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Week in Review: 15-20 October 2023

Global News

In the beginning of the week, the Pentagon ordered a second US Navy carrier strike group to the eastern Mediterranean. USS Dwight D. Eisenhower and several other vessels will join a group of ships already in the area. The US said its force posture was meant to support Israel and prevent the war with Hamas from spreading.

In an exclusive interview to Sky News, Janet Yellen urged Republicans to appoint a new House of Representatives speaker to enable greater financial support to be agreed for both Israel and Ukraine. “America can certainly afford to stand with Israel and to support Israel's military needs and we also can and must support Ukraine in its struggle against Russia,” Yellen said.

Later in the week, the USS Carney, a U.S. Navy guided-missile destroyer in the northern Red Sea, on Thursday shot down multiple missiles and drones launched by Iranian-backed Houthis in Yemen that the Pentagon said were potentially headed toward targets in Israel. It is the first time in recent memory that a U.S. Navy ship in the Middle East has engaged missiles and drones that were not directly aimed at the vessel.

 

Putin visited his Chinese counterpart Xi Jinping on Wednesday. Ties between Russia and China have deepened in recent years, and Putin and Xi have developed a strong personal friendship. Putin’s trip to China marked 10 years of the Belt and Road Initiative. It is the first time this year that the Russian leader has traveled to a country beyond those that were once part of the former Soviet Union.


Economics

In the economic front, consumer price inflation in Europe remains elevated and disinflation is slowing down. Italy’s CPI for September 2023 was released this morning and came at 5.3%. Inflation in Italy had a peak close to 12% in October and November 2022.

The inflation rate in the United Kingdom remained stable at 6.7% in September 2023, and the core inflation rate dropped to 6.1%. Both figures remain significantly above the Bank of England's 2% target, further emphasizing the mounting inflationary pressures in the country.

The inflation rate in the Euro Area was confirmed at 4.3% year-on-year in September 2023, and the core inflation rate was confirmed at 4.5%. Consumer prices decreased in Germany and the Netherlands, but were unchanged in France (at 5.7%), and accelerated in Italy and Spain, to 5.6% and 3.3%, respectively.

Data collected in accordance with the Worker Adjustment and Retraining Notification Act -- better known as the WARN Act -- has shown an increase in companies giving advance notice to employees about pending plant closures and layoffs, said Torsten Slok, chief economist at Apollo Global Management, in emailed commentary. Slok used a simple statistical model to project that rising layoffs will soon manifest in weekly jobless claims data, which tracks the number of Americans applying for unemployment benefits on a weekly basis. "Running a regression using WARN notices to predict unemployment shows that initial jobless claims in October will rise over the coming weeks to a level between 250K and 300K," Slok said.

Retail sales in the US advanced 0.7% Month-over-Month in September 2023, following an upwardly revised 0.8% rise in August and beating forecasts of a 0.3% advance. According to these numbers, the consumers keep on spending.

On the other hand, Industrial Production in the United States increased 0.30% over the previous month. However, industrial production has been on a steady decline since the post-COVID recovery. Industrial production measures the output of businesses integrated in the industrial sector of the economy. Manufacturing is the most important sector and accounts for 78 % of total production.

Existing-home sales in the United States fell by 2% from the previous month, the fourth consecutive monthly decline. This is the lowest level since October 2010. Still, the result was slightly ahead of market expectations of 3.89 million units. The decline was consistent with other data showing a slowing housing market as soaring mortgage rates pressured demand for large purchases.

 

Sources:

https://www.businessinsider.com/another-us-navy-carrier-strike-group-heading-waters-near-israel-2023-10

https://news.sky.com/story/we-can-certainly-afford-two-wars-us-treasury-secretary-says-12985335

https://www.msn.com/en-us/news/world/us-navy-destroyer-shoots-down-missiles-potentially-headed-toward-israel-pentagon/ar-AA1iwoRZ

https://www.morningstar.com/news/marketwatch/20231016183/mass-layoffs-are-on-the-rise-in-the-us-according-to-this-often-overlooked-data-series

https://tradingeconomics.com


Financial Markets

Week-on-week, the main stock market indices are down, with the S&P500 losing 2.4%, the NASDAQ 100 down 2.9%, and the RUSSEL 2000 2.3% in the red. Gold is up by 2.5% and silver gained 2.9%. The barrel of WTI is up 0.7% and is now around 88$/barrel. Bitcoin popped 9% and is now around ~29600$.

The relative strength of the US dollar droped 0.48% and seems stable. US bond yields rised considerably on the long end, now sitting at 4.918% for the 10-year and 5.085% for the 30-year. The US bond yield curve remains inverted and is now peaking at 5.54% in 6 months from now.


Comment Section

Beyond the war that can escalate at any moment, we saw US bond yields rising close to the 5% level for the benchmark 10-year yield. This sell-off shows the need for US dollar liquidity and the lack of confidence in the FED controlling inflation in the long run. Technically, 5 to 5.2% should be a strong resistance for the 10-year yield. The US dollar relative strength is stable. Thus, we anticipate a small stock market bounce up in the near future.

However, let's not forget the signs of stubborn inflation in the US, re-inflation in some European countries, and several signs of economic slowdown and stagnation. Thus, from a fundamental point of view, the economic outlook is bearish.

Have a nice weekend.


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