Macro Economy Weekly | Bitmidas
2023–10-16
Hawkish Voice Rises Again, and Interest Rate Cut Postponed
U.S. CPI was stubborn in September’s release. The Federal Reserve released the minutes of the September monetary policy meeting. Almost all officials were worried about rising inflation. Data show signs of stagflation, resulting in interest rates remaining high for a longer period. Besides, the tension in the Middle East may escalate…
Important Data of the Week
The United States’ seasonally adjusted CPI in September recorded an annual rate of 3.7%, the same as the previous value, higher than the market forecast of 3.6%, with slight signs of stagflation.
The seasonally adjusted CPI monthly rate in the United States in September was 0.4%, lower than the previous value of 0.6% but higher than the market forecast of 0.3%, and higher than the one-year average.
The U.S. seasonally adjusted core CPI annual rate in September was 4.1%, lower than the previous value of 4.3% and in line with market forecasts of 4.1%. The core CPI continued to decline.
The U.S. seasonally adjusted core CPI monthly rate in September was 0.3%, the same as the previous month and in line with market forecasts.
In the United States, the seasonally adjusted annual energy inflation rate in September was -0.5%, higher than the previous value of -3.6%. It has been declining for four consecutive months since June. The decline has narrowed due to the recent continued rise in energy prices.
The annual rate of housing inflation in the United States in September was 7.2% (7.153%), which was slightly lower than the previous value. However, the decline was limited. Housing inflation remains unchanged.
The annual adjusted inflation rate in the United States at the end of September was 3.7%, lower than the previous value of 4.3%, marking the 11th consecutive decline.
In the United States, the seasonally adjusted annual rate of new car inflation in September was 2.5%, lower than the previous 2.9%. The seasonally adjusted annual rate of second-hand car and truck inflation in September recorded -8%, lower than the previous value of -6.6% and the overall decline continued.
The number of initial jobless claims in the United States in the week end by October 7 was 209, the same as the revised previous value, and lower than the market forecast of 210. The labor market remains strong.
The one-year inflation rate in the United States in October is expected to be 3.8%, far exceeding the previous value of 3.2%, due to high energy prices resulting from intensified geographical conflicts in the Middle East.
The probability that the Federal Reserve will keep interest rates unchanged in the range of 5.25%-5.50% in November is 85.1%, and that of raising interest rates by 25 basis points towards the 5.50%-5.75% range is 14.9%. The probability of keeping interest rates unchanged by December is 65.5%; another 25bp rate hikes, 31.1%.
Federal Reserve Balance Sheet
The Federal Reserve’s balance sheet continues to shrink, with its size shrinking below US$8,000 billion to US$7,952.042 billion. The shrinking is still in progress as originally planned.
Recession Indicators — — U.S. Treasury Yields Inversion
As interest rates remain high, the 10-year U.S. Treasury yield has risen sharply. After most Fed officials’ hawkish remarks, prices fell back and the 2/10 inversion spread has relatively converged. As of the time of this report, the 2/10-year U.S. bond yield is inverted at 67.62bp, still deeply inverted.
Market Performance
US stubborn inflation and the high interest rates in September supported the US dollar. The US dollar broke through 106 again after a correction from the high level. The U.S. index continues to rise with strength.
The Palestinian-Israeli conflict escalated. Risk aversion drives money into gold. Gold prices rose sharply to $1932.50.
The S&P 500 adjusted below 4300 and then rebounded to regain 4300, fluctuating between 4270 and 4400. Stubborn inflation puts pressure on US stocks in the short term.
The expectation of a longer interest rate has put pressure on BTC, and the Palestinian-Israeli conflict means that interest rates are likely to be raised during the year. The dot plot shows that the interest rate cut will be extended and narrowed. At present, liquidity is still tight, meaning BTC will fall into a longer period of consolidation.
Summary
This week’s U.S. CPI was basically the same as the previous value. Minutes of the Federal Reserve’s September meeting showed that officials believed that inflation has upward risks. The energy inflation rate has narrowed its decline for four consecutive months. Once it exceeds 0, energy inflation can easily drive other inflation to rebound. The current energy prices are also facing the risk that the Palestinian-Israeli conflict will expand and evolve into the sixth Middle East war. Once energy inflation resurgence, the United States will enter a period of stagflation.
The Palestinian health department announced that this round of Palestinian-Israeli conflict has caused serious harm to the Palestinians. 1,949 people died and more than 8,600 were injured. Among them, the death toll in Gaza was 1,900 and the number of injured was 7696. The death toll in West Bank was 49 and more than 950 injured. The current conflict between Palestine and Israel has already caused 3,200 deaths for both sides.
The current Palestinian-Israeli conflict is the most severe conflict in recent years. In the Arab world, there is a resurgence of antisemitism and fear of Muslims in the West. The conflict is intensifying and could go out of control at any time.
Overall, as U.S. bond yields rise and costs rise. The probability of interest rates remaining unchanged is around 85%, but the decline in source inflation continues to narrow, while energy prices are closely related to wars in oil-producing countries. The 1970s-1980s Iran-Iraq War brought the United States into a great stagflation. The current situation in the Middle East is very similar to that of the last century. If the situation gets out of control and the war expands and creates energy tensions, it is very likely that history will repeat itself — and the Federal Reserve will have to raise interest rates even more. However, given the current economic situation in the United States, it would be difficult to bear the cost of higher interest rates.
Completion of this report: 2023–1014–10:15 (UTC+8)
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