Weekly Digest: Israel-Hamas Conflict, US Inflation Worries

Investment news

😟 Persisting inflation concerns. The latest data on US consumer prices revealed a faster-than-expected increase in September, with the Consumer Price Index (CPI) rising by 0.4% on the month and 3.7% from a year ago. The core CPI, which excludes volatile food and energy prices, also saw a 0.3% monthly increase and a 4.1% annual surge. (CNBC)

Continuing the trend, shelter costs were a leading contributor to the inflationary surge. The index for shelter, which carries significant weight in the CPI, rose by 0.6% for the month and 7.2% from a year ago, accounting for over half of the CPI's rise.

Energy costs increased by 1.5%, including a 2.1% rise in gasoline prices and an 8.5% increase in fuel oil. Food prices were up by 0.2% for the third consecutive month. On an annual basis, food costs climbed by 3.7%, with a 6% increase in food away from home, while energy costs dipped by 0.5%.

⭐ Best week since March. Gold is on the cusp of its most robust week in seven months, with prices firming up as geopolitical tensions in the Middle East surge. This upswing is further bolstered by expectations that U.S. interest rates may have reached their peak, as financial markets assess the latest inflation data.

Spot gold has risen by 0.5% to reach $1,878.70 per ounce on Friday, while U.S. gold futures have added 0.5% to $1,892.80, marking the precious metal's best performance in seven months. A reversal in U.S. Treasury yields and the dollar's course in Asian trading on Friday is contributing to gold's surge.

📈 Market jitters intensify. Global markets are on edge as the Israel-Hamas conflict escalates, with treasuries rallying and crude oil prices surging. These moves are compounded by concerns about the possibility of rising US interest rates and their impact on risk appetite. Investors eagerly await earnings reports from major US banks like JPMorgan Chase & Co. and Citigroup Inc., while geopolitical risks loom large. (Bloomberg)

The 10-year Treasury yield experienced a five-basis-point drop, mitigating the impact of Thursday's sharp increase following higher-than-expected US consumer price data. European bonds followed suit, with the German 10-year yield falling four basis points.

Brent crude prices climbed more than 2%, marking the largest weekly gain in six weeks.

🪖 The cost of war. The recent outbreak of hostilities between Israel and Hamas has not only resulted in a devastating human toll but also cast a looming shadow of potential economic repercussions, which could plunge the world into a recession if the conflict further escalates and draws in more nations. (Bloomberg)

A graver escalation could see Israel confronting Iran, a key supporter of Hamas. Bloomberg Economics warns that oil prices could spike to $150 a barrel and global growth could plummet to 1.7% in such a scenario, stripping approximately $1 trillion off the world's economic output.

🇨🇳 On the brink of deflation. China faces economic uncertainty as recent data reveals a precarious balance. Despite the nation's efforts to stimulate growth, consumer prices have slowed, nearing deflation, while export declines remain a concern. As President Xi Jinping aims for a 5% growth target, next week's data will provide a clearer picture of China's path forward, with the central bank poised to make a key policy rate decision. (Bloomberg)

The central bank will soon decide on a key policy rate, with most economists predicting it will remain unchanged. The Chinese authorities are likely to adopt a cautious approach before determining the need for further stimulus.

🏘️ Tough times ahead. Commercial real estate faces challenging days ahead as central banks raise interest rates more than expected to combat inflation, warns Deutsche Bank CEO Christian Sewing. While the bank's own exposure is manageable, elevated borrowing costs and the continuing trend of remote work post-pandemic will put pressure on the asset class. (Bloomberg)

Christian Sewing believes that central banks are likely to maintain elevated interest rates due to "stubbornly high" inflation. He doesn't rule out the possibility of further rate increases, impacting the economic landscape in the upcoming years.

📸 Image of the week

Opinion

⚠️ Stay clear of US investments. Jeremy Grantham, the renowned co-founder of GMO LLC, has been sounding the alarm about inflated global asset markets for some time. Now, he's back with a vengeance, asserting that a market reckoning is in full swing, and it's best to steer clear of US investments, particularly the Russell 2000 index. (Bloomberg)

The gloomy outlook extends beyond the Russell 2000, as Grantham warns that practically all investment avenues carry risk. He suggests that given current yields, there's a mathematical basis for considering a potential 50% drop in the entire US market.

🤔 It’s finally over. “Market pricing, verbal cues from Federal Reserve members and the likely evolution of the economic data over the next couple of months all point in the same direction — the central bank is likely done raising interest rates.” (Bloomberg Opinion)

“Forecasting the end of the Fed’s tightening cycle requires jumping the gun a bit. To the extent that officials ever declare rate increases are behind us, the message will only come once we have gotten through several no-change meetings. By then, we will perhaps be in an environment where economic weakness seems more likely than strong growth. But there are reasons to predict the policy turn with a fair degree of confidence now,” Bloomberg’s Conor Sen writes.

What else is happening

🇮🇱 🇵🇸 Decades of conflict. On Friday, Israel's military issued a call for over 1 million Gaza City residents to move to the southern region within the next 24 hours. This directive came as they deployed tanks in preparation for a forthcoming ground invasion. "Now is a time for war," Defence Minister Yoav Gallant said. (Reuters)

In the midst of a surprise attack by Hamas last week, the Israel-Palestine conflict once again takes center stage, underscoring the seven decades of strife between the two nations. This enduring struggle, which has seen the involvement of outside powers and the destabilization of the broader Middle East, revolves around the clash of Israeli security needs in a perceived hostile neighborhood and Palestinian dreams of statehood.

💪 Brace yourself. A congressionally appointed bipartisan panel has advised the United States to be prepared for the possibility of simultaneous conflicts with both Russia and China. To meet this challenge, the report from the Strategic Posture Commission recommends bolstering conventional forces, fortifying alliances, and enhancing the country's nuclear weapons modernization program. (Reuters)

The report's release comes amid escalating tensions between the U.S. and China, particularly concerning Taiwan, and worsening relations with Russia due to its actions in Ukraine. While there is no concrete evidence of Chinese and Russian nuclear weapons cooperation, the report expresses concern about potential coordination between the two nations, which could necessitate a two-front conflict approach.

And finally…

🧠 Revolutionary brain atlas unveiled. In a groundbreaking scientific endeavor, researchers have unveiled an astounding catalog of more than 3,300 cell types that make up the human brain, offering fresh insights into the mysteries of our most intricate organ. This remarkable brain atlas promises to unlock the secrets behind neurological diseases and potentially pave the way for novel therapeutics. (Reuters)

The atlas promises to accelerate our understanding of the cellular mechanisms behind brain-related diseases like Alzheimer's, Parkinson's, and amyotrophic lateral sclerosis (ALS). It may also open new avenues for targeted therapeutics.

The researchers have mapped the gene switches and brain cell types associated with Alzheimer's disease, as well as various neuropsychiatric disorders, including schizophrenia, bipolar disorder, and major depression.

See you next week!

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