By Simon White, Bloomberg markets live reporter and strategist

The week has started with the market taking a softer tone on the Israel-Gaza conflict, with Asian equities up again today after a strong close on Friday. The focus this week has shifted to US earnings, the Federal Reserve’s rate-setting meeting, and the Treasury’s quarterly refunding announcement (QRA), the latter two both on Wednesday. But it’s the BOJ, meeting on Tuesday, which has the biggest potential for a global macro upset.

There’s a lot of focus on the QRA this quarter, after the first step-up in issuance in two years at the last announcement in August helped catalyze the latest leg up in Treasury yields, to their post-GFC highs. The unusual amount of attention on the QRA, though, suggests it might end up being a bit of a non-event. Ditto the Fed, where they’re widely expected to remain on hold.

However, the BOJ has the bigger capacity for a surprise. The bank is expected to begin tightening policy at some point, by raising rates, taking them out of positive territory, and loosening yield-curve control. No change is expected at this week’s meeting, based on Bloomberg’s survey, but the BOJ pay less attention to market expectations than, say, the Fed (see “Yen Soars After Nikkei Report BOJ Considers Tweaking YCC Again To Allow 10Y Yields To Exceed 1%“).

Dollar-yen has been bumping around the 150 level through most of October. The carry is a strong pull higher on the currency pair, but there is an enormous potential for a strong yen rally and even higher global yields when the BOJ tightens. The fall in vol adds to the potential for a larger upset.

A drop in yield curve control would make JGBs relatively more attractive at the margin. This, plus FX-hedge ratios that have been allowed to lapse while the yen has been weakening, would trigger a self-reinforcing yen rally that might catch many unawares in its speed and extent.

Further, global yields would be prone to rising more as Japanese investors sold some of their holdings. They have already been buying fewer USTs, with net purchases now negative over the last six months (FX hedging costs have made other DM debt less attractive to Japanese investors).

Ultimately, this will create a further problem for the Treasury as the largest foreign holder of USTs rows back on its ownership. US households have been the only net buyer of Treasuries. Given they anticipate higher inflation than the market, the government may have to get used to a much steeper yield curve to pay up for borrowing longer-term, or play the bill-issuance game a bit longer, which will get more problematic the closer the RRP (reverse repo) facility is to getting emptied. 

By Jane Foley, Senior FX strategist at Rabobank

The Israeli government confirmed that it had begun a new phase in its war against Hamas on Friday. Over the weekend Israel sent more troops and tanks into Gaza and has reported that more than 600 military targets in the strip had been attacked, supported by the deployment of fighter jets. Since the October 7 terror attack on Israel and the commencement of the war, there has been a clear market reaction.

However, so far investors have shied away from panic. Recent visits to Israel by President Biden and US Secretary of State Blinken, in addition to Qatar-led negotiations between Israel and Hamas aimed at de-escalation, plus the deployment of US military equipment and troops to the region to disincentivise Iranian backed militia from opening new fronts have allowed markets to remain relatively calm.  On Friday, crude oil touched their highest levels of the week as the market positioned itself for the weekend newsflow.

By contrast, oil prices have dropped back this morning on the view that the conflict has remained contained. Clearly, there is a risk that this view proves optimistic. Yesterday US National Security Secretary Sullivan commented that he sees “elevated risk” of a regional spillover from the war. In reference to the retaliation action taken on Friday by US fighter jets against weapons and communication facilities of Iranian backed militia, Sullivan warned that the US will keep responding to attacks on its troops by Iranian proxies. In response to Israel’s incursion in Gaza, Iranian President Ebrahim Raisi has warned that the action “may force everyone to act”.

National Security Adviser Jake Sullivan tells ⁦⁦@margbrennan⁩: “And we are vigilant, because we are seeing elevated threats against our forces throughout the region, and an elevated risk of this conflict spreading to other parts of the region.” https://t.co/i9UVikt5aJ

— annmarie hordern (@annmarie) October 29, 2023

Gold prices pushed higher into the weekend but have edged lower in early trade this morning. Similarly, US and European stock markets ended the session on Friday in the red, although US futures are performing better so far today. Friday’s drop in stocks saw the S&P 500 falling 10% below its July peak, which technically put it into ‘correction’ territory. Q3 corporate earnings have been reported to be broadly in line with expectations so far. However, it appears that the share prices of those that have disappointed have been hit with particularly sharp falls. This coincides with reports that stock analysts are on heightened alert for companies most sensitive to higher rates.

The yield on the 10 yr treasury edged lower into the close on Friday after the US September PCE deflator registered 3.4% y/y in line with expectations and matching the August reading which was revised down from 3.5%. The data were sufficient to reinforce speculation that the Fed will leave rates on hold at this week’s FOMC meeting. Short covering amid a pre-weekend flight to safety may also have been supportive factors for US treasuries on Friday, though in the week ahead investors will have to confront the issue of supply.

House Republican opposition to Ukraine funding – a large part of why Kevin McCarthy was ousted by the Freedom Caucus – is solidifying under newly crowned Speaker Mike Johnson, who hand-delivered a report to President Biden with a list of demands.

In particular, the list – written by Rep. Mike Garcia (R-CA), informs Biden that Congress won’t authorize any additional funds for Ukraine unless the administration answers a dozen questions about the path forward. Chief among them – how Biden and Ukrainian President Volodymyr Zelenskyy plan to win the war against Russia, and how long it might take.

“Failure to ask these questions, and a continued willingness by Congress to enable this carte blanche mentality to date, is, in my opinion, a dereliction of duty and a recipe for disaster that will enable a Ukrainian defeat and enhance Chinese aggression,” said Garcia.

Johnson, meanwhile, has made clear that House Republicans won’t bundle Ukraine aid and money for Israel’s conflict with Hamas, as Biden wants.

On Sunday, Johnson told “Sunday Morning Futures” that Israel aid must be separated because it’s a more “pressing and urgent need” that the House will act on this week.

“There are lots of things going on around the world that we have to address, and we will,” he said, adding “But now what’s happening in Israel takes the immediate attention, and we’ve got to separate that and get it through.”

What about no on Israel too?

Rep. Marjorie Taylor Greene (R-GA) on Sunday posted on X that she won’t support any more foreign aid, including support to Israel, because of the national debt.

“I will be voting NO on all funding packages for the Ukraine war (as I have from the beginning) and now the Israel war,” she wrote. “We have had over 10 MILLION people illegally cross our border since Biden took office and we are over $33 TRILLION dollars in debt with many major problems afflicting Americans.”

🚨🚨🚨
I will be voting NO on all funding packages for the Ukraine war (as I have from the beginning) and now the Israel war.

We have had over 10 MILLION people illegally cross our border since Biden took office and we are over $33 TRILLION dollars in debt with many major…

— Rep. Marjorie Taylor Greene🇺🇸 (@RepMTG) October 29, 2023

She also responded to a tweet by Rep. Thomas Massie (R-KY), who raised the same point, saying “we simply can’t afford it.”

I’m voting NO as well.

We are $33 TRILLION in debt and our wide open border is a national security crisis.

How many of those voters were outside the US?@RepThomasMassie

Does @elonmusk give us the ability to know? https://t.co/ve3bKq0TyI

— Rep. Marjorie Taylor Greene🇺🇸 (@RepMTG) October 30, 2023

Johnson and McConnell headed for showdown?

With House Republicans tepid on Ukraine funds, Johnson is heading into a showdown with Senate Republican Leader Mitch McConnell (R-KY) – who says he wants to keep Ukraine aid and Israel aid tied together because he sees them as part of a larger global threat.

Johnson says he wants to “bifurcate” the issues of Ukraine and Israel, and he has signaled early support for a stopgap funding bill that would include steep cuts to nondefense spending, which Democrats say would have no chance of passing the Senate. 

Beyond the next three weeks, McConnell wants to pass the regular appropriations bills before Christmas in order to boost defense spending, while Johnson has floated the idea of freezing federal funding with a stopgap measure lasting until January or April.  

Johnson has also proposed offsetting $14 billion in aid to Israel with other spending cuts, an idea that will be controversial with Senate Republicans and Democrats alike. -The Hill

That said, Senate Republicans are growing weary of the blank check approach as well.

“We need to start breaking the mold around here. This isn’t working. We’re $33.5 trillion in debt. The old way of doing business has failed, is failing. We need to approach things differently. From my standpoint, within [the] Republican conference we need a different form of governance,” said Sen. Ron Johnson (R-WI).

McConnell and Johnson also have vastly different views on abortion – with McConnell making clear that the decision should be left to the states, while Johnson – who is very religious, sees it as a national issue. Earlier this year, Johnson co-sponsored a bill declaring the right to life guaranteed by the Constitution applies to unborn children. He also introduced a bill in February to make it a crime to transport minors across state lines for an abortion without first satisfying parental involvement laws in the minor’s state of residence.

“Paradoxically, McConnell finds it much easier to talk to [Majority Leader Chuck Schumer (D-N.Y.)] than his Republican counterpart in the House,” said Ross K. Baker, a professor of political science at Rutgers University who has held several Senate fellowships.  

Yet according to Sen. Ted Cruz (R-TX), “What Biden and Schumer are doing, which is holding Israel aid hostage in order to pass all of their other partisan priorities, is profoundly cynical.”

Authored by Alexander William Salter via The American Institute for Economic Research,

The US economy grew at a remarkable annualized rate of 4.9 percent this quarter, the Bureau of Economic Analysis reports. This was significantly faster than most analysts expected. Strong growth is good, but there’s some less-welcome news, too: Nominal (current-dollar) GDP grew at an 8.5 percent annualized rate. The implied inflation rate, 3.6 percent, suggests the Federal Reserve still has some work to do to tame inflation.

Remember the most recent CPI release showed core inflation, which excludes volatile food and energy prices, running at 3.87 percent. I argued the FOMC should hold rates steady when it meets at the end of the month. While I still think that’s right, I’m less confident than I used to be.

There’s another factor we have to consider: the turbulence in bond markets.

It’s no secret that bond yields have shot up in recent weeks. The current yield on a 10-year Treasury is approximately 4.90 percent.

Many commentators, and some Fed officials, think rising interest rates elsewhere in the economy can substitute for a Fed target-rate increase. But I don’t think this claim withstands scrutiny.

Greg Ip provided a good overview of the argument in his recent column:

Normally, a bigger deficit stimulates growth and causes the Fed to tighten monetary policy. But the latest run-up in yields doesn’t reflect higher expected growth, but a higher term premium — the added return investors demand to hold long-term bonds instead of shorter-term Treasury bills.

That higher term premium is a restraint on borrowing and spending now. As Richard Clarida, a former vice chair, put it, ‘Your past fiscal excesses show up as a headwind today.’ In other words, the bond selloff is giving the Fed an added reason not to raise interest rates, not exactly an incentive for Washington to quit borrowing.

This line of thinking seems plausible.

But it violates one of the most important rules of economic analysis: never reason from a price change.

We need to know why bond prices are falling, and hence yields rising, before we can discuss the implications for Fed policy.

Ip’s column suggests falling Treasury prices are explained by an unusually large supply of new Treasuries, driven by record peacetime deficits. Last fiscal year’s deficit was $2 trillion, or 7.5 percent of GDP. The Treasury Department had to offer large amounts of bonds to cover that fiscal gap.

What does this indicate about the natural rate of interest, which Fed policy is supposed to track? You offer a bond when you want to borrow money. Hence, an increased supply of bonds means an increased demand for loanable funds. All else being equal, when the demand for loanable funds rises, its price—the interest rate—must rise, too. Increased competition for scarce financial resources between the private and public sectors should drive up borrowing costs, and with it the natural rate of interest.

To keep monetary policy sufficiently tight in the face of a higher natural rate of interest, the Fed will need to target a higher nominal interest rate than would have been necessary had the natural rate of interest not risen. Hence, the market data imply nearly the opposite of what many commentators and policymakers recommend. Of course, it’s possible that the natural rate for longer-term borrowing contracts is rising while that of short-term contracts remains the same, i.e., that the term structure of interest rates is changing.

But if the yield curve is the explanation, then market forces aren’t “substituting” for Fed policy.

They’re simply reflecting an economic transition from one microeconomic equilibrium in the market for loanable funds to another.

I’m not sure which story is correct. But I’m confident that the narrative of rising bond yields standing in for Fed rate-target hikes doesn’t hold up. We’ll get a better picture of the path forward as additional data become available. Until then, hedge your bets.

Israeli Prime Minister Benjamin Netanyahu’s days are numbered in the country’s top office, according to growing consensus both inside and outside Israel. The dominant thinking is that once this conflict and crisis settles, he will pay the political price for October 7.

Fierce domestic political controversy has already erupted, fueled especially by a weekend statement (since retracted) issued by Netanyahu which laid blame on the military and intelligence establishment for failing to identify and prevent the threats that led to the Oct.7 Hamas terror raids that killed over 1,400 people and resulted in the kidnapping of over 220 men, women and children.

Netanyahu has yet to take any personal responsibility. The whole event shocked the world and especially Israeli citizens who’ve long joked that even if a cricket or small animal approached the Israel-Gaza border fence, the Israel Defense Forces (IDF) would know about it. 

But instead, Netanyahu has deflected, and after a tense Saturday news conference shifted blame on his security chiefs. He posted to X: “Under no circumstances and at no stage was Prime Minister Netanyahu warned of war intentions on the part of Hamas.”

He then emphasized, “On the contrary, the assessment of the entire security echelon, including the head of military intelligence and the head of Shin Bet, was that Hamas was deterred and was seeking an arrangement.”

He soon after deleted the post the amid the firestorm of controversy that ensued, and instead stated in a new post, “I was wrong.” He apologized and backtracked: 

“The things I said following the press conference should not have been said and I apologize for that,” he wrote. “I give full backing to all the heads of the security arms. I am strengthening the Chief of Staff and the commanders and soldiers of the IDF [Israel Defense Forces] who are at the front,” he wrote in Hebrew, according to a translation.

The comments split the already fragile unity of the emergency war coalition which was agreed to by opposition leader Benny Gantz, who was the first to lash out.

Netanyahu’s quick retraction is being seen in part as a necessary move toward preserving the wartime emergency government, and to pacify a media establishment which is already “out for blood” related to the hostage crisis and Oct.7, which marked the worst single-day terror attack in Israel’s history: 

His statement was met with sharp criticism from several officials. Gantz, a former defense minister and current cabinet minister, called on Netanyahu to retract his comments.

Leader of the opposition and former Prime Minister Yair Lapid echoed Gantz, saying Netanyahu “crossed a red line” with his words.

Most importantly Lapid was able to play the undermining the military while the nation is at war card. He said according to a Reuters translation, “The attempts to evade responsibility and place the blame on the security establishment weakens the [Israeli Defense Forces] while it’s fighting Israel’s enemies.”

The New York Times has meanwhile written that the optics have been made worse by Netanyahu’s continued refusal to take any responsibility for failures to protect the nation, but simultaneously other senior officials have issued their own apologies and statements of deep regret: 

Although many senior officials, including military and security chiefs and the defense minister, Yoav Gallant, have accepted some responsibility for Israel being caught so off-guard, Mr. Netanyahu has declined to do so. He has said several times, most recently at a news conference on Saturday evening, that after the war tough questions would be asked of everybody, including himself. Mr. Netanyahu has been in power for 14 of the past 16 years.

Mr. Netanyahu’s refusal to publicly accept blame has further shaken confidence in his leadership, which had fallen even before the war, in part because of his efforts to push through a judicial overhaul that sparked huge nationwide protests. Opinion surveys since Oct. 7 have indicated overwhelming public trust in the military and plummeting faith in government officials.

Families of Oct.7 victims, as well as loved ones of citizens still held hostage, have also been garnering media attention in their denunciations of Netanyahu’s leadership. 

But what can one family, or the families of the more than 200 held by Hamas, do to secure the release of their loved ones? Israel is at war, its leaders are bent on revenge and its armed forces on the verge of an invasion that could endanger the hostages. https://t.co/WYpHC9yJei

— max seddon (@maxseddon) October 28, 2023

For these and many other Israeli families, Netanyahu’s “Mr. Security” Persona has fallen off and been exposed,  as Bloomberg has written:

The aftermath marks what may be the ultimate test of Netanyahu’s political survival skills. Although Netanyahu, 74, deleted the post and issued a rare apology hours later, the calls for him to step down are becoming an ever-louder chorus. Critics are meanwhile increasingly emboldened to go as far as to question his ability to lead Israel as it wages a punishing war in Gaza.

Moshe Yaalon, his former defense minister, did so in a radio interview, saying the prime minister “is solely engaged in political maneuvering and his attitude is, ‘Let the nation burn.’ I don’t trust him to lead the military campaign.”

While this fight hasn’t been featured much in Western press, the families’ statements have driven a lot of reporting within Israel itself. They are urging a large-scale prisoner swap, given that from the start Hamas has demanded that thousands of Palestinians in Israeli prisons go free. But now that the IDF is actively operating deep inside Gaza Strip, this appears off the table in terms of a serious option Netanyahu is considering. 

Authored by Kevin Downey Jr via PJMedia.com,

Most news articles about the animal in Lewiston, Maine, who shot 31 people, killing 18, focus specifically on the shooter’s skin color and “AR-15 style” rifle.

The media seem to have missed the ten mass shootings that have taken place in the three and a half days since the Maine massacre.

FACT-O-RAMA! A mass shooting is defined as four or more people shot, not including the shooter, in a fluid situation.

Lewiston stands out because of the unusually high body count. Also, the shooter escaped and was at large for a while before police found his body. Every news source from Maine to New York kept readers glued to their sites with stories of “the shooter MAY come here next” fear porn.

Legendary jackpudding Joy Behar from “The View” doesn’t know the difference between an AR-15 and a bazooka. She is paid millions of dollars a year to lie to wine-box mommies who believe her codswallop.

Joy Behar: “If you shoot with an AR-15, let’s say you shoot a deer, you can’t eat it because you basically demolish the animal.”

Lol who wants to tell her?

pic.twitter.com/XMdm0waOkZ

— DC_Draino (@DC_Draino) October 27, 2023

Left-leaning, gun-grabbing racists cheered when the Lewiston shooter was identified as a white male. The Lewiston victims were still cooling in the local morgue as commie pundits dutifully went to work decrying the two things they hate the most: peckerwoods and AR-15s. It was a convenient distraction from the weekend “festival of lead” we. saw in all the familiar places.

Halloween Fright Night

Since the Lewiston shooting of October 25, our nation has been home to ten more mass shootings, most of which didn’t warrant a blip on the news radar.

The ten shootings left 14 dead and 65 wounded. Two took place in Chicago and left 19 people ventilated — 15 in just one shooting involving a handgun. Astonishingly, no one gave up the ghost.

Indianapolis was home to a shooting that left one dead and eight injured at a Halloween bash in a building the police somehow can’t identify — which to me sounds like a “pop-up party.” The victims’ ages ranged from 16-22.

POP-O-RAMA! Pop-up parties frequently take place in illegal locations such as empty buildings and seem to be a magnet for poorly raised, gun-toting youths.

Hallelujah, Its Raining Lead

The bloodiest shooting since Lewiston erupted when two “groups” of maniacs decided to shoot it out during Halloween festivities outdoors in a Tampa-area bar district. Videos show two men with handguns. No AR-15s or MAGA hats were found at the scene.

GRAPHIC WARNING

One of the shooters appears to not be a white male, which may be the reason the press ignored this Halloween fight night despite two people getting killed and 18 more injured.

LEFTARDS-O-RAMA! The Pravda press refuses to report mass shootings if the master blaster is black. Black civil rights groups then complain that “racist” news outlets don’t care about black people dying. Yet, when someone mentions that Chicago is a hotbed of mostly-black shootings, they too are called “racist.” Remember, anyone who crosses a Marxist is deemed a “racist.” It is the vehicle by which the commies exert control.

You can watch this Low-T Teletubby laugh as bullets fill the night — and 20 revelers. I count roughly 27 shots in this video below:

BREAKING: Multiple people shot in a #shooting in Ybor City neighborhood in #Tampa, Florida

❗️Re-upload after a watermark has not been removed ❗️ pic.twitter.com/ohrBLK9Hec

— Michael (@michael_gen_x) October 29, 2023

Five people were shot to death — including a 73-year-old male — in Clinton, North Carolina, at a residence known for selling the dopes.

A mass shooting in NC barely makes the news.

Clinton NC | 5 people shot and killed in Sampson County home – ABC11 Raleigh-Durham https://t.co/irbogCV5cL

— Radical Radish ⭐️ (@radish2020) October 26, 2023

Six people were shot at a party in the back of a business in Texarkana, Texas, when, according to police, “a fist fight broke out between two men at the party. At some point during this fight, at least two men there pulled out rifles and started shooting.”

???-O-RAMA! What did they pull the rifles out of if they were in a business location?

More weekend shoot-out info!

• Four were injured at a shoot’em up party in Chicago.

• Six teens were injured at a party in Lake Charles, Louisiana.

• Six teens were shot at a house party in Mansfield, Ohio. Two died.

35 shot & 4 killed in Chicago’s gun-free zones this past weekend.

Don’t expect a tweet from @davidhogg111 or @krassenstein – since this contradicts their narrative 🙄https://t.co/WFpICp8ZJ2

— Sal the Agorist (@SallyMayweather) October 30, 2023

BONUS CARNAGE!

Since I began writing this article two more mass shootings have popped up at gunviolencearchives.com.

Ricardo Johary Cadena-Garcia, 36, using a handgun — not one of those big, scary “assault weapons” — perforated four men in a Dodge City, Kansas, bar, two of whom are never going home.

Seven people were injured in a shooting Saturday at a party in Las Cruces, New Mexico. No deaths were reported.

What Have We Learned?

We have learned the press is picky about the mass shootings they report, but you likely knew that.

We have also learned that parties seem to attract “gun nuts,” but that may also have to do with Halloween. Although, as I’ve reported before, social gatherings seem to be getting wildly dangerous, such as this Sweet 16 party in Dadeville, Alabama, where six people, one of them only 15 years old, shot 32 roisterers, killing four. The victims and suspects were all black.

*  *  *

Help PJ Media continue to report the facts about the Democrats’ disastrous policies that are causing a spike in violent crime across the country.

Join PJ Media VIP and use the promo code LAWANDORDER to get a 25% discount on VIP membership!

Authored by Jesse Felder via The Felder Report,

Rising interest rates have historically created problems for certain areas of the economy and markets but they may be especially pernicious today given both the speed and magnitude of the rise and the risk-taking behaviors engendered by the extreme monetary accommodation that preceded it.

“I suspect that this most sudden and even violent lurch higher in interest rates is going to test financial structures that came into being during the period of very low nominal interest rates.” -Jim Grant https://t.co/1yX1GNU4e8

— Jesse Felder (@jessefelder) October 27, 2023

Certainly, that debt accumulation at the corporate level that was inspired by ultra-low interest rates could prove to be a problem in the quarters ahead as debt maturities grow and interest rates have reset at much higher levels than when those debts were first taken on.

‘Treasurers did a good job of locking in low rates when they were available in 2021 but amounts due to be repaid increase noticeably next year and then jump to levels that could be really problematic in 2025 and 2026.’ https://t.co/871kHycHNN pic.twitter.com/xHdt85ANlW

— Jesse Felder (@jessefelder) October 25, 2023

In addition, rising interest rates already appear be causing problems in the market for long-term treasuries.

‘A vicious circle is foreseeable — where concerns over mounting debt raise real interest rates, which worsen the future debt ratio, and so on.’ https://t.co/BvFkV9GfF5 pic.twitter.com/hskWX8mQvk

— Jesse Felder (@jessefelder) October 25, 2023

But the stock market has only just begun to recognize the fact that “risk-free” rates now represent real competition for investor capital for the first time in over a decade.

Want to see a wild chart? This is the boldest outperformance by stocks who pay a 0% dividend since the data commenced in 1927. If we get a mean reversion of any magnitude on this thing, you can say goodnight to the growth-at-any-price framework that is so commonly embraced. pic.twitter.com/IC9TiEY9Fr

— Jeff Weniger (@JeffWeniger) October 26, 2023

And if the rapid rise in rates ends up exerting its normal effect on the economy and earnings in the quarters to come, then this recognition process in equities has only just begun.

‘Most times SPX closes below its 3-year moving average one sees rallies in the short term. However, it’s important to note that there have been exceptions and some of these have foreshadowed substantial and turbulent market declines.’ https://t.co/qaNvobzKSM by @NautilusCap pic.twitter.com/9kmm8UnbGz

— Jesse Felder (@jessefelder) October 27, 2023

Party’s over…

The Israel Defense Forces (IDF) says it has killed dozens of Hamas militants, among them commanders, as it pushes deeper into Gaza, with tanks being seen Monday on the outskirts of Gaza City, blocking a key road linking the northern and southern halves of the Strip.

Hamas has also announced it is engaged in “heavy fighting… with the invading occupation force”, after the IDF confirmed more Israeli troops have been surged into the Strip. It appears the warring sides are in some locales engaged in building-to-building and door-to-door fighting in the dense urban zone. 

“Overnight, troops eliminated dozens of terrorists who barricaded themselves in the buildings and tried to attack the forces that were moving in their direction,” IDF Spokesman Rear Adm. Daniel Hagari said. “We are carrying out an expanded ground operation into the Strip… forces are moving towards the terrorists, the terrorists are barricading themselves in staging grounds, and we are attacking them from the air.”

Israel is signaling its intent to encircle Gaza City with tank and ground units – a significant challenge given its size of 18 square miles with a pre-conflict population of over 650,000 people. In total some 1.1 million people live in the northern half of the Strip.

Recent reports have estimated that hundreds of thousands of Palestinians have defied Israel’s order to flee south. By Saturday the IDF had utilized open spaces like the beach to quickly allow tank units to plunge two miles deep into the Strip.

IDF has been publishing brief clips of forces operating in Gaza:

צה”ל המשיך במהלך הלילה בהרחבת הפעילות הקרקעית ברצועת עזה.

בהיתקלויות עם מחבלים ברצועת עזה, חיסלו לוחמי צה”ל עשרות מחבלים אשר התבצרו במבנים וניסו לפגוע בכוחות. במהלך אחד מהאירועים, כלי טיס בהכוונת הלוחמים בשטח תקף מבנה כינוס של ארגון הטרור חמאס ובו מעל ל-20 מחבלים >> pic.twitter.com/IlGkMyoiSG

— דובר צה״ל דניאל הגרי – Daniel Hagari (@IDFSpokesperson) October 30, 2023

Gazans have told Al Jazeera that they are receiving emergency phone calls at their residences (after communications were switched back on this weekend) with messages like the following: “This is the Israeli army, we are telling you to evacuate south because in the coming hours it is going to be very dangerous in the area where you are at.”

At this point amid the fog of war as well as the desire of each side present that they have the battlefield edge, it’s not expected that military casualty rates will be published, but the Israeli media has cited a series of IDF statements to compile the following accounts: 

• In one incident, ground troops directed the Air Force to carry out a drone strike on a Hamas staging ground, killing more than 20 terrorists, according to the IDF.
• In another incident, the IDF said a fighter jet struck an anti-tank guided missile launch position and a number of Hamas operatives who were identified by ground troops near Al-Azhar University in Gaza City.
• Later Monday, the IDF said troops encountered a number of Hamas cells attempting to attack them during the morning hours. Ground forces directed air force combat helicopters and drones to strike the terror cells and kill their members.
• Forces also demolished anti-tank guided missile and rocket launch positions, as well as other infrastructure belonging to Hamas, the IDF said.

As for Israeli forces having reportedly gained control of a key road that runs north-south, AFP has also cited eyewitnesses who say “They have cut the Salah al-Din road and are firing at any vehicle that tries to go along it.”

Palestinian photojournalist Youssef Al Saifi exclaimed in the below video that “they are shooting at a whole family”:

🚨 JUST IN: Israeli Forces Block Key Gaza North-to-South Road, Raising Speculation of an Advance on Gaza City

– An Israeli tank and armored vehicle reported having cut Salah-al-Din road near Gaza City, with speculation of an advance on the territory’s largest city.

– A video… pic.twitter.com/SfoQuzY0JP

— Mario Nawfal (@MarioNawfal) October 30, 2023

Additionally Hamas has claimed to have stalled the IDF’s advance deeper into Gaza City: 

Later on Monday, Salama Maarouf, the head of the Hamas government office in Gaza, said the Israeli tanks had retreated from the outskirts of Gaza City.

“There’s absolutely no ground advance inside the residential neighborhoods in the Gaza Strip. What happened on Salah al-Din Street was the incursion of a few occupation army tanks and a bulldozer,” Maarouf said in a statement.

The Hamas official then asserted, “These vehicles targeted two civilian cars on Salah al-Din Street and bulldozed the street before the resistance forced them to retreat. There is currently no presence of occupation army vehicles on Salah al-Din Road, and citizen movement has returned to normal on the road.”

Now with the death toll in Gaza having far surpassed 8,000 – with an estimated half of these women and children – Israel is facing growing international pressure and condemnation, including from some European countries, as we detailed Sunday. Statements of PM Netanyahu and his top officials essentially declaring a scorched earth campaign over the densely populated land have drawn rebuke from some corners of Europe, but receive scant mention in US mainstream media…

Netanyahu declaring invasion: “You must remember what Amalek has done to you, says our Holy Bible”

1 Samuel 15:3

“Now go and smite Amalek, and utterly destroy all that they have, and spare them not; but slay both man and woman, infant and suckling, ox and sheep, camel and ass” pic.twitter.com/5QF9PkGhjJ

— Michael Tracey (@mtracey) October 28, 2023

Meanwhile, the Israeli military’s Chief of the General Staff, LTG Herzi Halevi, has defined the mission as follows: “The IDF is focused right now on one thing—victory and dismantling Hamas.” But the question of the fate of millions of Palestinian civilians across the West Bank and Gaza hangs in the balance, with Palestinian leaders and their supporters expressing alarm over Netanyahu’s “smite the Amalek” reference. 

Israel has been seeking retaliation for the Oct.7 Hamas terror raids into southern Israel, which killed over 1,400 Israelis and foreigners, and resulted in at least 220 hostages still held captive somewhere in the Strip. But more tragic news has emerged concerning one one woman who had been taken from the Nova music festival, and who had been seen half-naked in the back of a pick-up truck, possibly deceased or at least badly wounded:

Shani Louk, a German-Israeli woman kidnapped by Hamas gunmen during the October 7 attack and taken to Gaza, has been found dead, the Israeli Ministry of Foreign Affairs has said.

“We are devastated to share that the body of 23 year old German-Israeli Shani (Louk) was found and identified,” the ministry posted on X, formerly Twitter, on Monday.

The images, including graphic video, of what appeared her lifeless body underneath several smiling Hamas militants in the bed of a pick-up truck was among the first to go viral on Oct.7 – and underscores the utter brutality and mercilessness of the Hamas terror raid.

We start an extremely busy week for markets after a few major landmarks were reached on Friday which DB’s Jim Reid felt are worth highlighting. The S&P 500 moved into “correction” territory, now down -10.27% from the July highs. Meanwhile the benchmark small-cap Russell 2000 index went through its June 2022 lows and back to levels last seen in November 2020, around the time that Pfizer announced the first successful Covid-19 vaccine trials. In fact, it’s now back to levels it first breached in November 2018. When you factor in the huge inflation over this period, that’s some serious real adjusted declines. So for all the optimism surrounding US equities this year it really is only a handful of huge companies that’s skewing the positivity.

And speaking of companies skewing performance, if one strips away the Mag 7 stocks, the non-tech heavy SPW, NYA, CWI, RTY equity indices are now all at or below 200wma and down for the year.

The move into correction territory comes as we hit a very busy week of important central bank meetings, data, earnings and a fresh Treasury refunding announcement.

• The BoJ could be the stand-out (tomorrow) as DB’s Japan economist believes (close call) they will revise YCC. That could overshadow the FOMC (Wednesday) and the BoE (Thursday) meeting, where no surprises are expected.
• In terms of data all roads point towards Payolls on Friday, with ADP and JOLTs (Wednesday) providing the warm-up act.
• Elsewhere US ISM Manufacturing (Wednesday) and Services (Friday) will be a focal point as will the various global PMI numbers, especially China’s.

Over in Europe, the highlights will include the preliminary October CPIs and Q3 GDP reports for Germany today, followed by France, Italy and the Eurozone on Tuesday.

Earnings will be in full flow but with Apple on Thursday the highlight. The full day-by-day calendar is at the end as usual but let’s preview the highlights in more detail now below.

• Starting with the BoJ tomorrow, Deutsche Bank expects (full preview here) the central bank to revise its monetary policy framework but acknowledges it is a close call. They are likely to revise up their inflation forecast for the second successive Outlook Report which makes it hard for them to do nothing. DB would favour the abandonment of YCC but acknowledges that local media have suggested a bias towards tweaks. Even if the BoJ maintains the status quo, the YCC is likely to come under further pressure as expectations of policy normalisation build up .
• For the Fed on Wednesday, DB economists expect the central bank to stay on hold and see future hikes as a function of financial conditions and the path of the economy. While their baseline is for rates to stay at 5.3% through year end, they see an increasing risk of a hike in December or Q1. They also recently published a note on what the recent tightening in financial conditions mean for the Fed (see here).
• Linked into financial conditions, the latest US financing estimates (today) and refunding announcement (Wednesday) will be important given how much the early August equivalent spooked the market given the extra supply that it heralded. There is some hope that the Treasury may pause its coupon increases it flagged back in August. However our strategists think this is unlikely. (see their report here).
• The BoE will round out the busy week for central banks on Thursday; DB expects no change in the Bank Rate (5.25%) or the Bank’s forward guidance. The full preview of the meeting here also touches on central bank’s forecasts as well as QT. Elsewhere in Europe, Norges Bank will also decide on its monetary policy that day as well.

In terms of payrolls, economists expect the headline to come in at 190k, down from +336k in September with the UAW strike causing around a 35k drag. They also see the unemployment rate remaining at 3.8%. There will be plenty of labor market data before hand with the ECI (tomorrow), JOLTS and ADP (Wednesday), claims (Thursday), and all the employment subcomponents within the PMI surveys.

German GDP today will likely see a -0.3% contraction (consensus -0.2%) with a mild contraction of -0.1% (consensus 0.0%) in the wider Euro area (tomorrow ). Our economists also expect the headline inflation measure for the Euro area to further decline to 3.1% from 4.3% in September, and see the core gauge slowing to 4.1% (4.5%).

Elsewhere, reports indicate Chinese officials may gather as early as today for the National Financial Work Conference that takes place once every five years behind closed doors. The real estate turmoil as well as other financial risks will be key discussion points.

Finally, on the earnings side, we are past peak earnings…

… but it is still an extremely busy week for reporting companies with the likes of Apple, Qualcomm, PayPal, AMD, Roku, First Solar, Pfizer, Caterpiller and others on deck.

Courtesy of DB, here is a day-by-day calendar of events

Monday October 30

• Data: US October Dallas Fed manufacturing activity, UK September net consumer credit, mortgage approvals, M4, Japan September retail sales, job-to-applicant ratio, jobless rate, industrial production, Germany Q3 GDP, October CPI, Eurozone October services, industrial and economic confidence
• Central banks: ECB’s Simkus speaks
• Earnings: McDonald’s, Arista Networks, Pinterest

Tuesday October 31

• Data: US Q3 employment cost index, October MNI Chicago PMI, Dallas Fed services activity, Conference Board consumer confidence, August FHFA house price index, China October PMIs, UK October Lloyds business barometer, Japan October consumer confidence index, September housing starts, Italy October CPI, Q3 GDP, September PPI, France October CPI, Q3 GDP, September PPI, consumer spending, Eurozone October CPI, Q3 GDP, Canada August GDP
• Central banks: BoJ decision, ECB’s Visco and Nagel speak
• Earnings: Samsung, Pfizer, AMD, Amgen, Caterpillar, Eaton, BASF, BP, AB InBev, MSCI, Ares Management, Global Payments, Xylem, First Solar

Wednesday November 1

• Data: US October ISM index, ADP report, total vehicle sales, September JOLTS report, construction spending, China October Caixin manufacturing PMI, Japan October monetary base, Italy October budget balance, new car registrations, Canada October manufacturing PMI
• Central banks: Fed’s decision
• Earnings: Qualcomm, CVS, Mondelez, Airbnb, Humana, McKesson, PayPal, Estee Lauder, Apollo, Kraft Heinz, Electronic Arts, Aston Martin, Orsted, IQVIA, DuPont de Nemours, DoorDash, Marathon Oil, Albemarle, Roku, Etsy

Thursday November 2

• Data: US Q3 unit labor costs, nonfarm productivity, September factory orders, initial jobless claims, Italy October manufacturing PMI, Germany October unemployment claims rate, France September budget balance
• Central banks: BoE decision, DMP survey, Norges Bank decision
• Earnings: Apple, Eli Lilly, ConocoPhillips, Novo Nordisk, S&P Global, Shell, Ferrari, Starbucks, Stryker, Booking, Cigna, Regeneron, Marriott, Fortinet, Cheniere, Palantir, Moderna, Block, Blue Owl Capital, Expedia, DraftKings, Paramount Global, DISH, Peloton

Friday November 3

• Data: US October jobs report, ISM services index, China October Caixin services PMI, Q3 current account balance, UK October official reserves changes, Italy September unemployment rate, Germany September trade balance, France September industrial production, Q3 private sector payrolls, Eurozone September unemployment rate, Canada October jobs report
• Central banks: BoE’s Hauser, Pill and Haskel speak
• Earnings: EOG Resources, AP Moller-Maersk, BMW, Dominion Energy, Vonovia

* * *

Finally, turning to just the US, Goldman writes that the key economic data releases this week are the employment cost index on Tuesday, JOLTS job openings and ISM manufacturing on Wednesday, and the nonfarm payrolls on Friday. The November FOMC meeting is on Wednesday. The post-meeting statement will be released at 2:00 PM ET, followed by Chair Powell’s press conference at 2:30 PM.

Monday, October 30

• 10:30 AM Dallas Fed manufacturing index, October (consensus -16.0, last -18.1)

Tuesday, October 31

• 08:30 AM Employment cost index, Q3 (GS +0.95%, consensus +1.0%, last +1.0%): We estimate the employment cost index to rise by 0.95%, reflecting the significant slowing in Q3 wage data offset by a boost from the benefits component.
• 09:00 AM FHFA house price index, August (consensus 0.5%, last 0.8%)
• 09:00 AM S&P Case-Shiller 20-city home price index, August (GS 0.8%, consensus 0.8%, last 0.9%)
• 09:45am Chicago PMI, October (GS 46.1, consensus 45.1, last 44.1): We estimate that the Chicago PMI rebounded by 2pt to 46.1 in October, reflecting upward convergence toward other surveys but a drag from the auto strikes. Our GS manufacturing tracker was unchanged on net at 49.4.
• 10:00 AM Conference Board consumer confidence, October (GS 100.4, consensus 100.0, last 103.0)

Wednesday, November 1

• 08:15 AM ADP employment change, October (GS +170k, consensus +150k, last +89k): We estimate a 170k rise in ADP payroll employment in October, reflecting stronger Big Data employment indicators.
• 09:45 AM S&P Global US manufacturing PMI, October final (consensus 50.0, last 50.0)
• 10:00 AM Construction spending, September (GS +0.5%, consensus +0.4%, last +0.5%)
• 10:00 AM JOLTS job openings, September (GS 9,200k, consensus 9,200k, last 9,610k)
• 10:00 AM ISM manufacturing index, October (GS 48.8, consensus 49.0, last 49.0):  We estimate the ISM manufacturing index edged down 0.2pt to 48.8 in October, reflecting a drag from the UAW strikes and a modest seasonal headwind, partially offset by the rebound in East Asian industrial activity. Our GS manufacturing tracker was unchanged on net at 49.4.
• 02:00 PM FOMC statement, October 31-November 1 meeting: As discussed in the FOMC preview, Fed officials appear to have signaled that they will not be hiking at their November meeting this week. We interpret their recent comments, recapped in our latest Fed Chatterbox, to imply that most would prefer not to hike again, consistent with our forecast that the FOMC will hold the funds rate at 5.25-5.5% until late next year. The market is pricing very little chance of a hike this week and only a roughly 20% probability of a hike at the December meeting.
• 05:00 PM Lightweight motor vehicle sales, October (GS 15.6mn, consensus 15.2mn, last 15.7mn)

Thursday, November 2

• 08:30 AM Nonfarm productivity, Q3 preliminary (GS +4.3%, consensus +4.0%, last +3.5%); Unit labor costs, Q3 preliminary (GS flat, consensus +0.7%, last +2.2%): We expect nonfarm productivity growth of +4.3% (qoq saar) in the Q3 preliminary reading. We expect unit labor costs—compensation per hour divided by output per hour—to remain flat in Q3 preliminary reading, which would increase the year-over-year rate to +0.8%.
• 08:30 AM Initial jobless claims, week ended October 28 (GS 210k, consensus 210k, last 210k); Continuing claims, week ended October 21 (GS 1,800k, last 1,790k): We estimate that initial jobless claims remained flat in the week ended October 28 and continuing claims increased by 10k to 1,800k due to residual seasonality.
• 10:00 AM Factory orders, September (GS +2.2%, consensus +1.7%, last +1.2%); Durable goods orders, September final (last +4.7%); Durable goods orders ex-transportation, September final (last +0.5%); Core capital goods orders, September final (last +0.6%); Core capital goods shipments, September final (last flat)

Friday, November 3

• 08:30 AM Nonfarm payroll employment, October (GS +195k, consensus +190k, last +336k); Private payroll employment, October (GS +160k, consensus +150k, last +263k); Average hourly earnings (mom), October (GS +0.20%, consensus +0.3%, last +0.2%); Average hourly earnings (yoy), October (GS +3.94%, consensus +4.0%, last +4.2%); Unemployment rate, October (GS 3.7%, consensus 3.8%, last 3.8%); Labor force participation rate, October (GS 62.8%, consensus 62.8%, last 62.8%): We estimate nonfarm payrolls rose by 195k in October (mom sa), reflecting a 225k underlying gain offset by a 30k drag from the United Auto Workers strikes. Big Data indicators indicate strong job growth on net, and initial jobless claims suggest a very low pace of layoff activity. We also believe tight labor markets may have incentivized a pull-forward of pre-holiday hiring. We estimate that the unemployment rate declined to 3.7%, reflecting a rise in household employment and unchanged labor force participation at 62.8%. We estimate a 0.20% increase in average hourly earnings (mom sa) that lowers the year-on-year rate to 3.94%, reflecting waning wage pressures and negative calendar effects (the latter worth -5bps month-over-month, on our estimates).
• 09:45 AM S&P Global US services PMI, October final (consensus 50.9, last 50.9)
• 10:00 AM ISM services index, October (GS 53.4, consensus 53.0, last 53.6): We estimate that the ISM services index edged down 0.2pt to 53.4 in October. Our forecast reflects a net decline in business surveys (our nonmanufacturing tracker fell 0.7pt to 51.1) but favorable seasonality and resilient consumer demand.

Source: DB, Goldman, BofA

Authored by Daniel Lacalle,

The United States is borrowing its way to disguise recession.

The headline economic figures for the United States look robust. However, details show concerning weaknesses.

Real GDP growth surged to 4.9% in the third quarter, above the consensus estimate of 4.5%. However, some analysts, including Bloomberg, expected up to 5% growth based on the nowcast estimates.

United States unemployment is also low, at 3.8%, but real wage growth remains negative, according to the Bureau of Labor Statistics. Between September 2022 and the same month of 2023, the decrease in real average weekly earnings was 0.1%. This means that a tight labor market is not improving the real disposable income of workers. Additionally, the labor participation rate and employment-to-population ratio remain below pre-pandemic levels. Add rising taxes to inflation, eating away at wage growth, and you can see why things are more complicated than what headlines suggest.

The cracks in the bullish story will appear soon. Consumer spending grew at a strong 4.0% annualized rate in the third quarter, which surprised most analysts after a weak 0.8% in the previous reading. The worrying fact is that this rise in consumption comes mostly from higher debt, as United States consumers are borrowing heavily to spend on entertainment. The rise in services was 3.6%, while real disposable income is negative (-0.1%) and household credit card debt reaches a new record. Unsurprisingly, credit card debt rose to a new high of more than $1 trillion, with the average consumer running a $5,900 debt on their card, according to the Federal Reserve Bank of New York. Last year, credit card interest rose to $105 billion, and this year will be much higher.

Americans are living on borrowed time as real salaries remain in negative territory in the past five years and inflation eats savings away. This may last, but not much.

More concerning figures in GDP: A strong economy does not show a decline in investment of this magnitude. Nonresidential business investment fell 0.1%, including a 3.8% slump in equipment investment. According to Morgan Stanley, capital expenditure plans have fallen to May 2020 levels.

The mirage of construction is also gone, as it fell to just 1.6% after a one-off double-digit increase in the past quarter. Furthermore, a large part of the growth in GDP came from bloated government spending financed with more debt and inventory revaluation, adding 0.8 and 1.4 percentage points to GDP growth. Many of these temporary effects will revert in the fourth quarter.

The level of public debt is exceedingly concerning. The increase in gross domestic product between the third quarter of 2022 and the same period of 2023 was a mere $414.3 billion, according to the Bureau of Economic Analysis, while the increase in public debt was $1.3 trillion ($32.3 to $33.6 trillion, according to the Treasury).

The United States is now in the worst year of growth, excluding public debt accumulation since the thirties.

Consumption financed by soaring credit card debt and economic growth disguised by enormous government spending and record public debt are not indicators of a strong economy but proof of a very worrying trend that may last another two quarters but will likely result in a much weaker economy in the next three years.