By Benjamin Picton, senior macro strategist at Rabobank
In Western superstition, Friday the 13th is considered a particularly inauspicious day. The date is so entwined with ideas of calamity and outright evil that it has inspired its own slasher film franchise.
Turning to markets first, the inauspicious event was epic bond volatility following the release of the September CPI inflation report for the USA. Headline inflation was 0.4% MoM versus estimates of 0.3%, and the year-on-year figure was 3.7% versus expectations of 3.6%. Core inflation was in-line with expectations at 0.3% in the month. The one-tick upside surprise on the headline was sufficient to see yields jump 14bps to just under 4.70% by market close. Simultaneously, the 30-year Treasury was sold even harder, with yields up by as much as 19bps at one stage before eventually closing up 16bps. That is the biggest one-day gain since 2020.
Taken with the (superficially) strong jobs data last week, this probably puts the next two FOMC meetings into contention. Market implied probability of another rate hike before the end of the year moved from 30% to 40%, and the recently released FOMC minutes suggest that a majority of voters still expect another hike this year. Further Fed hikes obviously makes the prospect of a soft landing more remote. Our own Philip Marey expects a recession to begin in the final quarter of this year, and that is despite Philip’s view that rising yields will do the Fed’s work for it and prompt them to leave rates unchanged.
Meanwhile, the ECB’s Robert Holzmann suggested overnight that returning to 2% inflation will require a recession in the Eurozone. Holzmann was commenting after the latest ECB meeting minutes showed that the 25bps hike delivered in September was a “close call”. Obligingly, a recession is in our forecast for the Eurozone, but it gives us no pleasure to admit that we see inflation pressures as persistent and growth sclerotic.
Troublingly, epic volatility in the bond market is now being mirrored by volatility in political attitudes. There is much unease this Friday the 13th, arriving as it does in a week where the world has been shocked by the grotesque violence perpetrated by Hamas against unarmed Israeli civilians. Stomach-churning stories of babies being beheaded and burned by Hamas terrorists sparked outrage from many quarters, but as our Western-liberal tolerance reflex kicked in some corners of the media seemed unsure how to respond. The result being an impression of inhumanity or moral confusion.
The speed at which the events of this week have shifted the Overton Window is dizzying. On Wednesday, arch-establishment figure Henry Kissinger (who himself fled the Nazis in 1938) questioned the wisdom of Western migration policies, suggested “it was a grave mistake to let in so many people of totally different culture and religion and concepts”, while Australian Opposition Leader Peter Dutton drew criticism for saying that temporary visa holders who participated in pro-Palestinian protests in Sydney and Melbourne should be deported. Statements like these would have been unthinkable just a week ago.
This Friday the 13th also happens to be what former Hamas leader Khaled Mashaal has called the ‘Friday of Al-Aqsa Flood’. Several media outlets have reported Mashaal’s comments as a call for a “day of global jihad”, which is sure to inflame the fears of Westerners who are still reeling from the events of the week.
News that further pro-Palestinian protests in Western cities are being planned for today gives the uncomfortable impression that the protestors are agreeing with Mashaal (some clearly do). The presence of academics and student organisations in the vanguard of the protests seemingly demonstrates that the moral clarity that eludes sections of the media also evades sections of academia, who can’t seem to separate the perceived rightness of a cause (support for Palestinian civilians and/or statehood) from the wrongness of the methods to achieve it (murder of innocents). The West faces a delicate cultural moment as it attempts to balance the values of post-protestant liberal tolerance towards the right to protest against evidence of rising anti-semitism. What if this circle cannot be squared? That’s a recipe for further parochialism as partisans retreat to their corners to shout at each other.
All of this occurs at a time when unity of purpose is more important than ever. A Congressionally-appointed panel yesterday recommended that the United States has to be prepared to fight simultaneous wars with both Russia and China. Needless to say, that will require immense investment in America’s war-fighting capability from a starting point where the USA is already carrying a debt load comparable to post-WW2 and a military industrial complex struggling with basic sustainment of existing capabilities. How do we get from A to B? Can it be done in time? Can it be done without severe cuts to social programs?
So, there is trouble abroad and increasingly at home. Everyone accepts this, but a lack of common-cause has also bred a lack of consensus solutions. Regardless of how successful the central bankers are at piloting the economy towards a soft landing, grave doubts remain about politicians’ ability to engineer a soft-landing for a heavily-polarized society.
Friday the 13th indeed.
