Market Report.
🏛️ The conclusion from Friday’s employment data is that the US labour market is slowing down. However, the impact was not as dramatic as the previous month’s employment report. NFP came out below expectations, but at least somewhat better than the previous month, which had a disastrous drop. The unemployment rate remained at 4.2%. All in all, with these data we are still closer to the soft landing scenario that the Fed wants and fears of a sudden slowdown in the US economy seem to be calming down.
📉 However, more and more voices of dissent from the Fed are emerging. The Fed erred under Powell by acting too slowly to stop the greatest wave of inflation since the early 1980s, which reduced American citizens’ purchasing power. This time, if they go too slowly, they risk increasing unemployment and throwing the country into a recession.
🛢️ The consecutive falls in crude oil and base metals suggest that a global recession is taking place in the background. Weakening demand could be the cause of the low prices. Data from China continue to worry. Early this morning China’s inflation came out weaker than expected, and as we have repeated in other reviews, this may also be a symptom of a slowing economy, as in the case of Germany. Moreover, their PPIs are sinking again, and with that, deflation risks emerge.
📊 Also the Japanese economy, the world’s fourth largest economy with the world’s second largest stock market, has presented growth data early this morning. And despite positive growth of 0.7% for Q2, it turned out to be below expectations. The outlook for household and business consumption is worsening, however, the Bank of Japan expects to continue its rate hike policy in the coming months if the numbers are stable.
📈 In any case, tomorrow we will know China’s trade balance. With the latest data we see that its trade capacity is shrinking, with both exports and imports falling. In addition, we will have the US core inflation data, which we will be able to integrate into our analysis of the Federal Reserve. And on Thursday, the European Central Bank ECB is due to decide what to do with interest rates in the region.
🌐 Geopolitics: Top Biden national security aides have been crafting a proposal for a US sovereign wealth fund to invest in national security priorities. The work mirrors Trump’s recent call for such a fund and has included expert consultations, with planning docs circulated within the White House. Key motivations include countering adversaries’ grip on critical materials/tech and keeping pace with other nations’ state investment. Proponents see potential uses in emerging technologies, strategic mineral stockpiles, and backing companies competing with China. In other words, one step more into the current Trade War.
🇺🇸 Trump strengthened his “America First”. Donald Trump pledged to make it too costly for countries to shift away from using the US dollar as a trade currency. He proposed imposing a 100% tariff on goods from any country that seeks to engage in bilateral trade using currencies other than the dollar. His advisers have discussed export controls, currency manipulation charges and tariffs to penalize non-dollar trade. The pledge was made at a rally in Wisconsin, a key swing state where Trump and Kamala Harris are competing for working-class voters.
🇪🇺 The technocrat Mario Draghi’s highly anticipated report on EU competitiveness is expected to influence transatlantic ties over the next five years. In recent speeches, Draghi has strongly criticised US economic policies and accused Washington of “using protectionism to shut out competitors” as part of the trade war that we have been signalling for some time now. He warned the “Inflation Reduction Act” poses risks to European manufacturing and criticised the US for becoming an EU economic “competitor”. The EU is looking to boost strategic autonomy in response to perceived weaponisation of economic dependencies by major partners.
🚁 Latvia and Romania each reported incidents of Russian drones crossing into their airspace over the weekend. In Latvia, a Russian military drone crashed after crossing into its airspace from neighboring Belarus. In Romania, a drone violated its airspace prompting fighter jet scrambles and border alerts. Moscow has stepped up aerial attacks on Ukraine’s energy grid as winter approaches. Belarus also reported downing foreign drones last week without naming the sender country.
🤝 Spain’s Prime Minister Pedro Sánchez is in Beijing for meetings with Chinese leaders including President Xi Jinping to boost economic ties. His visit comes amid growing trade tensions between the EU and China over sectors like EVs, dairy and pork as I mentioned in previous reports. Spain is the EU’s largest pork exporter to China but Beijing recently launched an anti-dumping probe on EU pork imports. Once again, this is a trade war.
