Outlook: Inflation in the mildest form, core PCE, is up on the monthly basis, if down on the year-over-year. The public remains committed to seeing inflation back to 2.7% in 5 years, so we’re all right, Jack.

And amid all the talk of plenty of rate hikes to come and a sagging stock market, the Atlanta Fed sees Q3 growth at 2.4%. Zowie. It was 0.3% on Sept 27, only 3 days before. The cause is personal consumption spending growth switching to +0.4% from -7.6% and private domestic investment growth up at 1% from -7.6%. Plus, the export growth contribution rose to 2.2% from 1.1%. And let’s not question why exports are doing so well when the dollar is so expensive for foreigners. We get another GDPNow today.

Conflicting signals is called “noise” and we have a lot of it right now. The end of the Sept month and Q3 is no guarantee things will calm down. And it’s not clear that today’s ISM manufacturing PMI is going to offer a one-size-fits-all “solution.”. The ISM is forecast to dip to 52.1 from 52.8 in August. The ISM services PMI comes on Wednesday. We also get construction spending and vehicle sales this week, with the ADP private sector jobs on Wednesday and the “employment situation” on Friday. Assuming we continue to have a labor shortage, how can the recessionistas justify their gloom? Again, explaining Lag poses a problem for the hordes of Fed speakers this week. Some have said employment is the last to give in during a real recession. We are not sure this is true. If Fed speakers do not talk about it, the markets will remain jittery.

And everybody and his brother is raising rates. The ECB is expected to do 50 bp at the next meeting on Oct 27. Australia is expected to do the same overnight tonight. Even Israel is expected to raise and by 75 bp, after 75 bp in August. (In fantasy-land, Turkey reported Sept CPI at 83.45% y/y after 80.21% in August, while the central bank has cut rates by 100 bp over the last two meetings and may do it again at the Oct 20 policy meeting.)

There is starting to be real interest in the ending max rate in each economy, named the peak rate—with the US at 4.5-4.75%, the eurozone at about 3%, and the UK at a whopping 5.75%.

Conventional Econ 101 theory says the interest rate is each country should be equal to the rate in every other country once inflation is priced in. This is one of more annoying “models” in economics for two dozen reasons, including that in the long run, like decades, the country with the highest growth gets the strongest currency (not the economy with the highest interest rate). Still, given the US has one of the highest rates plus that growth plus other advantages like energy and food self-sufficiency, the dollar outlook is pretty good. The US doesn’t need reserve currency status—but that is still the cherry on top. In the Blomberg survey, two-thirds see the dollar spot index making new highs over the next month.

One thing we smell that is worrisome is the attack on specific assets in the UK and now Switzerland. In the UK, it was a form of swaps used to hedge pension and other funds’ positions. Now it’s Credit Suisse’s credit default swaps (CDS), despite the big bank analysts saying there’s nothing really problematic in the Credit Suisse balance sheet. Maybe it’s a natural development but maybe it’s a single player trying to wreak havoc in the fancy derivative end of the Western financial system. Gee, who would want to do that?

Tidbit: Who sabotaged the Nordstream pipelines? Putin said it would be stupid for Russia to have done it. And he’s right. If nothing else, Gazprom would be in breach of contract, not that contracts are respected in Russia. On the principle of cui bono (who benefits), the saboteur could be someone pro-nuclear, or maybe a coal mining company, or a climate denier, or some 5th column pro-Russia gang from within W. Europe itself. Or an anti-Russian one. This is not likely to get solved unless the miscreants boast to the wrong people--we will have to wait for the movie. Or it was Russia. NATO said last week it will take charge of security for the pipelines.

After Russia formally declared the four Ukrainian regions as having chosen to join Russia in the sham referenda, Putin gave a meandering and fairly unhinged speech, according to analysts. Nobody has “annexed” another country’s land since Hitler took a chunk of Czechoslovakia, Sudetenland, in 1938—84 years ago. Putin’s talk of using nukes got a response from Nato sec-gen Stoltenberg, who warned of “severe consequences for Russia” if Putin uses nuclear.  It would be reckless and dangerous, and “change the nature” of the Ukraine conflict.” Hmm. 

Pres Zelensky applied to Nato for a fast response. This is getting interesting. It’s as though Putin is playing chicken with the West and the US in particular. Article 5 says an attack on one is an attack on all and all will respond. So once Ukraine is a Nato member, Russia is at war with the US and all the other Nato members. Considering how badly the Russians have managed the war and can be said to be losing it, it’s more than stupid—it’s suicidal. What can Putin be up to? There is more than a hint of blackmail here, and as we all know, every country has a hard policy of not giving in to blackmail. This is not say American troops are on the boat, but Volodymyr can probably look forward to some more missiles. To return to economics, war can be good for an economy in terms of capital investment and jobs.


This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

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This morning FX briefing is an information service, not a trading system. All trade recommendations are included in the afternoon report.

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