Market Report:
📉 The ECB is widely expected to cut rates by 25bps today, lowering the deposit rate to 1.5%. Officials remain tight-lipped on the policy path ahead, wary of committing as inflation remains stubborn, especially in services. The annualised core inflation rate remains at 2.8%, closer to 3% than the ECB’s 2% target. Market is discounted 25bps cuts in September and December, maintaining a quarterly pace until reaching around 2.5% next year. The start of Fed rate cuts could rally support for another ECB move in October, especially if the euro appreciates. Everyone will be watching the Federal Reserve’s next action following the ECB decision. Following data released on Wednesday that revealed an unexpected increase in underlying US inflation, the ir a possibility of a quarter-point decrease next week.
📈 Asian equities rallied led by tech gains from Nvidia CEO’s comments on strong chip demand and supply constraints. Nvidia CEO Jensen Huang said strong demand for the company’s latest AI chips has frustrated some customers due to limited supply. Nvidia outsources chip production to partners like TSMC, and Huang said suppliers are making progress expanding capacity. The company relies heavily on a small number of large customers like Microsoft and Meta for much of its revenue. Geopolitical tensions raise risks, and Huang said Nvidia develops technology in-house so it could shift orders elsewhere if needed, though quality may decrease.
📊 Incidentally, Goldman Sachs CEO, David Solomon, spoke in a Bloomberg interview about the desirability of recalibrating the stock market indices to reduce the weight of a small group of technology companies that disrupt the index. We understand that he is referring to the SP500.
🏦 UniCredit, an Italian bank, is exploring a potential acquisition of Commerzbank, its German rival. This takeover would create the largest bank in Germany, adding approximately €560 billion in assets to UniCredit’s balance sheet – a 70% increase. The potential deal would boost UniCredit CEO Andrea Orcel’s goal of transforming the bank into a true pan-European lender with a significant presence across the continent. Orcel has experience executing deals and has stated UniCredit wants to be the “Bank of Europe.”
🇪🇺 Following the Spanish President’s visit to China earlier this week, German Chancellor Olaf Scholz and Spanish PM Pedro Sanchez called on the EU to drop planned tariffs on Chinese EVs, potentially undermining the bloc’s response to Beijing. The EU is set to vote next month on implementing nearly 50% duties, with Germany and Spain now opposing the move. China has pushed European leaders to reconsider as it seeks to divide the alliance, leveraging economic ties with Germany and Spain. Both countries also want to attract Chinese EV investment, with Spain courting funds during Sanchez’s visit.
🇨🇳 China is intensifying scrutiny of its 8,700+ investment bankers amid an anti-corruption crackdown led by President Xi. Probes are looking into IPO activities as China shifts to a registration-based listing system relying on qualified banks. Regulatory penalties are also rising against sponsor representatives involved in capital markets activities. Experts say reshaping the industry through consolidation and personnel actions will help cultivate top-tier investment banks.
📊 Market View:
The spectacular recovery in the US market last night leaves the sceptics speechless. Fortunately, our report on NVIDIA a fortnight ago was a highly accurate reflection of the move we have witnessed. The S&P 500 futures managed to break through the 5,550 point barrier that had eluded them for two weeks. The Nasdaq 100 has also broken its bearish channel since the end of August and is now at 19,300 points.
💵 The dollar index remains strong at 101.75, but has not breached the 102 barrier since the beginning of this month. The euro dollar continues to weaken in anticipation of the ECB rate cut. It is currently trading at 1.1020. The US 2-year bond rallies slightly, but remains below 3.70%.
📈 In the European market, the rises in the United States are contagious, but in a much more subdued manner. The Eurostoxx 50 rises above 4,800 points, but has significant resistance above it. The DAX 40, despite the rises, fails to break above 18,600 points.
💰 Bitcoin rises to the $58,000 level again. Gold remains strong and pushes back towards its all-time high of $2,560, currently trading at $2,545. Crude oil is retreating towards $71.50 per barrel Brent, after its upward bounce, having fallen to near the important support at $68.
🌍 Geopolitics:
Blinken and Lammy met Zelenskyy in Kyiv amid intensifying fighting in eastern Ukraine. They discussed long-range strikes into Russia but did not announce a policy change, to Ukraine’s disappointment. Biden has suggested there is room for compromise on lifting restrictions, but allies fear escalation risks. The UK will provide £600 million in additional support, while the US announced over $700 million. Russia has warned the West would become parties to the conflict by allowing deeper Ukrainian strikes.
🚀 Tensions over Ukraine are intensifying calls within Russia for a more aggressive nuclear posture vis-a-vis the West and its support for Kyiv. An influential Russian foreign policy advisor, Sergei Karaganov, is pushing for Russia to more assertively threaten the use of nuclear weapons against countries supporting Ukraine. Karaganov argues Russia’s current nuclear doctrine is too limited and does not deter enemies, who think Moscow would hardly ever use nukes. His views, while not official policy, are significant since the Kremlin often gives him a platform and he directly advises President Putin.
🗳️ In relation with the coming US elecctions, The most warmongering branches of the Republican party support Kamala Harris. Does this mean that his administration will continue the escalation of war that we are witnessing in the world today? former Vice President Dick Cheney’s, a Republican Party heavyweight, who was the architect of the invasion of Iraq, has endorsed Kamala Harris for the 2024 US presidential election. Reminder: The escalation of geopolitical conflicts disrupts global trading activity and will negatively affect markets.
