InvestMacro

By Mathew Barlow, UMass Lowell and Suzana J. Camargo, Columbia University 

When Hurricane Ian hit Florida, it was one of the United States’ most powerful hurricanes on record, and it followed a two-week string of massive, devastating storms around the world.

A few days earlier in the Philippines, Typhoon Noru gave new meaning to rapid intensification when it blew up from a tropical storm with 50 mph winds to a Category 5 monster with 155 mph winds the next day. Hurricane Fiona flooded Puerto Rico, then became Canada’s most intense storm on record. Typhoon Merbok gained strength over a warm Pacific Ocean and tore up over 1,000 miles of the Alaska coast.

Major storms hit from the Philippines in the western Pacific to the Canary Islands in the eastern Atlantic, to Japan and Florida in the middle latitudes and western Alaska and the Canadian Maritimes in the high latitudes.

A lot of people are asking about the role rising global temperatures play in storms like these. It’s not always a simple answer.

It is clear that climate change increases the upper limit on hurricane strength and rain rate and that it also raises the average sea level and therefore storm surge. The influence on the total number of hurricanes is currently uncertain, as are other aspects. But, as hurricanes occur, we expect more of them to be major storms. Hurricane Ian and other recent storms, including the 2020 Atlantic season, provide a picture of what that can look like.

Our research has focused on hurricanes, climate change and the water cycle for years. Here’s what scientists know so far.

Rainfall: Temperature has a clear influence

The temperature of both the ocean and atmosphere are critical to hurricane development.

Hurricanes are powered by the release of heat when water that evaporates from the ocean’s surface condenses into the storm’s rain.

A warmer ocean produces more evaporation, which means more water is available to the atmosphere. A warmer atmosphere can hold more water, which allows more rain. More rain means more heat is released, and more heat released means stronger winds.

These are basic physical properties of the climate system, and this simplicity lends a great deal of confidence to scientists’ expectations for storm conditions as the planet warms. The potential for greater evaporation and higher rain rates is true in general for all types of storms, on land or sea.

That basic physical understanding, confirmed in computer simulations of these storms in current and future climates, as well as recent events, leads to high confidence that rainfall rates in hurricanes increase by at least 7% per degree of warming.

Storm strength and rapid intensification

Scientists also have high confidence that wind speeds will increase in a warming climate and that the proportion of storms that intensify into powerful Category 4 or 5 storms will increase. Similar to rainfall rates, increases in intensity are based on the physics of extreme rainfall events.

Damage is exponentially related to wind speed, so more intense storms can have a bigger impact on lives and economies. The damage potential from a Category 4 storm with 150 mph winds, like Ian at landfall, is roughly 256 times that of a category 1 storm with 75 mph winds.

Hurricane Ian’s water vapor on Sept. 28, 2022, meant heavy rainfall for large parts of Florida.
NOAA

Whether warming causes storms to intensify more rapidly is an active area of research, with some models offering evidence that this will probably happen. One of the challenges is that the world has limited reliable historical data for detecting long-term trends. Atlantic hurricane observations go back to the 1800s, but they’re only considered reliable globally since the 1980s, with satellite coverage.

That said, there is already some evidence that an increase in rapid intensification is distinguishable in the Atlantic.

Within the last two weeks of September 2022, both Noru and Ian exhibited rapid intensification. In the case of Ian, successful forecasts of rapid intensification were issued several days in advance, when the storm was still a tropical depression. They exemplify the significant progress in intensity forecasts in the past few years, although improvements are not uniform.

There is some indication that, on average, the location where storms reach their maximum intensity is moving poleward. This would have important implications for the location of the storms’ main impacts. However, it is still not clear that this trend will continue in the future.

Storm surge: Two important influences

Storm surge – the rise in water at a coast caused by a storm – is related to a number of factors including storm speed, storm size, wind direction and coastal sea bottom topography. Climate change could have at least two important influences.

Stronger storms increase the potential for higher surge, and rising temperatures are causing sea level to rise, which increases the water height, so the storm surge is now higher than before in relation to the land. As a result, there is high confidence for an increase in the potential for higher storm surges.

Speed of movement and potential for stalling

The speed of the storm can be an important factor in total rainfall amounts at a given location: A slower-moving storm, like Hurricane Harvey in 2017, provides a longer period of time for rain to accumulate.

There are indications of a global slowdown in hurricane speed, but the quality of historical data limits understanding at this point, and the possible mechanisms are not yet understood.

Frequency of storms in the future is less clear

How the number of hurricanes that form each year may change is another major question that is not well understood.

There is no definitive theory explaining the number of storms in the current climate, or how it will change in the future.

Besides having the right environmental conditions to fuel a storm, the storm has to form from a disturbance in the atmosphere. There is currently a debate in the scientific community about the role of these pre-storm disturbances in determining the number of storms in the current and future climates.

Natural climate variations, such as El Niño and La Niña, also have a substantial impact on whether and where hurricanes develop. How they and other natural variations will change in the future and influence future hurricane activity is a topic of active research.

How much did climate change influence Ian?

Scientists conduct attribution studies on individual storms to gauge how much global warming likely affected them, and those studies are currently underway for Ian.

However, individual attribution studies are not needed to be certain that the storm occurred in an environment that human-caused climate change made more favorable for a stronger, rainier and higher-surge disaster. Human activities will continue to increase the odds for even worse storms, year over year, unless rapid and dramatic reductions in greenhouse gas emissions are undertaken.

About the Author:

Mathew Barlow, Professor of Climate Science, UMass Lowell and Suzana J. Camargo, Lamont Research Professor of Ocean and Climate Physics, Columbia University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Shahid S. Hamid, Florida International University 

Hurricane Ian’s widespread damage is another disaster for Florida’s already shaky insurance industry. Even though home insurance rates in Florida are nearly triple the national average, insurers have been losing money. Six have failed since January 2022. Now, insured losses from Ian are estimated to exceed US$40 billion

Hurricane risk might seem like the obvious problem, but there is a more insidious driver in this financial train wreck.

Finance professor Shahid Hamid, who directs the Laboratory for Insurance at Florida International University, explained how Florida’s insurance market got this bad – and how the state’s insurer of last resort, Citizens Property Insurance, now carrying more than 1 million policies, can weather the storm.

What’s making it so hard for Florida insurers to survive?

Florida’s insurance rates have almost doubled in the past five years, yet insurance companies are still losing money for three main reasons.

One is the rising hurricane risk. Hurricanes Matthew (2016), Irma (2017) and Michael (2018) were all destructive. But a lot of Florida’s hurricane damage is from water, which is covered by the National Flood Insurance Program, rather than by private property insurance.

Another reason is that reinsurance pricing is going up – that’s insurance for insurance companies to help when claims spike.

But the biggest single reason is the “assignment of benefits” problem, involving contractors after a storm. It’s partly fraud and partly taking advantage of loose regulation and court decisions that have affected insurance companies.

It generally looks like this: Contractors will knock on doors and say they can get the homeowner a new roof. The cost of a new roof is maybe $20,000-$30,000. So, the contractor inspects the roof. Often, there isn’t really that much damage. The contractor promises to take care of everything if the homeowner assigns over their insurance benefit. The contractors can then claim whatever they want from the insurance company without needing the homeowner’s consent.

If the insurance company determines the damage wasn’t actually covered, the contractor sues.

So insurance companies are stuck either fighting the lawsuit or settling. Either way, it’s costly.

Other lawsuits may involve homeowners who don’t have flood insurance. Only about 14% of Florida homeowners pay for flood insurance, which is mostly available through the federal National Flood Insurance Program. Some without flood insurance will file damage claims with their property insurance company, arguing that wind caused the problem.

How widespread of a problem are these lawsuits?

Overall, the numbers are pretty striking.

About 9% of homeowner property claims nationwide are filed in Florida, yet 79% of lawsuits related to property claims are filed there.

The legal cost in 2019 was over $3 billion for insurance companies just fighting these lawsuits, and that’s all going to be passed on to homeowners in higher costs.

Insurance companies had a more than $1 billion underwriting loss in 2020 and again in 2021. Even with premiums going up so much, they’re still losing money in Florida because of this. And that’s part of the reason so many companies are deciding to leave.

Assignment of benefits is likely more prevalent in Florida than most other states because there is more opportunity from all the roof damage from hurricanes. The state’s regulation is also relatively weak. This may eventually be fixed by the legislature, but that takes time and groups are lobbying against change. It took a long time to pass a law saying the attorney fee has to be capped.

How bad is the situation for insurers?

We’ve seen about a dozen companies be declared insolvent or leave since early 2020. At least six dropped out this year alone.

Thirty more are on the Florida Office of Insurance Regulation’s watch list. About 17 of those are likely to be or have been downgraded from A rating, meaning they’re no longer considered to be in good financial health.

The ratings downgrades have consequences for the real estate market. To get a loan from the federal mortgage lenders Freddie Mac and Fannie Mae, you have to have insurance. But if an insurance company is downgraded to below A, Freddie Mac and Fannie Mae won’t accept it. Florida established a $2 billion reinsurance fund in May 2022 that can help smaller insurance companies in situations like this. If they get downgraded, the reinsurance can act like co-signing the loan so the mortgage lenders will accept it.

But it’s a very fragile market.

Ian could be one of the costliest hurricanes in Florida history. I’ve seen estimates of $40 billion to $60 billion in losses. I wouldn’t be surprised if some of those companies on the watch list leave after this storm. That will put more pressure on Citizens Property Insurance, the state’s insurer of last resort.

Some headlines suggest that Florida’s insurer of last resort is also in trouble. Is it really at risk, and what would that mean for residents?

Citizens is not facing collapse, per se. The problem with Citizens is that its policy numbers typically swell after a crisis because as other insurers go out of business, their policies shift to Citizens. It sells off those policies to smaller companies, then another crisis comes along and its policy numbers rise again.

Three years ago, Citizens had half a million policies. Now, it has twice that. All these insurance companies that left in the last two years, their policies have been migrated to Citizens.

Ian will be costly, but Citizens is flush with cash right now because it had a lot of premium increases and built up its reserves.

Citizens also has a lot of backstops.

It has the Florida Hurricane Catastrophe Fund, established in the 1990s after Hurricane Andrew. It’s like reinsurance, but it’s tax-exempt so it can build reserves faster. Once a trigger is reached, Citizens can go to the catastrophe fund and get reimbursed.

More importantly, if Citizens runs out of money, it has the authority to impose a surcharge on everyone’s policies – not just its own policies, but insurance policies across Florida. It can also impose surcharges on some other types of insurance, such as life insurance and auto insurance. After Hurricane Wilma in 2005, Citizens imposed a 1% surcharge on all homeowner policies.

Those surcharges can bail Citizens out to some degree. But if payouts are in the tens of billions of dollars in losses, it will probably also get a bailout from the state.

So, I’m not as worried for Citizens. Homeowners will need help, though, especially if they’re uninsured. I expect Congress will approve some special funding, as it did in the past for hurricanes like Katrina and Sandy, to provide financial aid for residents and communities.

About the Author:

Shahid S. Hamid, Professor of Finance, Florida International University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Nina Srinivasan Rathbun, USC Dornsife College of Letters, Arts and Sciences 

Tactical nuclear weapons have burst onto the international stage as Russian President Vladimir Putin, facing battlefield losses in eastern Ukraine, has threatened that Russia will “make use of all weapon systems available to us” if Russia’s territorial integrity is threatened. Putin has characterized the war in Ukraine as an existential battle against the West, which he said wants to weaken, divide and destroy Russia.

U.S. President Joe Biden criticized Putin’s overt nuclear threats against Europe. Meanwhile, NATO Secretary-General Jens Stoltenberg downplayed the threat, saying Putin “knows very well that a nuclear war should never be fought and cannot be won.” This is not the first time Putin has invoked nuclear weapons in an attempt to deter NATO.

I am an international security scholar who has worked on and researched nuclear restraint, nonproliferation and costly signaling theory applied to international relations for two decades. Russia’s large arsenal of tactical nuclear weapons, which are not governed by international treaties, and Putin’s doctrine of threatening their use have raised tensions, but tactical nuclear weapons are not simply another type of battlefield weapon.

Tactical by the numbers

Tactical nuclear weapons, sometimes called battlefield or nonstrategic nuclear weapons, were designed to be used on the battlefield – for example, to counter overwhelming conventional forces like large formations of infantry and armor. They are smaller than strategic nuclear weapons like the warheads carried on intercontinental ballistic missiles.

While experts disagree about precise definitions of tactical nuclear weapons, lower explosive yields, measured in kilotons, and shorter-range delivery vehicles are commonly identified characteristics. Tactical nuclear weapons vary in yields from fractions of 1 kiloton to about 50 kilotons, compared with strategic nuclear weapons, which have yields that range from about 100 kilotons to over a megaton, though much more powerful warheads were developed during the Cold War.

For reference, the atomic bomb dropped on Hiroshima was 15 kilotons, so some tactical nuclear weapons are capable of causing widespread destruction. The largest conventional bomb, the Mother of All Bombs or MOAB, that the U.S. has dropped has a 0.011-kiloton yield.

Delivery systems for tactical nuclear weapons also tend to have shorter ranges, typically under 310 miles (500 kilometers) compared with strategic nuclear weapons, which are typically designed to cross continents.

Because low-yield nuclear weapons’ explosive force is not much greater than that of increasingly powerful conventional weapons, the U.S. military has reduced its reliance on them. Most of its remaining stockpile, about 150 B61 gravity bombs, is deployed in Europe. The U.K. and France have completely eliminated their tactical stockpiles. Pakistan, China, India, Israel and North Korea all have several types of tactical nuclear weaponry.

Russia has retained more tactical nuclear weapons, estimated to be around 2,000, and relied more heavily on them in its nuclear strategy than the U.S. has, mostly due to Russia’s less advanced conventional weaponry and capabilities.

Russia’s tactical nuclear weapons can be deployed by ships, planes and ground forces. Most are deployed on air-to-surface missiles, short-range ballistic missiles, gravity bombs and depth charges delivered by medium-range and tactical bombers, or naval anti-ship and anti-submarine torpedoes. These missiles are mostly held in reserve in central depots in Russia.

Russia has updated its delivery systems to be able to carry either nuclear or conventional bombs. There is heightened concern over these dual capability delivery systems because Russia has used many of these short-range missile systems, particularly the Iskander-M, to bombard Ukraine.

Tactical nuclear weapons are substantially more destructive than their conventional counterparts even at the same explosive energy. Nuclear explosions are more powerful by factors of 10 million to 100 million than chemical explosions, and leave deadly radiation fallout that would contaminate air, soil, water and food supplies, similar to the disastrous Chernobyl nuclear reactor meltdown in 1986. The interactive simulation site NUKEMAP by Alex Wellerstein depicts the multiple effects of nuclear explosions at various yields.

Can any nuke be tactical?

Unlike strategic nuclear weapons, tactical weapons are not focused on mutually assured destruction through overwhelming retaliation or nuclear umbrella deterrence to protect allies. While tactical nuclear weapons have not been included in arms control agreements, medium-range weapons were included in the now-defunct Intermediate-range Nuclear Forces treaty (1987-2018), which reduced nuclear weapons in Europe.

Both the U.S. and Russia reduced their total nuclear arsenals from about 19,000 and 35,000 respectively at the end of the Cold War to about 3,700 and 4,480 as of January 2022. Russia’s reluctance to negotiate over its nonstrategic nuclear weapons has stymied further nuclear arms control efforts.

The fundamental question is whether tactical nuclear weapons are more “useable” and therefore could potentially trigger a full-scale nuclear war. Their development was part of an effort to overcome concerns that because large-scale nuclear attacks were widely seen as unthinkable, strategic nuclear weapons were losing their value as a deterrent to war between the superpowers. The nuclear powers would be more likely to use tactical nuclear weapons, in theory, and so the weapons would bolster a nation’s nuclear deterrence.

Yet, any use of tactical nuclear weapons would invoke defensive nuclear strategies. In fact, then-Secretary of Defense James Mattis notably stated in 2018: “I do not think there is any such thing as a tactical nuclear weapon. Any nuclear weapon use any time is a strategic game changer.”

The U.S. has criticized Russia’s nuclear strategy of escalate to de-escalate, in which tactical nuclear weapons could be used to deter a widening of the war to include NATO.

While there is disagreement among experts, Russian and U.S. nuclear strategies focus on deterrence, and so involve large-scale retaliatory nuclear attacks in the face of any first-nuclear weapon use. This means that Russia’s threat to use nuclear weapons as a deterrent to conventional war is threatening an action that would, under nuclear warfare doctrine, invite a retaliatory nuclear strike if aimed at the U.S. or NATO.

Nukes and Ukraine

I believe Russian use of tactical nuclear weapons in Ukraine would not achieve any military goal. It would contaminate the territory that Russia claims as part of its historic empire and possibly drift into Russia itself. It would increase the likelihood of direct NATO intervention and destroy Russia’s image in the world.

Putin aims to deter Ukraine’s continued successes in regaining territory by preemptively annexing regions in the east of the country after holding staged referendums. He could then declare that Russia would use nuclear weapons to defend the new territory as though the existence of the Russian state were threatened. But I believe this claim stretches Russia’s nuclear strategy beyond belief.

Putin has explicitly claimed that his threat to use tactical nuclear weapons is not a bluff precisely because, from a strategic standpoint, using them is not credible.

About the Author:

Nina Srinivasan Rathbun, Professor of International Relations, USC Dornsife College of Letters, Arts and Sciences

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By JustForex

The US Bureau of Labor Statistics (BLS) reported on Tuesday that job openings fell from 11.17 million to 10.05 million during August. On the one hand, the news is negative. Still, on the other hand, investors have begun to wonder if the slowdown seen in the US economy will cause the Federal Reserve to adjust its rate hike trajectory and be less aggressive. The real estate market is already in recession, manufacturing activity is slowing, and the labor market has shown signs of weakness. This caused the dollar and US government bond yields to pull back sharply, allowing the stock market to rise substantially.

At the close of the stock market yesterday, the Dow Jones Index (US30) increased by 2.80%, and the S&P 500 Index (US500) added 3.06%. The NASDAQ Technology Index (US100) jumped by 2.69% on Tuesday.

Monetary and fiscal policies in advanced economies, including continued interest rate hikes, could push the world into a global recession and stagnation, the UN Trade and Development said. The global recession has the potential to cause more damage than the 2008 financial crisis and the Covid-19 shock in 2020. Developing countries in Asia and Africa could bear the brunt of the impending recession, according to the report. If central banks continue to raise interest rates without using other tools and without considering supply-side economics, the desired soft landing is unlikely.

The Global Manufacturing PMI fell into contractionary territory (below the 50 level) for the first time since 2020. The Core Index fell from 50.3 in August to 49.8 in September. The report points to a worsening manufacturing trend in the coming months amid an intensifying downturn in global trade flows, reduced demand related to the ongoing cost-of-living crisis, and growing economic uncertainty about the outlook.

Reuters reported that billionaire Elon Musk plans to realize his initial $44 billion bid to privatize Twitter Inc.

Stock markets in Europe were mostly rising yesterday. Germany’s DAX (DE30) gained 3.78%, France’s CAC 40 (FR40) added 4.24%, Spain’s IBEX 35 (ES35) jumped by 3.14%, Britain’s FTSE 100 (UK100) closed up 2.57% yesterday.

Fiscal changes in the UK had a rather broad impact on global risk attitude and probably contributed to the recovery of risky assets and bonds. But according to analysts, European assets still have a long way to go to restore market positioning, given the energy crisis and geopolitical events. Experts remain skeptical about Europe and believe the recent recovery in sentiment is temporary.

There will be an important OPEC+ meeting today. According to preliminary information, the OPEC+ countries will consider cutting the quota by 1-2 million barrels per day in order to support oil prices. Yesterday, the price of “black gold” jumped by 3% on these rumors. If OPEC+ countries cut production, this step will sharply reduce supply in the oil market. For his part, Kuwait Oil Minister said yesterday that OPEC+ would make a suitable decision to guarantee energy supplies and serve the interests of producers and consumers.

Asian markets traded higher yesterday. Japan’s Nikkei 225 (JP225) gained 2.96%, Hong Kong’s Hang Seng (HK50) did not trade, and Australia’s S&P/ASX 200 (AU200) ended the day up 3.75%.

The Central Bank of New Zealand (RBNZ) raised its interest rate by 0.5% but considered a 0.75% increase. The RBNZ raised interest rates for the eighth time in a row, bringing the interest rate to 3.5%, the highest among major economies. The meeting minutes said that inflation is currently too high and employment is above the maximum sustainable level. RBNZ Governor Adrian Orr noted that their tightening cycle has become “very mature,” although “there is still some work to be done.” The RBNZ expects its OCR rate to be 3.7% by December, and with only one meeting left this year, the RBNZ is very likely to raise the rate by 0.25% at the end of the year.

S&P 500 (F) (US500) 3,791.05 +112.62 (+3.06%)

Dow Jones (US30) 30,316.98 +826.09 (+2.80%)

DAX (DE40) 12,670.48 +461.00 (+3.78%)

FTSE 100 (UK100) 7,086.46 +177.70 (+2.57%)

USD Index 110.15 -1.60 (-1.43%)

• – Australia Retail Sales (m/m) at 03:30 (GMT+3);
• – Japan Services PMI (m/m) at 03:30 (GMT+3);
• – New Zealand Interest Rate Decision at 04:00 (GMT+3);
• – New Zealand RBNZ Rate Statement at 04:00 (GMT+3);
• – Eurozone Services PMI (m/m) at 11:00 (GMT+3);
• – UK Services PMI (m/m) at 11:30 (GMT+3);
• – OPEC+ Meeting at 13:00 (GMT+3);
• – US ISM Services PMI (m/m) at 17:00 (GMT+3);
• – US Crude Oil Reserves (w/w) at 17:30 (GMT+3).

By JustForex

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

By JustForex

The US stocks rose on the first trading day of October after a challenging September. The Dow Jones (US30) and S&P 500 (US500) indices experienced their worst months since March 2020 and were dangerously close to their June lows. As the stock market closed yesterday, the Dow Jones Index (US30) increased by 0.79%, and the S&P 500 Index (US500) added 2.59%. The Technology Index NASDAQ (US100) gained 2.91% on Monday.

Shares of Apple, Microsoft, and Google pushed the tech sector up. But Tesla shares fell more than 8.5% as the company reported third-quarter deliveries that fell short of Wall Street’s expectations.

Analysts believe that even though the long-term trend points to lower prices, fresh quarterly flows could rebound from current levels. At the same time, experts pointed out that higher US Treasury bond yields continue to discourage investors from risky assets.

Equity markets in Europe mostly rose yesterday. German DAX (DE30) gained 0.76%, French CAC 40 (FR40) added 0.55%, Spanish IBEX 35 (ES35) jumped by 1.29%, British FTSE 100 (UK100) closed yesterday with 0.22% gain.

In Switzerland, the Consumer Price Index in September 2022 decreased by 0.2% compared to the previous month. In annual terms, inflation fell from 3.5% to 3.3%. The Swiss and Canadian economies are currently among the most resilient in an environment of rising interest rates and high energy prices.

The Business Activity Index in the manufacturing sectors across Europe continues to decline. The biggest declines are in Germany (48.3→47.8), Spain (49.9→49.0), and France (47.8→47.7). Italy has a small gain (48.0→48.3), but the Eurozone Manufacturing PMI index has fallen from 48.5 to 48.4. A value below 50 for the third consecutive month indicates that the Eurozone economy is, de facto, already in recession. The main problem for the Eurozone is still high inflation, which is accompanied by rising electricity and gas prices, forcing companies to economize and cut production.

Oil prices rose on Monday. The OPEC+ meeting, which begins Wednesday, could well lead to a production cut of one million barrels a day, pushing oil traders to buy. Technically, oil is pointing to further declines, so OPEC+ countries are serious about getting prices back above $90 a barrel by cutting.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) gained +1.07%, Hong Kong’s Hang Seng (HK50) ended yesterday down by 0.83%, and Australia’s S&P/ASX 200 (AU200) ended the day down by 0.27%.

The Central Bank of Australia (RBA) raised its interest rate by 0.25%, which came as a surprise since the expectation was a 0.5% increase. The accompanying statement said that the RBA decided to raise the monetary rate by 25 basis points this month as it reassessed the outlook for inflation and economic growth in Australia. The central CPI inflation forecast is about 7.75% in 2022, just over 4% in 2023, and about 3% in 2024. That said, further rate increases are expected in the coming months.

The Reserve Bank (RBNZ) is set to raise the official interest rate (OCR) for the eighth consecutive time tomorrow. Analysts are forecasting another 50 basis point increase in the OCR to 3.5%, the highest level since mid-2015. On the other hand, if the RBNZ raises the rate by 0.25% tomorrow instead of 0.5%, as the RBA did today, it would be a great precedent for other central banks, including the US Fed, to become less aggressive, and would also indicate that we are close to the end of the rate hike cycle.

S&P 500 (F) (US500) 3,678.43 +92.81 (+2.59%)

Dow Jones (US30) 29,490.36 +764.85 (+2.66%)

DAX (DE40) 12,209.48  +95.12 (+0.79%)

FTSE 100 (UK100) 6,908.76 +14.95 (+0.22%)

USD Index 111.71 -0.41 (-0.37%)

• – Japan Tokyo Core CP (m/m) at 02:30 (GMT+3);
• – Australia RBA Interest Rate Decision (m/m) at 06:30 (GMT+3);
• – Australia RBA Rate Statement (m/m) at 06:30 (GMT+3);
• – US FOMC Member Williams Speaks (m/m) at 16:00 (GMT+3);
• – US FOMC Member Mester Speaks (m/m) at 16:15 (GMT+3);
• – US JOLTs Job Openings (m/m) at 17:00 (GMT+3);
• – Eurozone ECB President Lagarde Speaks (m/m) at 18:00 (GMT+3).

By JustForex

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

By ForexTime

Article by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

By JustForex

At the close of trading on Friday, the Dow Jones index (US30) decreased by 1.71% (-2.75% for the week), while the S&P500 (US500) was 1.51% lower (-2.64% for the week). The NASDAQ Technology Index (US100) fell by 0.75% on Friday (-0.39% for the week). As the Fed tightened its monetary policy to tame the strongest inflation in decades, the US Treasury yields jumped to their highest level in more than a decade, causing stocks to plummet.

Markets are entering the final stretch of 2022 after a tumultuous third-quarter close Friday, driven by persistently high inflation, rising interest rates, and fears of a recession. The US stock market has now posted three consecutive quarterly declines for the S&P 500 and Nasdaq since 2008, as well as the longest quarterly decline for the Dow Jones. Analysts believe investors are likely to see increased market volatility with a downward bias in the near term as we approach the reporting season.

European stock markets mostly rallied on Friday, but almost all closed in negative territory at the end of the week. German DAX (DE30) gained 1.16% (-0.96% for the week), French CAC 40 (FR40) gained 1.51% (+0.31% for the week), Spanish IBEX 35 (ES35) gained 0.91% (-2.22% for the week), British FTSE 100 (UK100) gained 0.18% (-1.78% for the week).

Inflation in the Eurozone reached double digits for the first time ever. In September, it jumped to a record 10% (9.1% in August) on an annualized basis. Core inflation (which excludes food and fuel prices) reached 4.8% (4.3% in August). The extremely high inflation figures mean that the ECB will continue to raise rates quickly in upcoming meetings. Analysts believe rates will be raised by 75 BPS in October, 50 BPS in December, and 25 BPS in the first quarter of 2023.

Four treaties were signed in the Kremlin on Friday to admit new entities to the Russian Federation. The so-called DNR, LNR, Kherson, and Zaporizhzhia regions were “annexed” by Russia. Now, Moscow will consider possible strikes by Ukraine against the territories that will “join” Russia as an act of aggression against Russia. For its part, Ukraine applied to NATO under an accelerated procedure. The European Union, the US, Canada, Australia, and many other countries said they would never recognize the results of the referendums on the new territories joining Russia, and called on other countries to condemn them.

EU countries reached a preliminary agreement on a new package of measures against Russia.

The US and UK introduced a new package of sanctions against Russia, which included dozens of individuals and entities. US President Joe Biden said after Russia’s annexation of new territories, the US would support Kyiv’s attempts to take them back. Biden said that Russia violated international law and the UN charter with its actions. The UK also imposed sanctions on services and an export ban, targeting Russia’s economic vulnerability. The UK is imposing an export ban on nearly 700 goods that are critical to Russia’s industrial and technological capabilities. The UK will also prohibit Russia from accessing the services of its engineering, architectural, auditing, legal, and advertising companies.

Embassies of many countries have advised their citizens, whose stay in Russia is not dictated by necessity, to leave Russia as soon as possible. Norway may impose a travel ban on Russian tourists, similar to that previously imposed by Finland.

According to analysts, OPEC+ will consider cutting production by more than 1 million barrels a day this week. The meeting will be held on October 5. OPEC+, which brings together OPEC nations and allies such as Russia, has refused to increase production to lower oil prices despite pressure from major consumers, including the US, to help the global economy. Nonetheless, prices fell sharply last month because of concerns about the global economy and the rising US dollar. Oil over $90 is non-negotiable for OPEC+ leadership, so they will act to keep that price floor.

Fears that further interest rate hikes could slow economic growth, coupled with the looming financial crisis in Europe and the UK, have led some investors to start buying gold again. But it should be noted that as long as there are tightening policies from Central Banks, which leads to higher government bond yields, the price of gold and silver will not have fundamental support.

Asian markets were trading lower last week. Japan’s Nikkei 225 (JP225) decreased by 3.15% for the week, Hong Kong’s Hang Seng (HK50) fell by 3.14% for the week, and Australia’s S&P/ASX 200 (AU200) was down 1.52% for the week.

In the commodities market, futures on orange juice (+5.82%), wheat (+4.86%), WTI oil (+2.98%), and Brent oil (+2.96%) showed the biggest gains. Futures on cotton (-7.78%), soybeans (-4.19%) and lumber (-2.34%) showed the largest drop.

S&P 500 (F) (US500) 3,585.62 −54.85 (−1.51%)

Dow Jones (US30) 28,725.51 −500.10 (−1.71%)

DAX (DE40) 12,114.36 +138.81 (+1.16%)

FTSE 100 (UK100) 6,893.81 +12.22 (+0.18%)

USD Index 113.02 +1.67 (+1.50%)

• – Japan Manufacturing PMI (m/m) at 03:30 (GMT+3);
• – Switzerland Consumer Price Index (m/m) at 09:30 (GMT+3);
• – Spanish Manufacturing PMI (m/m) at 10:15 (GMT+3);
• – Switzerland Manufacturing PMI (m/m) at 10:30 (GMT+3);
• – Italian Manufacturing PMI (m/m) at 10:45 (GMT+3);
• – French Manufacturing PMI (m/m) at 10:50 (GMT+3);
• – German Manufacturing PMI (m/m) at 10:55 (GMT+3);
• – Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+3);
• – UK Manufacturing PMI (m/m) at 11:30 (GMT+3);
• – Canada Manufacturing PMI (m/m) at 16:30 (GMT+3);
• – US ISM Manufacturing PMI (m/m) at 17:00 (GMT+3);
• – US FOMC Member Williams Speaks (m/m) at 22:10 (GMT+3).

By JustForex

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.