A Reuters Open Interest newsletter |
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What matters in U.S. and global markets today |
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Usually alternatives, stocks and gold are rising together as investors seek to ride an inflationary expansion by taking on AI-driven corporate risk with gold added to portfolios as a hedge against loosening monetary and fiscal policy worldwide. Monday's brief stumble on Wall Street looks to have been just that and both U.S. futures and European stocks rallied on Wednesday, with the STOXX600 and FTSE100 hitting new records. French markets staged a recovery amid some sign of progress in the government's impasse there and gold surged again after topping $4,000 per ounce for the first time on Tuesday. If rising stocks and gold seemed like an odd couple, they were also joined by the peculiar sight this year of a rising dollar. The dollar DXY index hit a near two-month high as Japan's yen plunged again close to 153 per dollar on this week's leadership change in Tokyo, dropping to its weakest since February. With no sign of movement on re-opening government in Washington, the focus remains on Federal Reserve signals - with minutes from last month's rate-cutting meeting and a long list of speakers on Wednesday's diary. On Tuesday, new Fed board member Stephen Miran, who favors big rate cuts due to his view on a much lower neutral rate than consensus thinking, said that calm bond markets supported his take. Futures are still pricing in a 95% chance of another quarter-point rate cut later this month, with the longer the government shutdown lasts the longer the drag on the economy at the margin. And, adding some trepidation about runaway stocks, the Bank of England warned on Wednesday about the risk of a sharp reversal if investor moods soured on doubts about AI or Fed independence. |
- In keeping with easy policy settings around the world, the Reserve Bank of New Zealand surprised with a 50‑basis‑point rate cut and signaled more easing may follow, knocking the New Zealand dollar down nearly 1% and dragging the Aussie lower in sympathy. Markets had priced only a slim chance of a half‑point move and policymakers framed the step as getting "ahead of the curve" to arrest a frail economy.
- Despite the bounce in French stocks and bonds, the euro sagged to a one‑month low. But caretaker French Prime Minister Sebastien Lecornu struck a cautiously optimistic tone on Wednesday, saying a deal could potentially be reached on the country's budget by year-end, making the possibility of a snap election less likely.
- Spot bullion burst above $4,000 per ounce for the first time, now up more than 50% year‑to‑date as investors hedge policy and growth uncertainty. Beyond its role as an inflation hedge and geopolitical safety play, the rally has been underpinned by central‑bank accumulation, renewed ETF inflows and this year's softer dollar, with some strategists casting gold as insurance against an AI-fuelled bubble and debt‑inflation endgame.
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- A race by crypto companies to sell tokens pegged to stocks is raising alarm bells among traditional financial firms and regulatory experts who warn that the fast-growing novel products pose risks to investors and market stability.
- U.S. lawmakers are calling for broader bans on chipmaking equipment to China after a bipartisan investigation found that Chinese chipmakers had purchased $38 billion of sophisticated gear last year.
- In better news for Britain's embattled finance minister Rachel Reeves, the UK statistics office said government borrowing in the previous and current fiscal years was a combined 3 billion pounds ($4 billion), lower than previously reported after a value added tax receipt data error was found. There were also rising hopes that tweaks to self-imposed fiscal rules will prevent excessive tax rises in next month's budget.
- The Federal Reserve says its interest rate cuts are aimed at softening the impact of a looming labor market rupture. Unfortunately, writes ROI markets columnist Jamie McGeever, cheaper money is unlikely to achieve that goal, but what it almost certainly will do is fuel the "everything" rally in financial assets.
- Russia's heavy bombardment of Ukraine's natural gas infrastructure ahead of winter is set to have a knock-on impact on Europe's energy market as Ukraine draws more fuel from its western neighbours. Read the latest from ROI energy columnist Ron Bousso.
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Europe's ageing burden far less than US or China |
Graying Europe has long been considered an outlier in global demographics - but the rising cost to its governments in terms of bills for pensions and healthcare are more manageable than assumed and less than in rival economies in America and China. In a detailed report on the rising cost to the public purse from Europe's ageing population, Brussels-based think Breugel this week outlined the trajectory through 2070 using the latest country-by-country data from European Commission. Familiar problems and necessary remedies recur - pressure on budgets due to longer life spans, the need to raise retirement ages gradually and for better-funded pension and care systems, and more targeted employment-based inward migration. Indeed one eye-catching line from the report is that it now looks likely the baby-boomer generation will have experienced longer retirement than either their parents or their children. But perhaps the most remarkable takeaway was how relatively contained Europe's fiscal burden appears in aggregate. That's not to put a gloss on a worrisome problem - one raising the prospect of falling workforces, weighing on the continent's potential growth and with little hope of a reversal of alarming birth rate declines. But the context of where Europe fits into the global picture - at least in terms of its fiscal exposure - is certainly very different from prevailing gloomy narratives. Breugel's report calculates that on average the European Union's 27 members ageing-related costs will rise by just over 1% of GDP over the next 45 years - with categories including pensions, long-term care, healthcare and education. |
Graphics are produced by Reuters. |
Curiously but intuitively, the projected baby bust means falling education costs register as a saving for the whole bloc. The circa 1 percentage point of GDP rise in costs the report outlines - about 210 billion euros relative to this year's GDP - was then compared to equivalent estimates for the United States and China. Bruegel used the latest long-term U.S. estimates from the Congressional Budget office to show Federal government and healthcare expenditures rising about 4-5 percentage points of GDP through 2055. And it used the International Monetary Fund's annual economic surveillance estimates for China to show government pension spending alone rise by about 9 points of GDP through 2052. "It is not...the cost of European welfare states that is 'out of control' as the whole world ages," authors David Pinkus and Jacob Funk Kirkegaard noted. "The real risks lie elsewhere." |
One caveat, much like EU-wide estimates of debt-GDP, is that the average for the bloc masks big variations from country to country. |
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Graphics are produced by Reuters. |
With investors racing to gold as an inflation hedge and the Federal Reserve resuming interest rate cuts, the New York Fed's monthly household survey found that public inflation expectations were rising again last month, with their view of inflation a year from now rising to 3.4% from August's 3.2% and the three-year-stuck at 3%. September's five-year-ahead expected inflation reading also stood at 3% from the prior month's 2.9%. All measures are far above the Fed's inflation target of 2% - as are actual core inflation rates - raising questions as to just why the central bank is cutting rates again. |
- Federal Open Market Committee issues minutes from September meeting
- Dallas Federal Reserve President Lorie Logan, Chicago Fed President Austan Goolsbee, St. Louis Fed chief Alberto Musalem, Minneapolis Fed boss Neel Kashkari and Fed Board Governor Michael Barr all speak; European Central Bank President Christine Lagarde; Bank of England chief economist Huw Pill speaks
- International Monetary Fund managing director Kristalina Georgieva previews next week's IMF-World Bank annual meetings
- U.S. Treasury sells $39 billion of 10-year notes
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