Macro-News round-up
#MarketNews
📈 The rate of the US 2-year bond yield has in the last few hours exceeded 5%, and although it has quickly fallen back to 4.95%, it definitely marks an upward trend. This will undoubtedly have an effect on a highly indebted economy such as the US, especially considering that there is no date in sight for a rate cut by the Federal Reserve.
🤔 Most interestingly, the German 2-year bond is perfectly following the trend of the US bond, moving in sync, rising at a rate of return above 3%. However, according to statements by the European Central Bank, a rate cut is practically imminent. And if this is true, European bond yields should be falling. We have a divergence detected.
🤔 Perhaps the explanation for this lies in yesterday’s German inflation data. The HIPC harmonised price index, showed a rebound to 2.8%, momentarily breaking its downward trend. On the other hand, core inflation in Germany still stands at 3%. Considering the Bundesbank’s influence over the ECB, do you still think they will cut rates?
📊 US banking: US banks’ profits rose 79.5% in Q1 2024 to $64.2 billion, mainly because they did not have to pay the special levies ordered after last spring’s bankruptcies. Non-interest expenses fell by $22.5 billion. The delinquency rate on vacant commercial real estate loans reached 1.59%, the highest since late 2013.
🇨🇳 China: The IMF revised up China’s growth in 2024 to 5%, matching Beijing’s target, but sees ‘room for further policy easing’. Problems in the real estate sector continue to weigh on the economy, slowing China’s shift to domestic consumption. Retail sales growth was the slowest since late 2022, and house prices fell the fastest in 9 years, calling for more policy support.
📉 Market: Meanwhile, the SP500 futures definitely retreated below 5300 points, moving away from the 5350 points barrier which served as resistance to the all-time highs. The Nasdaq 100, which was strongly approaching 19000 points as a new record high, retreated and is now positioned at 18,650 points. In Europe, the Dax 40 seems to be bouncing higher after falling to 18,400 points, as the projections we shared 48 hours ago on social media seemed to indicate.
💲 The dollar index broke above 105 points yesterday, it is now slightly down at 104.95 points. Consequently, EURUSD has retreated to 1.0810, from almost 1.09 where it was 48 hours ago.
🛢️ Crude oil yesterday rose above 84.50 on rising geopolitical tensions. It is now retreating back towards 83.15. Meanwhile, gold, which was as high as $2450 an ounce at the start of last week, has fallen back to $2330 and appears to be holding in that area.
Geopolitics:
🇭🇺 Hungary signed an accord with Belarus to help build its second nuclear plant PAKS 2, being constructed by Russia’s Rosatom. The €12.5 billion PAKS 2 project has faced long delays, though nuclear power is not covered by EU sanctions on Russia. Hungary has maintained better Russia ties than most EU states since its invasion of Ukraine two years ago. The agreements signal Hungary’s determination to pursue energy cooperation despite geopolitical tensions. Hungary, which has opposed extending sanctions against Russia, will assume the rotating EU Council Presidency starting July 1st.
🇺🇸 The US believes China is helping Russia reconstitute military capabilities like long-range missiles and artillery. Campbell, US Deputy Secretary of State, noted the US and Europe have already imposed some sanctions on China/Hong Kong companies over this. He said subsequent steps should be expected from the US and NATO to send a clear signal to Beijing.
