Macro-News round-up
#MarketNews
🗞️ European markets continue to show weakness in the aftermath of the election result, and appear to remain in a veiled calm ahead of tomorrow’s Federal Reserve data.
💬 The president of the European Central Bank, Christine Lagarde, stated that the ECB needs to exercise caution and that the reduction in borrowing prices last week won’t necessarily be followed by other swift actions.
🌍 Geopolitical risks are very much on the minds of central bankers. Nagel, a significant figure on the ECB’s rate-setting Governing Council, stated, “Add in a scenario where an escalation of geopolitical tensions could imply higher inflation and it becomes clear that it would be way too early to declare victory over high inflation rates.” “We have not yet won the fight against inflation,” “I can’t tell whether interest rates have already reached their peak. On the ECB Governing Council we decide on interest rates on a meeting by meeting basis following our data-dependent approach.”
📉 UK labour market data released today has a mixed tone. April’s average earnings index came in above expectations at 5.9% versus 5.7% expected. This will not facilitate a reduction in inflationary pressure. However, the unemployment rate is on the rise at 4.4% against 4.3% expected, which is expected to ease the labour market, which could reduce inflationary pressure. Both issues will be taken into account by the Bank of England to determine whether or not to cut interest rates.
📊 The most well-known trading desks on Wall Street, ranging from JPMorgan to Citigroup, are warning investors to brace themselves for a shock this week following the release of the Fed’s decision and the most recent inflation data, which are both due on Wednesday.
🇺🇸 US labour market data released on Friday has put bonds back on course for 5% yield. Now on pause, awaiting inflation data and Fed rate decision tomorrow. The two-year bond is currently yielding 4.85%.
📈 The world’s largest index, the SP500, clings to the 5350 point zone, but does not dare to move away from it and is now trading at 5355 points. The Nasdaq 100, for its part, managed to break above 19000 points as a new record high, but again, it does not venture much beyond those zones, currently trading at 19,019 points.
💰 The gold index remains strong, above 105 DXY points and on stand-by, levels that it reached like a rocket on Friday, after the strong data on the US labour market, the possible rate cuts were moving away.
🛢️ Of particular interest was the rise in crude oil. Brent crude oil, after falling to $77 a barrel last week, recovered strongly, reaching $82 in the last few hours. Perhaps one of the reasons for this is the increase in geopolitical tension. On the one hand, with the NATO arms attack on Russian territory. On the other hand, with Russian military forces moving into Central America.
🏅 Gold, however, is not showing geopolitical risks. Although it remains high at $2300 per ounce, it is still relatively low compared to May when it reached $2450.
📰 Reuters publishes an article on the impact of the elections on the markets. We highlight three interesting angles: First, plans for EU integration, such as the budgetary coordination saw during COVID recovery programmes, may be slowed by a more robust far-right showing. Second, adopted climate policies might resist changes, but new initiatives might encounter more resistance or weakening revisions. Third, populist parties may become less supportive of new defence funding initiatives or proposals from the EU. Paradoxically, perhaps these are the main reasons why citizens are voting for these parties, but the bureaucracy fails to see the whole picture.
🤝 Biden confirmed he has reached an agreement with Macron on using profits from frozen Russian assets to help finance Ukraine. Around €260 billion in Russian central bank funds are frozen in the EU, generating €2.5-3.5 billion annually in profits. The G7 and EU are considering using these profits to provide Ukraine a large up-front loan now and future financing through 2025. Some countries have expressed concerns but US officials say progress is being made among G7 partners on the plan.
⚖️ Yesterday we shared on social media another Reuters article where they suggest that the safe haven role of the dollar and European capitals could be lost, given that third countries, especially China, could see their assets expropriated tomorrow, if it is considered an enemy of the West.
🌍 Around 90 countries and organizations have registered to attend the Ukraine Peace Summit hosted by Switzerland next weekend. The conference aims to discuss ways to achieve a comprehensive, just and lasting peace for Ukraine based on international law. Sadly, the organisers of the summit have excluded one of the two parties in conflict, so that, strictly speaking, nothing is negotiated
