This "Markets Weekly" video transcript summarizes key market events and trends from the past week, focusing on inflation, the potential for conflict in the Middle East, and the weakening US dollar. The speaker begins by noting the action-packed nature of the market, a trend expected to continue.
**Inflation and Employment Data:** The central argument is that the Federal Reserve (Fed) is lagging in its approach to rate cuts. Despite concerns about inflation, recent data suggests it's trending downwards. The Consumer Price Index (CPI) came in lower than expected, and while headline CPI is around 2.5% year-over-year, core CPI is slightly under 3%. Deflation in energy is a factor. The Producer Price Index (PPI) also printed lower than expected.
The speaker points out that inflation expectations, as measured by surveys like the University of Michigan's and the New York Fed's, are also trending downwards. Market-based measures, such as one-year inflation swaps, confirm this trend.
On the employment front, while job creation remains positive, there are signs of cracks in the labor market. Continuing unemployment claims are rising to multi-year highs, indicating that people are having more difficulty finding new jobs after losing their previous ones. This suggests an overall weakening labor market. The speaker believes this data should prompt the Fed to become more aggressive with rate cuts, potentially more than the two currently priced in by the market. The upcoming Fed meeting and dot plot are anticipated to provide further insights.
**Potential New Fed Chair:** The potential replacement of the current Fed chair next year by a Trump appointee is mentioned. Potential candidates discussed include Kevin Walsh (a mega-hawk), Governor Waller, and Secretary Besson, but it is hard to tell.
**Middle East Conflict and Oil Prices:** The speaker emphasizes that the market often isn't as forward-looking as commonly believed, citing COVID-19 and the US-China trade war as examples. This brings them to the potential war between Israel and Iran.
The speaker notes that the recent attack on Iran was widely telegraphed and well-executed, potentially targeting Iran's nuclear facilities. The White House initially denied involvement but then took some credit. The immediate market reaction was a spike in oil prices. It is suggested that smart oil guys are saying that high oil prices are geopolitical premium now. They are worried about Iran closing the streets of Harmoos, that could impact global shipping. Nathanyahu suggested this could go on for weeks.
**Weakening US Dollar:** The speaker highlights that the US dollar is not receiving a typical safe-haven bid in response to geopolitical uncertainties. This is attributed to a softer-than-expected inflation print, which could lead to more rate cuts. However, the speaker believes a broader trend is at play: a weakening dollar. This trend is expected to continue and impact various US assets.
**Sovereign CDS Comparison:** An interesting observation is made regarding US sovereign Credit Default Swaps (CDS). These are insurance contracts against sovereign debt default. The speaker notes that US CDS pricing has risen since "Liberation Day" (likely referring to a specific policy shift) and is now comparable to countries like Greece and Italy. This suggests a broader trend of a weakening dollar, foreign rebalancing out of US treasuries, and concerns about US governance. The de-dollarization of the US is anticipated to continue.
Gold continues to surge and is now the second largest reserve asset held by central banks.