Weekly Digest: Eurozone & German inflation, U.K. down, market volatility

Investment news

🇪🇺 Breaking records. Eurozone inflation hit a new record high of 10% in September, according to Eurostat data published on Friday. A dramatic and symbolic number, up from 9.1% in August and above consensus projections of 9.7%. (CNBC)

The reading also showed price increases broadening out from volatile food and energy prices into nearly all segments of the 19-member bloc’s economy.

Here is the tweet from Eurostat announcing the results:

“The Euro area faces a particularly difficult dilemma. Not only is containing inflation largely out of the ECB’s reach due to its supply side foundations, but raising policy rates will only deepen the acute economic weakness which is beginning to engulf the region,” says Seema Shah, chief global strategist at Principal Global Investors

The OECD warned earlier this week that many European countries, including Germany, may be pushed into "a full-year recession in 2023", if energy disruptions continue this winter.

And talking about Germany…

📈 Double-digit. For the first time since the creation of the Euro zone, Germany has hit double-digit inflation. (Bloomberg)

Consumer prices in Germany rose much more than expected after temporary government-relief measures ended and Europe’s energy crisis worsened.

In September, consumer prices jumped 10.9% from a year ago in Germany, more than what economists anticipated. This new surge in inflation can be attributed to the end of temporary government-relief measures and a worsening of Europe’s energy crisis.

These new numbers raise the risk of the Euro zone overshooting its 9.7% median estimate from a Bloomberg survey of economists.

🌪️ Markets turbulence. Another week of high volatility for the markets, with the S&P500 hitting a bear market low on Monday, before rebounding on Wednesday, and quickly reversing its gains by hitting a new 2022 low on Thursday. (CNBC)

The last few months have been very volatile and overall clearly negative for most stock indexes:

• The S&P 500 is now 24.3% below its record set in January
• The Dow Jones is 21.2% below its all-time high
• The Nasdaq has fallen more than 33% since hitting a record in November.

European markets followed this negative trend on Wednesday and Thursday, as news of surging German inflation made the inevitability of a more aggressive Eurozone monetary policy, well, even more inevitable.

🇬🇧 God save the (UK economy). Tough week for the British economy as the British Pound (GBP) plunged to a record low on Monday, a selloff in UK assets, and a collapse in UK house sales. (Bloomberg)

After panic erupted last week, market mayhem continued this Monday, with sharp selloff in UK assets sending the British Pound to an all-time low.

The UK real-estate market also collapsed after lenders pulled mortgage offers in response to soaring interest rates, with Credit Suisse analysts saying that house prices “could easily fall 10% to 15%.”

The Bank of England quickly announced it will delay its bond sales and start buying long-dated bonds in order to calm the market chaos following the new government’s budget announcements.

The government’s much talked about tax-cutting budget announced last week will likely fuel inflation and increase borrowing as interest rates keep rising. With the country already grappling with Brexit, a major cost-of-living crisis, and now a recession, this is a major stress-test for the Lizz Truss' days-old administration.

🫕 Fancy food. Food inflation in France reaches close to a historic 10% in supermarkets. (Le Monde)

After reaching the 5% threshold in june, food inflation has doubled in only a few months to almost reach the symbolic 10% level.

“Inflation is now the number 1 concern for French people, far ahead of climate change, war in Ukraine, or even Covid”, says Xavier Ségalié, managing director at NielsenIQ France.

🏚️ Full house. In July, home prices in the U.S. cooled at the fastest rate in the history of its index, as rising interest rates are putting pressure on buyers. (CNBC)

The recent drop in home prices, which is three times the average decline historically, arrives as housing becomes dramatically less affordable due to fast-rising mortgage rates.

Indeed, the average rate on the 30-year fixed mortgage is now edging toward 7%, making the average monthly payment about 70% higher than it was a year ago.

🏎️ Pedal to the metal. Porsche shares rose as the carmaker entered the stock market, in a landmark debut to fund its expansion into electric vehicles. (CNBC)

Porsche’s stock market debut marks the biggest public offering in Europe ever, valuing the company at roughly 75 billion euros.

Volkswagen, Porsche’s parent company, offered 911 million shares in a wink to Porsche’s famous 911 model. Sole owner until now, Volkswagen has reduced its stake in the sports car firm by 12.5%.

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📷 Image of the week

Opinion

🏆 Best store of value. “compared to other assets, from stocks to bonds to digital currencies, the yellow metal has been remarkably resilient,” says Frank Holmes, CEO and Chief Investment Officer at U.S. Global Investors, Inc. (U.S. Global investors)

“When we price it in other world currencies, gold has done even better since many currencies have declined significantly in value relative to the greenback. […]

Of the various gold prices shown below, only two—those priced in the dollar and Brazilian real—were negative for the year as of September 27. The others, including gold priced in the Canadian dollar, were positive. […]

If it all comes crashing down, I would want to have some gold in my portfolio, which has historically been an attractive store of value when markets cratered.”

Take a look at our gold price graph to see how gold has performed this year.

What else is happening

📝 Annexed. On Friday, Russian president, Vladimir Putin, held a signing ceremony for the annexation of four Ukrainian territories. (Guardian)

This annexation comes after Russia organized so-called referendums in the occupied regions of Ukraine.

The total area set to become part of Russia includes an estimated 4 million inhabitants and represents about 15% of the Ukrainian territory. The referendums in the occupied regions of Ukraine have been denounced by the west as illegal and illegitimate.

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🇮🇹 Far-right win. A far-right coalition won the Italian elections this week, likely making Giorgia Meloni, leader of the formerly-fascist party Brothers of Italy, the first female prime minister of the country. (Time)

The far-right coalition, led by Giorgia Meloni, saw Meloni’s Brothers of Italy party winning 26% of the vote, Matteo Salvini’s anti-immigrant League winning nearly 9%, and Silvio Berlusconi’s Forza Italia taking around 8%.

The elections, which took place some six months early after Draghi’s government collapsed, had a historically low turnout, with only 64% of the population showing up to vote.

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🛢️ No(rd) stream. Four new-highly suspect leaks in the Nord Stream pipeline linking Russia to Europe dashes hopes of seeing taps turned back on this winter sending gas prices higher. (Bloomberg)

Swedish seismologists detected two explosions on Monday when leaks appeared almost simultaneously in the Baltic Sea. Two more leaks were later detected by Danish authorities.

"There are two leaks on the Swedish side and two leaks on the Danish side," according to an official from the Swedish authority.

“It’s hard to imagine that these are coincidences,” said Mette Frederiksen, Denmark’s prime minister.

If these leaks were to be declared an act of sabotage, this would be a major escalation in the standoff between Russia and Europe.

With Nord Stream delivering nearly 40% of Russia’s gas to Europe last year, futures gas prices jumped 22% shortly after news of the leaks broke out.

And finally…

🦬 Wild Europe. On a more uplifting note, wildlife seems to be recovering in Europe due to successful decades-long conservation campaigns, according to a report by Rewilding Europe. (Bloomberg)

Bison, elk, beavers, and many bird species have become more abundant, according to the report, in fact, most of the 50 species tracked by the non-profit are increasing in numbers and spreading to new areas across the continent.

These new findings give much-needed hope as they contrast with the ongoing global biodiversity crisis.

“Wildlife and nature can bounce back if we make the right decisions if we allow that to happen,” said Rewilding Europe executive director Frans Schepers. “This comeback should be seen in the perspective of the much higher numbers we had in the past — it’s the start of the recovery.”

See you next week!

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