Stomp Harder

The US economy has shown surprising resilience in the face of the fastest inflation and interest-rate hikes in a generation. That means the Federal Reserve will have to stomp even harder on demand. While consumers are showing some signs of slowing, they’re still largely keeping up with persistent price pressures, powered by historic wage gains. If Americans won’t dial back spending further, odds favor the central bank becoming that much more aggressive to take more wind out of the economy’s sails with the goal of bringing inflation down. Traders are now fully expecting the central bank to raise interest rates by another 75 basis points when policy makers meet next week, which would be the third-straight hike of that size. 

Radical Moves

European Commission President Ursula von der Leyen will call for radical steps to stem the energy crisis, edging closer to rationing measures and calling for a swoop on energy companies’ profits. The proposals she will set out in a speech before the European Parliament on Wednesday will intensify the fractious discussions between member states, which have different priorities and vulnerabilities. The key question for markets is whether her proposal to mandate a 5% reduction in gas consumption survives the various negotiating stages. That would be a major step toward curbing the energy deficit the continent has been facing since Russia started squeezing gas flows.

Covert Spending

Russia has secretly funneled more than $300 million to foreign political parties and candidates since 2014 in an effort to influence elections in more than two dozen countries, a senior US official told reporters. Russia transfers the funds — cash, cryptocurrency and non-monetary contributions — using intermediaries including security services, oligarchs and supposedly independent foundations or think tanks, the State Department said in a note to dozens of US embassies that was shared with reporters. The influence effort may ramp up in coming months as Russia seeks to blunt the effect of international sanctions over its invasion of Ukraine. The US has notified more than 100 countries of its findings.

C’est Tendu

The French government lowered its economic growth forecast for next year, forcing it to delay tax cuts and keep tight control of spending. Disruption to business from volatile energy prices after Russia’s invasion of Ukraine, combined with households facing stronger inflation and difficulties for France’s main trading partners, mean the government now expects GDP to expand only 1% in 2023 instead of the 1.4% it forecast in July. “In this tense situation, France is resisting,” Finance Minister Bruno Le Maire said in a presentation to journalists. The deterioration of the economic backdrop has undermined President Emmanuel Macron’s plans to press ahead with fiscal reforms in the early stages of his second five-year term as president. 

Coming Up…

European shares are set to join a global equity selloff after US inflation figures fueled wagers for outsized Fed hikes. Finland, Sweden and the UK follow on with their own CPI prints. Bank of France Governor Francois Villeroy de Galhau speaks at an IMF event. Inditex and Tullow are among companies scheduled to report results.

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(Source: Bloomberg, Sept. 14-2022)