Macro-News round-up
Market News
📊 In Europe, the data show inflation in line with expectations in France, and slightly above expectations in Spain, which would reach an annualised inflation of 3.5%. On the other hand, Germany has published employment data with an increase in the unemployment rate, which rises to 6%, higher than expected.
📉 Fiscal Concerns: French bonds are in the centre of the storm as worries over the nation’s fiscal imbalance and debt sustainability under a prospective new government grow. Spreads between German bunds and French OATs have expanded as a result of the possibility of additional fiscal expansion from either the far-right or left, as Germany is one of the biggest EU nations in violation of the bloc’s 3% budget cap.
📉 Related Market: European markets failed to recover from the previous week’s falls. The Dax 40 remains below its intraday 200-period average and failed to break above 18,300 points, falling back towards 18,250 points.
📈 UK revises upwards its growth rate for the first quarter Q1 2024. Growth was expected to be 0.2% year-on-year, already 0.3%. On an annualised basis, UK GDP growth stands at 0.7%, compared to the 0.6% initially estimated.
💴 The yen remains on red alert. USDJPY has breached the 161 level in the last hours. The Bank of Japan is playing the dangerous game of waiting for data or Fed comments to repair the situation. Tokyo CPI inflation rose 2.3% YoY in June, in line with estimates and confirming intact underlying price pressures. The jobless rate remained at 2.6% in May while participation rose, showing tight labour conditions persisting alongside firm wage growth. Accelerating inflation and renewed yen weakness increase upside risks, supporting a possible BoJ rate hike as early as July versus market consensus of October.
📉 The Fed’s favourite inflation data, the PCE, has been release today in line with the expectations. US bond yields are down. the 2-year bond is below the 4.75% support. the dollar index, which had momentarily managed to break above 106 points in the last few hours, has fallen back a little, returning to above 105. equities, the SP500, seem to be indifferent to the result. in general terms, the reading of this data is positive, as it paves the way for the Fed rate cut, but does not have too much impact on the market.
🌍 Geopolitics:
🌉 Chinese President Xi Jinping called for building “bridges” in the global economy as Beijing grapples with disputes with its neighbors and trading partners. China reiterated it will leave the path of peaceful development.However, the West continues to press China to condemn Russia. China has presented a multi-step agenda for a peace deal in Ukraine, but European officials have ruled it out. Rising trade frictions include potential EU tariffs on Chinese electric vehicles over subsidy accusations.
💶 European Commission President von der Leyen, who has been re-elected by an inter-party pact and not by free votes, said the EU requires €500 billion in defence investments over the next decade. The main question is how to finance the €500 billion, as the Commission provided an oral rather than written update to EU leaders. The goal is boosting EU defence industry output but members disagree on raising funds, though France and Germany proposed ‘Eurobonds’. Other financing ideas include tweaking the EIB, using frozen Russian assets, private capital markets, and ensuring ESG aligns with defence needs. The incompatibility of green policies with a military industry that requires traditional fuels makes these discussions impossible.
🇺🇸 The first US presidential debate has turned out to be a complete defeat for Joe Biden according to most analysts. Some pundits analysing the debate on CNN spoke of panic in the Democratic Party. It has even been suggested that Biden has been urgently replaced by another candidate. It is likely that the Democratic Party heavyweights, Obama, Hillary and Pelosi, will have the last word in this regard.
