Weekly Digest: U.S. Inflation Runs Hot, U.K. Gilts Crisis


5 minutes read

Oct 14, 2022

a pile of U.S. dollar notes, three piles of gold coins, a white building with the dollar sign, and a percentage sign with an arrow on the light blue background.

15/10/22: U.S. consumer inflation tops expectations, turmoil returns to the U.K. bond market, luxury shoppers are unbothered by the economy, Musk turns into a “perfume salesman”. And more.

💡Quote of the week

“Policymakers need steady hand as storm clouds gather over global economy. One-third of the world economy will likely contract this year or next amid shrinking real incomes and rising prices.” International Monetary Fund

Investment news

U.S. CPI inflation tops expectations, sends markets tumbling: In September, U.S. consumer price inflation rose 0.4%, above the 0.3% consensus forecast by Dow Jones and despite the Fed’s aggressive rate hikes. (CNBC)

In reaction to the inflation data, the Dow Jones Industrial Average fell 500 points on Thursday, the lowest level since 2020, but rebounded later, rising 800 points by the end of the session. The pan-European Stoxx 600 was down 1.2%.

💡Read our SPOTLIGHT to discover a few practical tips to combat high inflation.

Gold price down. The gold price fell more than 1% on Thursday to a two-week low after data showing hotter-than-expected U.S. inflation numbers in September reinforced market expectations the Fed will continue its policy of aggressive interest rate hikes.

The data “portends that the Fed is going to need to be more aggressive in fighting these inflationary pressures by raising interest rates at a faster pace” and hence, gold is under pressure, David Meger, director of metals trading at High Ridge Futures, said as quoted by Reuters.

Inflation persists. The U.S. producer price index (a measure of prices that U.S. businesses get for the goods and services they produce) increased 0.4% for September, compared with the Dow Jones estimate of a 0.2% gain. (CNBC)

On a 12-month basis, PPI increased by 8.5%, which was a slight deceleration from 8.7% in August.

Runaway inflation has been the biggest issue over the past year in both Europe and the U.S., with living expenses near their highest levels in over 40 years.

A Bank of England headquarters in the City of London photographed as the bank rolls out a rescue program to save the country’s troubled bond market.

Storm clouds are gathering. The International Monetary Fund has told central banks to “stay the course” in their battle against inflation, despite warning that a third of the global economy will be in recession next year. The fund said things will get worse because of rising living costs, the Ukraine war, and the Chinese slowdown. (IMF)

“The war in Ukraine is still raging and further escalation can exacerbate the energy crisis. Our October World Economic Outlook Report presents a risk assessment around baseline projections. With a 25% probability, global growth next year could slow down to below 2%, a historically low level. We've only had that five times since 1970,” Pierre-Olivier Gourinchas, the IMF’s economic counselor, said.

💡Read our SPOTLIGHT to learn how high inflation can impact the gold price.

Turmoil in the U.K. bond market. As it seeks to restore order to the country's chaotic bond market, the Bank of England expanded its emergency bond-buying operation on Tuesday. (CNBC)

The Bank launched its emergency intervention on September 28 after an extreme sell-off in U.K. government bonds, known as gilts, threatened to bring down multiple investment funds, widely held by U.K. pension schemes.

“This is very, very serious.” JPMorgan Chase CEO Jamie Dimon has warned that a “very, very serious” mix of headwinds could push the U.S. and global economy into recession in mid-2023. He cited runaway inflation, rising interest rates, and Russia's war in Ukraine among indicators ringing alarm bells. (CNBC)

“These are very, very serious things which I think are likely to push the U.S. and the world — I mean, Europe is already in recession — and they’re likely to put the U.S. in some kind of recession six to nine months from now,” Dimon said.

The flag of Portugal with a broken golden Bitcoin coin on top, both representing Lisbon’s plans to tax crypto gains.

Portugal’s crypto tax proposal. In a major policy shift for one of Europe's most crypto-friendly nations, Portugal is planning to start taxing gains on digital currency purchases held less than a year. (Bloomberg)

Currently, Portugal doesn't tax crypto gains unless they come from business or professional activities. But that’s about to change.

According to the plan submitted to parliament on Monday, gains on crypto holdings held for less than a year would be taxed at 28%.

📸 Image of the week

Investors' hopes that bonds will protect their portfolios from a recession are dashed by stagflation.


How to survive a recession in three simple steps: 1. Be wealthy. 2. Have lots of money. 3. Don’t be poor. “I should write a book and sell this valuable information, but I’m giving it away to you instead, dear reader. Probably why I can’t get past Step 1.” (Bloomberg Opinion)

While the rest of the world is trying to navigate through the geopolitical turmoil and economic bloodbath, the rich seem to be living in a different world, Bloomberg’s Andrea Felsted writes.

“Look at luxury giant LVMH’s recent results and you’ll wonder how long 'luxonomics' can last.”

The bling behemoth LVMH has reported its third-quarter trading update. And guess what? There was a 19% increase in sales, excluding mergers and acquisitions and currency swings, in three months to September 30, while fashion and leather goods organic revenue went up 22%. Both results surpassed analysts’ expectations.

What else is happening

A car at a petrol station photographed amid continuing petrol strikes in France and energy crisis in Europe.

Petrol strike. After weeks of strikes at some of France's biggest refineries, the French government broke blockades at fuel depots of some of the country's biggest refineries. As wage talks between management and some unions haven't gone far enough, there is a shortage of gas at almost a third of the country's gas stations. (Bloomberg)

Prime Minister Elisabeth Borne said earlier this week that her government had begun putting workers back to work at Exxon Mobil Corp. depots, where two unions have reached salary hike agreements with the company.

Ukraine war escalation. Russian missiles targeted more than 40 Ukrainian cities and towns; A U.N. General Assembly resolution called Moscow’s annexation of Ukrainian regions “illegal,” and Ukraine’s allies committed to more military aid. (Reuters)

President Vladimir Putin said in a televised address his military launched the strikes as revenge for a blast that damaged the bridge connecting Russia and Crimea.

And finally…

Tesla CEO Elon Musk photographed at an official event.

Are you ready for Elon’s musk? Like countless celebrities, the world's richest man has launched his own perfume with the rather disgusting name: “Burnt Hair.” “The finest fragrance on Earth” costs $100 a bottle, and is billed as “the essence of repugnant desire.” (Reuters)

Contrary to what you might have thought, the scent is already a hit. Musk has already sold $1 million worth of the new perfume in just a few hours.


See you next week!


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