Market Report.
🚀 New bullish fuel enters Wall Street. The FOMC minutes were published yesterday. The minutes indicate the Fed was strongly inclined to lower rates further, though there was some disagreement over the pace and extent of the cuts.
📉 Federal Reserve officials were strongly inclined to lower interest rates at the September meeting, with the only dispute being over how many cuts were coming. The FOMC voted 11-1 to lower the federal funds rate by 0.25 percentage points, taking it to a target range of 4%-4.25%. There was a close split, with a 10-9 majority favoring the equivalent of quarter-point cuts at each of the two remaining meetings this year.
🇪🇺 The EU announced plans to reduce tariff-free quotas on imported steel and hike tariffs from 25% to 50% on any excess imports. The U.K.’s steel industry warned that these EU measures could be an existential blow to the already struggling sector. Regional steel producers like ArcelorMittal, SSAB, and Thyssenkrupp saw their stocks rise sharply on the news, indicating the industry’s positive response.
🤝 New US demands could jeopardize the stability and benefits of the recently reached trade agreement, which the EU sees as crucial to maintaining transatlantic trade and protecting European businesses and jobs.
🇺🇸 The US has made fresh demands for concessions from the EU. The US is seeking to discuss the EU’s legislation, including digital/tech rules, corporate compliance, and climate regulations – areas the EU has said maintaining regulatory autonomy is a red line. EU officials are concerned these new US demands could undercut the 15% tariff ceiling the EU was able to secure in the recent trade agreement.
⚔️ The EU is worried the US is expanding the list of products subject to higher 50% tariffs on steel/aluminum, and preparing potential new tariffs on sectors like medical devices and technology.
📉 German economy is struggling to shake off a multi-year slump, with the manufacturing and auto sectors continuing to face significant headwinds.
📊 German industrial production fell 4.3% in August, the largest decrease since early 2022. This was driven by an 18.5% drop in auto manufacturing. The report, along with recent data showing a fourth consecutive month of falling factory orders, highlights the persistent weakness in the German economy. The challenges facing Germany’s export-reliant auto industry have been underscored by BMW lowering its financial guidance and Bosch announcing job cuts.
📢 The Bundesbank president has called on the government to speed up reforms and do more to attract skilled foreign workers.
🇫🇷 France is trying to find a compromise that would allow the formation of a new government, but significant challenges remain.
🤞 Outgoing French Prime Minister Sebastien Lecornu expressed optimism that an accord can be reached to allow the formation of a new government, without fully endorsing a proposal to rethink the controversial pension reform law. Elisabeth Borne, the outgoing prime minister, said she is open to suspending the pension reform law if it means bringing stability to the country – a major concession to the Socialist Party.
✊ The Socialists have not yet received guarantees on the pension issue, and say the best guarantee would be for the left and the Greens to be called upon to govern. The National Rally’s Marine Le Pen said she would vote to oust any government that emerges from the current talks, narrowing Lecornu’s room to maneuver. Suspending the pension reform would complicate France’s efforts to rein in its large budget deficit, with the outgoing finance minister warning of the significant cost.
📈 ECB Governing Council member José Luis Escrivá suggest the ECB Governing Council sees the current situation as balanced.
📉 Escrivá said ECB policymakers don’t have a bias toward cutting interest rates at present and could equally end up hiking them instead. He insisted the ECB’s current stance doesn’t preclude a move either up or down, stating “full optionality means full optionality, not a cut.”
💬 While some other ECB officials have suggested the potential choice is between staying on hold or cutting, Escrivá said “what markets are expecting is nothing” and “basically stable rates for some time.” Escrivá acknowledged that short-term inflation fluctuations are being driven by volatile elements like energy prices, but said the medium-term outlook is for inflation to hover around the ECB’s 2% target.
⚠️ Warnings about possible bubble in AI business reach even the Bank of England. The Bank of England has warned that valuations, particularly for artificial intelligence companies, look “strained”, adding that stock markets could be particularly vulnerable if expectations about the impact of artificial intelligence become less optimistic.
🔍 Yesterday we reported that a bipartite committee in the US was reviewing the rules of technology export to China and demanding to make them more challenging for US partners such as the Netherlands. Well, China seems to respond.
🇨🇳 China has expanded restrictions on exporting rare earth processing technology and spelled out its intention to limit exports to overseas defense and semiconductor users. This announcement clarifies and expands on the sweeping rare earth export controls announced by China in April, which had caused global supply shortages before some easing through deals with Europe and the U.S.
💼 The tightened controls are seen as a major bargaining chip for China in its trade talks with the U.S., coming ahead of an anticipated meeting between Presidents Trump and Xi. China produces over 90% of the world’s processed rare earths and rare earth magnets, which are vital materials for products ranging from electric vehicles to military equipment.
📜 The new rules restrict the export of technology to make rare earth magnets, and limit the export of components and assemblies containing restricted magnets. China will not grant export licenses to overseas defense users, and will only approve semiconductor-related applications on a case-by-case basis.
🌍 Geopolitics:
☮️ Israel and Hamas have agreed to the first phase of U.S. President Donald Trump’s plan for Gaza, which includes a ceasefire and a hostage-prisoner exchange. The deal, if fully implemented, would bring the two sides closer than any previous effort to halt the bloody two-year war in Gaza that has upended the Middle East. However, several points have been openly rejected by both sides.
📝 The agreement includes an Israeli withdrawal from Gaza and the release of all hostages held by Hamas, though crucial details are yet to be spelled out. Hamas has provided lists of Palestinian prisoners it wants freed, including some high-profile leaders, while Israel has demanded Hamas give up its arms, which Hamas has rejected.
📅 The next phase of Trump’s plan calls for an international body led by Trump and including former UK PM Tony Blair to play a role in Gaza’s post-war administration, which Hamas has rejected. Arab countries backing the plan say it must lead to eventual independence for a Palestinian state, which Israeli PM Netanyahu says will never happen.
📰 The Geopolitical French portal Voltairenet has published an article discussing the current global situation and the resurgence of Neocon Straussians, a movement known for advocating military intervention since the 1960s. Despite seeming defeat in recent US administrations, they are now attempting to influence international bodies like the UN and NATO to adopt a more aggressive stance on global conflicts in the name of liberal democracy.
📈 Market View.
📊 Historical highs on Wall Street once again, with Mini S&P 500 futures positioned at 6,800 points and Nasdaq 100 futures exceeding 25,335 points.
💵 The dollar continues to rise and is challenging the resistance level of 99 points on the DXY index. This has caused pairs like EUR/USD and GBP/USD to cool off, remaining at their lowest levels in recent weeks. EUR/USD could drop below 1.16 if the dollar’s ascent continues. GBP/USD is approaching crucial support levels at 1.3350, while USD/JPY may face resistance from a significant downtrend at current levels around 153.
📈 In Europe, futures have jumped with optimism following the protective measures announced by the EU. DAX 40 futures rose close to 24,800 points but are currently retracing to 24,760, while Eurostoxx 50 futures are trading more moderately in the vicinity of 5,665 points.
🛢️ As we announced, the crude oil market has returned to range zones, with Brent crude trading above $65, currently sitting at $66.30 per barrel.
💰 Gold remains strong, with gold futures trading near $4,045 per ounce.
💻 Finally, Bitcoin appears to be stabilising above $121,400 after Monday’s rise, currently trading above $122,000.
