📊 Market Report
📈 At the end of 2023 we insisted in our reports that 2024 would be a year to remember for USDJPY. Once again, the forecasts are coming true. The Bank of Japan raised interest rates by 25bps to 0.25%, the largest hike since 2007, and unveiled plans to halve bond purchases by 2026 in a move away from stimulus. The hike defied expectations for no change and BOJ Governor Ueda signaled readiness for further tightening to neutral levels if needed. Ueda warned of risks from a weak yen to inflation projections and said rates could rise further, with the 0.5% threshold no barrier. The BOJ will trim its $3.9 trillion balance sheet by up to 8% gradually through 2026 in quantitative tightening.
🗣️ In an interview published by Bloomberg, the former Treasury Secretaries under Bush and Obama said the next administration will inherit a strong economy but face “dark shadows” like fiscal deficits and market competition challenges. They warned growing government debt, if not addressed, could “ultimately destroy our prosperity” and fiscal policy will be important. They reiterated calls to address the fiscal trajectory, saying later action will be more expensive and dangerous.
🏭 China’s official manufacturing PMI fell to 49.4 in July, below forecasts and marking the third straight month of contraction, while the services gauge edged down. China’s trade surplus hit a record in July as exports surged but imports unexpectedly declined, worrying trade partners. The US and EU are erecting new trade barriers on Chinese goods like EVs, threatening more, while China argues it helps fight climate change and inflation. China’s economy shows further signs of weakness, frustrating Beijing’s efforts to sustain faster growth through consumption and exports amid mounting global headwinds.
🇪🇺 Europe: Germany’s unemployment rate is again rising above expectations, and inflation rates in the euro area seem to be holding up. Except for France, the eurozone has recorded an inflation rate that is above expectations, coming in at 2.6% annualised, compared to 2.5% expected. Core inflation is at 2.9% annualised, also above the expected 2.8%.
📉 Bloomberg also reported this morning that, in addition to its excellent nominal and real rates, sterling has shown to be exceptional due to political stability, particularly in light of recent events in the US and France. According to May’s GDP, the jobless rate held stable but the UK economy expanded at a quicker rate than anticipated.
💷 However, as we introduced yesterday, in the event that the recently elected administration is compelled to raise taxes in order to close a budget deficit, the Bank of England will have to respond to this fiscal restraint by slowing down bond sales or starting the process of interest rate normalisation in order to prevent stifling weak growth.
📊 Market View:
📈 SP500 futures are trying again and approaching the 5525 resistance tested twice since last week. The mini SP500 is currently trading at 5525 points. Nasdaq 100 also regained ground and is approaching its recent resistance of 19200 points.
📉 In Europe, the CAC 40 and DAX 40 remain with slight gains, however the Spanish selective IBEX 35 falls by 1%, possibly out of step with previous days where it was particularly optimistic.
💵 The dollar index DXY that had managed to recover 104.50 points completing a bullish projection figure, seems to have been broken and is falling back towards 104 points, currently at 104.10. This has given some oxygen to the EURUSD which has been falling for two weeks, currently rising to 1.0835.
📉 The US bond continues to show declining yields, making it clear that the market is discounting rate cuts by the Federal Reserve. The 2 year bond is showing a return of 4.35%, something we have not seen since the beginning of the year.
🛢️ Oil is up two dollars a barrel Brent but remains relatively weak at $80.20, possibly due to Israel’s attacks on Lebanon last night.
🪙 Gold soars and is once again approaching record highs of $2500 an ounce, currently trading at $2462 an ounce.
🌍 Geopolitics:
🔴 Tensions escalated after Israel claimed responsibility for killing Hamas leader Ismail Haniyeh in Iran and Hezbollah’s senior commander Fuad Shukr in a Beirut airstrike, in retaliation for a rocket attack that killed 12 Israelis. The strikes prompted condemnation from Lebanon, Hamas and Iran and fears of wider conflict, though Israel said its response was concluded. Hezbollah warned of an “appropriate response” to the Beirut strike that also killed 3 Lebanese.
🇨🇳 Ukraine has invited China’s foreign minister Wang Yi to visit the country, as dialogue develops between Kyiv and Beijing that could lead to a meeting between Zelenskyy and Xi Jinping. Ukraine says work toward a potential leaders’ meeting is constant, though it’s too early to say when it could occur given they’ve only spoken once by phone. During his China trip, Kuleba said Ukraine was open to talks with Russia only if its sovereignty and territorial integrity were fully respected.
🪧 The revolts in Venezuela continue, at least 11 people have died in incidents related to protests or the vote count since the election. The US-based Carter Center said the election “did not meet international standards” and “cannot be considered democratic.” Opposition leader Gonzalez and Machado have rejected the results, saying their tallies show Gonzalez won over 60% of votes. The opposition faces limited options given military support for Maduro and past failures of protests and sanctions.
