Is it starting?

GEOPOLITICS

USA

The VP debate for the US elections created a panic wave on the left. It expected Waltz to make up for the poor performance of Kamal Harris in the debate of presidential candidates vs Trump. Elections are all about momentum in the campaign and the campaign with the highest momentum at this time is clearly the Trump-Vance ticket.?

In the aftermath of the Helen hurricane, both sides engaged into a communication about the support to the victims.

The fact is FEMA is broke according to Mayorkas (in charge of FEMA, Immigration, Border Security and Secret Service - let that sink in …), and the same administration is sending taxpayer’s money to Ukraine and Israel in billions.

Eastern Europe

Russia is still making slow but consistent progress in the Eastern regions of Ukraine as well as in the Kursk region, where the presence of Ukrainian forces doesn’t make much sense any more, if it ever did.

Another major risk of escalation happened when Ukraine used French missiles to fire at the Kursk nuclear plant.

According to the recently modified Russian doctrine, this could justify a retaliation against France. It is pretty clear the French population is not aware of a situation that still appear quite distant to them.

Middle East?

The major event in the Middle East was Iran striking Israel with a rafale of 180 missiles, some hypersonic, in order to overwhelm Israel “iron dome” air defense system.

The Iranian response can be interpreted as measured as it predominantly targeted military installations. Iran's strike was likely approved by Russia, as Russia's PM was in Tehran right before. Russia appears to play the same role with Iran as the US plays with Israel in another proxy conflict.

Israel continues to bomb Lebanon after decimating the top level of the Hezbollah organization, and after the Iran strike. It also appears Israel made incursions with troops in South Lebanon, probably preparing the ground for a larger scale invasion.

In a bad sign for what’s to come, Russia ordered its 1.5 million citizens currently living in Israel to immediately leave the country.

We’ve never been closer to a large escalation of the conflict in the Middle East with a potential direct confrontation between the US and Russia.

ECONOMY

The economic news last week was dominated by the September Jobs report on Friday. The US economy officially added 254,000 jobs in September, way above expectations of 147,000 and? which statistically represents a 4 sigma move. Moreover, August's jobs number was revised higher.

In a year where numbers were carefully massaged to push the narrative of a strong economy in a critical election year, the strength of the last jobs report before the election is legitimately doubtful.

How can the Fed's 50 basis point cut be justified now? (although we know the Fed and the banks needed that strong rate cut).

Obviously, the September Jobs report sent rates rising again, but Powell earlier this week still mentioned his base case scenario of two more 25bps rate cut in 2024.

Nothing less.

While the expected rate cut for November was 50bps, it is now 25bps only.

The current situation of the economy and the narratives developed are conflicting, not to say colliding:

1. Stocks are rising like a recession is avoided

2. Gold prices are rising like a recession is coming

3. Oil prices are rising like WW3 is coming

4. Tech stocks are rising like risk appetite is at all time highs

There is something wrong and these discrepancies that will have to be reconciled and resolved.

MARKETS

US Equity markets were nearly flat last week after being rocked by the Iran strike and finally recovering with the Jobs report (good news is back to being good news?).

Equity volatility and the VIX keep inching higher in a similar pattern as 2007.

Emerging Equity markets appear to outperform the mag 7 recently on an apparent rapatriation of capital by Asian investors from the West to Asia, which seem to have the higher growth potential for the future.

US Bonds collapsed on Friday with the hawkish Jobs Report.

Gold is maintaining its position around its all time highs, which is on track for its best annual return since 1979, up 28% year-to-date.

In terms of asset flows, cumulative gold ETF inflows (including gold miners ETFs) are now at $3.3 billion since August, and the most popular gold ETF, $GLD, has recorded $644 million cumulative inflows year-to-date.

Gold continues to trade like we are in a crisis.

Oil surged last week, benefiting from the stimulus package in China, as well as escalating tensions in the Middle East.

It may be different this time as previous attacks in the Middle East, whether in Lebanon, Iran or Israel didn’t move markets much.

Is this the one ?

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