Market Report.
🇺🇸 Trump declared he will impose extra 25% tariffs on commodities from Mexico and Canada and an additional 10% increase on Chinese goods entering the United States. More than 40 percent of U.S. goods imports come from those three nations alone.
😌 Some relief in China at the prospect of Trump’s 10% tariffs, rather than the 60% he mentioned in his campaign. It remains to be seen, but as we mentioned in our reports, the tariffs are aimed at getting concessions from countries.
🤝 As example, less than 24 hours after Donald Trump announced 25% tariffs against Mexico, President Claudia Sheinbaum had no choice but to agree to work together to combat the fentanyl crisis in the US and admit that the caravans of illegal migrants.
📉 Following Trump’s announcement on Tuesday of a 25% duty on goods imported into the United States from Canada and Mexico, shares of General Motors and Stellantis fell.
📊 The headline PCE index is projected to rise 0.2% monthly and 2.3% annually, while core PCE is expected to increase 0.3% monthly and 2.8% annually. These trends indicate the Fed has yet to reach its 2% inflation goal. The election of Donald Trump, with his pro-growth agenda and plan for substantial tariffs, is seen as potentially making the Fed’s task of lowering inflation even more difficult. Markets have become more skeptical of the Fed’s ability to ease policy, with the expected fed funds rate cut between now and 2025 declining.
🤔 However, FOMC members stated that if the data continues to show inflation moving down sustainably to 2% and the economy remaining near maximum employment, it would likely be appropriate to gradually move policy to a more neutral stance, but there was uncertainty expressed over the level of the neutral interest rate.
🇫🇷 The risk premium on French government bonds has risen to levels not seen since the Eurozone debt crisis, as a political standoff over the country’s budget threatens to bring down the government. Investors are concerned about Prime Minister Michel Barnier’s ability to pass a budget for next year and enact spending cuts to reduce the deficit. The far-right National Rally party, led by Marine Le Pen, has vowed to bring down Barnier’s government with a no-confidence motion if their demands are not met. There are fears the bond spread between 10-year French and German bond yields could reach 100 basis points, which would be unprecedented in the euro era and put France on par with Italy’s risk premium.
🇩🇪 Germany is becoming a third world country. The need to import labour will drive down wages in the country. According to a report by the Bertelsmann Stiftung Germany will require an annual net migration of 288,000 workers until 2040, assuming increased labor force participation by women and older people. If those assumptions do not materialize, the required migrant worker influx could be as high as 368,000 per year to prevent a substantial shrinking of the labor force and cripple economic growth. The absence of a prosperous model for Germans means that the birth rate no longer functions as a generational replacement, so that a cultural replacement is applied.
🇪🇺 Ursula von der Leyen presents her new commission’s program to parliament at the plenary session in Strasbourg. Ursula von der Leyen is set to win confirmation from the European Parliament for her incoming commission, facing challenges such as a Ukraine strategy, trade disputes, and boosting Europe’s competitiveness. With weakened political leadership in France and Germany, her new team faces tense moments, including infighting and the ousting of French commissioner Thierry Breton. Von der Leyen’s second five-year term begins just in time for Trump’s tariffs.
Market View:
📊 US futures seem to regain optimism. The FOMC minutes reiterate that there will be a gradual cut in interest rates, which is encouraging stock markets. Mini S&P 500 futures are practically at all-time highs, just a few points away from reaching them, currently standing at 6,035 points. The Nasdaq, although lagging further behind, is approaching 21,000 points.
💵 The dollar has cooled slightly but remains at strong levels. The dollar index (DXY) is trading around 106.80 points, while the EUR/USD remains below 1.05 at the moment.
📉 European stock markets started the day with a weak opening. The DAX 40, which briefly regained 19,400 points on Monday, fell to 19,355 points. The EuroStoxx 50, meanwhile, is increasingly distant from the 5,000-point mark, currently trading at 4,765 points.
🛢️ In the commodities market, Brent crude oil fell in the last few hours to 71.60 dollars per barrel, from where it has recovered some ground, now standing at 72.60 dollars. Gold, which rose above $2,700 per ounce at the start of the week before falling rapidly, has started a new upward momentum and is currently trading at $2,670 per ounce.
💻 Bitcoin fell back below $91,000 yesterday; however, it has resumed its upward momentum and is currently trading at $93,400. It is worth recalling that a few days ago it was on the verge of $100,000, reaching an all-time high of $99,800.
Geopolitics:
⚔️ Russian forces are advancing in Ukraine at the fastest rate since the early days of the 2022 invasion, taking an area half the size of London over the past month. Russia has taken control of an estimated 667 sq km (257 sq miles) this month, according to military analyst Pasi Paroinen. Russia now controls 18% of Ukraine, including all of Crimea, just over 80% of Donbas, and more than 70% of the Zaporizhzhia and Kherson regions. Neither side publishes accurate data on their own losses, but Western intelligence estimates casualties to number hundreds of thousands killed or injured.
🕊️ In May 2022, the peace deal offered to Ukraine, which included withdrawing Russian troops in exchange for Ukraine’s non-membership of NATO and a commitment not to deploy NATO missiles on the Russian border, was rejected under Boris Khonshon’s influence. Now, a Russian victory could mean a potential humiliation for NATO.
