The week that will define the next decade and more

GEOPOLITICS

USA

One should not underestimate the impact this US election will have on the affairs of the world for the decade or even more to come.

Pennsylvania, but Michigan and Wisconsin are in a toss up situation for the election between Kamala Harris and Donald Trump.

Unsurprisingly, bets have converged again as we get close to the outcome of the campaign, and these three states will likely decide the 47th election for the president of the United States.

Both the Washington Post and the LA Times, both leaning left, refused to endorse any candidate, ie refused to endorse Kamala Harris.

Eastern Europe

Georgia is experiencing now a similar situation as Ukraine in 2014, where the US and Russia are fighting for influence and control over another country.

The Georgian Dream Party, pro Russian, won the elections immediately challenged by the opposition party of the current president Salome Zourabichvili, who is pro Europe. She refused to recognize the recent parliamentary election results, alleging widespread falsification, and called on the public to protest.

Former UK Prime Minister Boris Johnson, who killed a peace agreement between Russia and Ukraine in April 2022, accused Georgian authorities of "stealing the election.". Similar concerns came from the U.S. State Department that threatened Georgia with 'further consequences'.

This happened in Ukraine, this happens in Georgia, and this may be a taste of what’s to come in the US over the next few months.

Middle East?

Israel eventually retaliated against Iran with strikes mainly targeting military objectives. No nuclear or oil facilities were impacted.

The response was definitely measured, and it appears that the main objective was to annihilate S-300 air defense system potential to leave the Iranian regime exposed to further operations. Unsurprisingly, Tehran declared reserving its right to retaliate …

ECONOMY

The US Dollar's share of global payments recently hit 49%, growing by 9%, which is the most in 12 years, according to Swift data. We often mention de-dollarization, but this growing number is actually a sign of de-euroization, the Euro's share plummeting from ~39% to ~21%, the lowest in a decade.

The US Dollar remains the most dominant global currency, even if this paints a partial picture as it is Swift data only, when 65% of the BRICS trade executed in local currencies is not going through the Swift system.

US job openings fell by 420,000 in September, to 7.44 million, the lowest since January 2021, and the US economy only added 12,000 jobs in October, below expectations of 106,000 (lowest number of US jobs added since July 2021). Job openings have been declining by 39% since the March 2022 peak.

The data has now been revised downward in 15 out of the last 20 months. The US labor market is deteriorating, and no one reports it … This is an election year.

The U.S. Treasury ETF TLT is heading down again and is on track for a fourth year of negative returns. Meanwhile, retail has been piling up in treasuries, seemingly unaware of the consequences of the Fed policies and the rising of the US debt.

In this context, the US Credit Derivative Swaps have risen significantly since the Fed rate cut, signaling deteriorating US credit worthiness with investors demanding higher interest rates to cover the increased risk in the US debt.

US Treasuries can no longer be considered a safe or risk off asset.

MARKETS

Last day of the month saw a drop in most markets which erased most of October gains in many asset classes, not only equities.

This came after disappointing tech prints (MSFT -6% & META -4%), poor liquidity in the markets which exacerbates larger moves, and the core PCE posting its biggest monthly gain since April.

This is not totally surprising as US Equity markets were seen levitating although Treasury yields surged the whole month of October.

Risk off assets such as the dollar and gold soared in October (not bonds, see above), while Bitcoin appears again to be a hedge against inconsequential Fed policies and also rising along favorable odds of Trump, the candidate to the US elections more favorable to the crypto space.

Bitcoin ETF inflows have been very significant as well in October.

If there is one thing to remember, since the Fed cut rates, and because the Fed cut rates, the USA sovereign risk exploded higher.

If Powell cuts again as expected, when official data shows it might not be necessary other than managing US interests in the debt, the US sovereign risk might increase higher.

On that note, happy investing !

Happy voting !

Happy Fed decision !

Hang tight ... and see you next week !

#money #investing #management #markets #economy