Mark Vitner

U.S. ECONOMY & FINANCIAL MARKETS

This week’s commentary assesses the macro and policy landscape, focusing on persistent fiscal uncertainty, labor market bifurcation, and global flashpoints impacting risk assets and corporate strategy. As the government shutdown extends to historic length, prospects for a resolution are improving, with a pivotal Senate vote scheduled Sunday evening and Democrats signaling willingness to support a deal to reopen the government. Macro data visibility remains diminished, creating tactical challenges for allocators and policymakers.

An apparent resolution of the government shutdown appears to be in the works.

The longest government shutdown on record is finally moving toward a resolution. The Senate advanced a bipartisan funding bill on Sunday by a 60–40 vote, clearing the key procedural hurdle to reopen the government. The measure—backed by eight Democrats—would fund most federal agencies through late January and provide retroactive pay to furloughed workers. Negotiations continue over health-care subsidies and longer-term spending caps. The CBO estimates the shutdown has already shaved 1–2 percentage points off Q4 GDP, or roughly $14 billion. A final Senate vote is expected early this week, potentially allowing agencies to resume operations and easing mounting economic strains.

While discussions remain fluid and no deal is finalized until the vote is taken, the mood in Washington has shifted and a breakthrough appears increasingly likely—potentially ending weeks of fiscal drag and market volatility.

Federal contractors and air-traffic controllers remain unpaid, forcing the FAA to cut flight schedules at major hubs. Beyond the fiscal drag, the shutdown has created a data fog for the Federal Reserve just weeks before its December policy meeting. Key inflation and labor reports have been delayed, leaving policymakers to navigate without their usual instruments and relying on private data, experience and instincts.

Labor Market: Cooling, Not Collapsing

The October ADP report showed a modest 42,000 private-payroll gain—a rebound from two months of declines but well below the pre-pandemic trend. Hiring remains concentrated in healthcare, hospitality and travel-related services while professional and information industries continue to shed jobs. Small and medium sized firms have cut payrolls in five of the past six months, while large companies continue to add staff.

Depictions of a low-hire, low-firm environment may be slightly optimistic; recent data may be overstating net job growth. Productivity gains and AI-driven efficiencies are enabling firms to sustain output with fewer hires. The primary risk is not mass layoffs, but a prolonged period of stagnant hiring and more intense debate over inequality.

Real GDP is estimated to have risen at a 3.4 percent annual rate during Q3, while nonfarm payrolls averaged just 45,000 per month in July and August. Productivity growth is strong, but labor-force participation is slipping as attractive job opportunities become scarce, immigration slows, and policy uncertainty rises. The threshold for job growth to keep unemployment stable has fallen to roughly 45,000 per month, implying GDP can grow without meaningful job creation.

While layoff announcements spiked in October, state-level unemployment insurance filings do not reflect a generalized uptick. State-level jobless claims remain subdued at around 228,000 per week, consistent with a labor market that is cooling but not cracking. Layoff announcements typically take months to translate into job losses.

The gig economy, meanwhile, provides displaced workers opportunities to generate income while searching for a new position, reducing the impact on headline unemployment statistics.

Consumer Mood Sours

Consumer sentiment fell sharply in early November. The University of Michigan Index dropped 3.3 points to 50.3, the lowest since 2022. The decline reflects growing pessimism after the off-year elections and a deepening divide over the government shutdown. Inflation expectations remain elevated at 4.7 percent for one year and 3.6 percent over five to ten years. Notably, gasoline prices—normally inversely correlated with sentiment—fell in late October and early November.

Wealth effects sustain overall spending, even as confidence and credit use sag.

Despite weaker sentiment, the link between confidence and spending remains loose. Wealthier households, buoyed by strong equity holdings, continue to spend, while middle- and lower-income consumers face tighter credit and shrinking real incomes. Consumer credit rose $13.1 billion in September, driven primarily by student and auto loans. Revolving credit remains negative year over year, underscoring the uneven consumer base and the growing bifurcation of the U.S. household sector.

Manufacturing Still Contracting, Services Rebound

The October ISM Manufacturing Index improved modestly but remained in contraction at 48.7, its fourteenth straight month below 50. Production and new orders are still contracting, as manufacturers trim inventories. ISM Services rebounded to 52.4, driven by business activity and new orders, even as employment stayed soft. The Prices Paid Index rose to 70.0, its highest in nearly three years—a reminder that inflation pressures remain entrenched in services.

The economy appears stuck between resilient services and slowing manufacturing.

The mid-December FOMC meeting remains live, with futures markets assigning a 72 percent probability of a 25-basis-point cut. The December meeting resembles a “booth review” in football—a rate cut is the call on the field, and policymakers will need decisive evidence to overturn it, which would unsettle markets, businesses, and consumers.

With official data frozen, the Fed must weigh a softening labor market against potential inflationary effects from tariff pass-throughs. While inflation expectations have firmed, underlying measures continue to moderate. Rents are likely to remain soft through mid-2026. The jobs and hiring outlook has weakened more than expected, keeping risks weighted toward the employment side of the Fed’s mandate.

Markets: Stocks Snap Streak, Bonds Hold Ground

The stock market endured its worst week since April. The S&P 500 fell 1.8 percent, the Nasdaq lost 2.8 percent, and the Russell 2000 declined 2 percent. Selling was broad, led by technology and consumer discretionary sectors, as weak manufacturing data and mounting policy uncertainty weighed on investor sentiment. Stretched valuations in AI-related names and the worsening government shutdown contributed to a long-anticipated pullback.

Treasuries rallied sharply mid-week before yields retraced. The 10-year ended near 4.10 percent and the 2-year at 3.56 percent. Credit spreads widened modestly, and rate volatility remained high as investors moved into quality.

Gold remains around $4,100 per ounce, near its all-time high, supported by safe-haven demand and growing conviction the Fed will cut rates further. Brent crude slipped toward $64 per barrel, the lowest since early spring, after OPEC+ paused production increases amid softening global demand indicators.

Tariffs and the Court

The Supreme Court’s review of Trump-era tariffs may reshape inflation and trade dynamics. Oral arguments last week revealed most justices are skeptical of presidential authority under IEEPA to impose tariffs without Congressional approval.

Prediction markets now place the odds of the Court upholding IEEPA tariffs at 30 percent, down from 40 percent pre-argument. A decision is expected in December or January, with a closely split result probable. Our take is that the Court will rule the president overstepped, but the Administration could shift tariffs under other statutes or preserve international agreements.

Refunds to U.S. importers will likely be less than originally remitted, with payments delayed and requiring legal follow-up. The net deflationary impact may emerge gradually, via lower import costs and modest relief to corporate margins.

Alternative tariff authorities include:

• Section 122 of the Trade Act of 1974—temporary tariffs up to 15 percent
• Section 301 of the Trade Act—retaliatory tariffs for unfair trade practices
• Section 232 of the Trade Expansion Act of 1962—tariffs on national security grounds

A ruling invalidating tariffs would slightly reduce near-term inflation risk, offering some cushion for policymakers heading into 2026. Renewed use of alternative authorities could reintroduce friction, sustaining supply chain and price volatility. The decision, expected late this year or early 2026, will add another twist to the Fed’s calculus.

Geopolitics: Off-Year Elections and Global Flashpoints

Off-year elections injected more volatility into Washington’s fiscal environment. Democrats gained ground in several key states, underscoring voter frustration with living costs, affordability, and the shutdown. The results strengthen Democrats’ negotiating position in the budget impasse, increasing pressure on House Republicans to act before the economic fallout widens.

Zohran Mamdani’s upset win in New York City on a platform of rent stabilization, transit breaks, and progressive taxation sent shockwaves, prompting immediate White House response—even threats to withhold funding. The federal-local confrontation highlights tangible risks for businesses tied to contracts, infrastructure, or transit systems.

The broader political takeaway is voter fatigue with dysfunction and an emphasis on affordability and stability over ideology. Markets have noticed: the sell-off in equities and rally in Treasuries reflect the view that fiscal disarray, not inflation, is the principal near-term risk.

Russia and Ukraine

Russia’s winter offensive intensified, launching the largest strike on Ukrainian energy infrastructure since the 2022 invasion.

• 458 drones and 45 missiles struck 25 sites across four regions.
• National generating capacity temporarily dropped to zero; outages of up to 12 hours daily in Kyiv
• Civilian casualties rose; Zelenskyy appealed to allies for more Patriot air defense systems
  Sanctions waivers for Hungary and continued energy purchases further strain Ukraine’s resilience. Markets remain insulated so far, with energy prices subdued. But escalation risks remain if supply disruptions resurface.

Israel, Hezbollah, and Gaza

Conflict along Israel’s northern border flared, with strikes on Hezbollah in southern Lebanon targeting elite Radwan forces. Disarmament under UN Resolution 1701 remains critical but unfulfilled, complicating prospects for lasting peace. Lebanese and Israeli experts emphasize that failure to disarm Hezbollah undercuts incentives for Hamas and impedes regional stability.

The U.S. Treasury has sanctioned Hezbollah facilitators for funneling funds from Iran. Lebanon’s economic stability now hinges in part on progress toward disarmament.

Meanwhile, Gaza remains volatile. Hezbollah’s claim of success in resistance strategy and inter-group connectivity heighten the risk of north-south escalation. For markets, the status quo is baked in, but any misstep could quickly revive regional risk premiums across energy and defense assets.

OPEC+ and Energy Politics

OPEC+ opted to hold output increases through March 2026, raising only 137,000 barrels per day in December. Weak demand—especially in Asia—drives the decision. Oil prices reflect the freeze, with Brent crude in the low-$65 range and WTI at $61–62. The cartel’s strategy favors stability over spikes, aligning with fiscal stress and rising inventories.

Other Global Flashpoints:

• China: The Fifteenth Five-Year Plan signals more regulation over stimulus, weighing on equities.
• Iran: Intensified uranium enrichment sets the stage for future negotiations.
• Taiwan/Pacific: U.S. naval patrols continue, but risk of confrontation remains muted.

Strategy Watch: For CFOs and Treasurers

• Liquidity and Funding: Volatility in equities and steady Treasury yields present an opportunity to term out short-term debt before year-end. Curve remains slightly upward-sloping; locking in spreads provides insurance ahead of potential rate cuts.
• Cash and Investment Policy: Money-market yields have eased to 3.8–3.9 percent. Ladder Treasury bills and short-duration agencies to preserve liquidity and reduce reinvestment risk.
• Credit and Counterparty Risk: Spreads have widened modestly but remain tight by historical standards. Reassess supplier and customer credit exposure, especially for small or trade-exposed counterparties.
• FX and Commodities: Unwind euro hedges partially; maintain yen protection and update commodity-linked hedges for current price levels.
• Capital Spending and Planning: Expect slower Q4 cash flow, reflecting delayed federal contract payments. Maintain caution on discretionary capex until visibility improves in later this year and in early 2026.

The Week Ahead: November 10–16

Key indicators will remain limited by delayed federal releases. Focus on NFIB small business optimism, Fed speeches, weekly jobless claims, and pre-meeting remarks from Atlanta Fed President Bostic and Kansas City’s Schmid for insight into the Fed’s December outlook.

The economy is expected to post 3.4 percent real GDP growth for Q3 and to slow to just under 2 percent in Q4, with momentum increasingly reliant on consumer services and exports as hiring and credit conditions tighten.

Markets begin the week on a firmer footing. The 10-year Treasury yield jump back up to 4.15 percent on optimism that the government shutdown is nearing resolution before settling back in at 4.10. Equities look set to rebound, and the dollar remains mixed, reflecting improved fiscal sentiment but ongoing uncertainty about the Fed’s next move.

For CFOs, treasurers, and other decision makers: liquidity first, duration second, discipline always. Use near-term optimism around a fiscal resolution to lock in funding and reassess exposures—while remembering that the underlying structural issues remain unsettled.

The economy is still moving forward, but the composition of growth is shifting. Productivity, not payrolls, is now driving the expansion. The Fed faces a complex policy decision on a short timetable, and markets and business leaders are adjusting to a slower, leaner phase of growth.

In this environment, balance-sheet discipline and liquidity flexibility are the best tools—and staying opportunistic will be the edge as the market recalibrates around the next policy turn.

U.S. ECONOMY & FINANCIAL MARKETS

The Federal Reserve’s October 29 decision marked a shift from momentum to management. Policymakers trimmed the funds rate by 25 bps to 3.75–4.00% and emphasized that policy “is not on a preset course,” reflecting both the committee’s divisions and the information gaps created by the continuing government shutdown.

A measured cut, anchored yields, and a reminder: policy is not on a preset course.

The shutdown itself, now the longest on record, has had limited near-term market impact. Senate leaders have rejected calls to repeal the filibuster rule, virtually guaranteeing its survival and ensuring that fiscal legislation will remain constrained. While the shutdown is likely to end before Thanksgiving, its political fallout has kept Washington’s focus narrow, limiting fiscal risk in the near term.​

Markets reacted swiftly: the two-year Treasury yield rose to about 3.6%, the ten-year moved back above 4% and ended the week near 4.10%. The S&P 500 gained roughly 0.5%, supported by solid Q3 earnings and increased capex guidance from the major AI and cloud “hyperscalers.”.

The latest CPI print continues to germinate across markets and policy circles. Core CPI rose 0.2% in September, with shelter’s contribution the smallest since 2021. While some worry the softening may be temporary, private-sector data show rent concessions rising, especially in the South. Headline CPI and core PCE are on pace to finish the year near 3% and to ease toward 2½% by late 2025, giving the Fed room to cut gradually without re-igniting demand.

Consumers remain resilient. The Conference Board confidence index held at 94.6 despite the shutdown, and the “jobs plentiful minus jobs hard to get” spread stabilized — a sign of adaptation, not collapse.

Labor data confirm that cooling, not collapse, is underway. Jobless claims hover just above 219 k, the Chicago Fed’s real-time unemployment measure sits near 4.35%, and ADP’s weekly series shows modest private-sector gains — all consistent with a soft landing.

Housing is showing tentative signs of revival. The Case-Shiller index rose 0.2% in August — its first monthly gain since winter — as inventories normalized and sellers re-entered the market. Price growth has slowed to 1½% y/y but appears stable through year-end.

Dallas Fed surveys show a mixed regional picture — steady factory output but service and retail weakness. Manufacturing’s production index held at 5.2 with new orders (–1.7) and capacity utilization (–1.1) softening. Business sentiment remained slightly negative (–5.0) while employment rose marginally (2.0) and hours worked fell (–5.5). Services contracted again (revenue –6.4, employment –5.8), and retail sales fell sharply (–23.5). Overall, industrial and capital-intensive sectors remain firm while consumer-facing industries absorb the slowdown.

The Piedmont Crescent

The Piedmont Crescent — stretching from Birmingham and northern Alabama through Atlanta and up through the Carolinas and Virginia to the D.C. area — continues to outperform the nation.

Atlanta’s logistics and technology corridors are expanding, Charlotte’s finance and manufacturing bases remain steady, and Raleigh–Durham’s research and biotech clusters attract sustained venture capital. Greensboro and the Triad are emerging as electric-vehicle and aerospace hubs, while Richmond and Northern Virginia benefit from defense and data-infrastructure investment.

Migration, population growth, and corporate relocations keep housing active even as national demand cools. Infrastructure upgrades and energy-grid projects continue to anchor industrial expansion.

The Broader South

The South remains the nation’s growth engine. Texas leads in energy and semiconductors, Florida’s tourism and construction expand despite affordability strains, and Tennessee and Alabama capitalize on EV and aerospace investment.

South Carolina’s ports and manufacturing hubs run near capacity, Louisiana and Mississippi advance grid-modernization and petrochemical projects, and shipbuilding along the Gulf Coast — from Mobile to Pascagoula and into New Orleans — is gaining momentum on Navy, Coast Guard, and commercial orders. Together, these trends keep Southern output well above national averages even as the broader economy slows.

Outside the Region

The Midwest’s industrial renaissance continues through chip fabrication and EV supply-chains. The West Coast is stabilizing after a year of tech layoffs as AI capex revives growth from Seattle to San Jose.

Major markets in the Northeast received a boost this year from the return to the office, which also boosted retail trade and the hospitality sector. Financial services have also had a strong year. Divergences across regions are widening, however, a classic late-cycle phenomenon.

Outside the Country — The APEC and ASEAN Circuit

President Trump’s Southeast Asia trip dominated the week’s geopolitical landscape. Visits to Thailand, Malaysia, Cambodia, and Vietnam produced agreements on critical-minerals cooperation and supply-chain diversification.​

At the APEC summit in Busan, the U.S. and China announced a one-year truce without teeth — the U.S. cut tariffs tied to fentanyl from 20% to 10% in exchange for Beijing committing to reduce precursor shipments and crack down on the fentanyl trade in general. In addition, China will resume soybean and energy purchases, and suspend rare-earth export curbs for a year. Tariffs on most other goods remain high, and no progress was made on Taiwan or Russia ties.

A fragile détente steadies markets but leaves rivalries intact.

The U.S.–South Korea defense accord was another notable development, allowing Seoul to purchase or jointly develop a nuclear-powered submarine using U.S. technology to be built in a U.S. yard with Korean investment — a move anchoring the peninsula more firmly within the Indo-Pacific security framework. An added plus: Korean investment might also help bolster the U.S. shipbuilding industry.

Europe appears to be settling into a soft landing. The ECB kept rates at 2% for a third meeting, while the Bank of Canada also paused after its cut. The Bank of Japan remains on track to raise to 0.75% by year-end, though Prime Minister Takaichi may delay if data soften. Global policy tone is one of hawkish stability — fine-tuning after a year of adjustment.

Risk tone brightened as Washington and Beijing reached a provisional framework pausing threatened 100% tariffs and rare-earths export curbs—pending Trump–Xi leader sign-off later this week. President Trump said he expects to “come away with a deal,” with China delaying export bans and boosting U.S. soybean purchases—tactically easing AI supply-chain stress and trimming term-premium risk.

Oil prices have stabilized near the low-$60s for WTI and mid-$60s for Brent as higher U.S. output offsets Middle-East risk and sluggish European demand. Argentina’s Javier Milei scored a decisive election victory that reinvigorated market-friendly reform momentum across Latin America. Globally, the backdrop remains one of managed fragility — diplomacy buying time for markets without resolving underlying rivalries.

Policy and Market Wrap-up

Regional Fed surveys paint a mixed picture: Richmond at –2, Dallas and Kansas City showing softer orders, and Atlanta’s business-inflation expectations slipping to 2.5%. Markets now price one more 25-bp cut by January, consistent with a soft-landing baseline.

Private-credit markets are also entering a more discerning phase as the “ghosts of 2020–2021 vintages” resurface. Select distress is emerging in legacy loan books, while AI-linked direct-lending remains active. Alternatives investors are turning more defensive — upgrading infrastructure and ports, re-entering senior housing, and keeping hedge-fund allocations tilted toward global macro.

Credit spreads remain tight, volatility subdued, and equity leadership concentrated in capital-intensive sectors — AI, energy, aerospace, and defense. Next week’s ISM and NFIB surveys will test whether late-year momentum can carry into 2026.

Bottom Line

The U.S. economy continues to evolve rather than erode. Inflation is cooling, labor markets are rebalancing, and policy is shifting from restraint to fine-tuning. Across the Piedmont and the South, industrial investment and migration remain core drivers. Abroad, diplomacy has bought calm but not certainty. Another showdown awaits.

Markets Exhale Amid Persistent Rivalry

The headlines out of Busan were celebratory, but the subtext was cautionary. The temporary U.S.–China thaw — the cut in fentanyl-related tariffs to 10% in exchange for Beijing reducing precursor shipments, the resumption of soybean trade, and a one-year suspension of rare-earth export restrictions — amounts to a cease-fire, not reconciliation.

The U.S. and China have stepped back from escalation, not rivalry.

Behind the smiles and handshakes lies a strategic recalibration rather than surrender. Both nations are buying time: Washington to shore up domestic supply chains through ASEAN partnerships, Beijing to manage capital flight and maintain export leverage. The détente narrows downside risk for AI-driven capex and commodity markets yet underscores how interdependence remains both weapon and weakness.

History suggests that pauses like this often precede a new phase of competition. The world’s two largest economies have stepped back from escalation but not from rivalry. For now, markets can exhale — but they would be wise not to forget to keep their running shoes on.

The Setup — CPI Gets the Spotlight

September CPI came in cooler than expected, reinforcing disinflationary pressures and giving the Fed just enough visibility to continue easing without losing credibility. Headline CPI rose 0.3% m/m (3.0% y/y), down from 0.4% in August, while core printed softer at 0.2% m/m (3.0% y/y). Core goods inflation held at 1.5% y/y, and core services eased to 3.5% from 3.6% — confirming that tariffs (not demand) remain the primary inflation driver.​

Inflation may be lagging, but leading indicators continue pointing lower. Private sector price gauges and survey data have clearly rolled over. Supplier delivery times remain stable, eliminating fears of a 2021-style relapse. The weaker labor market also suggests core services prices will moderate further.​

The softer CPI report allows continued measured easing, while keeping long rates anchored.

The Mission — Gradual Easing to Support the Labor Market

The Fed’s mission has evolved: it now seeks to maintain disinflation progress while carefully cushioning a weakening labor market. With underlying inflation easing and signs of job market fragility emerging, policymakers have started cutting rates to prevent a downturn from spiraling into weaker consumer spending.

The ongoing federal shutdown amplifies these risks by clouding economic visibility, so the Fed must proceed with caution—not only to support jobs and growth, but also to maintain the confidence of bond markets and avoid fueling renewed volatility.

Recent layoff announcements underscore the stakes:

• Tech giants continue trimming staff tied to non-AI business units.​
• Several major retailers have announced headquarters and distribution-center cutbacks, perhaps counting on a productivity boost from new technology investments.​
• Transportation and logistics firms are consolidating as goods demand cools.​

These cuts remain measured — but confidence-sensitive. A small slip could cascade.

The ongoing federal government shutdown adds another layer of risk. With paychecks now likely delayed, millions of workers — including contractors with minimal savings buffers — will be forced to pull back on spending. That drag will widen if the shutdown lingers into the holiday season.

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S&P Global’s October Flash PMIs confirmed a pickup in business activity, with the Composite Output Index rising to 54.8 from 53.9—the highest since July and signaling the strongest pace of growth in several months. Services led the expansion with a reading of 55.2, while manufacturing improved to 52.2 but continued to lag, hampered by weak exports and rising inventories.

The data also highlight modest overall job gains, with services adding positions and manufacturing still shedding jobs, as firms express caution over policy and tariff risks. Business confidence remains subdued, but lower interest rates and resilient domestic demand are supporting continued solid, if uneven, momentum into Q4.​​

The Fed is easing just enough to keep the van rolling, but everyone can feel the suspension tightening as the road gets bumpier and risks multiply from layoffs and the federal government shutdown. The soft patch helps the Fed, by further anchoring long-term rates. Just like the A-Team, businesses are improvising under pressure, patching together solutions and aiming to stay ahead of each new obstacle that pops up.

The Two‑Tier Economy — A Bifurcated Expansion

From inside the van, the ride feels smooth. Outside, road conditions vary considerably depending on which lane you are in.​

Upper‑income households benefit from record‑high asset values and healthy discretionary spending. Wealth effects keep upscale services buoyant, especially in leisure, travel, and experiential activities.

Asset owners are celebrating the ride. Wage earners are gripping the armrests.

Middle‑ and lower‑income households remain under strain — slowing job gains, persistent price pressures, and housing affordability hurdles. Consumer sentiment remains fragile.​

This bifurcation supports growth and disinflation — but it’s a knife‑edge. If the bottom weakens further, the mission shifts from landing the van to rescuing it.

Trade & Geopolitics — The Road Gets Bumpy

Risk tone brightened as Washington and Beijing reached a provisional framework pausing threatened 100% tariffs and rare-earths export curbs—pending Trump–Xi leader sign-off later this week. President Trump said he expects to “come away with a deal,” with China delaying export bans and boosting U.S. soybean purchases—tactically easing AI supply-chain stress and trimming term-premium risk.

Trump’s multi-stop ASEAN tour, with Treasury Secretary Bessent and Secretary of State Rubio, is choreographed to lock the arrangement before the Trump–Xi summit. Markets rightly view this as a truce, not a treaty. Export controls remain active tools, holstered rather than removed.​

Canada felt the other end of the stick: Trump announced a fresh 10% tariff on Canadian goods in retaliation for an Ontario advertisement he believed misrepresented Ronald Reagan’s views on tariffs, particularly as the speech was given while he himself was implementing tariffs. He labeled the ad a “hostile act,” abruptly ending ongoing trade talks and injecting fresh tension into North American supply chains. Ottawa’s response remains measured for now—as it quietly deepens ties with Asia.​

Argentina delivered a political jolt with Liberty Advances, President Javier Milei’s party, securing 41% of the vote in midterm elections—an endorsement of his free-market reforms and fiscal consolidation efforts. The U.S. has reportedly offered expanded financial backstops if Milei’s reforms remain on track—complementing the newly announced $20B swap line and increased U.S. beef import target. Market takeaway: reform momentum is real, and external liquidity risks are easing. This is a positive for Argentina, Latin America as a whole and the U.S. Beef imports may provide some modest price relief.

Geopolitically, the road may have straightened—but potholes remain in plain sight. And as markets have learned repeatedly this year, I pity the fool who gets on the wrong side of Mr. T.

Financial Markets & Rates — Keep the Roof Panels Secure – Markets continue to trade the Fed’s script: controlled disinflation paired with gradual easing favors long duration and curve steepeners. Equities rallied on the CPI release because a clean glide path reduces valuation risk.​

Shutdown dynamics add a twist: delayed paychecks risk a sharper pullback in discretionary spending, which would increase expectations for further cuts — a development likely to reinforce the downward bias in long-term yields.​

Industrial commodities remain subdued as global PMIs point toward slower momentum ahead. The S&P Global US composite PMI rose to 54.8 from 53.9, supported more by services than manufacturing. Output and new orders improved, while employment was mixed, rising in services and falling in manufacturing. Base metals and energy will likely underperform in this environment.

Gold’s recent correction appears  to be more technical, rather than thesis changing. The world economy and global monetary framework are rapidly evolving. Central bank buying remains relentless — a secular force supporting the metal as insurance against fiat instability and geopolitical recoil.

As long as Powell keeps the A-Team on message — and Mr. T refrains from yanking the wheel — the van should stay on the road and the term premium contained.

Housing & Business Signals — Checkpoints Along the Route – Housing is stabilizing — with lower mortgage rates coaxing more listings and buyers back into the market. Unlike the federal government, Realtors are still working. The National Association of Realtors reported last week that existing home sales ticked up to 4.06 million units in September (seasonally adjusted annual rate), marking the strongest pace in several months. Inventories continue to rise, with supply is up to 4.6 months, while median prices are increasing only in the low single digits (+2.1% y/y at $415,200).​

From a structural viewpoint, this is significant. More listings improve choices for buyers, while moderate price growth reduces affordability pressure — but the market is still far from overheating. The inventory uptick plus stable sales pace suggests a rebalancing rather than a rebound. Lower mortgage rates and improving affordability are clearly lifting activity, yet first-time buyer share remains constrained, and many homeowners remain locked into their current homes, which have sub-4% mortgages.​

Builders, brokers, and remodelers may finally get a smoother stretch of road, thanks to the pickup in listings and turnover rather than the chaotic spike-and-crash of the past couple of years.

The moderation in housing price appreciation pairs well with the disinflation trend elsewhere — reducing shelter’s risk to the CPI.​

Because the market is not overheating, the Federal Reserve has room to cut short-term rates without triggering a new wave of housing-fueled inflation.​

In short: housing is shifting into a steady-state recovery, rather than a boom. Upper-income homeowners continue to benefit from equity gains, while first-time and middle-income buyers are finding incremental relief on affordability metrics — neither boom nor bust, but a slow ascent.

Landing the Van — The Fed’s Escape Route

One more cut in December remains realistic — but is still conditional.​

Key risks remain: Tariffs could return, leading to a jolt in term premium and sending yields higher. Housing could ramp back up and boost shelter inflation, halting the disinflation trend. Geopolitics could flare up, leading to supply chain disruptions and energy spikes.​

Our base case: Growth moderates toward 2.0%, headline inflation holds firm at around 3% through year end but softens a touch on an underlying basis, implying moderating top-line inflation in 2026. Long yields hover around 4% but rise modestly as the economic picture improves next year.

If Powell keeps the A‑Team on script, the plan will come together nicely. If Mr. T stomps on the accelerator and yanks the wheel in a different direction, the outcome could become less certain.

The Week Ahead

We will miss a number of high-impact economic data releases this week due to the government shutdown, including critical reports on durable goods, trade, Q3 GDP, and PCE inflation. Despite the uncertainty, consensus and private forecasts anticipate:​

• Consumer confidence, home prices, and private sector estimates of first time unemployment claims will all likely draw more scrutiny amidst mixed signals from labor market data and recent PMI gains.​
• We look for another 25bp cut in the federal funds rate target at the October FOMC, with a third cut in December still expected barring surprises.​ We will also look for more insight into when the Fed will end quantitative tightening.
• Q3 GDP growth tracking near 3.4% annualized, propelled by resilient personal consumption, AI-driven capital spending but tempered somewhat by weak residential investment and export.

• Earnings: Checking in on the Mag-7 — Microsoft, Apple, Alphabet, Amazon and Meta and all report earnings this week. The markets will not only focus on earnings and revenue trends but also capital spending and other clues about the buildout of AI.

Time to bring out a cigar?

The plan has come together — for now. CPI delivered on cue, markets bought the story, and the van moved forward. Colonel John ‘Hannibal’ Smith can bring out the cigar, but it would be wise not to light it just yet. With Mr. T driving, no one is relaxing. Stability is a moving target — and the Fed knows one wrong turn can rewrite the story.

Headwinds and Handlebars: Some Vacation Reflections – Somewhere along Italy’s Adriatic coast this past week, I found myself pedaling into a headwind strong enough to feel personal. The road hugged the sea, sunlight glinting off an endless stretch of whitecaps as we made our way back from Santa Maria di Leuca — the southernmost point of the Salento Peninsula, or more simply, the heel of Italy’s boot. Even on the downhill stretches, the wind was so fierce you had to keep pedaling just to make headway. It struck me that markets are doing much the same.

Confidence has become the currency of this cycle — and gold is its barometer.

The resistance traditional assets face — inflation anxiety, political distrust, and weakening confidence in global institutions — are headwinds for growth but tailwinds for gold, crypto, and other safe havens. Progress now depends on the sectors still pedaling hardest — AI, data centers, and infrastructure — whose steady effort keeps the economy moving even when gravity should be taking over.

A few days later, our ride wound inland through Puglia’s ancient olive groves, where gnarled trees — some planted before the discovery of the New World, and capitalism itself — still yield oil as golden as the coins now coveted by investors. Those trees have endured conquests, plagues, and wars, their deep roots and slow reward standing in quiet defiance of today’s jittery markets — driven by the next big thing but weighed down by the next big worry.

Each turn of the pedals brought a reminder of equilibrium: effort met by resistance, progress tempered by patience. Investors are doing much the same — stretching for yield, recycling old assumptions to reconcile a new set of risks, and trying to shape something smooth from systems that refuse to remain still.

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It is always hard to find time for a long vacation, particularly one that requires careful planning. When we departed, the timing seemed perfect. The weather forecast was ideal, and the U.S. government shutdown meant most data releases would be suspended for the bulk of our trip. The world’s attention was focused on the proposed and now agreed upon ceasefire in the Israel–Gaza conflict. Yet even from afar, it was clear that markets were wrestling with the same question I faced on that windy coastal road — how to keep balance when the terrain keeps changing.

The Week in Markets: A 1970s Show Reboot

Gold stole the show last week, climbing to record highs as investors dusted off a script last performed in the 1970s — when inflation, geopolitics, and trust all seemed to unravel at once. Back then, Americans waited in gas lines by day and watched prices spiral by night as the global financial order wobbled in real time. After Nixon severed the last link to the Gold Standard, gold and silver became the decade’s twin obsessions — safe havens for some, speculative addictions for others.

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Today’s version stars an overworked Fed, underinformed markets (thanks to the prolonged shutdown), and a global audience binge-watching for clues — wondering whether this time, the ending is different. But the cast of commodities has changed: where oil once defined the economic anxieties of the 1970s, rare earths and high-end semiconductors now occupy center stage, as China’s expanded export controls threaten to weaponize supply chains and extend the trade war far beyond tariffs.

Gold’s latest rally has little to do with inflation — and everything to do with confidence, or the lack thereof. Confidence has become the currency of this cycle. It anchors expectations when data go dark and defines market psychology when the instruments go blank.

Bond yields retreated, particularly in the 2-to-10-year range, as traders extended bets on an October rate cut, now priced around 65%. Treasuries caught a late-week flight-to-safety bid after President Trump threatened a “massive increase” in China tariffs is response to Beijing’s unusually harsh new restrictions on rare earth exports— a reminder that in today’s economy, minerals and microchips have replaced oil as the leverage points of global power.

Israel Under Pressure—and Shifting Global Currents

With no official jobs or inflation data released, markets flew on instruments guided by private signals. Reports from ADP and Challenger released earlier this month show the labor market continuing to lose momentum. High-frequency data suggest this trend continued into mid-October, perhaps amplified slightly by federal payroll cuts. State filings and shutdown-related disruptions point to jobless claims near 235,000 — consistent with a labor market that is cooling gradually, not collapsing.

The early read on October consumer sentiment was steady on the surface but softening beneath. The University of Michigan index was virtually unchanged at 55.0 (down from 55.1), but consumers rated now as the worst time to buy durable goods since 2022. Year-ahead inflation expectations slipped modestly to 4.6%, while long-run expectations held at 3.7% — still above the Fed’s comfort zone.

Stocks ended the week lower as tariff headlines erased midweek gains. The S&P 500 fell 1.3%; the Nasdaq 1.8%, led by megacap pullbacks. The 10-year Treasury yield dipped below 4.1%; oil prices fell roughly 3.5%; and Bitcoin hovered near $112,000 — a speculative mirror to the VIX.

For all the talk of gold bugs, the message was broader: when markets doubt the pilots, they reach for parachutes — and last week, they bought a lot of them.

Macro Backdrop: Flying Blind

The economy remains resilient, even with poor visibility. With the government still shuttered, investors have been forced to navigate by intuition and incomplete signals. The picture that emerges is one of an economy that continues to move forward — but increasingly by feel rather than sight.

Private consumption indicators are steady, business investment remains strong in AI and related infrastructure, and housing shows tentative signs of stabilizing. Mortgage demand has rebounded as rates ease toward 6%, and builders are discounting prices to clear a growing inventory of unsold new homes. Job creation is clearly ebbing, however, and the Fed’s “dual mandate” is beginning to split along partisan lines. Inflation expectations have nudged modestly higher — not on data, but on psychology.

Meanwhile, the shutdown has turned the nation’s data stream into radio static. Economists have become codebreakers, piecing together fragments from Redbook, ADP, and credit-card data to fill the void. Expectations for Q3 GDP growth remain near 3%, but most Q4 forecasts have slipped into the 1.5%–1.8% range (a touch below our own 2.0%) as uncertainty delays spending and hiring decisions. Private indicators — and the federal furloughs that have thinned payrolls — suggest job growth is tepid at best and may already be turning negative. The larger question is how long the expansion can endure with the labor market faltering. History would say not long, but perhaps we are witnessing the rise of a second “new economy.”

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U.S.–China: Tariffs, Technology, and the New Oil
Trade tensions flared again after Washington threatened to impose 100% tariffs on all Chinese imports — a dramatic escalation aimed at countering Beijing’s newly expanded export controls on rare earth elements and related technologies. Under the new rules, Chinese exporters must obtain government approval if Chinese content accounts for more than 0.1% of a product’s value, with licenses limited to six-month terms and subject to discretionary renewal — signaling that Beijing may selectively target rapidly growing U.S. technology and defense-related firms.

Beijing has already been slow-rolling existing export approvals, effectively tightening supply without a formal ban. These measures mark a shift from tariffs to technological choke points, turning access to critical minerals into a lever of geopolitical power. Washington’s retaliatory tariff threat — coupled with potential export controls on U.S. software and aircraft components — underscores how both sides are now weaponizing their comparative advantages: China’s dominance in critical mineral refining and America’s leadership in innovation and code.

We believe President Trump and President Xi are positioning themselves for negotiations later this year, likely using these threats to shape leverage ahead of potential discussions on the sidelines of the upcoming APEC summit in South Korea. While both sides may delay implementation for several weeks as talks proceed, the episode introduces yet another headwind for a global economy already losing momentum.

It’s a confrontation reminiscent of the 1970s energy shocks. Then, oil linked geopolitics to inflation and power; today, that role belongs to rare earths and semiconductors. Supply chains have become the new battle lines of national security, and markets — once buffered by globalization — now move in rhythm with each strategic announcement from Washington or Beijing.

Europe and Asia: Fragile Mandates, Fading Margins of Error
Political turbulence in France and Japan added fresh layers of uncertainty. In Paris, President Emmanuel Macron reappointed Sébastien Lecornu as prime minister after a destabilizing resignation. The reshuffle underscores Macron’s eroding authority in a divided parliament, where fiscal reform has stalled amid budget battles and social unrest. With borrowing costs rising, France’s paralysis threatens to widen OAT-Bund spreads and rekindle talk of a “two-speed Europe.”

In Tokyo, the collapse of Japan’s ruling coalition after Komeito’s withdrawal left Prime Minister Sanae Takaichi struggling to form a majority. The yen’s slide to multi-decade lows reflects doubts about the BOJ’s willingness to exit ultra-loose policy. Inflation has stabilized near 2%, but wage growth remains weak, and fiscal expansion tied to defense and energy subsidies has blurred the line between monetary and fiscal policy.

In both nations, credibility — not capacity — is the constraint. France faces pressure to enforce fiscal discipline without unrest; Japan, to defend the yen without reigniting deflation. The erosion of confidence in long-ruling parties has become a global motif — one that helps explain why gold and cryptocurrencies continue to climb.

The Nobel Peace Prize: Symbolism in a Cynical Age

The 2025 Nobel Peace Prize was awarded to María Corina Machado, the Venezuelan opposition leader long barred from public office by Nicolás Maduro’s regime. The committee cited her “unwavering advocacy for peaceful democratic transition.”

Machado dedicated the award to “the people of Venezuela — and to those who stood with us,” a clear nod to Donald Trump’s diplomatic pressure on Caracas. The move sparked admiration abroad and outrage at home, turning a humanitarian prize into a political lightning rod.

Nominations for the prize were due on January 31 — just eleven days after President Trump took office — far too early to reflect his later diplomatic achievements, including the breakthrough agreement between Israel and Hamas.

Internationally, the award was celebrated as a moral statement — democracy over détente — but in the United States it reopened partisan wounds. Some critics called it a “snub” to Trump, while others praised the committee’s independence. Like so many peace prizes, this one said more about the state of the world than about peace itself: it celebrated courage but reminded us how rare peace has become.

The Week Ahead

• U.S. Data: The shutdown’s continuation means limited new information, though private trackers for retail sales and jobless claims will be closely watched. The NFIB Small Business Optimism Survey (Tuesday) will be key for clues on supply chain strain and inflation pressures.
• Fed Watch: Markets will parse speeches from Waller and Bowman, as well as Wednesday’s Beige Book, for signals on whether October remains “live” or if a cut is now a virtual certainty.
• Geopolitics: All eyes on the Gaza truce — if it holds, oil could retreat; if it fails, risk spreads widen again.
• Earnings: Banks kick off reporting season — providing stress test results for credit conditions and consumer sentiment.

Closing Thoughts: The Road Ahead

On the final day of the ride, coasting downhill toward Monopoli, the wind finally shifted at my back. The Adriatic shimmered in the evening light, and for the first time in days the climb felt worth it. It was that same afternoon the trade deal with China came off the rails — Beijing tightening exports of critical materials and magnets, Washington retaliating with threats of 100% tariffs. The headwinds that had eased along the coast were rising again in the markets, unseen but unmistakable.

Progress in policy, like cycling through crosswinds, rarely comes with momentum alone. It demands endurance — the ability to keep pace when the path tilts against you and the signals ahead blur. Gold’s gleam this month reflects less fear of inflation than a loss of faith: in policymaking, in coordination, and in the systems meant to anchor both.

Like those ancient olive trees rooted in the rocky soil of Puglia, investors who hold their ground through seasons of strain tend to outlast the storm. The road ahead will twist and rise again — it always does — but those who shift gears with purpose rather than panic will find that even the steepest ascent offers a broader view from the summit.

Concluding Thoughts: The Penalties from Hell

Vacations have a way of inviting reflection — especially when surrounded by inspiring architecture, landscapes, and art. We have switched from biking to touring — and from one coast to another. On our first day in Sorrento, we toured an exhibition of Joan Miró, whose work was as colorful as it was thematic across the decades of his long and illustrious career.

Israel’s long war with Hamas brings to mind Miró’s Les Pénalités de l’Enfer — “The Penalties of Hell” — a phrase that captures both the fury and the necessity of this drawn-out conflict. The title originated in Miró’s early 1970s collaboration with poet Robert Desnos, where chaos, color, and anguish collided on the page. Miró’s vision was an artistic outcry against cruelty and constraint; Israel’s version is tragically literal — a campaign of force aimed at dismantling an organization that glorified death and desecrated innocence. Each, in its own way, represents a struggle to make sense of evil through expression — whether on canvas or in combat.

The parallels with 1973 extend beyond the calendar. Then, the Yom Kippur War triggered the Arab oil embargo and unleashed the inflationary spiral that defined the decade. Today’s conflict unfolds amid a different kind of shock — less about oil, more about trust and technology — dividing the world once again into blocs aligned with the U.S. and Europe on one side, and Russia, China, North Korea, and Iran on the other. Yet this time, the arc may prove more hopeful. The Abraham Accords have opened a path toward normalization between Israel and its Arab neighbors — a peace built not on illusion, but on mutual interest: trade, security, and shared resistance to extremism.

The 1970s ended in disillusionment and disorder. This decade could still close in redefinition and renewal. The “penalties from hell,” both as art and as policy, remind us that order often emerges only after the most violent ruptures. What Miró rendered in abstraction, Israel now lives in reality — a confrontation with darkness that tests whether civilization still has the will to defend itself.

Macro Update: Private Data, Public Impasse

The early weeks of October find the economy balancing steady private-sector momentum against fiscal and geopolitical uncertainty. With the government shutdown delaying key official releases, investors have turned to private surveys, diffusion indexes, and real-time models as proxies. Together, these data suggest the economy remains resilient but is losing a little altitude, with hiring softening and confidence fraying at the margins. Our forecast now pegs Q3 growth at 3 %, reflecting the inertia of consumer spending and business investment even under constrained policy conditions.

Even amid gridlock, the private economy kept its footing, with Q3 growth likely near a 3% pace.

The September ISM manufacturing and services reports suggest the economy ended the third quarter with modest but stable forward motion. The manufacturing PMI edged up to 49.1 from 48.7 in August, alleviating some weakness while remaining in contraction territory but still well above levels typical of recession. New orders softened, inventories continued to shrink, input costs remained elevated, and employment showed tentative signs of stabilization.

On the services side, the ISM nonmanufacturing PMI fell to 50.0 from 52.0, the lowest reading since early 2023, indicating near-stagnation in service-sector output. The employment component weakened further to 47.2, confirming slower hiring momentum even as demand steadied.

With the shutdown suspending the release of BLS employment and initial claims data, markets have leaned heavily on alternative signals. The Challenger report again showed hiring extremely slow and layoffs steady—an extension of the “low hiring, low firing” regime. The Chicago Fed’s real-time model estimates unemployment ticked up to 4.34 % from 4.32 %.

The ADP private payrolls release revealed a 32,000 decline, with significant downward revisions to past months, pointing to a weaker private employment trend. Regional Fed manufacturing surveys signaled mild job cuts across districts, and consumer surveys showed a rising share of respondents describing jobs as hard to get—a signal that labor demand is softening faster than supply. August JOLTS data also revealed continued loosening in cyclical industries, while Indeed job ads fell.

Adding further nuance, the NFIB small-business survey showed that net hiring plans rose to 16%, the highest since January, suggesting firms still intend to expand. Yet that intention exists amid constraints: 32% reported unfilled job openings, and, among those hiring, 50% said they had few or no qualified applicants. Labor quality remains the top constraint, while labor costs as a top operating concern edged up to 11 %. A net 31 % of firms said they raised compensation in September, and 19 % planned pay increases in the next quarter.

Data delays leave markets flying blind; private reports keep an October cut on the radar.

Taken together, these indicators point to a labor market that is cooling rather than collapsing. Market consensus remains that the Fed cut at each of the next three meetings, banking on further softening. Still, the risk asymmetry is clear: sharper-than-expected labor weakness could pressure earnings, while a resurgence in inflation would constrain policy flexibility. Our base case remains a soft landing, but we remain cognizant of both tail risks. We would prefer the Fed alternate meetings for rate cuts, which would extend the cycle. That looks unrealistic today, however.

The Atlanta Fed’s GDPNow model, prior to the shutdown, placed Q3 growth at 3.8%; private data since then have largely upheld that estimate. The rush to lock in EV incentives creates some upside risk to Q3 GDP. While a short-lived shutdown will likely have muted effects on Q4 growth, extended paralysis could erode confidence, disrupt capital spending, and slow government-driven flows—risks that would erode the momentum that private activity has carried thus far. We expect the shutdown to be resolved by mid-October. The House will be back in session on October 13 and military members need to be paid on the 15^th.

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Israel Under Pressure—and Shifting Global Currents

For nearly two years, Israel has fought the multi-front war that began with the October 7 attacks. Prime Minister Benjamin Netanyahu’s government expanded operations from Gaza to the northern frontier with Hezbollah while carrying out precision strikes across the West Bank and Syria. That strategy—focused on threat eradication—now faces increasing constraints: diplomatic pressure for a ceasefire, internal political fractures, and rising risk of regional escalation.

Following Israel’s strike on Hamas leadership in Qatar, the U.S. has quietly shifted toward diplomacy, working with Egypt, Qatar, and other intermediaries to explore phased ceasefire arrangements tied to the release of all hostages and security assurances. Iran continues to press via proxies in Lebanon, Iraq, and Yemen, as well as stoking resistance in Europe through intermediaries (both knowing and unknowing) complicating Israel’s margin for maneuver. U.S. military posture in the region has been adjusted to deter escalation, but domestic fiscal and institutional stress may limit strategic flexibility.

The region is tired or war and we expect the U.S.-brokered peace deal to take hold. The ever-elusive perfect peace deal will not get in the way of a very good settlement.

In Europe, Moldova’s pro-European Party of Action and Solidarity, led by Maia Sandu, secured a clear parliamentary majority, reinforcing a westward orientation and delivering a political setback to Kremlin influence. Moscow has already challenged the result, citing limitations in expatriate polling access, and may deploy disinformation or economic pressure tactics to destabilize the new government. The victory will force the new administration to balance reliance on EU leverage with the latent risks surrounding Transnistria, where Russian military presence endures.

In Asia, Japan’s Liberal Democratic Party elected Sanae Takaichi as leader, making her the country’s first woman to become prime minister. A long-time conservative figure and confidant of the Abe era, she signals a more assertive security posture and renewed emphasis on defense cooperation with the U.S. Economically, she favors fiscal stimulus over monetary tightening, likely delaying any aggressive BOJ normalization. Regionally, her style could revive disputes with China and Korea if nationalistic signals intensify, even as she seeks to consolidate power within the fractious LDP.

Across Europe, sustained protests in support of Hamas and against Israel’s Gaza campaign have mobilized hundreds of thousands in capitals from Rome to London, Berlin to Paris. In Italy, protests extended over several days, with parts of the movement targeting ports and arms shipments. In London, police made nearly 500 arrests during Palestine Action demonstrations. European governments are now confronted with the challenge of reconciling domestic pressure with their diplomatic commitments to Israel. At the same time, the protests energize fringe movements across the political spectrum, raising broader security and stability risks in a continent already grappling with inflation, energy stress, and slow growth.

Taken together, these dynamics underscore the fracturing of the post-war global consensus. Leadership transitions, social unrest, and cross-pressured alliances are accelerating realignments. The global economy may still be holding up, but the buffer zone in which policymakers can absorb shocks is narrowing fast—and missteps will carry greater consequences.

Looking Ahead

In the week ahead, markets will look for high-frequency proxies for labor market, consumer spending, economic activity and capital spending and, assuming the government reopens, the CPI and PPI prints. The consensus still leans toward cuts in October and December, and more likely January as well, but geopolitical volatility and legislative risks in Washington could derail that script. The economy is managing by momentum—for now—but the durability of that run rate is becoming more fragile. The real test in coming months will be whether markets and governance can absorb noise without breaking down.