2023-10-17 06:51:19
American inflation appears to be persistent. Tensions in the Middle East are causing a flight to quality and liquidity. China is showing signs of recovery.
Surprisingly strong inflation last week showed that price pressures persist in the United States, which should prompt Federal Reserve leaders to maintain an aggressive stance or even raise rates again this year. Core inflation, the Fed’s preferred gauge, rose 0.6% month-on-month in September. The labor market is also resisting, with only 209,000 unemployment claims for the week ending October 7, the same level as the previous week. This reflects good job security for American workers. September retail sales, published this Tuesday, will shed additional light on the consumer situation. Despite persistent inflation, rates fell in the United States last week (-3 bp for the 10-year maturity) due to a flight to safety resulting from the conflict in Gaza. At the same time, Fed officials have argued that the market is working in the central bank’s favor, leading to a de facto tightening of financial conditions. The Fed should therefore leave its rates unchanged in November.
The surge in oil and gold prices reminds investors that geopolitical tensions can have a real impact on markets. The strength of American economic indicators and the conflict between Israel and Hamas are causing a flight to safe assets and liquidity. This movement favors the dollar and gold, with the yellow metal posting a weekly increase of 5.4%. Gold offers protection against rising geopolitical tensions. As for oil, we are maintaining our end-of-year target of $95 per barrel for Brent. Focused on the comments of Fed officials, the stock markets have so far maintained a certain serenity in the face of the outbreak of the conflict between Israel and Hamas. This week, the markets will be attentive to the results publications. In the United States, third-quarter profits are expected to be stable. Major US banks reported better-than-expected results last week, although their executives reported a rise in bad debts in an uncertain environment. In addition, they reported $700 billion in unrealized losses in held-to-maturity bond portfolios.
In China, the Golden Week holiday showed signs of improvement, with the number of Chinese tourists and their average spending reaching 104% and 98% respectively compared to 2019 levels. In order to support the economy, Authorities plan to issue at least 1 trillion yuan ($137 billion) of additional sovereign debt for infrastructure spending, a level similar to 2020. China’s sovereign wealth fund has bought shares of major banks nationals for the first time since 2015, raising hopes of intervention from Beijing to support the market. On the political level, there have been signs of easing of Sino-American tensions. But the good news was overshadowed by an announcement from a major Chinese developer suggesting it would not be able to make all its repayments overseas – a sign confirming that the property sector’s problems are far from over. be resolved.
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