Market Report.
🚗 Volkswagen says headwinds mean it can’t rule out closing plants in Germany for the first time, also dropping a job protection pledge through 2029. The automaker cites new competitors in Europe, Germany’s manufacturing position declining, and needing to “act decisively” on costs. Mounting competition from inexpensive Chinese EVs is a key challenge as VW falls short of cost savings targets. Regional governments want alternatives to closures relied on first to avoid job losses.
🏗️ EU construction is expected to decline 1.5% in 2024 due to downward revisions. Consequently, house prices are rising in many countries, but building permits increased in the first quarter, indicating a future recovery in residential construction. Non-residential construction starts dropping due to economic uncertainty, but education/health spending offers support.
🤝 China and South Africa agreed to promote balanced trade and boost two-way investments between industries during a meeting between Xi Jinping and Cyril Ramaphosa. China showed willingness to support employment through recruitment conferences and adding manufacturing bases near raw materials in South Africa. Cooperation documents signed covered satellite navigation, housing, dairy/wool exports, but no new specific investment pledges. Contrasts with last year when Chinese power companies committed help for nuclear plants and set up solar/transformer facilities. We read this information with caution, as it could be another sign of a Chinese and probably global economic slowdown.
📈 Interesting divergence in Asia. In contrast to Japan, South Korea is recording a gradual decline in inflation which should allow for rate cuts at the next central bank meeting. South Korea’s consumer inflation slowed to 2.0% in August, the weakest in nearly 3-1/2 years and matching the central bank’s target. The central bank said inflation is stabilizing more quickly than in other major economies and expects a stable trend going forward.
Market View:
📉 As we pointed out in the previous reports, the 5650 levels of the SP500 futures are creating a well defined resistance. On the other hand, Nasdaq 100 continues to retreat and is currently at 19420 points.
💵 The dollar index continues to strengthen, approaching 102 points after a sharp fall in recent weeks. The EURUSD continues to decline and is at 1.1040 in today’s session. The US 2-year bond yield is slightly above 3.90%.
💷 The EURGBP continues to lose ground and is close to the 0.84 level. Greater yields in the UK will keep the pound strong, and the Bank of England is predicted to act more slowly than the European Central Bank. Moreover, as the ECB cuts rates, making the euro cheaper, they will make their imports more expensive, which could lead to persistent higher inflation given their high dependence on imports from China.
💰 Gold continues to trade solidly above $2500 an ounce and bitcoin is still trying unsuccessfully to regain the $60,000 level, currently at $58,900. The oil market continues to weaken. For the third time in a month, Brent crude has fallen to the $75.50 area. Levels not seen since January.
Geopolitics:
🇩🇪 As happened with Le Pen’s party in France, in Germany, the rise of citizens voting for the AfD could be neutralised by coalitions of pro-Brussels parties that bring together votes, which could neutralise the political risks against the euro.
🇹🇷 Turkey will be the first NATO member to request membership of the BRICS economic bloc led by Russia and China. President Erdogan said Turkey can strengthen relations with both East and West simultaneously without choosing sides. The application was reportedly submitted months ago due to issues in Turkey-US ties and a desire for enhanced strategic autonomy.
🇲🇳 Putin has arrived in Mongolia for a state visit amid discussions to build a new gas pipeline connecting Russia and China through Mongolia. The Power of Siberia 2 project would transport 50 bcm of gas per year from Yamal to China to compensate for lost European sales due to the Ukraine conflict. Ukraine urged Mongolia to arrest Putin using an ICC warrant over alleged war crimes.
