Take Two: Attack on Israel sends oil prices higher; IMF lifts global inflation forecast

What do you need to know?

The attacks on Israel and subsequent hostilities have increased geopolitical tensions, added to headwinds to global growth and raised risks of far greater disruption. The Israeli shekel fell to a near-eight-year low last Monday, despite the Bank of Israel stepping in to support the currency. However, the response in wider markets was moderate. Oil prices rose reflecting concerns about possible disruptions to supply while assets perceived as safe havens, including gold, government bonds and the US dollar, also gained ground in the immediate aftermath of the attacks.

Around the world

In its latest World Economic Outlook, the International Monetary Fund (IMF) nudged its global growth forecast down and lifted its inflation estimate for next year, warning there is little margin for policy error. It left its 2023 growth forecast unchanged at 3.0% from 3.5% in 2022 but revised down its 2024 forecast to 2.9% from the 3.0% predicted in July. Stronger than expected performance in the US should counter weaker growth in China and the Eurozone, it said. The IMF now expects global inflation to decline from 6.9% in 2023 to 5.8% in 2024 - up from the 5.2% it forecast in July.

Figure in focus: 3.7%

US annual inflation stabilised at 3.7% in September, matching August’s level, driven by higher housing and gasoline costs. However, analysts had been expecting a 3.6% rise. Core inflation, excluding food and energy, eased to 4.1% compared to 4.3% in August. Meanwhile, minutes of the Federal Reserve’s September interest rate setting meeting showed the majority of participants felt one more interest rate increase would “likely be appropriate” in the future, with the outlook for the US economy “highly uncertain”. All agreed rates should stay high until inflation is “sustainably” moving towards the 2% target.

Words of wisdom

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What’s coming up?

On Tuesday, the minutes from the latest Reserve Bank of Australia meeting and Canada’s inflation data are published, as is the Eurozone ZEW Economic Sentiment Index for October - which reflects expectations of the bloc’s six-month economic outlook. Wednesday sees China report its GDP growth rate for the third quarter (Q3) – growth in Q2 slowed to 0.8% (quarter on quarter) from 2.2% in Q1. On the same day, the Eurozone and UK issue their respective inflation figures for September, while Japan follows with its own numbers on Friday. Argentina’s general elections take place over the weekend.