Market News:
🇬🇧 UK: Polls show Labour with a significant lead nationally, projecting major gains of over 150-300 seats which would constitute one of the biggest electoral landslides in recent history. Key seats and results to watch will start being announced from 10pm on Thursday, with Labour expected to take former red wall seats in northern England. Potential upsets include Cabinet ministers losing their seats, and smaller parties like the Liberal Democrats and Reform UK gaining ground. Labour could pass the 326 seat threshold for a majority as early as 4:30am, according to poll projections, though verification will take until all 650 seats declare.
🇫🇷 France: In an attempt to prevent the far right from dividing opposition, Macron’s group, the left-wing New Popular Front, and other anti-National Rally groups deliberately withdrew 223 candidates from seats with more than two voters before Sunday’s runoff election. Bonds continue to discount risks in France. This week’s auctions deliver yields not seen in more than 10 years. The yield on the 2-year bond is above 3.2%. Bonds with shorter maturities are already trading above 3.6%.
📈 Related Markets: the Cac 40 recovered yesterday a good part of the falls, but today it is much more tense, approaching the resistance registered a week ago in the 7700 points area.
🌍 Europe: Despite rising core inflation in Europe to 2.9% this week, the ECB is encouraged by better PMI data. As stated by Yannis Stournaras, a member of the Governing Council. In an interview, the head of the Greek central bank stated, “These data strengthen the case for further cuts a little bit.” As of right now, two additional rate reductions this year appear fair and in line with our projections. Even with two further cutbacks this year, we will still be operating in extremely constrained area.
💶 Related Market: We could expect a drop in the EURUSD bar, considering these words. However, the bad US data yesterday, with PMI’s below 50 and what about industrial orders, might make us think that a rate cut by the Fed is closer now. This would explain why and it is close to 1.08 at the moment.
🇩🇪 Germany: German factory orders also slumped. 0.5% growth was expected and turned out to be a -1.6% drop. However, the Dax 40 maintains the gains made yesterday and is approaching the 18,500 point zone, although with timid movements in today’s session.
🇺🇸 US: Traders are shifting portfolio positions in anticipation of Biden withdrawing, which polls show would likely result in Donald Trump winning the election. A potential Trump victory is fueling trades that benefit from higher inflation, such as a stronger US dollar, higher Treasury yields, and gains in bank, energy and health stocks. Financial sector exchange-traded funds have seen significant inflows, reflecting bets that Trump will spur deregulation and a steeper yield curve. Asian markets could also be impacted, for example Chinese equities performing poorer on expectations of higher US tariffs under Trump. Cryptocurrencies like Bitcoin and the Solana token may benefit from perceptions of greater acceptance from a newly re-elected Trump administration.
💵 Related Market: The DXY dollar index, which has strengthened strongly during 2024, could have a strong upward move with Trump’s victory. In 2016, and despite warnings of how catastrophic a Trump victory would be, hours after the election results, the SP500 rose sharply. We believe this time will be no different.
🌐 Geopolitics:
🏦 Raiffeisen Bank International, an Austrian bank with significant operations in Russia, is facing mounting pressure from both US and European regulators to sever ties with Russia. In May 2022, the US Treasury threatened Raiffeisen with sanctions if it did not cancel a deal linked to Russian oligarch Oleg Deripaska, which it did. However, this increased US mistrust of the bank. European regulators, including the ECB, want Raiffeisen to take immediate steps to reduce its Russian exposure but the bank has been slow to act. Raiffeisen faces the challenges of navigating demands from multiple regulators while also needing permission from Russia to exit the market and recover its investments.
💻 Russia’s central bank is advising businesses to use “multiple choice solutions” including cryptocurrencies and digital assets to facilitate payments with foreign partners in light of Western sanctions. Central bank governor Elvira Nabiullina acknowledged payments problems are a key economic issue and said Russia has softened its stance on using cryptocurrencies for international payments. Nabiullina said discussions are underway for a BRICS Bridge payments system among BRICS countries as an alternative to relying solely on Western-dominated systems. VTB bank head Andrei Kostin argued any information on mechanisms to facilitate payments should be legally classified as a “state secret” due to sensitivity.
📞 US President Joe Biden has vowed to remain in the 2024 presidential race, making calls to campaign staff and meeting with Democratic leaders and governors on July 3rd. Biden told campaign staff he was “in this race to the end” and the White House press secretary said reports of him considering stepping down were “absolutely not” true. Some Democratic members of Congress and donors have called for Biden to drop out, citing concerns over his age, performance and electability against Trump. Democratic Governor Jim Clyburn, who was key to Biden’s 2020 primary win, said the party should hold a “mini-primary” if Biden steps aside.
