Macro Matters – Weekly review, w/c October 2

Macro Matters – Weekly Review, w/c October 2

Macroeconomic / Geopolitical Developments

• U.S. Government Avoids Shutdown at the Last Minute

• U.S. and Global Yields Hit Multi-Year Highs

• Oil Rally Fuels Inflation and Slowdown Fears

• China Property Worries Increasing as Evergrande Fears Grow

• U.S. PCE Inflation Measure Cools

• What’s Ahead

U.S. Government Avoids Shutdown at the Last Minute

In a dramatic turn, Congress passed a short-term funding bill, avoiding a government shutdown just minutes before the deadline. The deal funds operations until November 17 but excludes additional aid for Ukraine, sparking bipartisan tensions. While the resolution offers temporary relief, ongoing divisions over spending priorities mean another potential funding crisis looms in seven weeks.

U.S. and Global Yields Hit Multi-Year Highs

Treasury yields surged to levels not seen in over a decade, reflecting ongoing concerns about stagflation. U.S. 10-year yields hit a 16-year high, with shorter-term yields also climbing. Similar trends were observed in European and Japanese bonds, highlighting global pressures from inflation and tight monetary policies.

Oil Rally Fuels Inflation and Slowdown Fears

Oil prices rallied significantly, with Brent crude nearing $100 per barrel due to OPEC+ output cuts and geopolitical tensions. Rising energy costs are stoking inflation concerns and fears of economic stagnation. While analysts debate the Federal Reserve’s potential response, higher energy prices remain a key risk to global growth.

China Property Worries Increasing as Evergrande Fears Grow

Evergrande’s financial woes intensified as trading was suspended on news of its chairman being investigated for suspected “illegal crimes.” With over $300 billion in liabilities, the property giant’s troubles are emblematic of China’s broader real estate crisis. The collapse of consumer confidence in the housing market continues to ripple across the Chinese economy.

U.S. PCE Inflation Measure Cools

Core PCE inflation rose by just 0.1% in August, marking its smallest increase since 2020. On an annual basis, core PCE inflation fell to 3.9%, its lowest in two years but still above the Federal Reserve’s 2% target. While the data offers hope that the Fed may pause rate hikes in November, elevated gasoline prices continue to pressure overall inflation.

What’s Ahead

Central Bank Watch:

• Fed Chair Powell speaks Monday.

• Interest rate decisions from the Reserve Bank of Australia (Tuesday) and Reserve Bank of New Zealand (Wednesday).

Macroeconomic Data:

• Key releases include U.S. ISM Manufacturing PMI (Monday), U.S. ISM Services PMI (Wednesday), and Friday’s U.S. Employment Report.

Major Macro Data:

• 10/02/2023: Global Manufacturing PMI, U.S. ISM Manufacturing PMI, Fed’s Powell speaks, EU Unemployment

• 10/03/2023: RBA Interest Rate Decision and Statement

• 10/04/2023: RBNZ Interest Rate Decision, Global Services PMI, U.S. ADP Employment Change

• 10/06/2023: U.S. Employment Report, Canadian Employment Report

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