Worrying about the cost of war

Daily update

US President Trump’s social media account declared the US would not attack Iran before the midterm elections. Other actors in the war may launch attacks. The post does reveal the concern about the political costs of the war, and rekindled some of the optimism bias in markets. However, the political costs presumably shift after the midterms.
The breakdown of the US October Michigan consumer sentiment poll will likely show Democrats and Republicans reportedly living in different realities. Inflation expectations have risen for Republicans recently, however. Higher prices for high frequency purchases (gasoline prices up 42% since January 2025, beef prices up 16.5%) seem to be overriding political affiliation. Inflation expectations have political relevance. Economically, unless consumers change their behavior in response, they are meaningless noise.
The EU and China continue negotiations against a backdrop of economic nationalism. Fear of economic change encourages scapegoat economics, and blaming foreigners is a default prejudice. China is defending its renminbi policy in a lengthy document. This is unlikely to change the popular opinion fueling economic nationalism (a TikTok video may have been more effective).
Germany revised up its economic growth projections, in common with its policy of revising up everything. It is a reminder that politicians should not tie themselves too tightly to unreliable economic expectations.