5 Things You Need to Know to Start Your Day

Good morning. The world steps up a diplomatic push to prevent war in the Middle East from escalating, the US plans to tighten curbs on China [View in browser]( [Bloomberg]( Good morning. The world steps up a diplomatic push to prevent war in the Middle East from escalating, the US plans to tighten curbs on China’s access to advanced chip tech and how Goldman’s Marc Nachmann is on a crucial mission to help juice its stock. Here’s what’s moving markets. Israel latest The diplomatic effort to stop an escalation of war in the Middle East is gathering pace, as US President Joe Biden and German Chancellor Olaf Scholz both[ weigh trips to Israel](. Meanwhile, US Secretary of State Antony Blinken is [scheduled to return]( on Monday, after meeting Arab leaders to discuss the war and efforts to provide humanitarian assistance to people in Gaza. On the ground, Israel is keeping open a safe corridor from north Gaza  — more than 600,000 people have already left Gaza City and its surroundings for southern Gaza — and the army is evacuating some residents from northern Israel, near the border with Lebanon. China curbs The US plans to [tighten sweeping measures]( to restrict China’s access to advanced semiconductors and chipmaking gear, seeking to prevent its geopolitical rival from obtaining cutting-edge technologies that could give it a military edge. The latest rules aim to refine and close loopholes from curbs announced last October, according to people familiar with the matter. The US will also impose additional checks on Chinese firms attempting to evade export restrictions by routing shipments through other nations, and add Chinese chip design firms to a trade restriction list, requiring overseas manufacturers to gain a US license to fill orders from those companies. Goldman push Marc Nachmann is [one year into a critical effort](to fire up Goldman’s $3 trillion asset and wealth management division, and in the process fire up its stock. The 61-year-old CEO is looking to turn the page on dissatisfaction in his ranks and offer investors a rosier outlook when he delivers quarterly results Tuesday. He’ll ask them to look past hiccups tied to strategy shifts, as well as earnings still below the profitability targets he’s set. Stocks waver European stocks and US equity futures fluctuated while Treasuries dropped as cautious traders tracked efforts by the US and its allies to prevent further escalation of the Israel-Hamas conflict. But overall, markets were[slightly steadierÂ](after last week’s rush into haven assets. Brent crude oil slipped, still trading above $90 a barrel, after surging almost 6% on Friday. Gold fell by 1%. Coming up… It’s a light data day, with Empire manufacturing the main event on the schedule. We also get remarks from US Treasury Secretary Janet Yellen, who is due to speak at the Eurogroup Finance Ministers meeting, and a pair of speeches from Philadelphia Fed President Patrick Harker. What We’ve Been Reading This is what’s caught our eye over the past 24 hours. - Xi’s $1 trillion ‘project of the century’ [faces uncertain future](. - Shell shares [new record high]( after focus on oil and gas. - Poland’s [pro-EU opposition]( to end eight years of populist rule. - Singapore's $20 million shophouses are [blazing hot properties](. - UK landlords are paying [40% more mortgage interest](. - Lithium giant Albemarle abandons [$4.2 billion deal](. - [Taylor Swift’s ‘Eras’](is easily the biggest concert film opening ever. And finally, here's what Joe’s interested in this morning Overall, last week's CPI report didn't change the macro narrative that much. The numbers mostly came in line with expectations. However, there seemed to be just enough heat in the report, such that the possibility of another rate hike in 2023 can't entirely be dismissed. In a note to clients this morning, [Tim Duy of SGH Macro Advisors]( writes that "the September CPI report doesn’t affect the outcome of the November meeting and raises the probability of a hike at the December meeting. The probability of a December hike, however, remains below 50% because even if inflation runs a little hot, it will still likely fall a notch short of the Fed’s latest SEP projection." To some extent it's been expected that after a series of cool inflation prints over the last few months, that there would be some firmness coming. So one question is whether the Fed feels comfortable staying on pause for two more meetings, even if it looks like inflation is picking up a little steam as we head into the end of the year. Stepping back for a second, obviously the experience of the 1970s looms large in the head of economists and policymakers at the Fed. And of course, in the 1970s, inflation came roaring back multiple times after it was assumed to be vanquished. So naturally the Fed will want to be on guard against anything resembling that. What's funny is that for all of the talk about the 1970s, and lessons learned from the period, the general narrative about what happened is kind of all over the place. There's no one story about why inflation was so persistent, and why it took so long for policymakers to get it under control. People talk about Keynesian spending, oil shocks, war aftermath, a Fed that waited too long, and let inflation expectations get out of control, Nixon going off the gold standard. There's kind of a big mishmash of stories that feeds the popular characterization of those years. In the new episode of the [Odd Lots podcast out today](, we talk with Wharton finance professor Itamar Drechsler, a co-author of a paper titled [The Financial Origins of the Rise and Fall of American Inflation](. Drechsler's argument is that monetary policy in the 1970s was fundamentally impaired by banking regulation, specifically Reg Q, which put a hard cap on the amount of interest that banks could pay on deposits. Capping interest on deposits when the Fed was raising rates had two perverse effects. One is that it contributed to a hot potato effect, where people were less inclined to hold onto cash than they would have otherwise been, creating a greater impulse to spend. And then also with money leaving the banks, credit to firms was impaired, causing companies to raise prices in compensation. This dynamic he argues caused rate hikes to be ineffective or, worse, have an exacerbating effect on inflation. Obviously we're looking at a very different financial markets dynamic today, although there could be shades of similar perverse impacts on, say, housing, and other capital investment decisions that are being delayed due to tighter credit, this impairing supply side expansion. Either way, Drechsler's argument calls to mind a [recent conversation with Austan Goolsbee,]( whose basic argument is that economists have a tendency to overfit present conditions to past periods. In other words, if the 1970s inflation is top of mind, then the impulse is to assume that similar macro dynamics exist. But the fact of the matter is that when it comes to modern inflationary episodes, we just don't have that many of them. Data on how they play out is extremely minimal. [And the conversation with Drechsler]( drives home how this period that everyone reaches back to was pretty fundamentally different than our own current one. Follow Bloomberg's Joe Weisenthal on Twitter [@TheStalwart]( Like Bloomberg's Five Things? [Subscribe for unlimited access]( to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close. Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Before it’s here, it’s on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can’t find anywhere else. [Learn more](. Want to sponsor this newsletter? [Get in touch here](. You received this message because you are subscribed to Bloomberg's Five Things to Start Your Day: Americas Edition newsletter. If a friend forwarded you this message, [sign up here]( to get it in your inbox. 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