Weekly Macro Matters
Macro Matters – Weekly review, w/c October 16
The Israel-Hamas conflict introduced fresh concerns for markets last week, prompting a flight to quality as bond yields fell. Meanwhile, US inflation showed persistent pressures, with CPI slightly exceeding expectations, and Fed officials noted that rising yields might reduce the need for further rate hikes.
Macro Matters – Weekly Review, w/c October 9
Macroeconomic / Geopolitical Developments
• Israel-Hamas War Sparks Flight to Quality
• Fed Speakers Pivot Slightly Dovish as Higher Yields “Doing the Fed’s Dirty Work”
• Stocks Rebound
• Fed Minutes Echo Higher for Longer Mantra
• US CPI Warmer Than Expected, Reflecting “Sticky” Inflation
Israel-Hamas War Sparks Flight to Quality
The escalating conflict in the Middle East has prompted a traditional flight to quality in financial markets, with Treasury yields decreasing. However, global supply chains and broader economic impacts remain limited, given Israel’s relatively small role in oil and commodity markets. Energy and defence stocks gained, while airline and cruise stocks faced pressure.
Fed Speakers Pivot Slightly Dovish
Federal Reserve officials highlighted the role of higher yields in tightening financial conditions, potentially reducing the need for further interest rate increases. Even typically hawkish voices, like Dallas Fed President Lorie Logan, acknowledged this dynamic, while maintaining a cautious stance on easing monetary policy.
Stocks Rebound
US Treasuries rallied as yields fell, driven by Middle East tensions and dovish Fed comments. Large-cap value stocks led gains, supported by strong bank earnings. In Europe, equity markets rebounded, aided by hopes of Chinese economic stimulus and easing Fed policy concerns.
Fed Minutes Echo Higher for Longer Mantra
Minutes from the Fed’s September meeting emphasised a shift from focusing on the peak of rate hikes to the duration of restrictive policy. Policymakers expressed concerns about over-tightening, with markets now largely ruling out a November rate hike.
US CPI Warmer Than Expected
September’s inflation data showed persistent pressures, with headline CPI at 3.7% year-over-year and core CPI easing slightly to 4.1%. Rising rents and gasoline prices drove monthly increases, though easing shelter and fuel costs may signal moderation ahead.
What’s Ahead
Central Bank Watch:
• Fed speakers throughout the week before the pre-FOMC blackout period, Reserve Bank of Australia (RBA) minutes on Monday, and the People’s Bank of China (PBoC) interest rate decision on Friday.
Macroeconomic Data Watch:
• US Retail Sales (Tuesday), with CPI reports from Canada, the UK, and the EU across Tuesday and Wednesday. China GDP and Retail Sales (Wednesday).
Earnings Watch:
• Tesla and Netflix report Wednesday after the bell, alongside continued financial sector results.
Major Macro Data:
• 10/16/2023: Little of note
• 10/17/2023: RBA Minutes, UK Employment Report, US Retail Sales, Canada CPI
• 10/18/2023: China GDP, UK and EU CPI
• 10/19/2023: Australian Employment Report
• 10/20/2023: PBoC Interest Rate Decision, UK Retail Sales
US Earnings Releases:
• 10/16/2023: Charles Schwab
• 10/17/2023: Johnson & Johnson, Bank of America, Goldman Sachs
• 10/18/2023: Tesla, Netflix, Morgan Stanley
• 10/19/2023: Phillip Morris, AT&T
• 10/20/2023: American Express
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