Next week (November 23), the first flash estimate of Eurozone PMI data for November will be published. In October, manufacturing sentiment in particular deteriorated significantly, suggesting a decline in manufacturing activity in the current fourth quarter. By contrast, sentiment among service companies cooled only slightly. However, the index also suggests a slight decline in activity among service providers in 4Q. For November, we expect a further slight weakening of business sentiment in the Eurozone. A stabilization of European gas prices, at a low level compared to the summer months, is currently a welcome signal, especially for industry. Overall, however, the economic environment remains highly uncertain. The EU’s monthly indicator for economic uncertainty rose slightly again in October and is gradually approaching the highs recorded at the outbreak of the Covid-pandemic in March 2020. Companies are therefore currently acting with corresponding caution and restraint in their personnel planning and investments. At least the capital market gave positive signals from an economic perspective last week. For the first time in a long time, inflation data in the US was significantly lower than expected by the market, which supported risky asset classes, especially equities. In addition, a meeting between China’s President Xi and US President Biden was unexpectedly amicable, given previous geopolitical tensions. This, combined with the announcement of measures to support the real estate market in China (focus on improving the liquidity situation of real estate developers), boosted Chinese equities in particular. As China and the US are the Eurozone’s most important trading partners, sustained improvement in the economic situation in China would have a positive impact on the Eurozone economy through rising export growth. We currently forecast a slight decline in GDP in 4Q by 0.2% q/q, after the Eurozone was able to grow surprisingly strongly by 0.2% q/q in 3Q. The economy should stabilize in the first half of 2023. Assuming that inflation should steadily lose momentum in the coming months, we expect Eurozone GDP to grow slightly from 2H23 onwards. Consumers in particular should benefit from the declining inflation momentum. For 2023 as a whole, we therefore expect slight growth of 0.3%, followed by a slight acceleration in growth to 0.7% in 2024. Download The Full Week Ahead

Europe It looks set to be another positive week for markets in Europe, however most of this week’s price action has been confined to a fairly modest range in what looks increasingly like a period of consolidation. The FTSE100 had yet another look above the 7,400 level and once again was unable to sustain the momentum. Amongst the gainers today, retail has done well, with Frasers Group higher after being rated as a buy by Numis, while JD Sports has got a lift after US counterpart Foot Locker upgraded its outlook for the year after beating on Q3 results. Legal & General is higher after reiterating its full year guidance while welcoming the announcement from the Chancellor of the Exchequer to overhaul Solvency II with a view to making it easier for domestic insurers to invest in home grown infrastructure projects. The insurer also stated it has taken a limited hit due to the recent LDI volatility on the UK gilt market, estimating an impact of about £10m. Royal Mail owner International Distribution Services was on the receiving end of more bad news today as the CWU union announced further strike days in the lead-up to Christmas, although the shares still managed to edge higher. Earlier this week the company announced it had slipped to a H1 loss of £127m. For the full year management said that full year operating losses are expected to remain between £350m and £450m, which includes the recent and current strike day losses, but not the new ones. The union said it would not allow bosses to destroy the livelihoods of postal workers, however the reality is that the strike action is making matters worse, and potentially hastening the loss of further jobs given the current scale of losses. BP and Shell are acting as the biggest drag on the back of today’s sharp declines in oil prices.    US After a slightly negative finish yesterday US markets shrugged off yesterday’s comments from St. Louis Fed President James Bullard about a 5% to 7% terminal rate and opened higher today. Yields have continued to edge higher, and while the prospect of a 5-7% terminal rate is not an unrealistic prospect, it's somewhat of an outlier at this point, and markets appear to be treating it as such. When US retailer Williams-Sonoma reported its Q2 numbers there was little sign of a slowdown in consumer spending with the owner of Pottery Barn reporting record revenues of $2.14bn, a rise of 11.3%, on the previous year. Yesterday’s Q3 numbers saw revenues come in at $2.19bn, also beating forecasts, however profits fell slightly short, although they were still up from a year ago at $3.72c a share. All so far so good however the retailer declined to reiterate its previous full year guidance of mid to high single digital annual net revenue growth, due to high levels of “macro uncertainty” and elevated inventories, sending the shares sharply lower. Inventory levels are expected to come down in Q4, however they are still 33% above the levels they were a year ago. Alibaba shares are in focus after missing on revenues in its recent Q2 numbers, and sinking to a surprise loss of $2.9bn, after marking down the value of some of its assets. Despite this the company announced an increase to its buyback program, as well as extending it into 2025. Alibaba said its Single’s Day sales were in line with last year's numbers, lagging behind its peer JD.Com. Gap shares are higher after Q3 sales came in better than expected. The company managed to report a 1% gain against an expectation of a 3.4% decline. Inventories were also manageable. The Old Navy brand underperformed while Gap and Banana Republic came in better than expected.  FX The US dollar has undergone a week of consolidation after the losses of last week, as markets look to determine the next move. Bullard’s comments yesterday briefly gave the greenback a lift along with yields, but the jury remains out as to whether we are set for further declines. The euro has spent most of the week trying to punch through the 200-day SMA with little success, making it susceptible to a pullback. The pound has looked slightly more resilient today after the modest weakness from yesterday’s budget. A modest rebound in consumer confidence in November, and retail sales in October appears to have given it a lift in the short term, as it looks to close higher for the second week in a row. Commodities Crude oil prices are continuing to drift lower on concerns about winter demand in China as covid cases continue to rise. This would also be the second successive weekly decline in prices with some suggestions that China may well look to slow oil imports, due to rising inventories, while concerns about a 2023 European recession...

History tends to repeat itself, and mining stocks appear to be repeating their 2008 performance, which has very interesting implications. Why do I think that gold miners are repeating their 2008 price patterns? Please take a look at the below chart. The only times when gold stocks declined similarly sharply as they did this year were in 2013 and in 2008. Given that the situation in stocks appears to be similar to what we saw in 2008 (due to rising interest rates, for example), it seems that focusing on this analogy is particularly important right now. All right, let’s zoom in and see how mining stocks declined in 2008. Back then, the GDXJ ETF was not yet trading, so I’m using the GDX ETF as a short-term proxy here. The decline took about 3 months, and it erased about 70% of the miners’ value. The biggest part of the decline happened in the final month, though. However, the most intriguing aspect of that decline – which may also be very useful this time – is that there were five very short-term declines that took the GDX down by about 30%. I marked those declines with red rectangles. After that, a corrective upswing started. During those corrective upswings, the GDX rallied by 14.8-41.6%. The biggest corrective upswing (where GDX rallied by 41.6%) was triggered by a huge rally in gold, and since I don’t expect to see anything similar this year, it could be the case that this correction size is an outlier. Not paying attention to the outlier, we get corrections of between 14.8% and 25.1%. Fast forward to the current situation. Let’s take a look at the GDXJ ETF. The junior mining stocks moved sharply higher recently, and this move took place on huge volume (I spoke about it on Nov. 7). The only similarly big volume that we saw recently was at the early-March top and the January top. As history has shown, the massive attention that junior miners have received is a bearish indicator (not only for miners but also for related parts of the precious metals market, including gold and silver prices too). Back in 2008, the biggest corrective upswing (the 41.6% rally) was the thing that preceded the biggest part of the medium-term decline. This time, the volatility is not as big, but the size of the corrective upswing (assuming that it started in September) that we just saw is also greater than what we’ve seen before. Consequently, it could be the case that what happened recently is what “had to” happen given the way history decided to rhyme. Please note that we can estimate what is likely to happen based on historical analogies, but we can never be 100% certain that a given analogy will work and some others won’t. In this case, it seems that the correction happened, even though it didn’t “have to” happen based on many other techniques. Either way, the medium-term trend remains down, so the current corrective upswing is likely to be a “thing of the past of little meaning” sooner rather than later. Speaking of analogies, I previously wrote that the current rally is a mirror image (it’s not a crystal-clear mirror, though) of the corrective decline that we saw in late March 2020. As it turned out, due to the most recent part of the upswing, the size of both moves became even more aligned. And yes, this means that another decline could take the GDXJ all the way down to its 2020 low, or very close to it. On the below chart, I marked just how perfectly the recent price moves played out according to the Elliott Wave Theory. Of course, EWT is not the only tool that one could use, and I find other technical tools more useful, but still, this kind of pattern-following is uncanny. The classic EWT pattern is three waves down (I marked those with orange rectangles) and then a correction consisting of two smaller waves.  That’s exactly what we have seen in recent months. The September–now pattern appears to be the above-mentioned correction. It didn’t only consist of two smaller waves higher – they were actually almost identical in terms of size and sharpness. This created a classic ABC correction (flag) pattern. Now, since this pattern is complete, another huge 3-stage move lower can – and is likely – to unfold. This is very bearish for junior mining stocks (as well as for gold, silver, and probably other commodities), and the fact that juniors are already showing weakness relative to gold (on Wednesday, the latter was almost flat while miners declined) serves as a bearish confirmation. As always, I can’t guarantee anything, but in my view, the profits that can be reaped on this upcoming slide in mining stocks can be enormous. Want free follow-ups...

Stocks have continued to make headway this afternoon, oblivious of the recession fears dogging oil, which is down sharply again today. Stocks finish up the week with more gains “Stocks are once again shrugging off warnings about high interest rates in the US, and it appears the normal seasonal tendency of equities to rally in Q4 has asserted itself once again. Indeed, the fact that Fed speakers continue to bang the hawkish drum, but to little apparent effect, might suggest that traders still have their hearts set on a risk-rally into the end of the year, even if that sets everyone up for a fall in January.” Oil prices touch six-week low “Oil has seen several sharp drops this week, followed up by tepid rallies that suggest recession fears are really making themselves felt in the commodity. The latest drop today has seen around 4% wiped off Brent and WTI; this in itself might be giving fresh impetus to the equity rally. While FOMC members go on about rising rates, the market is watching oil and other things like shipping rates and expecting further weakness in US CPI prints in coming months.”

Consumer inflation in Japan accelerated to 3.7% in October, repeating 2014 highs and approaching the peak of 4.2% in late 1990. Excluding fresh food, prices rose by 3.6% y/y, the highest since 1982. At the same time, price growth was expected to slow from 3.0% to 2.7%, so the difference between expectations and facts looks shocking. The highest price growth since the early 1980s unites the developed nations, going well beyond the price of energy, as was the case in previous years of recent decades. However, in North America, inflation is already on its way down; in Europe, it is likely to peak in November. This divergence in inflation trends is mainly due to exchange rate movements, where the yen has been the hardest hit. In October, the country's monetary authorities stood up for the yen (in Japan, currency interventions are the prerogative of the Ministry of Finance and not the Bank of Japan). Nevertheless, an important fundamental factor weakening the yen was still the policy of the Bank of Japan, which remains the only central bank in the world that keeps negative interest rates. Although consumer inflation in Japan has been above the central bank target for the last seven months and continues to accelerate, Chairman Kuroda continues to find excuses not to raise rates. In his speech following the release of inflation statistics today, he ruled out a rate hike without accelerating wage growth. This is like the assurances of the ‘temporary inflation’ we heard from the Fed and ECB last year. The BoJ stuck in the denial phase leaves the fundamental reason for the pressure on the yen, which would probably continue to fall without the support of currency interventions.

With the UK's Autumn Statement out of the way, attention turns back to the economic data which are deteriorating – UK PMIs are likely to re-emphasise the worsening condition and that a recession is coming. In Sweden, the Riksbank is expected to hike by 75bp next week, raising the policy rate to 2.5%. US: Ongoing weakness in housing data Thanksgiving means a holiday-shortened week in the US with the focus set to remain on the outlook for Federal Reserve policy. Market pricing has switched markedly since the surprisingly soft October CPI print but Federal Reserve officials continue to suggest there is more work to be done to ensure the inflation front is defeated. Indeed, we continue to hear comments suggesting the risk of doing too little outweighs the consequences of doing too much in terms of interest rate increases. Expect more next week. Data-wise we are looking at ongoing weakness in housing data, but durable goods orders should rise given firm Boeing aircraft orders. Nonetheless, it is doubtful this will be market moving in any meaningful way. The November jobs report on 2 December and the November CPI print on 13 December are the big releases to watch. UK: Focus switches back to the data and Bank of England The key takeaway from the UK’s Autumn Statement was that much of the anticipated fiscal pain has been pushed back until after the next election. Chancellor Jeremy Hunt has calculated that calmer financial markets and the announcement of certain tax rises mean he can push back some of the tougher spending decisions, without sparking a fresh crisis of confidence in UK assets. No doubt the Treasury is banking on less aggressive Bank of England rate hikes to lower future debt interest projections, giving scope to water down some of the cuts further down the line. Read more about the Budget announcements here.  With the fiscal event out of the way, attention turns back to the economic data which is clearly deteriorating. Next week’s PMIs are likely to re-emphasise that more companies are seeing conditions worsen than improve right now, the latest sign that a recession is coming. There’s also the question of whether the Bank of England will pivot back to a 50bp rate hike in December, and we think it will, despite some mildly hawkish inflation data in recent days. We’ll hear from a couple of rate-setters next week to help shape expectations ahead of that meeting in a few weeks' time. Sweden: Riksbank expected to hike by 75bp Back in September, the Riksbank hiked the policy rate by a full percentage point but signalled that it expected to pivot back to a 50bp rate hike in November. Since then, core inflation has exceeded the central bank’s forecasts by half a percentage point, while the jobs market has remained relatively tight. Given that the ECB has continued with its 75bp rate hikes – and the Riksbank has been vocal about staying out in front of the eurozone’s interest rate policy – we expect further aggressive tightening by Swedish policymakers next week. Remember this is the Riksbank’s last meeting before February, and we therefore expect a 75bp hike on Thursday. We’d expect the new interest rate projection published alongside the decision to pencil in at least another 25bp worth of tightening early next year, but ultimately there are limits to how far it can go given the fragile housing market. Key events in developed markets next week Source: Refinitiv, ING Read the original analysis: Key events in developed markets next week 

As warning signs for the economy mount, investors are cheering for more bad news. That's because they expect economic weakness will force the Federal Reserve to stop raising interest rates and eventually re-embrace loose monetary policy. One reliable indicator over the years of an upcoming recession is an inverted yield curve. An inversion occurs when short-term interest rates rise above long-term rates. Typically, a 3-month Treasury bill or 2-year note will yield less than a 10-year note or 30-year bond. Shorter-duration debt instruments entail less risk and therefore deliver less reward under normal circumstances. But over the past four months, short-term IOUs have begun to yield more than longer-term paper. This week, the yield on the 10-year Treasury fell to 3.7%, while the 2-year rose to 4.4%. That represents the biggest yield curve inversion in decades. And as institutional futures trader and broker Jim Iuorio notes, the current inversion implies strongly that a recession is coming. Jim Iuorio: A normal sloped yield curve has longer term bonds paying higher interest rate than shorter term. The higher rate is a reward for being willing to lock up your money for longer periods of time. Economists believe that an inversion of yields is a warning sign for coming recession, as investment money seeks the safety of longer-term bonds, helping to keep those yields from rising while at the same time, in this instance, that the Federal Reserve is forcing up short-end rates through hikes. The yield curve has inverted before each recession dating back to 1955, with the recession starting between six and 24 months after the inversion. Ultimately, the curve's current lesson could be that the market believes that the Fed's aggressive hikes to fight inflation could lead to both recession and the need to quickly lower rates at some time in the future. The U.S. economy technically dipped into a recession in the second quarter when GDP came in negative for a second consecutive quarter. At that time, however, the jobs market remained strong and the housing sector had only just begun to show signs of softening. The double dip downturn that many economists see coming in 2023 could result in millions of job losses and a major retrenchment in home prices. The stock market will obviously be vulnerable as well. As for precious metals markets, they have often shown relative strength during previous recessions. They have also tended to get a boost when an inverted yield curve starts to normalize. That would be expected to occur when the Fed begins to cut its benchmark short-term rate. For now, though, central bankers are vowing to keep hiking. On Thursday, James Bullard, president of the Federal Reserve Bank of St. Louis, said the Fed funds rate will likely rise higher than previously expected. He said the current rate isn’t “sufficiently restrictive” in light of inflation that remains stubbornly high. According to Bullard, rates may have to move up to as high as 7%. Most investors don’t seem to be buying Bullard’s hawkish posturing. Financial markets are pricing in a 50-basis point hike at the Fed’s next meeting but not much more hiking after that. The sharp drop in the U.S. Dollar Index last week means currency traders are looking for the Fed to become more dovish. The dollar managed to rebound only slightly versus foreign currencies on Bullard’s remarks. Precious metals markets, meanwhile, are giving back some of their recent gains. However, bullion buying among retail investors continue to be robust amid tight supplies of available products from major mints. It doesn’t appear that the election results will have a significant impact on investor sentiment toward metals, as not much is going to change in Washington. President Joe Biden will still be able to ram through appointments requiring Senate confirmation. The Upper Chamber will continue to be controlled by Chuck Schumer and the Democrats. The House of Representatives will be narrowly controlled by Republicans. They announced their intention this week to launch investigations into some questionable financial dealings of Joe and Hunter Biden. That may score House Republicans some political points, but they won’t be able to produce any major legislative accomplishments without support from Democrats and ultimately a signature of approval by Joe Biden. The influence of elected officials on the economy and markets will continue to be overshadowed by central bankers who seem intent on inducing a recession in order try to tame the inflation monster they unleashed. Other central banks around the world, meanwhile, are growing wary of holding Federal Reserve notes and other forms of fiat as reserves. Many central banks are aggressively stockpiling hard money reserves in the form of gold. Global central bank purchases surged to nearly 400 tonnes in the third quarter. That represents the largest single quarter of monetary demand for gold on...

Another busy week is coming up for FX markets, featuring the minutes of the latest FOMC meeting and a rate decision in New Zealand that investors are split on. Most importantly, business surveys from the major economies will reveal whether US inflationary pressures continue to cool off and whether Europe is already in recession. 

After the rally driven by the low US CPI print, markets have traded more cautiously this week. US October retail sales growth surprised to the upside, signalling that the low inflation print did not necessarily reflect easing demand, as Fed would have hoped for. We continue to see near-term balance of inflation risks tilted to the upside, and expect the market optimism to turn out only temporary; in our latest FX Forecast Update - USD selloff to prove temporary, 14 November, we maintain our 12M EUR/USD forecast at 0.93. Geopolitics were on the agenda in the first G20 meeting after Russia's invasion to Ukraine. Joe Biden and Xi Jinping met for first time face-to-face after Biden became the president, and despite the past years' tensions, the leaders struck a more constructive tone, emphasizing that neither party wants to enter a new cold war and that communications lines would be reopened. That being said, we think that especially the Taiwan issue and the recent US tech restrictions will maintain tensions elevated; see our earlier paper: Research US-China: Long-term tensions are here to stay no matter the election result, 5 October. While the Democratic Party ended up performing better than expected in the US midterm elections, and managing to maintain the control of senate, republicans did narrowly clinch the control of house this week, ensuring a divided congress. For markets, the result is a positive (although broadly expected) outcome, as the divided congress is less likely to be able to pass potentially inflationary deficit spending measures. Markets will next focus on how the congress will be able to raise the US debt ceiling, which is expected to be hit early next year. So far, republicans' key demands for supporting the debt ceiling raise have been related to spending cuts to social security and Medicare, which would have limited impact on the broader economy, but which could be difficult for the democratic senate to pass. Europe will also focus on the continuation of US support to Ukraine, and while we do not expect an abrupt end to the support measures, the republican control of the house could mean that 'America first' style cost-cutting will be increasingly on the agenda as the recession looms. More broadly, while the war has so far united western nations to support a common ally, we see rising risks of US-EU relations turning sour going forward, see Euro macro notes - Transatlantic ties are in for a chill, 16 November. Next week, focus turns back towards the economic growth outlook, as November Flash PMIs are released on Wednesday. We expect the Euro Area figures to provide further evidence of contraction in the Q4 as inflation is weighing on demand and companies' order books, while we still foresee modest growth in the US economy. FOMC and ECB minutes will also be released on Wednesday and Thursday respectively, and while markets' focus remains on more forward-looking data, we will keep an eye out for any hints of the expected hiking pace in December (50 or 75bp) as well as ECB's view on the QT timeline. In China, focus remains on the rising Covid-cases and on any signs of potentially changing tolerance for the spread of the virus. We will also focus on any potential new easing measures after the October growth figures once again surprised to the downside this week. On the central bank front, we expect 75bp hikes by both the Riksbank on Thursday (see more below) and the Reserve Bank of New Zealand on Wednesday. Download The Full Weekly Focus

Summary United States: Even with Encouraging Inflation Developments, Economic Resilience Continues to Challenge the Fed In line with last week's CPI performance, the headline PPI increased 0.2% sequentially, two-tenths below expectations. The resiliency of the U.S. consumer was also on display, as total retail sales increased a stronger-than-expected 1.3% in October, boosted, in part, by a 1.3% jump in motor vehicles & parts and a 4.1% rise at gasoline stations. Weakness continued in the housing market, which is clearly in recession. Next week: Durable Goods Orders (Wed), New Home Sales (Wed) International: What's Going On with Global Inflation? This week, October CPI data were released for the U.K., Canada and Japan, highlighting diverging paths for inflation in each economy. In the U.K., headline CPI inflation rose to 11.1% year-over-year, with the electricity, gas and other fuels category up nearly 90% compared to last year. Meanwhile, headline inflation in Canada has receded from a recent peak, coming in at 6.9%, but underlying price pressures continue to intensify. Last, Japan's inflation is much more contained compared to the U.K. and Canada, although prices are elevated by recent historical standards. Headline inflation quickened to 3.7% in October. Next week: Australia PMIs (Wed), Eurozone PMIs (Wed), U.K. PMIs (Wed) Interest Rate Watch: Yield Curve Inversion Deepens Various points of the Treasury yield curve have inverted this year amid the Federal Reserve's aggressive policy tightening cycle. The spread between the yield on the two-year Treasury and the 10-year Treasury notes first turned negative in the spring and has become even more inverted in recent months, reaching a new low of -68 bps at the close on Thursday of this week. Topic of the Week: The Economics of the 2022 World Cup What is expected to be the most viewed sporting event in world history is back, as 32 nations compete in Qatar starting on Sunday for the 2022 FIFA World Cup. We take a look at the economics of Qatar as well as our own predictions for the tournament. Read the full report

Outlook: We are seeing a pullback in commodities, currencies and equity markets that does not arise from any particular economic event or data. This could be rising risk aversion but we can’t put a finger on a driving factor--nothing specific jumps out. The only real Big Event is the UK budget, and it’s not inconceivable that the market is still judging whether it wants to accept it. The budget proposal in a nutshell is “about £30 billion in spending cuts and £25 billion in tax increases, including a six-year freeze on income tax thresholds and lowering the top income tax rate to £125,000,” as Trading Economics puts it. The UK aside, the pullback in multiple asset classes may mean the pullback is pure positioning and therefore short-lived—not a reversal back to the primary trend. The US news today includes Oct housing starts, likely another drop but not as awful as Sept (-8.1%). We all know about the big and ongoing drop in house prices and seller reluctance, so an ongoing decline in starts is hardly surprising. The reversal in home inflation has two major effects—it can lower inflation reports generally going forward (shelter is 24% of CPI, if badly formulated). It can also drive GDP down. The Atlanta Fed knocked socks off with the latest GDPNow for real GDP growth in Q4. That’s seasonally adjusted and annual—and it’s a whopping 4.4% from 4.0% on Nov 9.  The driver is the growth of real personal consumption expenditures arising from the retail sales numbers yesterday. We get another update today. This information informs our opinion about inflation. You can get dizzy reading so many differing views on inflation, and it can be hard to pick apart arguments to find the key assumptions that determine outcomes. Here’s an argument that starts with a fully disclosed assumption: the American consumer is endlessly materialistic and greedy. He will continue to buy no matter where prices go. Poor people will buy because they need to eat, middle class people will run up credit card debt for the latest fashion, tech toy, and concert ticket, and rich people—well, rich people buy art, jewelry and more real estate (they already have yachts). The American consumer can continue to consume due to massive savings accumulated during the pandemic, plus recent wage gains and borrowing capacity. The NY Fed reported consumer borrowing up $351 billion in Q3. (Total household debt is $16.52 trillion…. ).  The persistence of inflation is the same picture worldwide. The Economist writes “We calculate that the prices of 67% of items in the average rich country’s inflation basket are rising by more than 4% year on year, up from 60% in June.” What about those nay-sayers at FedEx, Target and Amazon who say earnings are lousy because the customers are “stressed out” and sales are trending way down? The likely explanation is these are outliers. Others in the retail space are doing just fine. Granted, holiday spending is up in the air and might disappoint, and sales abound—but not all of the gains in retail sales can be attributed to inflation alone. Besides, the sales outlook is highly sector-dependent--home improvement and gardening up, electronics down. As Wolf Street writes, “In the early 1990s, department stores sales accounted for nearly 10% of total retail sales. In October 2022, they accounted for less than 1.9%--on track to irrelevancy.” Now take Assumption No. 2: unemployment will not go up all that much. The labor shortage is real and will persist. Wages will go up, if not as much as inflation in goods and services. Bottom line: Inflation may have peaked, but will remain high, say 4.5-5.5%, for several years. To imagine it will get back under 2% by end-2024 is a pipedream and inconsistent with what we know about the consumer—unless unemployment really does go nuts, as the Fed so fervently wishes. Granted, growth may slide downhill and the economy contract or grow only by fractions, but that will be due more to non-consumer behavior.  Assuming the Fed doesn’t chicken out, that chart showing Fed funds kissing 5% briefly but then retreating to as low as 3% by end 2024 is not realistic. One implication of this combination of factors—persistent high inflation AND strong consumption—is that the Phillips curve really is dead. Its demise has been heralded multiple times but it keeps coming back to mislead us. The inverse correlation of employment and inflation has some effect, but not a ruling one. Yellen is not at the Fed anymore but gave a speech at the Boston Fed in September in which she gives far more weight to inflation expectations than to the Phillips curve, never mentioned by name but noted as not having worked very well in the last recession. This may put us in the stagflation camp, and we...

Markets US stocks slid for the second day as Fed hawks continued to circle the wagons, repeatedly emphasizing their fight against inflation is far from done. So with investors beginning to question the validity of the post-CPI market moonshot, it effectively pushes out the process of getting constructive for next year. If the Fed raises Funds to 5% and then holds through the expected H1 2023 recession, that's hardly a good signal for equity markets. Broader markets are entirely in thrall to interest rates. Air pockets lower were evident in virtually every asset class as US 10-year Treasury yields climbed after St. Louis Fed President James Bullard said policymakers should increase interest rates to 5% to 5.25% to curb inflation. The S&P 500 and the tech-heavy Nasdaq 100 declined for the second consecutive session as the falling tide grounds all ships. Price actions suggest investors lack the necessary conviction above 4000 on the S & P 500. Things can turn on a dime, primarily when the fear of missing drives sentiment. However, the odds of a pre-Thanksgiving rally are giving way to the hawkish Fed drumbeat and pushback on China reopening plays.   Oil  Oil prices plummeted as traders dumped the China reopening play's and headed for the exits en masse as a confluence of bearish market forces bore down on the oil complex.  China's covid concerns are on everyone's mind, and with local surges giving rise to protracted lockdowns, oil prices are moving tangentially lower to that increasing probability. China's inflation threat, which suggests higher interest rates in the offing, is also a worrying signpost for the commodity space, particularly oil markets. The experiences of western economies won't be lost on the PBOC. And this is one of the rationales for markets to defer to a slower reopening, as it will mitigate the inflation angst suffered by western economies. The Fed's determination to fight inflation at all costs will increase the odds of a hard landing and could support the US dollar negatively for the oil markets for longer than expected.    Forex The dollar snapped a two-day drop while reminding investors of its Jekyll and Hyde persona regarding its correlation with risk assets framed by higher US yields.   Still, unless market pricing for the next three meetings steps up from the 100bp currently priced, given the time of year, it is hard to envision the EURUSD heading for parity again despite the pushback in the China reopening, which would have paid the Euro off in spades via the growth-inflation trade-off.