Dear valued client,
Markets lost ground this week in anticipation of the Federal Reserve’s decision on interest rates next week.
To follow up on last week’s blog post, the WSJ reported earlier this week, “China dropped many of its quarantine and testing requirements and curtailed the power of local officials to shut down entire city blocks, as the government accelerated plans to dismantle zero-Covid controls in the wake of nationwide protests.” It is surprising to hear the CCP decided to acquiesce to its citizens’ demands so rapidly. Perhaps this is part of a more elaborate (and nefarious) plan, or perhaps the CCP’s cost-benefit analysis is indicating too much economic (and now political) suffering to stubbornly subjugate its citizens to complete confinement.
On the energy front this week; Western countries have decided to put a $60/barrel lid on Russian oil moving forward. The price cap is meant to curb Russia’s oil revenue without causing massive disruptions to energy markets as Russian oil will continue to flow to countries that still buy it (India, China, Turkey). The goal is to hinder Putin’s ability to fund his war while making energy more affordable (for Europe especially) in the colder winter months ahead.
How will this be enforced?
Western countries had to get creative. Because they mostly dominate the maritime industry Russia relies on to ship its oil, the G7 (plus Australia) is telling governing waterborne entities they cannot insure, finance, or ship Russian oil that’s more than $60/barrel.
I doubt Putin will accept this development without a fight.
On Wednesday, the Bank of Canada increased interest rates by another 0.5 basis points. This was the Central Bank’s seventh rate hike this year. The federal funds rate is hovering around 4.5% while inflation in Canada currently sits at 6.9%. I predict quantitative tightening will cease once parity is reached between inflation and the federal funds rate, likely in the first or second quarter of 2023.
Earlier this week, the Trump organization was found guilty of criminal tax fraud. Trump’s team is said to have engaged in off-the-books compensation schemes to pay executives in car leases, apartments, and cash. Fines will amount to $1.6M. This will make it even more difficult for Trump to make a case for his presidency in 2024.
The Holiday Season is upon us. Good luck with your gift shopping.
“It’s not about presents but it is about your presence. Therein lies the spirit of the holiday season.” – Julieanne O’Conner
Have a terrific weekend.
PW
