🌍 Market Report.
UK employment rises but wage growth slows. The median income index falls to 4% against an expected 4.1% and down from 4.6% in the previous period. From the Bank of England’s perspective, this is good news, as it reduces the impact of inflation via consumption. And although the pound has initially responded with rallies against the dollar, GBPUSD is now back to pre-data levels, which would be discounting the BoE’s inaction on the data, probably leaving rates unchanged until the next decision in November.
⚔️ Trade Wars continue: The US House passed legislation blacklisting several major Chinese biotech companies and their US subsidiaries over national security concerns. The bill targets BGI Group, WuXi AppTec, WuXi Biologics and two BGI spinoffs, alleging they are aligned with China’s goals to dominate the industry. The companies deny posing security risks and say the bill favors US rival Illumina and could curb research. The bill now moves to the slower Senate, where passage may not be guaranteed given opposition like from Rand Paul. Critics warn of trade isolationism that could harm global pharmaceutical supply chains.
📉 In addition to weaker than expected inflation data, with negative PPIs, which again raise fears of deflationary risks that would signal an economic slowdown, trade data are not entirely positive today. Exports are recovering, with a rise of 8.7% against an expected 6.5% and 7% in the previous period, but imports are sinking. They fall to 0.5% growth, against expectations of 2% and a previous period’s growth of 7.2%. This could mean a sharp weakening of domestic consumption, something we have highlighted in previous reports.
🇨🇳 Chinese stock markets, which had managed to get back on track at the beginning of the year, after a disastrous 2023 due to fears of a worsening of the Chinese economy, are now losing ground again. The SSE, which lost the important support of 3000 points, has now lost 2750 points. The HSI, which managed to regain 17,500 points, has fallen to 17,195 points.
🎙️ Today will be the big day of the election debate between Kamala Harris and Donald Trump on ABC News. The channel has assured that this time Harris will not have the questions in advance. In the past, it was revealed that CNN provided questions in advance to Hillary Clinton before her debate with Trump.
📊 The outcome of this debate may cause volatility in the markets, which is why we need to consider how both candidates will fare from an investment perspective: Tax policy is a major difference, with Trump proposing lower corporate rates and Harris pushing for higher rates on high earners. Immigration is another dividing issue, impacting labor markets and inflation depending on the approach. Trade and tariffs will be in focus as Trump weighs broader tariffs while Harris would keep the current confrontation with China. In relation with businesses and sectors, renewable energy, EV and cannabis stocks may benefit from a Harris administration while oil/gas and defense could gain under Trump. In foreign policy, the two active conflicts are clear, Israel and Ukraine. Both candidates support Israel’s war against the Palestinian population. However, Trump has repeatedly said that he does not support the war in Ukraine, which he considers a wasteful and unnecessary consumption of resources.
📱 Another interesting event today, and one that could be talked about for the next few days, is the unveiling of the iPhone 16. More than 50% of Apple’s revenue is derived from the sale of iPhone devices, so this unveiling is likely to have a big impact on the company. In a July report we mentioned that Apple for the first time in years has lost its position in the top 5 smartphone market in China, and China is one of its main markets, so this is not good news. Not only that, but Warren Buffett’s financial firm has sold more than half of its Apple portfolio. Buffett still believes the company is strong, but believes it is time to diversify. Finally, the giant Huawei, expelled from the United States during the Trump era, seems to have a vendetta against Apple, as it will unveil a new Mate XT phone just hours after the Iphone 16 was unveiled.
📈 Market View: Mini S&P 500 futures have recovered almost 100 points from last week’s declines; however, they remain at a standstill in the last hours at 5475 points, from the supports reached at 5400 on Friday. The Nasdaq 100, which was as high as 18325 points, has managed to climb to 18620 points.
💵 The dollar index DXY is back above 101.50 points. The EUR/USD, which is retreating, is at 1.1040 support. US 2-year bond yields continue to fall in line with the expected rate cut, at 3.68%.
📉 The European stock market is also trying to recover, but with clear signs of weakness. The Euro Stoxx 50 index, which only last week looked set to reach 5000 points, has barely recovered its losses and is currently trading at around 4780 points.
🛢️ Crude oil remains extremely weak, with Brent crude oil trading below $71 per barrel. The weak economic data from China explained above could be one of the causes. Demand is reportedly weakening, as supply remains ample with countries such as Canada increasing their exports, the price adjustment remains downwards.
🪙 Gold remains steady in its sideways range above $2500 an ounce, currently trading at $2535. Bitcoin has made a comeback, reaching $58,000 a few hours ago.
🔍 Geopolitics:
CNN reports that the US has detected increased GUGI (secret Russian submarine unit) activity in areas of undersea cables that provide internet to key countries. Fears are growing that Russia could provoke a communications blackout in retaliation for NATO’s actions with Ukraine.
🛰️ The US and the EU accuse Iran of selling missiles to Russia, which Iran denies. In addition to Iran’s notorious drones, they may also have supplied ballistic missiles. However, it is also true that Iran might need these missiles in its war with Israel.
🛡️ Europe: After the green industry business, the bureaucrats create a new line of business, the warmongering business. Mario Draghi’s report supports the EU Commission’s proposal to boost Europe’s defence industry through the European Defence Industry Programme (EDIP). Procurement should prioritize EU companies through “European preference principles” and target a share of purchases within Europe. Industry rather than states should drive decisions on projects to overcome national security concerns. Initial funding could come from increased EU budgets, private investment via capital markets reform, and clarifying environmental rules hindering defence loans. Long-term, common debt issuance via “Eurobonds” could complement funding if projects are defined first.
🚫 However, German finance minister Christian Lindner does not seem to agree with this plan. ‘Joint indebtedness of the EU will not solve structural problems’. The pooling of risks and responsibilities ‘creates democratic and fiscal problems. Germany will not agree’.
