Market Report:
🌐 The IMF is warning that protectionist trade policies pose a significant threat to Asia’s economic prospects and the stability of global supply chains. IMF Asia-Pacific Director Krishna Srinivasan said the retaliatory tariffs threatened to disrupt growth across the region and lead to longer, less efficient supply chains. Tariffs could impede global trade, hurt exporting nations, and potentially raise inflation in the U.S., forcing the Federal Reserve to tighten policy despite a lackluster global growth outlook. The EU has also increased tariffs on Chinese-made electric vehicles, prompting retaliation from Beijing.
📈 According to research from the San Francisco Federal Reserve, the tight U.S. labor market is still adding to inflationary pressures, though less so than in 2022 and 2023. Declines in excess labor demand pushed inflation down by almost 3/4 of a percentage point over the past two years. However, elevated labor demand continued to contribute 0.3 to 0.4 percentage points to inflation as of September 2024. This finding could help inform Fed policymakers as they weigh how much further and at what pace to reduce short-term interest rates.
💱 Why have we persisted with a bearish EURUSD? Europe is facing a dormant stock market, weak currency, political instability, and stagnant economic growth. The US-Europe gap has widened in the past decade, with US stocks now four times larger than European stocks. Europe lacks large, globally competitive companies and lower liquidity, creating a feedback loop where passive investment flows favor the US. Trump’s proposed policies, including tariffs, deregulation, tax cuts, and fiscal stimulus, are expected to exacerbate this divergence. European stocks are currently trading at a 40% discount to the S&P 500.
💶 The European Central Bank is expected to cut interest rates by a quarter point in December, according to Governing Council member Yannis Stournaras. He believes 25 basis points is an optimal reduction and predicts multiple cuts. The ECB has cut rates three times since June and is expected to lower them again next month.
🇫🇷 France is now importing more LNG from Russia than ever before. Following the Kremlin’s 2022 invasion of Ukraine, the EU has relied significantly on LNG to cover its energy needs even as it lessens its reliance on Russian sources.
📉 Market View:
📉 China’s stock markets show weakness again. The HSI and SSE indices are down more than 5% from last week. Meanwhile, US futures are still awaiting data and Nvidia’s results on Wednesday.
📊 Mini S&P 500 futures have yet to regain the 6000 point level, currently trading at 5930 points. The Nasdaq 100 also fails to regain 21,000 points, currently trading at 20,675 points.
💵 The dollar weakens slightly compared to last week. The DXY index falls back to 106.20 points from 107 last week. The EUR/USD tries to regain 1.06. US bonds remain high yielding, with the 10-year bond above 4.4%, having reached 4.50% last week.
📉 The European market continues to fail to consolidate. The Dax 40 broke above 19,300 points and is now, after the open, down to 19,265 points. The Eurostoxx 50 does not seem overconfident either; it is currently trading at 4,810 points.
🛢️ Crude oil has rebounded with Brent crude rising to $73.35 a barrel. Gold has also gained strength in the last few hours and manages to get above $2,600 an ounce, currently trading at $2,625. Bitcoin remains firm and looks set to break new highs in the coming hours, currently trading at $92,050.
🌍 Geopolitics:
🛡️ A Bloomberg Intelligence report suggests that NATO’s 15 largest European members will need to double their annual military investment to $720 billion, adding $340 billion, to counter Russia’s threat and counter potential US support under a Trump presidency. The extra spending would cover battle tanks, artillery, infantry fighting vehicles, and support aircraft. Rearmament could take over a decade, following decades of underinvestment.
🇺🇦 Joe Biden’s decision to allow Ukraine to attack Russia’s targets failed to gain allied support. German Chancellor Olaf Scholz remained unaffected on long-range missiles.
🇵🇱 Polish President Andrzej Duda believes Germany’s Scholz’s recent conversation with Russian President Putin was an attempt to achieve a ceasefire in Ukraine before Donald Trump’s election, and suspects Scholz aims to remove Trump from the process.
⚔️ Russia, China, North Korea, Japan, South Korea, and other East Asian nations are turning the situation in Ukraine into a proxy war. While China and North Korea back Russia, these countries see the war as part of a worldwide battle against the U.S.-led system. South Korea and Japan, two friends of the United States, are also supporting Ukraine, but in smaller capacities. This gives the intricate dispute a new geopolitical dimension.
