Market Report.
😢 Today is a sad and strange day, with American society still in shock from a horrific murder committed against a political influencer in front of the cameras. The risks of societal polarisation in the United States are growing ever greater, and reactions follow in quick succession as the hours pass.
🏦 The news in the Macroeconomic scenario comes from the Central Banks. In recent days we have focused on the Fed. But it is also time to talk about the other two major central banks and what they will do from here to the end of this year.
🇪🇺 The European Central Bank (ECB) is expected to leave interest rates unchanged at its upcoming policy meeting today, as inflation remains in line with its target. The ECB halved its key rate to 2% in the year to June but has been on hold since then, arguing the eurozone economy is in a “good place”. However, the ECB is likely to keep the prospect of further easing alive due to a fraught trade and political outlook.
⚖️ While officially the ECB sees inflation risks as balanced, most members probably still view downside risks as more prominent, leaving the door open for a potential “insurance” rate cut around the turn of the year. Political turmoil in France is another headache for the ECB, though it is unlikely to intervene unless the rise in borrowing costs is deemed “unwarranted and disorderly”.
📈 Japan’s wholesale inflation, as measured by the corporate goods price index (CGPI), accelerated in August: The CGPI rose 2.7% year-on-year in August, up from a revised 2.5% increase in July. This matched market forecasts. Yen-based import prices fell 3.9% in August, slower than the 10.3% drop in July, suggesting moderating downward pressure on import costs.
🔍 This data will likely be closely scrutinized by the Bank of Japan (BOJ) at its upcoming policy meeting on September 18-19, as it grapples with sticky inflationary pressures.
📉 The Bank of Japan (BOJ) is firming up a strategy to unload its massive holdings of exchange-traded funds (ETFs), which is the last piece of Governor Kazuo Ueda’s plan to close the chapter on the bank’s massive monetary stimulus experiment: The BOJ is likely to pursue a gradual, market-based approach to selling its 37 trillion yen ($251 billion) in ETF holdings, rather than other options like transferring them to government entities.
🤔 The BOJ has not yet decided on the timing for starting the ETF sales, with the political turmoil caused by Prime Minister Shigeru Ishiba’s resignation complicating the decision. The BOJ is likely to proceed with extreme caution given the potential market impact of its ETF sales, which would be a key part of its efforts to shrink its massive balance sheet.
⚠️ Rushing the decision amid political uncertainty could draw criticism or unwanted attention, as opposition parties have proposed using the BOJ’s ETF dividends to fund spending programs.
💻 In the corporate field, the company that has given the big surprise to investors, of course, is the American technology sector once again.
🚀 Oracle’s latest quarterly earnings report and outlook for its cloud infrastructure business have analysts and investors extremely excited. Oracle’s stock price surged 28% in after-hours trading, putting it on track to have its biggest single-day gain since the dot-com boom in 1999. The main driver of the excitement is Oracle’s booming cloud infrastructure business, which is projected to see revenue jump 77% this fiscal year to $18 billion, and then nearly double again to $32 billion by fiscal 2027.
📊 Oracle is forecasting its cloud infrastructure revenue could reach $144 billion by 2030, a massive growth trajectory. The company signed several multi-billion dollar cloud deals in the quarter, including with OpenAI, and its remaining performance obligations (contracted revenue) soared 359% year-over-year to $455 billion. However, much of this cloud growth may be coming from customers of the major hyperscalers like Microsoft and Google, who are offloading capacity to Oracle, rather than being organic Oracle customers.
🛡️ Poland has requested additional air defense systems and counter-drone technology from its NATO allies to better protect its airspace after shooting down Russian drones that crossed into its territory. This prompted Poland to invoke Article 4 of the NATO treaty, triggering consultations with allies on potential coordinated action. Poland is seeking Patriot missile systems and “anti-drone wall” capabilities to defend against the Russian drone threat, which it sees as an “act of aggression.” Allies like the UK and Germany are assessing ways to respond to Poland’s request, though it may be challenging to provide more advanced air defense systems.
📜 A new Motion of Censure against the European Commission is primarily focused on criticizing the EU’s trade policy under President Ursula von der Leyen. The motion accuses the Commission of pushing through damaging trade agreements, like the Mercosur deal, without proper mandates and against the will of national parliaments. This is seen as a “betrayal” of European citizens.
📝 The EU-US trade framework is also condemned as a “political setback” and “capitulation” that threatens entire sectors of the European economy through asymmetric concessions. These trade policy failures are seen as part of a broader record of “mismanagement and opacity” by the Commission, including issues like “Pizergate” and concerns over EU funds being channeled to NGOs promoting the Green Deal.
📢 The motion calls on the European Parliament to support this censure, arguing it is time to “end this cycle of failure” and restore accountability, sovereignty, and transparency in the EU.
🇫🇷 Rather than allowing French voters to select their next government, President Macron has appointed another loyalist, Sébastien Lecornu, as the new Prime Minister of France: This is the third such appointment by Macron in the past year, after the resignation of previous PM François Bayrou.
🔄 Macron’s decision to appoint Lecornu comes despite calls from his own party for the president to appoint a mediator to negotiate a consensus candidate with the deeply divided parties in the National Assembly. The appointment faces significant opposition, with Marine Le Pen’s National Rally party advocating for fresh legislative elections, which they believe would result in her deputy Jordan Bardella becoming the next Prime Minister.
✊ The left is also enraged by Macron’s decision, and is calling for mass demonstrations against the new government, potentially coinciding with already-scheduled labor union strikes.
📈 Market View.
📊 Markets remain optimistic, with Mini S&P 500 futures staying above 6,500 points, currently trading at 6,547 points after reaching new highs during yesterday’s session. Nasdaq 100 futures also managed to surpass 24,000 points during the day, marking a zone of new highs before retreating slightly to the current 23,918 points.
💵 The dollar index, paradoxically, continues to strengthen and is approaching 98 points, despite imminent rate cuts and speculation that they may even be as high as 50 basis points. The EUR/USD pair, which had managed to trade above 1.1750 earlier this week, appears to be losing even the 1.17 support and is currently at 1.1688.
📉 European equities, however, experienced declines yesterday. DAX 40 futures, which had approached 23,900 points for the third consecutive time in the past two weeks, have retreated to the current 23,665 points. Eurostoxx 50 futures, which exceeded 5,400 points this week, have fallen back to the current 5,370 points.
📈 Crude oil continues to rise, with Brent crude approaching $68 in recent hours, now retreating to $67.40.
💰 Gold futures seem to be stabilising after reaching highs on Tuesday, currently sitting around $3,675 per ounce.
💸 Bitcoin consistently surpasses $113,000 and is currently trading up at $114,265.
