IS A GEOPOLITCAL PREMIUM ABOUT TO RETURN?

Is a geopolitical premium about to return to the markets?  Equities reversed a large part of the gains following the headlines that several Russian rockets landed in Poland.  Is this an escalation or a malfunction?

Saber rattling and at times nuclear posturing has had little impact upon markets, perhaps underscoring today’s complacency.  In years past, nuclear posturing would have sent the averages markedly lower.

Changing topics, October’s PPI came in at 8% year on year, undershooting the 8.3% estimate further easing inflation concerns.  Treasuries advanced which was a primary catalyst for the NASDAQ gains.

Bloomberg wrote yesterday “projections for the personal consumption expenditures price index—the Federal Reserve’s preferred inflation metric—were raised for each quarter of 2023.”  The Newswire however indicated “prices are then expected to cool more sharply in the final three months of the year than previously anticipated, the result of loftier fed fund levels heading into this period.”

Accordingly, Bloomberg stated the Fed is expected to reach a higher target range of 4.75%-5% in the first quarter, peaking somewhere between 5.0% and 5.25% in the second quarter and maintaining this level for most of 2023.

How accurate is this outlook?

Fed officials are universally stating any change in monetary policy will not occur in the foreseeable future util inflation has returned to its 2.0% speed limit.

The economic calendar is comprised of retail sales, import/export prices, industrial production and capacity utilization.

Last night the foreign markets were down.  London was down 0.01%, Paris down 0.46% and Frankfurt down 0.86%.  China was down 0.45%, Japan up 0.14%,and Hang Seng down 0.47%.

The Dow should open flat.  Headlines are now suggesting the errant missile that hit Poland was from the Ukraine. The 10-year is off 1/32 to yield 3.78%.

 

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