma Rousseff's efforts to regain investors' trust and pull Latin America's largest economy out of recession. The faster-than-anticipated downgrade will increase borrowing costs for the government and Brazilian companies. S&P cut Brazil's rating to BB-plus, the highest junk rating, from BBB-minus. (Reuters)

Europe

French Industry Stumbles as Production Unexpectedly Drops 0.8%. French industry entered the third quarter on a far weaker footing than anticipated, with production unexpectedly falling the most in three months. The 0.8% plunge is in contrast to the 0.2% increase forecast by economists in a survey. In its report on Thursday, the statistics office said output also dropped 0.8% on an annual basis, the most since late 2014. Manufacturing output fell 1% on the month. (Bloomberg)

Currencies

Dollar Drops as Stocks Swoon, Fed Outlook Remains Cloudy. The dollar fell on Thursday as global stock markets outside America turned downward and economic data sent contrary signals on whether the U.S. Federal Reserve would raise U.S. interest rates next week. The dollar index was last off 0.60% and has moved in tandem with global equities during recent months. The dollar was down 0.70% against the euro at $1.1283 and up 0.10% against the yen at 120.60 yen. (Reuters)

Ringgit Falls to 1998 Low as Asian Stocks Drop on Risk Aversion. Malaysia’s ringgit fell to a 17-year low as a renewed selloff in stocks and Brazil’s rating downgrade reignited concern capital will flow out of emerging markets as the U.S. prepares to raise interest rates. Malaysia’s currency fell 0.1 percent to 4.3342 a dollar in Kuala Lumpur, according to prices from local banks. It dropped earlier by as much as 1.2 percent to 4.3798, the lowest level since January 1998 when it reached a record 4.8850. (Bloomberg)

Commodities

Oil Rallies as Gasoline Demand Offsets U.S. Crude Build. Oil prices rallied on Thursday, with U.S. crude settling up 4% as indications of strong demand for gasoline overshadowed a report showing increased U.S. crude inventories. A weaker dollar also made dollar-denominated crude more affordable to holders of the euro. The U.S. crude settled up $1.77, or 4%, at $45.92 a barrel, after briefly topping $46. Brent settled up $1.31, or 2.8%, at $48.89 a barrel. (Reuters)

Gold Rises from Four-Week Low as Equities Decline, Fed in Focus. Gold rose from four-week lows on Thursday as European stocks snapped a three-day run of gains, but traders remained cautious as they awaited fresh clues on the timing of a U.S. rate hike. Spot gold was up 0.5% at $1,110.65 an ounce at 1840 GMT, while U.S. gold futures for December delivery settled up 0.7% at $1,109.30 an ounce. Silver was up 0.4% at $14.67 an ounce, palladium was up 1.7% at $589.25 an ounce, but platinum fell 0.5% to $976 an ounce. (Reuters)