The Weekly Look at the Global Economy and Markets

The Context We are coming off a curious week in which more of the same was accompanied by developments that, not so long ago, were considered unlikely, if not unthinkable. Thanks for reading! Subscribe for free to receive new posts and support my work. We continued to see new record highs for US equity indices, driven almost exclusively by narrow momentum in the technology sector. Conversely, we also saw new multidecade-high government bond yields in a growing number of advanced economies. Meanwhile, with the continued stalemate between the US and Iran, oil prices remained elevated (with Brent above $100 a barrel). On the economic front, the US budget deficit for the fiscal year that just ended came in again around 6% of GDP, despite a robust economy (growing in the 3–4% range, according to the Atlanta Fed GDPNow measure) and a strong labor market. Turning to the unlikely, if not the unthinkable, the primary source of stress in the fixed-income market was France, with contagion unusually spreading from the Eurozone core to the periphery. France traded at wider spreads than Italy. This historic inversion may well trigger a delayed political awakening, the effectiveness of which will be tested this week through parliamentary discussions on the budget and positioning ahead of next year’s presidential elections. Elsewhere, there is a palpable awareness of the delicate balance between nurturing economic growth and maintaining ironclad fiscal stability, including at the UK’s “Innovation Nation Summit” in Manchester. Underscoring how domestic political issues in the run-up to next month’s midterm elections have increasingly influenced foreign policy, the world witnessed an unorthodox US-Russia deal on diesel supplies. Driven by a US domestic imperative to keep prices manageable amid declining energy inventories, the announcement left many countries, especially in Europe, puzzled at best. Meanwhile, pressure on government bond yields stemmed not only from unusual volatility in short-term Fed rate expectations but also from the very shape of the US yield curve. This came as the Fed minutes showed that the world’s most powerful central bank is navigating an increasingly narrow path. Acknowledging a pickup in already robust US economic activity, the minutes (as well as remarks from several Fed officials) pointed to the likelihood of additional rate hikes. However, policymakers threaded a tight needle, signaling a consensus that any such move is likely off the table for October. To cap off a week of the unlikely and unthinkable, the cost of shipping a container from the US to China briefly exceeded that of a spaceflight! The Week Ahead This week’s focus on the spillovers from last week, including the recent news of an attack on the airport in the Saudi capital, will be accompanied by interest in a heavy global economic data calendar. In the United States, all eyes will be on CPI inflation data, with consensus forecasts calling for a tame monthly core measure for September (0.2%, down from 0.3% in August) alongside a jump in headline inflation (from 0.4% to 0.6%). This would put the annual inflation measures at 2.5% and 3.6%, respectively. A hotter-than-consensus CPI print, if it materializes, would disrupt expectations of an October pause and fuel further fixed-income volatility, as evidence already points to some leakage of interest-rate risk into credit risk. We also receive PPI inflation data, with consensus expecting a jump in monthly measures of both core and headline producer prices. Other notable US data releases include retail sales, industrial production, housing starts, mortgage applications, the NFIB Small Business Optimism Index, and terms of trade. Also watch regional Fed surveys of business activity and outlook. Across the Atlantic, the Eurozone is set to release preliminary Purchasing Managers’ Indices (PMIs) and trade figures, alongside final harmonized inflation readings and industrial production data. With French yields already driving volatility elsewhere in fixed income, any signs of sticky inflation, coupled with a deepening contraction in business activity, would further complicate the European Central Bank’s policy mandate (particularly regarding incoming figures for France and Germany). The UK also faces a heavy week of data releases, including wage growth, the unemployment rate, monthly GDP, industrial production, services, and trade. This comes ahead of the finalization of the October 28 budget and an already delicate Bank of England policy meeting. In Asia, watch Japan’s PPI inflation and a range of activity indicators, including machinery orders and industrial production. Given tensions across international capital markets and the yen’s transmission channel, there will be unusual interest in data tracking both Japanese purchases of foreign securities (especially bonds) and foreign purchases of Japanese securities. All this comes as the country continues to seek an elusive alignment of policy among the Bank of Japan, the Ministry of Finance, and the Prime Minister’s Office. Elsewhere in Asia, attention will focus on China’s economic data releases—including CPI and PPI inflation, trade, and industrial production—as well as India’s inflation, trade, and unemployment metrics. The run-up to the second round of Brazil’s presidential election will heighten interest in this week’s economic activity indicators and retail sales data. Mexico’s industrial production figures will also warrant attention. This busy calendar coincides with the IMF’s publication of its updated World Economic Outlook, as finance ministers and central bank governors gather in Thailand for the IMF and World Bank Annual Meetings. This event typically produces a great deal of commentary on global macroeconomic prospects, policy paths, and financial stability. Publications this week: In the Financial Times on US policy intervention in market pricing – https://www.ft.com/content/eec1e15d-78b9-4706-a518-2a9db4f37128?syn-25a6b1a6=1 Image generated by Google’s Gemini AI . Thanks for reading! Subscribe for free to receive new posts and support my work.