Inflation Falls in France But Pressure is Not Moderating

Summary:

Inflation decreased in France in September, from 5.9% to 5.6%. This is the consequence of various public policies and not a sign that underlying inflationary pressures are moderating.

Inflation decreased in France in September, from 5.9% to 5.6%. This is the consequence of various public policies and not a sign that underlying inflationary pressures are moderating. Inflation is expected to rise again at the end of the year, before falling very slowly in 2023, though less quickly than in other European countries

A fall in inflation expected, but misleading

As expected, consumer price growth slowed in September in France to 5.6% from 5.9% in August. The harmonised index, which is important for the European Central Bank, stood at 6.2%, also down from the previous month (6.6%). The fall in the inflation figure is almost entirely due to measures taken by the government to combat the erosion of purchasing power. On the one hand, the 30 cent per litre rebate on the price of fuel at the pump, combined with the maintenance of the tariff shield on gas and electricity prices, is pushing down energy inflation. This rose by 17.8% over one year in September compared to 22.7% in August. In addition, the price of services is being pulled down by the abolition of the TV licence fee, a flat-rate tax of €138 affecting 23 million households, which lowers the price of the item "TV licence fees and subscriptions" in the consumer price index. Finally, the price of some tourism-related services seems to be falling more than last year, which could be a sign of a significant slowdown in demand in September. Inflation in services was 3.2% in September, down from 3.9% in August.

At the same time, price growth for manufactured goods increased from 3.5% to 3.6%, and food price growth rose sharply to 9.9% from 7.9% the previous month.

A further rise in inflation expected at the end of the year

Consequently, the fall in inflation in September cannot be considered as a signal of moderation in global inflationary pressures. On the contrary, it is likely that inflation will rise again in November and December, probably reaching 6.5%. Indeed, the fuel rebate will decrease in November and December, which will reinforce energy inflation. In addition, past sharp increases in producer prices will continue to be passed on to consumer prices for manufactured goods and food. According to statistics published by INSEE today, producer prices rose by 29.5% year-on-year in August, up from 27.2% in July, which should be reflected in the consumer price index in the coming months.

Nevertheless, inflation in France will remain significantly lower than in neighbouring countries until the end of the year, as the "tariff shield" which limits the increase in gas and energy prices has the effect of reducing overall inflation by 2.5 points.

Inflation expected to fall in 2023, but more slowly than elsewhere

For 2023, the evolution of inflation will depend on several factors: the public policies put in place to limit the rise in energy prices, the price of energy and raw materials on the international markets, the value of the euro in relation to other currencies and in particular the dollar, and finally the speed of transmission of cost increases to consumer prices.

The latter will be a central element of inflation in 2023. In recent months, French companies' expectations of future sales prices have fallen slightly, although they remain at a high level. Given the slowdown in demand and the expected recession (we expect GDP to contract by -0.4% in 2023), it is likely that companies will be less and less able to pass cost increases on to their sales prices. These inflationary pressures should therefore diminish this winter, pushing price growth down in 2023.

Furthermore, given the impact of the "tariff shield" on inflation, the question of whether or not this will be extended is central to the forecast. The government has hinted that it wishes to maintain a tariff shield in 2023 but that it will be adapted and that a 15% increase in gas and electricity prices could take place. However, no decision has actually been taken. This possible increase will obviously have a significant impact on energy inflation in France, which could rise in 2023 at a time when the contribution of energy to inflation is falling in other countries. As a result, France could see its inflation decrease less rapidly than in neighbouring countries until 2024. We expect inflation in France to be around 5% for the whole of 2023, after 5.4% in 2022.

Source: think.ing

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Owen Li

Governor Lowe signals slower rate hikes

When they last met, RBA policymakers increased the cash rate target by 50bps, reiterating their commitment to return inflation back within their 2-3% target range. Given that this was a gathering with no updated economic projections, they maintained the view that inflation will rise further this year to around 7.25%, slow down to 4% in 2023, and touch the upper end of their target range in 2024.

That said, when testifying before parliament a couple of weeks ago, RBA Governor Philip Lowe said that very soon they will not need to hike by 50bps as interest rates approach their normal setting. Though he added that interest rates are still too low. That’s maybe why market participants are now leaning slightly towards a 25bps rate increase, but they project a higher terminal rate. More specifically, they are assigning around a 52% probability for a quarter-point increase, with the remaining 48% pointing to another double hike. As for the terminal rate, they now see it at 4.3% in June, while ahead of the prior meeting, they saw it at 3.9% in May.

Can the RBA Bring the Aussie Back to Life?_1

Data continue to support further tightening

Since then, the only top-tier data released from Australia was the GDP for Q2 and the employment report for August. In contrast with other major economies, economic growth accelerated during that quarter, which combined with the fact that the Chinese economy shrank more than 2% during that same quarter, highlights how resilient the Australian economy is.

Yes, the unemployment rate ticked up to 3.5% from its record low of 3.4% but adding to the equation the rebound in employment change and the increase in participation rate, this may have been due to good reasons. In other words, the unemployment rate may have increased due to more people being encouraged to actively start looking for a job.

Can the RBA Bring the Aussie Back to Life?_2

All this, combined with the smaller than expected slowdown in retail sales as well as the rise in the NAB business confidence index, suggests that the chance for another double hike may be bigger than the market pricing suggests. After all, although 1-year inflation expectations have come off their highs – as calculated by the Melbourne Institute – they remain well above the upper end of the RBA’s 2-3% target range.

Can the RBA Bring the Aussie Back to Life?_3

What’s in store for aussie?

Another 50bps hike could support the Australian dollar at the time of the release, and a hawkish language suggesting that they will not slow the pace of rate increases yet, could add extra fuel. On the other hand, a quarter-point liftoff could validate Lowe’s remarks over slower hikes and could push the aussie off the cliff.

Even in the former case though, a potential recovery may not last for long, especially against the US dollar. Due to its risk-linked status, the aussie has been feeling the heat of the deteriorating broader sentiment. While the Australian economy is doing well, expectations over higher interest rates elsewhere have raised concerns over a global recession, pushing the aussie to fourth place among the major currencies in terms of best year-to-date performance. Ahead of the prior meeting, it was holding the third place.

Can the RBA Bring the Aussie Back to Life?_4

So, rebound or not, aussie/dollar may be destined to come under renewed selling interest soon. A break below Wednesday’s low of 0.6365 would confirm a lower low on the daily chart and take the action into territories last seen in April 2020. The next zone to consider as a support may be the low of April 21 of that year at 0.6250, the break of which could carry larger bearish implications and perhaps encourage the bears to put the round number of 0.6000 on their radars.

Can the RBA Bring the Aussie Back to Life?_5

For the outlook to change, a break above the high of September 13 at 0.6915 may be needed. This could confirm the break above the downside resistance line drawn from the high of April 5 this year, but for any gains to have the potential for more and sustained extensions, the global market sentiment may have to take a 180-degree spin first.

Source：XM

Risk Warnings and Disclaimers

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Kevin Du

With 2022 well over two thirds through, markets may be feeling like the COVID-19 theme has subsided after the two-year peaks and troughs of the pandemic. But as always, new challenges arise and lead the way for more potential volatility.

Inflation is the 'flavor of the year' as economies swing into the aftermath of the pandemic, with central banks tightening monetary policy to manage dips in their own currencies and curb the rise in inflation. This theme is particularly challenging for emerging market economies. So too is the increasingly stronger U.S. dollar. All previous emerging market fallouts were linked to dollar strength, and as the need to steer off dips in currencies occurs, central banks have turned to tightening their monetary policies. This has led the World Bank to forecast just a 4.6% expansion for emerging economies this year, compared with an earlier 6.3% prediction. Meanwhile, the International Monetary Fund expects inflation to average 9.5% in emerging markets this year, or around 3.6% higher than projected in January.

Why does a stronger dollar lead to a struggle for emerging market economies?

First, a strong dollar often starts to depress global trade growth, as it is the “invoicing” currency of the world and holds the most purchasing power. This means that when the dollar appreciates, other currencies essentially depreciate, making the world poorer and less able to engage in trade. It also makes countries that have dollar-denominated debt less creditworthy, as it makes it harder for them to purchase the U.S. currency to manage their debts. Furthermore, it is likely less favorable for China. This can lead to an obstructive knock-on effect for emerging market countries due to their linked supply chains and commodities demand. Finally, the stronger dollar is also more likely to cause inflationary upward pressures for emerging markets because they typically purchase their raw materials in U.S. dollars. How a Strong Dollar Affects International Currencies & Commodities_1

How a Strong Dollar Affects International Currencies & Commodities_1

Commodity appreciation – who reaps the benefits?

The other complication for emerging markets is the simultaneous rise in commodity prices, which are likely to persist for some time given the current economic landscape. Emerging markets are experiencing the lagged effects of higher oil prices, elevated food prices, and higher import prices from currency depreciations. As the demand for products increases, so does demand for the materials used to produce them, which results in higher commodity prices. Commodities are also heavily related to demand and supply dynamics and, compared to other inflation protection assets like TIPS (Treasury Inflation Protected Securities), they tend to offer higher returns.

Rising commodity prices tend to hurt emerging markets, but others stand to benefit. Commodities are a critical source of exports and revenues for many emerging economies, and more than half of the world's poor resides in commodity exporting countries. The reliance on commodities is particularly high for oil exporters such as Brazil, Mexico and Russia, and on metal and agricultural exporters such as South Africa and Chile.

Commodity prices undergo repeating cycles, and on average, from peak to peak, cycles last almost six years. For industry-intensive commodities, such as copper and aluminum, prices remain in the same phase of the cycle for 80% of the time. According to the World Bank Group's Flagship Report from January 2022, this synchronization was reflected statistically in a common factor that, on average, accounted for roughly 15-25% of price variability for energy and metals, but only 2-10% of price variability for agricultural commodities and fertilizers.

As the chart below highlights, commodity prices bounced in 2021, partly correcting for the sharp decline during the 2020 COVID pandemic, and this rise has continued into 2022. How a Strong Dollar Affects International Currencies & Commodities_2

How a Strong Dollar Affects International Currencies & Commodities_2

Global trade, supply disruptions and climate-related events are areas that can amplify commodity price movements and their role in economic activity. Therefore, understanding the movement in commodity prices can help manage financial stability and both fiscal and monetary policies.

Taking inflation out of the mix, both commodities and their correlated currencies still need risk management

The changing value of a currency against the dollar can have a substantial effect. Whether a country is the importer or the exporter will dictate either a beneficial or adverse outcome from currency movements.

For example, China is the largest participant in the global copper market; therefore, the exchange rate between the RMB and the USD plays a key role in this trade. China is the largest producer of refined copper, but much of the ore and concentrate is imported. As the copper market trades primarily in dollars, how the value of the Chinese renminbi (RMB) changes versus the U.S. dollar significantly impacts the economics and outcome of the trade. The volatility in the USD/Offshore RMB (CNH) creates variation in the price for USD and CNH-priced copper markets. However, CME Group offers futures contracts on the Chinese renminbi, which can be used to manage this FX exposure via hedging.

The United States is the largest producer and exporter of corn, and Mexico is the largest importer from the United States. Therefore, as the importer, Mexico is more exposed to the exchange rate risk between the U.S. dollar and the Mexican peso (USD/MXN). If the dollar strengthens, Mexican importers are adversely affected as corn becomes more expensive, but vice versa if the dollar weakens. CME Group offers both futures and options contracts on the Mexican peso that can be used to manage this kind of FX exposure, while the CBOT Corn futures contract is the global benchmark for this market.

Similarly, the South African rand is linked to precious metals prices, with South Africa as an exporter. And although their price is often correlated (e.g., higher metals prices can often lead to a stronger rand), there is still the exchange rate risk between the rand and the U.S. dollar, as the metals are primarily priced in dollars. CME Group offers both futures and options contracts on the South African rand that can be used to manage this kind of FX exposure.

Commodity and derivative exchanges around the world enable the trading and risk management of both currencies and commodities. CME Group offers a variety of derivatives contracts to manage these risks together or as separate products.

As demonstrated, the direction of the dollar heavily impacts emerging market currencies and exchange rate risk, particularly for imports and exports. While the dollar stays strong compared to other currencies, it will continue to hold the purchasing power and make it more expensive for emerging economies to engage in trade. High inflation also adds to the struggle for emerging markets, with central banks turning to tighter monetary policy to assist with the rise in prices. Inflation will likely continue to remain in focus.

Source: cmegroup

Risk Warnings and Disclaimers

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Owen Li

This report is the second in a two-part series from GIS Expert Prof. Dr. Amatzia Baram. The first part, which publisheda few hours ago, focused on Muqtada al-Sadr's political and ideological development.

For nearly two decades, Iran has sought to deepen its influence over Iraq's affairs by exploiting the instability there. By 2021 it had scored substantial success. But if the current political crisis in Baghdad proves to be a hinge point in relations with Iran, it will be largely thanks to Muqtada al-Sadr, the Shia cleric and militia leader who has played a central role in its recent history.

Mr. Sadr's open confrontation with Iran began in July 2017, when he visited Saudi Arabia with great fanfare. Tehran was not pleased. The summer of 2018 saw another key event: mass demonstrations in southern Iraq against the regime's corruption and Iran's exploitation of the country. For the first time, it became a Shia struggle against a Shia ruling elite, a dynamic that has persisted until today.

Both Mr. Sadr and Iraq's Grand Ayatollah Ali al-Sistani supported the demonstrators, even though the former's followers included members of the ruling elite. After almost two years of civil unrest, by May 2020 the new prime minister, Mustafa al-Kadhimi, had announced his support of the protestors' demands: new electoral legislation, new elections, an anti-corruption campaign and an end to independent armed militias. Both Messrs. Sistani and Sadr, together with Iraq's Kurdish president, Barham Salih, backed the prime minister all the way. Ultimately, he managed to change the electoral law and conduct democratic elections, but failed to achieve his other goals.

Electoral victory?

In the early elections held in October 2021, politicians loyal to Mr. Sadr won 73 seats out of 329 in parliament – making him leader of the largest party and kingmaker. He again sought to split the Shia camp and build an all-Iraqi coalition, including most Sunni and Kurdish representatives, and managed to secure a borderline majority in parliament. He declared that his nemesis – ex-prime minister Nouri al-Maliki, Iran's main supporter in Iraq – would never be part of his ruling coalition.

This step meant that the largest pro-Iranian party would be excluded from Iraq's government, and that Iran would lose a favorable majority in parliament. For Tehran, this was a looming disaster; it might still exert control over Iraq through the 160,000-strong pro-Iranian militias, but it could not afford losing the democratic legitimacy that came from parliamentary dominance.

In a brilliant move, the Iranian regime convinced its man heading the Supreme Judicial Council, Faiq Zaidan, to issue an unconstitutional rule stipulating that no new president can be elected without a two-thirds quorum in parliament. Constitutionally, only a new president can nominate a new prime minister. And with Muqtada al-Sadr unable to cobble together a two-thirds quorum, the democratic process was frozen solid.

Though surrounded by a million supporters, since 2003 Muqtada al-Sadr has been a lonely man.

As has happened a few times before, beginning June 11, 2022, Mr. Sadr went into an emotional frenzy lasting over six weeks. Instead of using the simple majority that he still retained to dissolve parliament, he ordered all of his 73 delegates to resign, hoping to both delegitimize the legislature and reenergize his base of support. He also believed that his Kurdish and Sunni allies would also resign, but they did not.

But by ordering his party parliamentarians to resign, he gave a majority to his archenemy, Nouri al-Maliki. The latter immediately found a candidate for the premiership, though he, too, lacked a two-thirds quorum to first elect a new president.

Muqtada al-Sadr again lashed out. On July 27, he declared a "revolution" against the sectarian governmental system that was introduced after 2003, and ordered his supporters to storm parliament – and subsequently to evacuate it, to occupy it again, and finally to besiege the Supreme Judicial Council. The latter siege lost him much domestic and foreign support. He later sent an appeal to the same body to disperse parliament and call for new elections, which the Council rejected; constitutionally, only parliament can disperse itself.

Humiliation

This is when Iran dealt Mr. Sadr a humiliating blow. On August 28, his official religious "source of emulation" (muqallid), Grand Ayatollah Kadhim Husayni al-Haeri, resigned from all religious leadership duties – apparently on the orders of Iranian Supreme Leader Ali Khamenei.

Such a resignation is an extremely rare act in Shia tradition: an ayatollah is muqallid for life. To add insult to injury, Ayatollah al-Haeri sent Mr. Sadr a public and highly offensive letter, reminding him just how insignificant of a cleric he was. Most embarrassingly, he called upon all of his Iraqi followers (which include most of Mr. Sadr's supporters) to follow Iran's Supreme Leader from then on.

As a reaction to this profound affront from Iran and his mentor, and with a sense that he has hit a brick wall, Muqtada al-Sadr again flew into a rage. On August 29, he announced – for the fourth or fifth time – his resignation from political life. He once more demanded the dissolution of parliament, but in an escalation, also demanded that all Iraqi senior politicians also resign from politics.

His supporters viewed these as marching orders. They occupied the government palace, and all over Baghdad began challenging pro-Iranian militias. The highly dangerous, pro-Iranian group Asa'ib Ahl al-Haq quickly opened fire. No fewer than 30 people were killed, almost all of them Mr. Sadr's men.

Prime Minister al-Kadhimi ordered a full curfew in Iraqi cities, while security forces tried to separate the warring sides. On August 30 – with the casualties piling up and after receiving a quiet demand from Ayatollah al-Sistani to evacuate Baghdad's Green Zone and end the violence – Mr. Sadr denounced both his own side and the other. He praised the prime minister for not unduly involving state security, ordered his supporters to evacuate the Green Zone within the hour, and urged all involved to stop the fighting. While tensions remained as high as the August heat of 52 degrees Celsius, his words cooled everybody off.

Scenarios

Though surrounded by a million supporters, since 2003 Muqtada al-Sadr has been a lonely man. The Shia intellectual and political elite, such as the Islamic Dawa Party, have had little respect for him or his supporters. The anti-regime and anti-Iranian demonstrators cannot trust him, because his men harassed them in 2019-2020 for no reason. Since he ordered his lawmakers to resign, his Kurdish and Sunni allies, the prime minister, the president, and the marja'iyya (religious leadership) of Najaf – while all sympathetic – are worried about his decision-making style and predisposition for violence.

Mr. Sadr has no consigliere to make him pause and listen in a moment of anger. After past major crises, he has resigned and then bounced back. This is again the case today: he will be back. But if he desists from political activity for a few months, it will serve the parliament and Iraqi politics on a silver platter to Nouri al-Maliki and Iran. Alternatively, Mr. Sadr can send his people back to the streets, which could also spark a civil war.

While parliament is now widely seen as illegitimate, following the resignation of Mr. Sadr's lawmakers, even a problematic parliament can serve Iran's needs. Interim President Barham Salih is therefore supporting Mr. Sadr's call for new elections. Mr. Salih is highly respected, but this is not enough. Now that the high court has decided against interference, the one person who can save Iraq from the present crisis without subjugating the country to Iran is Grand Ayatollah al-Sistani – who, for the last few months, has kept himself above the fray.

Mr. Sistani favors the fight against corruption and against Iran's domination of Iraq's politics, security and economy. Yet, contrary to the Iranian concept that the senior cleric should rule, he does not want to get involved in politics. He seems reluctant to return to the role of political arbiter that he played in 2019-2020.

However, if Ayatollah Ali al-Sistani believes that most Iraqis (or, at least, most Iraqi Shias) want him to intervene, he will. So far, his actions have appeared somewhat contradictory. On one hand, he quietly demanded that Mr. Sadr end all violence. On the other, he and his Najaf colleagues have gently signaled support for the junior Iraqi cleric's cause, by sending senior representatives to a ceremony mourning the dead Sadrist soldiers and denouncing the killings. But that modest signal was all.

Mr. Sistani's inclination is to call for new elections – but he faces the dilemma that constitutionally, the parliament is still legitimate. Calling for its dissolution will also alienate Iran and its powerful militias. More likely, therefore, unless Iraq explodes into violent riots, or unless there emerges a constitutional way to dissolve parliament, the Ayatollah will keep his silence.

Still, because too many young Iraqis want to see Iran's exit, major political reform and new elections, calm is not likely. Peaceful mass protests are very likely to erupt again, as they did most impressively in October 2019 – and the pro-Iranian militias know how to shoot. Muqtada al-Sadr's mistakes greatly weakened the protesters, as well as his Kurdish and Sunni allies.

Indeed, these two groups of allies are in a bind. If they betray Mr. Sadr and join the pro-Iranian camp, he will never forgive them, and they will be blamed for turning Iraq into Tehran's vassal. If they stick with Mr. Sadr much longer, the political crisis will become extremely dangerous.

They could solve their dilemma in two stages. First, by agreeing on a president, who must be Kurdish. The two main Kurdish parties are on both sides of the parliamentary divide and, so far, cannot agree on a single candidate. Second, the pro-al-Sadr Kurds and Sunnis may be able to force the pro-Iranian politicians to agree that a new prime minister will declare early elections. If the pro-Iranians prove unyielding, Mr. Sistani's support for such a step could then be decisive.

As for Western aims, the path to lifting Iran's grip on Iraq starts with supporting new elections. Muqtada al-Sadr is a dangerous actor, and helping him means riding a tiger. Still, to achieve that goal, Western powers and Arab states would first have to help the woefully divided Iraqi demonstrators organize ahead of the next elections. Then they must ensure that the ballot is a democratic one. Tehran is certain to act in the opposite direction.

Source: gisreportsonline

Risk Warnings and Disclaimers

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Owen Li

Nearly a year after Iraq's last parliamentary election, the country's political system remains frozen in crisis. The man who seemed to emerge as kingmaker after last October's vote – Muqtada al-Sadr – proved unable to secure a coalition government, while thousands of his followers took to the streets, storming the halls of government.

This failure of the Shia cleric, who announced his retirement from politics for at least the fourth time, is casting a shadow on his chances of shaping events to come.

Muqtada al-Sadr was born in Najaf, Iraq, on August 4, 1974, to a prominent Shia clerical family with roots in Lebanon's Jabal Amil region. The fourth and youngest son of Ayatollah Muhammad Muhammad Sadiq al-Sadr, he was considered the least intellectual of his brothers, but he was a good organizer and his father trusted him with the daily management of some of his madrassas.

Mr. Sadr's political career is marked by several major turning points. Notwithstanding his repeated resignations, his emotional decision-making and his ideological contradictions, throughout the years he has stuck to two principles: that Iraq must have self-rule, and that he must be a central player in his country's politics.

A father's death

In April 1980, Saddam Hussein executed his father's cousins, Ayatollah Muhammad Baqir al-Sadr and his sister, a scholar. The death of the former – the most senior cleric yet killed by the regime – shocked the extended al-Sadr family and the Shia community.

Muqtada al-Sadr's father, Muhammad Sadiq, a religious scholar of rising influence, decided to keep a low profile. In the late 1980s, he even began to collaborate with the regime of Saddam Hussein, though quietly enough to avoid controversy in Shia society. The Iraqi dictator allowed him to establish some institutions and preach Islam to the Shia tribes and in Saddam City – the sprawling shantytown in northeast Baghdad, which in 2003 was renamed in his memory.

His father was a proud Arab and Iraqi, leading to competition with Shia Iran.

In 1998, Saddam allowed the elder al-Sadr to begin holding communal Friday prayers, a practice not seen in Shia areas for some time. He did this at his Friday mosque services in Kufa, near Najaf, sermons that attracted tens of thousands of young Shia eager to hear some anti-Baath preaching. Muhammad Sadiq al-Sadr carefully straddled the line between obeying and criticizing the regime – never explicitly crossing it, but attacking all the other Iraqi ayatollahs for their passivity and fear of Saddam. This generated a bitter rivalry with their leader, Grand Ayatollah Ali al-Sistani. Critically, in the fall of 1999, he declared himself Wali Amr al-Muslimin, the one responsible for all the world's Muslims. This implied that the true leader of the Iranians and the Shia world was not Iran's Supreme Leader Ayatollah Ali Khamenei, but the elder al-Sadr.

Mr. Khamenei was incensed – as this was a title reserved in Iran only for him and his predecessor, Ayatollah Khomeini – and closed all the offices in Iran belonging to Muqtada's father. In December 1999, Muhammad Sadiq al-Sadr was gunned down in his car on the outskirts of Najaf. Muqtada's two elder brothers, both highly respected religious scholars, died in the same hail of bullets.

A ready martyr

Most blamed the assassination on Saddam, but it would have been a serious mistake on his part to murder the senior al-Sadr. The religious leader had served the regime's purposes well by preventing mass clashes with Shia Iraqis. He had also offended other Najaf clerics whom Saddam reviled and, most helpfully, humiliated and drew the ire of Saddam's archenemy, Iranian Supreme Leader Khamenei. The latter, on the other hand, had very good reason to eliminate such a formidable competitor – a fact that cannot have escaped Muqtada's attention.

The death of his father and brothers represented the first turning point in Muqtada's adult life. Thereafter, he frequently appeared wearing white shrouds and declared himself ready to become a martyr. His father's slain cousin, Baqir al-Sadr, also acted similarly before his arrest and execution. But Muqtada al-Sadr is far from genuinely seeking martyrdom; he has taken risks, but has always left himself a way out.

From his father, he inherited a few central political principles to which he still adheres. One is enmity toward the United Kingdom, the United States and Israel, which his father called "the ill-fated trinity." These days, Mr. Sadr's intense ire is reserved exclusively for Israel.

Another central pillar is his father's attachment to Shia history and eschatology (like the expected Return of the Mahdi) and to Islamic law, though without embracing fanatical bigotry. Therefore, while Muqtada has found it easy to allow the killing of Sunnis for no other reason than their being Sunnis, he can also easily befriend Sunni Arabs and Kurds when necessary.

Finally, his father was a proud Arab and Iraqi, leading to competition with Shia Iran. When politically expedient, Muqtada collaborated with the Iranian Quds Force, and even stayed in Iran; now he is confronting the regime. Who is Muqtada al-Sadr? Part 1: Beginnings_1

Who is Muqtada al-Sadr? Part 1: Beginnings_1

Who is Muqtada al-Sadr? Part 1: Beginnings_2

From his father's death until 2003, Mr. Sadr kept a very low profile. He accepted Saddam's financial support because turning it down would have gotten him killed. Still, if he actually served Saddam, he did so very quietly. He kept supporting his father's flock, the poorest Shia, with social help and religious guidance through a network of low-level clerics.

Muqtada al-Sadr is not charismatic in the usual sense; he derives his charisma from the people's admiration for his father, an admiration that he has nurtured. For his ardent supporters, who risk their lives for him, the son of a martyred saint is also a saint. To great effect, he continues to remind them that he, too, may soon become a martyr. But while they admire him, Mr. Sadr treats his followers like a capricious nanny, threatening to disown them if they do not immediately abide by his orders.

The American enemy

The U.S. occupation of Iraq was Muqtada al-Sadr's second turning point. Soon afterward, he sprang from his quiet activities into a political and military frenzy.

Why? First, fighting U.S. forces was a fulfillment of his father's legacy. Second, it portrayed him as a heroic Iraqi and Muslim patriot, increasing his popularity. Finally, he understood that the Americans are not the British of old, and certainly not Saddam. They might have the ability to kill him, but, thanks to their political values, they would not.

Mr. Sadr established his private army, Jaysh al-Mahdi, named after the Shia Redeemer, the Vanished Twelfth Imam, who is expected to rise and lead the faithful to a final battle at the end of times. (In 2014, he changed the group's name to Saraya al-Salam, the "Peace Companies.") His fighters came from the same elements his father nurtured, and he ordered them to kill American soldiers – often providing them with Captagon pills, a potent psychostimulant to send them into battle in a frenzy.

The American occupation of Iraq was Muqtada al-Sadr's second turning point.

Iran was very helpful in providing weapons and improvised explosive devices. This led to myriad confrontations between his Mahdi militia and American soldiers, with many casualties on both sides. Mr. Sadr's forces also fought against supporters of his late father's enemies, the four grand ayatollahs of Najaf, led by Ayatollah al-Sistani.

Soon after the Americans occupied Najaf, his militia murdered the pro-American Ayatollah Abdul-Majid al-Khoei, son of the late chief ayatollah. When the holy Shia Al-Askari Shrine in Samarra was blown up in 2006, Mr. Sadr likely saw it as a personal attack against him, as his militia's namesake imam vanished in Samarra in the ninth century. His Mahdi Army became the cutting edge of fighting the Sunnis.

The Ayatollah

In August 2004, Muqtada al-Sadr occupied the Holy Shrine of Imam Ali in Najaf, among the most sacred Shia sites. He was besieged by the U.S. Marines, but his life was saved by his late father's nemesis, Ayatollah al-Sistani. They met at the latter's home, and Mr. Sadr agreed to order his fighters to lay down their weapons and leave Najaf.

The meeting changed him – the third turning point in his life, after his father's violent death and the U.S. invasion. Mr. Sadr seems to have been in quest for a spiritual father, and found him in Ayatollah al-Sistani.

While his official religious "source of emulation" (muqallid) was Iran's Grand Ayatollah Kadhim Husayni al-Haeri, Mr. Sistani became his true guide. Because this clashed with his father's legacy, and because he needed to provide his wild supporters with a target, he still disobeyed Mr. Sistani's call not to fight the Americans. Yet he has never again attacked the ayatollah or his supporters and, after the U.S. evacuation from Iraq in 2011, never antagonized him politically. Often, he has even acted as if they were perfectly in sync. Who is Muqtada al-Sadr? Part 1: Beginnings_3

Who is Muqtada al-Sadr? Part 1: Beginnings_3

In 2007, feeling the heat from the U.S. "surge," Mr. Sadr escaped to Iran, where he studied for four years in Qom. The following year, with the Mahdi Army growing dominant in the Iraq city of Basra, Iraqi Prime Minister Nouri al-Maliki sent in troops to subdue them, with massive American and British assistance.

It was a humiliation that Muqtada al-Sadr could never forgive, although he decided to serve his revenge cold. While he criticized Mr. Maliki for failing to demand an immediate exit of U.S. forces, he still supported him for the premiership after the elections of 2010.

The withdrawal of U.S. forces in December 2011 was the next turning point. With no Americans left to fight, Mr. Sadr returned to Iraq and launched his long-term campaign against Mr. Maliki – and, less conspicuously, against Iran.

In 2012, he would split the parliamentary Shia camp for the first time, joining forces with Masoud Barzani's Kurdistan Democratic Party. And by 2014, he would help replace Nouri al-Maliki as prime minister with Haidar al-Abadi.

Within a few more years, Muqtada al-Sadr's campaign against Tehran would break out into the open, setting the stage for political crisis.

Source: gisreportsonline

Risk Warnings and Disclaimers

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Owen Li

Eurozone inflation moved into double digits as the ongoing energy crisis continues to push prices up across the board. Monthly increases were also worse than expected and while energy prices have a large impact here, food and core inflation also went up. While an increase was expected due to Germany reversing the nine euro public transport ticket measure from this summer, this jump was more broad-based than expected and will provide extra fuel for ECB hawks as we head into the October meeting.

While the ECB sees more demand-driven inflation at the moment, weaker consumer spending makes this limited at best. Perhaps in sectors still profiting from post-pandemic catchup demand this could be the case, but tourism-driven services in France actually saw weaker inflation than expected in September. To us, most of the higher core inflation reading is still coming from second-round effects from the energy crisis, which is supported by the fact that businesses more dependent on energy have indicated they will increase prices in the months ahead.

The differences in inflation between countries are becoming more significant as measures at the national level are starting to complicate the overall picture. As mentioned, Germany’s public transport measure pushed inflation up in September, but France saw a declining inflation rate mainly due to government measures aimed at improving purchasing power. Expect government intervention to intensify on the back of still soaring inflation rates, and as long as this is not coordinated in Brussels, expect a continued muddied overall picture in the eurozone.

The divergence between countries would normally complicate the picture for the ECB, but with current high inflation rates the trajectory is clear: the ECB is set to hike drastically at the coming meetings to get to neutral and possibly beyond quickly. First stop is the October meeting where another 75 basis point hike is now the most likely outcome.

Source：ING

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Devin

The importance of semiconductors to economic security adorned newspaper headlines in 2022. As part of its technological competition with China, the United States has introduced a policy of 'friendshoring' its semiconductor production to secure its supply of high-end chips that enable daily life and stock the inventory of major technology firms such as Apple.

The term friendshoring rose to prominence after a speech by US Treasury Secretary Janet Yellen in April 2022. Yellen proposed a shift towards 'favouring the friendshoring of supply chains to trusted countries', arguing that this would 'lower the risks' to the US economy and its partners.

In an effort to boost national competitiveness, the United States passed the 'CHIPS and Science Act' in August 2022 to enhance domestic chipmaking capacity through major investment in regional centres and support for talent development. Washington's efforts also include the Chip 4 alliance — an arrangement through which the US government aims to diversify supply chains among Japan, South Korea and Taiwan.

The not-so-subtle aim is to frustrate the ability of Chinese producers to upgrade their capacity. That will help US firms maintain an advantage over Chinese firms like Semiconductor Manufacturing International Corporation (SMIC), which recently reported the development of a 7nm chip, among other new capabilities. The Taiwan Semiconductor Manufacturing Company (TSMC) is preparing to mass produce 3nm chips, while South Korea's Samsung has just begun 3nm production.

Much of the coverage of friendshoring has focussed on manufacturing and design capabilities, the market share of chip firms and political posturing. But friendshoring and the US Chip 4 policy are ultimately about the people, or 'friends', behind these technological innovations. Japan, South Korea, and Taiwan have chipmaking 'godfathers' — people acclaimed for their crucial roles in developing semiconductor capacity. Yet several of these 'godfathers' have proven to be 'frenemies' to their own companies after being poached by competitors — including Chinese market entrants.

Yukio Sakamoto, dubbed the 'godfather of Japan's DRAM', was the president of the former semiconductor company and foundry, Elpida Memory. Sakamoto was disgruntled after his experience at the US-based Micron and joined China's Tsinghua Group in 2019 to build DRAM products. In June 2022, Sakamoto announced he was joining China's SwaySure. Sakamoto worked for Texas Instruments in Japan earlier in his career before being recruited by Kobe Steel Electronic Information Group.

Kim Choong-Ki is often called the 'godfather of South Korea's Chip Industry'. Kim trained upcoming semiconductor engineers — called 'Kim's mafia'— who went on to lead semiconductor production at Samsung, LG and Hyundai. Kim earned his PhD at Columbia University, after which he joined the then semiconductor industry giant, Fairchild, where he worked on R&D in Palo Alto.

Morris Chang founded Taiwan's semiconductor powerhouse, TSMC, in 1987 and led the firm's growth for decades. Chang obtained his PhD in electrical engineering at Stanford University, working for Texas Instruments for more than 25 years. The Taiwanese government soon after recruited him to lead the soon-to-be-established 'dedicated silicon foundry'.

Chiang Shang-Yi headed R&D at TSMC until 2006. After military service, he completed his undergraduate studies at National Taiwan University and graduated with a PhD from Stanford University. He made headlines for joining the SMIC as an independent non-executive director from December 2016 to June 2019, becoming vice-chairman from December 2020 until November 2021.

Liang Meng-song, another semiconductor doyen, was in the spotlight of a court case between TSMC and Samsung. He was charged with leaking classified information to Samsung after joining the same year he left his long-time employer, TSMC. Liang, like Chang and Chiang, studied in the United States. He spent 23 years working at TSMC before leaving in 2009.

These 'friends' gained crucial work experience with US firms and most completed postgraduate studies in the United States. Sakamoto learned during his time at Texas Instruments while Kim and Chang, Chiang and Liang graduated from elite US schools and worked for leading US firms such as AMD, Hewlett-Packard, Fairchild and Texas Instruments. After returning home, they became the executive officers of semiconductor firms or holders of intellectual property rights.

The US-led Chip 4 alliance has come to life amid the interplay between the long-standing personal connections in the semiconductor industry and the risk of talent moving across firms and countries, as the trajectories of these godfathers exemplifies. The movement of semiconductor professionals ignites wars over employee talent and brings lawsuits relating to patents and trade secrets, intensifying industry rivalry and competition.

While Washington's friendshoring policy aims to deepen supply chains with key producers in Japan, South Korea and Taiwan, policymakers must remember that the people who comprise the leadership of those firms can move. Friendships evolve over time, and friends learn from one another. In Granovetter's terms, Washington's 'weak ties' might prove more beneficial than its strong ties to South Korea, Japan and Taiwan in advancing its semiconductor capabilities.