Macro-News round-up
#MarketNews
📈 The ECB is widely expected to keep interest rates steady at 3.75% today after delivering its first rate cut in June. Markets are pricing in one more 25 basis point cut this year, likely in September after inflation and economic data are received. Underlying price pressures remain firm, driven by strong demand, wages and a tight labor market – underscoring concerns about inflation persistence. Wage growth data in coming weeks will be important, as the ECB, like Fed and BoE, relies on moderating wages to bring inflation back to 2% as planned.
🗣️ As usual, after the rate decision, we will have a speech by ECB President Lagarde, who will give more clues about her future monetary policy.
🇫🇷 Today France completed its first #government debt auction since the elections. Risk seems to be decreasing. The 2-year bond falls below 3% for the first time since May.
🇬🇧 The particular data situation in the UK has turned the pound into a safe haven currency against rate cuts. Yesterday, UK inflation data showed prices remaining stickier than expected, reducing bets on an August Bank of England rate cut. This sent the pound above $1.30 for the first time since last July as markets priced out a near-term BoE move. In contrast, the ECB and Fed are seen cutting rates sooner, making UK rates relatively more attractive. UK rates are expected to finish this year at around 4.75%, down from 5.25%, above both euro zone rates, which are priced at roughly 3.30%, and U.S. rates, which are anticipated in a range of 4.50-4.75%. The pound has recovered all losses since the 2016 Brexit referendum.
🇺🇸 Last night, the Fed’s Beige Book report was published. Economic activity was flat or declining in five of the twelve Fed districts, according to the report. The unemployment rate has edged higher in the last three months and now stands at 4.1%. Core inflation slowed more than expected in June. Investors anticipate at least two rate cuts starting in September as inflation eases further. Several Fed officials say a rate cut is warranted but the timing remains unclear and data-dependent.
🇺🇸 The economy is getting closer to the point where the Fed may lower interest rates, according to Governor Christopher Waller, but he would prefer to see “a bit more evidence” that inflation is declining steadily. In response, Robert Kaplan, the former head of the Federal Reserve’s Dallas office, says that although policymakers could decide to ease in September given the recent improvements in inflation, this is unlikely to signal the start of a full-fledged easing cycle.
🇺🇸 Trade War hit Technology Sector: Bloomberg said on Tuesday that the United States, which is encountering resistance to its chip embargo on China, has informed its allies that it may employ the strictest trade restrictions possible if businesses don’t stop providing the nation with cutting-edge semiconductor technology. The article stated that the U.S. is considering enforcing a regulation known as the foreign direct product rule, or FDPR. This basically means that the U.S. government may prohibit the sale of any product—including those created abroad—if it was manufactured using American technology. According to Bloomberg, the U.S. is trying to convince authorities in Tokyo and The Hague that this is a possibility if they don’t strengthen their own China sanctions. The Nasdaq100 fell by more than 3% yesterday.
🇺🇸 Donald Trump said he does not want the Fed to cut rates this year, reason enough for the rate cut to take place. With that premise, the dollar index DXY has lost the support of 104 points. At the same time, gold has almost reached 2500 $, overcoming the resistance of 2400 $ formed this year. So far in 2024, gold has achieved a return of over 20%, making it one of the most attractive assets for investors.
Geopolitics:
🇩🇪 Germany is beginning to show signs of rectification in the face of Trump’s possible imminent victory, which would not support the war in Ukraine. Germany plans to halve its military aid to Ukraine in 2025 to 4 billion euros, down from around 8 billion euros in 2024. The US pushed the G7 to front-load loans to Ukraine due to concerns over potential reduced US support if Trump wins. Germany will comply with NATO’s 2% target in 2025 with 75.3 billion euros budget but cuts are planned. while maintaining NATO commitments, Germany is reducing Ukraine support and faces defense budget shortfalls, reflecting its constrained fiscal situation and concerns over potential US policy changes.
