Global Economy Slowing: Inflation Falls

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At the close of business on Friday, global equities were lower on the week amid higher bond yields and unease over the potential widening of the war between Israel and Hamas. The yield on the US 10-year note flirted with 5% this week, reaching its highest level since 2006. The price of a barrel of West Texas Intermediate crude oil gained $4 on the week, rising to $90.20, while volatility, as measured by the Cboe Volatility Index (VIX), rose to 20.5 from 19.3.



The conflict between Israeli and Hamas is front of mind, and we are monitoring developments closely. US President Joe Biden visited Israel on Wednesday, but his plan to hold a summit with Arab leaders was derailed after regional protests erupted in the wake of disputed reports that Israel attacked a hospital in Gaza. US and Israeli intelligence point to the blast being caused by a misfired missile launched from Gaza toward Israel. Israel has yet to start its promised ground offensive on Hamas strongholds in Gaza City. Arms shipments from the United States arrived in Israel this past week. Egypt has agreed to open its border crossing with the Gaza Strip to allow truckloads of humanitarian aid to reach Palestinians. Iran called for an oil embargo against Israel over its air strikes in Gaza. On Thursday, a US Navy destroyer intercepted three missiles fired from Yemen, along with a swarm of drones. It is believed that the missiles targeted Israel. In a Thursday evening public address, Biden asked the US Congress to appropriate $100 billion to aid Ukraine and Israel, among other appropriations, but because lawmakers have still not elected a new speaker of the House of Representatives, no new legislation can yet be enacted.



At the close of business on Friday, the TSX stock index has given up all of its gains for 2023 as the realization that high interest rates are going to stick around settles in. The benchmark Canadian stock index is one of many around the world caught up in a wave of selling that’s been prompted by the prospect of a global economy showing signs of slowdown. The Nikki is the top performing index year to date, followed by the tech-heavy Nasdaq and the S&P 500.



With just over 17% of the constituents of the S&P 500 Index having reported for Q3 2023, blended earnings per share shows that earnings declined 0.6% compared with the same quarter a year ago. Sales growth has risen less than 2% year over year.

US Federal Reserve Chair Jerome Powell said that given the uncertainties and risks the economy faces and how much tightening has been done already, the Fed will “proceed carefully,” suggesting policymakers are in no hurry to tighten policy further. Like many of his colleagues, Powell acknowledged that the recent surge in bond yields could require the Fed to do less. Geopolitical tensions are highly elevated, he said, and pose important risks to global economic activity. The odds of an additional rate hike in the coming three meetings declined after Powell’s comments, falling from about 54% at Wednesday’s close to about 33% on Friday morning.

This past week, US weekly jobless claims fell below 200,000 for the first time since January, descending to 198,000, another sign that the US is likely to avoid a near-term recession.



Inflation in the United Kingdom appears sticky, hovering near 6.7% for the third month in a row. However, wage growth appears to be peaking, which will probably keep the Bank of England on the sidelines.



China’s Q3 growth rate beat economists’ forecasts after several incremental rounds of fiscal and monetary stimulus. GDP rose 4.9% year over year, better than the 4.5% consensus forecast but slower than the 6.6% pace recorded in Q2. Industrial production rose 4.5% from a year ago, slightly exceeding forecasts, while retail sales rose 5.5%, beating the 4.9% estimate. However, property investment plunged 9.1% year over year and residential property sales fell 3.2%. Overall, the data show a marginal improvement in the world’s second-largest economy.



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