US inflation steadies at 3.7%

7th October 2023 – 13th October 2023 | Another week in the markets

S&P 500	Nasdaq	VIX	DJIA	Russell 1000	NYSE
4,327.78	13,407.23	19.32	33,670.29	2,367.47	15,323.70
0.45%	-0.18%	10.72%	0.79%	0.35%	0.72%
Nifty 50	Gold	Silver	Brent crude	USD-INR	EUR-INR
19,751.05	$1,945.90	$22.90	$90.80	83.42	87.52
0.50%	5.35%	5.19%	7.54%	0.37%	-0.56%

Source: MarketWatch 

Hello Saturday,

This week, the Israel-Hamas war pushes oil prices up, US inflation steadies at 3.7%, and several key banks post strong third-quarter earnings. 

• Hamas’ surprise attack on Israel over the weekend sent crude oil prices up to $87 a barrel on Monday; however, energy experts believe that the war will not have a significant impact on oil markets. 
• The US’s consumer price index, up 3.7% from a year ago, remained flat in September; investors are hopeful that the Federal Reserve might not carry out another interest rate hike this year. 
• JPMorgan Chase, Wells Fargo, and Citigroup post better-than-expected third-quarter earnings.
• FTX founder Sam Bankman-Fried’s fraud trial enters its second week, with star witness Caroline Ellison testifying against him. 
• Beloved German shoemaker Birkenstock goes public after 249 years but ends up having a disappointing debut on the NYSE, slumping over 12% on its first day. 

Taking stock | Geop(oil)itics | Ready steady | Money in the bank | FTXposed | Birken(stock) | Invest wisely

Taking stock

Wall Street ended mostly lower on Friday despite the big banks posting strong quarterly results as a result of geopolitical tensions and consumer sentiment data. For the week, the Dow climbed 0.79%, snapping out of a three-week losing streak, while the S&P 500 gained 0.45%. The Nasdaq dropped 0.18%. 

Geop(oil)itics

Oil prices reached 10-month highs late last month when Saudi Arabia and Russia announced extended supply cuts of 1 million barrels daily. And now, the war between Israel and the Islamist group Hamas is posing significant geopolitical risks to the oil market. 

On Monday, which was the first trading day after Hamas’ surprise attack on Saturday, global crude oil prices jumped to more than $87 a barrel, increasing by almost 5% from last week. Most of these gains were reversed by mid-week. Despite the initial reaction of the oil markets, US energy industry analysts believe that the Israel-Hamas war’s impact on oil and gasoline prices will remain insignificant unless this conflict expands geographically. 

Israel is not a major producer or exporter of oil — it ranks 95th globally when it comes to daily oil production. However, the countries to its east, including Saudi Arabia, produce almost 30% of the world’s oil. The US could also tighten the sanctions on Iran if the latter is found to be involved in Hamas’s attack on Israel, which could further push up oil prices.

On Friday, oil prices rose again to above $88 a barrel, but this came as a result of the US imposing sanctions on owners of tankers carrying Russian oil that was priced above the G-7’s price cap of $60 a barrel. 

Ready steady

The US Consumer Price Index (CPI) rose 3.7% in September from a year earlier. While this was slightly higher than the 3.6% that economists had expected, it was in line with August’s 3.7% reading. Inflation holding steady at 3.7% is good news for an economy that has been trying to bring it down since it skyrocketed to a 40-year high last summer.

Source: CNN

Since March 2022, when interest rates were near zero, the Federal Reserve has raised rates 11 times and lifted them to a range between 5.25% and 5.5%. The question now is — will they raise it one final time before the year ends? When gas and food prices are excluded, the core CPI has cooled for the sixth consecutive month, price pressures seem to be dissipating. Hence, many investors are hopeful that the Fed’s inflation-busting rate hike campaign may come to an end. However, economists believe that the Fed may still go ahead with a final hike given that inflation still remains above the 2% target. 

Money in the bank

The third-quarter earnings season began on Friday, and most of the big banks posted strong earnings. JPMorgan Chase, Wells Fargo, and Citigroup beat Wall Street expectations, each benefitting from high interest rates that boosted income from loans. The stock prices of these banks increased between 3% and 5% as a result. 

JPMorgan Chase reported a quarterly profit of $13.2 billion, a 35% increase from a year ago. Its revenue, at $39.9 billion, also saw a significant increase of 22%. Wells Fargo’s Net Interest Income (NII) increased by 8% to $13.1 billion in the third quarter, while its revenue rose to $20.857 billion. Given its strong third-quarter results, it has increased its annual forecast for income from interest payments. Lastly, Citigroup’s revenue, at $20.14 billion, rose by 9% on a yearly basis, and its net income rose by 2%. 

FTXposed

Last November saw the collapse of Sam Bankman-Fried’s cryptocurrency company FTX and its sister trading firm, Alameda Research. And this week was the second week of Bankman-Fried’s fraud trial, who is facing seven charges and up to 100 years in prison for defrauding customers and lenders of FTX, among other things. 

This week, Caroline Ellison, former CEO of Alameda and Bankman-Fried’s ex-girlfriend, who is also the prosecution’s star witness, testified that she was asked to lie over and over again by Bankman-Fried to mislead customers. Ellison testified that he had asked her to pull money out from FTX customer accounts on several occasions in order to fund Alameda’s investment and trading strategies. Essentially, he used FTX as his personal piggy bank, stealing as much as $10 billion from customers to make political donations, make new investments, buy luxury real estate, and pay off lenders at Alameda. 

FTX’s former CTO, Gary Wang, also testified this week, revealing that the company’s insurance fund was inaccurate. It was arrived at by taking a random number around 7,500, multiplying it with the total volume of trades over 24 hours, and dividing that figure by 1 billion. This is only one of the many examples that show just how much of the financials and information published for the public was fabricated by Bankman-Fried. 

Birken(stock)

After almost 250 years, Birkenstock finally went public this week and made its Wall Street debut. Valued at $8.6 billion, this made the beloved German sandalmaker’s IPO one of the five largest consumer discretionary IPOs in 20 years. However, it also ended up being the worst-performing debut by a company worth over $2 billion in almost two years. 

Birkenstock debuted on Wednesday on the New York Stock Exchange, with its shares closing its first day down 12.6%. This disappointing listing was primarily due to the fact that Wall Street found the valuation to be a bit too pricey. This performance also hints at the fact that investors are still cautious about new listings. 

Invest wisely 

Diversification is crucial when it comes to hedging portfolio risk. A key layer of diversification that many investors tend to overlook is diversifying across geographies. Investing across asset classes is not enough — you need to add international exposure to your portfolio. And one of the simplest and most cost-effective ways to access the US markets is through Appreciate. Download the app today!

Warm regards,
Another week
in the markets