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So the day didn’t turn out the disaster that many, including me, feared. It will remain to be seen if the conflict will be confined to the Gaza Strip, or if it will widen to include other important regional players. By the way, in the list of ‘safe’ assets I mentioned yesterday (cash, USD, and commodities), I forgot to mention the CHF – clearly a defensive move likely to shield investors and increase versus other currencies at a time of crisis.

All the pressure on yields brought treasuries – and foreign bonds as well – in an oversold position. One has to hope that there will be a glimmer of hope in the upcoming PPI (Wednesday) and CPI (Thursday) to trigger a much-needed bounce. Considering how oversold they are, even an in-line result could possibly do – as investors will be relieved by the fact that inflation is not worse than forecasts and expectations.

On a separate note – and this is becoming even more important for European Sovereign Debt, and in particular for Italy, the state is increasingly seen as a ‘big spender’, fanning inflation. In the last month, the spread between the Bund and the Btp has widened by 32bps. And in Italy, the budget is looming – investors better take notice, but it seems they are voting with their feet.

At present, Inflation is not only a function of consumer spending and corporate investments; the government, oil, and politics are having a big role. And 2024 will be an election year in the US. Be careful out there.

#investing #macro #centralbanks #fed #interestrates #fixedincome #equities #stockmarket #volatility # sp500

Charts from Bank of America H/t

Inflection Point Tom Baldacci


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