Market Report:
🌟 A 50 bp Fed cut is being discounted, which would make it easier to normalise the bond curve. The demand for bonds is also benefiting from this measure, generating an upward cycle for bonds, lowering their yields. On the other hand, a lower rate cut of 25 bp could generate the opposite effect and provoke selling by those who bought bonds expecting a 50 bp cut.
💸 The million-dollar question is what will happen to other assets, the dollar and equities. The rate cut may work as a stimulus, pushing the dollar lower and boosting equities, or it may trigger greater fear if we are facing a recession, in which case, equities will be sold and safe haven assets bought. If the measure generates the desired effect, we will have a so-called ‘soft landing’. If, on the other hand, mistrust and fear spread in the following weeks, we will have an ‘emergency landing’.
📈 Lael Brainard, head of Biden’s National Economic Council, downplayed the risks of resurgent inflation as the focus is now on employment. She said the US economy has reached a ‘turning point’ and that lower market rates could help address high housing costs, a major component of inflation. Their comments indicate that the Biden administration views the easing of monetary policy as a tool to alleviate inflationary pressures from housing. It also indicates that officials believe that risks to the labour market now outweigh inflationary concerns.
🤝 Intel and Amazon team up. Intel says it will produce custom AI chips for Amazon’s web services, AWS. On the other hand, it has announced that it will delay for two years the construction of new factories in Germany and Poland, but commits to expand in the US. Intel could access $3 billion in funding for the production of military and intelligence chips. This could restore value in the company, which has lost more than 60% of its price since December 2023.
🌍 According to Bloomberg, ‘Traders are concerned about Norway’s current account balance and its dependence on energy exports amid a global slowdown’. And it is precisely this point that we have been advocating in recent reports. Crude oil weakness would be evidence of a global economic slowdown. On the other hand, the movement this is causing in EURNOK is spectacular: if it breaks above the 10 zone, it could take the pair to 12.75 – 13 areas.
📊 Market View:
🚀 Awaiting the Fed’s rate move, the Mini SP500 futures are breaking highs, standing at 5720 points at the moment. The Nasdaq 100 is also trying to break through the 19,500 level, but is still far from its highs.
💱 The dollar index is still stuck around 100.50 points. The EUR/USD has approached the 1.1150 area in the last few hours, but is now back down to 1.1130. The US 2-year bond falls below 3.6%.
📉 In Europe, the ZEW economic indicator comes out significantly weaker than expected, and to celebrate, the German Dax40 rises strongly and is approaching 18,800 points at the moment. The dissonance between the German stock market and its economy is beginning to be a case study. On the other hand, the German 2-year bond, in a replica of the US bond and discounting the rate cut, also retreats in yields below 2.2%.
🌐 Geopolitics:
⚠️ Social unrest, as happened in France, seems also obvious in the US. Donald Trump charges in his networks, ‘The rhetoric, the lies, as exemplified by the false statements made by Comrade Kamala Harris (…) and all the ridiculous demands specifically designed to inflict harm on the political opponent (…) have taken politics in our country to a whole new level of hatred, abuse and distrust.’
🕊️ Kazakhstan’s President Kassym-Khomart Tokayev urged German Chancellor Scholz to accept China’s peace plan for the Ukrainian war and to abandon the idea of trying to defeat Russia militarily. Scholz was against this, but admitted that he is open to peace negotiations and meetings involving Russia.
🌐 The EU is seeking to establish trade ties with Greenland in order to benefit from its mineral resources. EU International Relations Commissioner Jutta Urpilainen has travelled to Greenland for this purpose, but competition is fierce. The US reopened a consulate in Greenland in 2020, after then-president Donald Trump considered buying the territory from Denmark. China is also investing in Greenland’s airports, ports and mines.
