Geopolitics and Markets Review 14th November 2022:

Last week we had one of the most active weeks in the markets I’ve seen in a long time. We saw US inflation YoY in October drop to 7.7% against a forecasted 8%. This is the lowest since January 2022 and does it symbolise inflation is coming down

As a result of the inflation result, the $SPX soared, the $VIX dipped and the $DXY dropped. Commodities are rising on the assumption that decreasing inflation will lead to an interest rate pause or pivot. In theory, a drop in interest rates would lead to higher growth, a milder recession, or a soft landing.

In Q3 this year, 399 tonnes of gold were bought by central banks. The buyers weren’t disclosed. This website breaks it down somewhat. Turkey bought 31 tonnes, Uzbekistan added 26 tonnes and Qatar purchased 15 tonnes. India bought 13 tonnes in July and 4 tonnes in September. This totals 89 tonnes. So who bought 300+ tonnes in Q3 and doesn’t want to talk about it?

Bond yields also dropped, as represented by the MOVE index created by Harley Bassman. The MOVE index measures bond market volatility. At the previous levels, it was bouncing around 150-160. Bassman said something has already gone wrong if the index is at these levels. So it will be a relief to key players in the bond markets that the MOVE index now finds itself around 110. Bond yields rise as interest rates rise. So on the assumption, we will see the FED pivot soon, yields dropped. This puts a lot less pressure on those with large treasury holdings, like governments and pension funds.

In market turmoil, the MOVE index rises to represent chaos in the bond markets. The VIX rises to represent volatility in the stock market

But central banks are known for often taking it too far. How far will they push it than necessary? The best case scenario would be a hike in December and a pause on February 1st next year. I was listening to Luke Gromen on Palisades Gold Radio’s podcast from this past week, and I found the ending very interesting. As we know, central banks will hike until they get inflation under control or something breaks. The market reaction last week was a slight overreaction. This led me to have some questions.