Market News Report:
📈 Yesterday Powell declared in front of Senate Banking Committee: “A cut in interest rates is not appropriate until the Fed is more confident that inflation is moving sustainably toward 2%”. Although investors predict interest rate decreases would start in September, Jerome Powell was cautious not to provide a date.
🗣️ Powell emphasised the labour market as the other component of the Fed’s dual mandate, acknowledging that inflation is not the only danger it faces. The unemployment rate increased to 4.1% last week, surpassing the consensus forecast of 4% by the central bank for the end of the year.
📊 Related Markets:
The market response seems to have been neutral, regardless of Powell’s words, the SP500 and Nasdaq 100 remain extremely strong. However, the non-tech sector selectives such as the Dow Jones and Russell 2000 are well below their highs. The dollar seems to be pausing since yesterday, with the DXY index stuck at 105 points. The EURUSD, which started the week strong at 1.0850, has fallen in the last few hours and is now trying to regain its bullish tone at 1.0825.
🇫🇷 France faces unprecedented deal-making to form a stable government after the election left parliament deeply divided among multiple parties. Edouard Philippe called for Macron’s centrist party to form a governing coalition with the conservative Republicans, which could together command over 220 seats. Jean-Luc Melenchon and Olivier Faure have both expressed interest in becoming prime minister at the head of the leftist NPF alliance. Any new government will struggle to meet spending promises from the campaigns given fiscal constraints and the need for economic reforms. Forging consensus will be a major challenge given the country’s new political divide.
🇫🇷 Related Markets:
The Cac 40 struggles to hold the 7,500 level, having lost 7,600 as an important support yesterday. The French 2-year bond has also experienced some volatility, rising more than 2.4% since Monday, reaching a yield of 3.15%. We can see how even the German 2 year bond is approaching yields of 3%, therefore, we could say that there is a contagion effect in Europe.
🌎 Geopolitics:
🇸🇦 According to Bloomberg, Saudi Arabia warned that it might sell some of its European, especially French, debt in response to the G7 agreement to seize $300 billion worth of Russian assets. The threat underscores Saudi concerns about Western sanctions against the assets of oil-rich countries on geopolitical or human rights grounds. Saudi Arabia and Russia have grown closer, with Putin courting the kingdom to counter its isolation and support energy markets. Gulf countries compete with Russia for oil exports and fear losing influence if the West reduces its energy dependence. Selling European debt would be a show of strength for Saudi Arabia to influence Western decisions affecting its interests. However, it is unclear how much debt Riyadh holds, although its reserves amount to $445 billion.
🇮🇳 Indian President Modi met with Putin yesterday. Russian President Vladimir Putin has held over 20 meetings with leaders from Europe, Asia, Africa, Latin America and the Middle East in the past two months since beginning his fifth presidential term in May 2024. This high level of diplomatic engagement contradicts efforts by Western nations like the US to portray Putin as isolated internationally due to Russia’s invasion of Ukraine. Putin is demonstrating that Russia still wields geopolitical influence and is not as internationally isolated as portrayed by his critics over the Ukraine war.
🇭🇺 Shocking statements by Hungarian Prime Minister Viktor Orbán on Russia’s war with Ukraine: “China has a peace plan. The United States has a war policy. Europe, instead of having an autonomous strategic approach, is merely copying the American position”.
