📉 Macro-News round-up


🔥 Macro-News round-up


🇪🇺 Europe: Yesterday the ECB decided to cut rates despite the latest upturns in German and Eurozone inflation. This, in monetary terms, means a capitulation in its battle against inflation.  ECB policymakers warned that pushing inflation down to the 2% target could be especially difficult, but said policy is working as intended. 

The Bundesbank warned that sharply higher German wages this year could continue rising and make inflation stubborn, especially for services. Bundesbank chief Nagel said the rate cut was justified but the ECB wouldn’t be on “auto-pilot” for further reductions. Austria’s Holzmann, the sole dissenter in Thursday’s vote, said inflation was stickier than forecast, requiring caution. Markets expect 1-2 cuts this year and a total of 4 by end-2023, still holding rates above 3%. 

Lagarde said Thursday’s move likely started a dialling back process but July action is unlikely. The next possible window for a cut would be the September meeting if data supports it. 

🇩🇪 Germany’s April 2024 trade surplus of €22.1 billion was less than the expected €22.6 billion. The trade surplus for the previous month was €22.3B. In April, exports increased by 1.6% and imports by 2%. The same month saw a 0.1% decline in industrial production.

🇨🇳 China: China’s trade balance improves. May exports grew more than expected at 7.6% year-on-year, providing some relief to the economy. However, imports growth slowed to 1.8% from 8.4% the prior month, highlighting ongoing weakness in domestic demand. Strong semi-conductor exports aligned with regional trends, suggesting tech sectors are boosting China’s trade.

The US has criticized China’s industrial overcapacity in advanced sectors as flooding markets. Exports may stay resilient due to a weaker yuan and tariffs unlikely to immediately impact shipments. The IMF upgraded China’s 2024 growth forecast in line with Beijing’s target but warned of property risks. Stocks declined as US lawmakers moved to ban Chinese EV battery exports to the US market.

🇺🇸 Today, the employment data released in the United States have had a significant impact on the markets. Two of the three published data would have favoured the dollar, would have prevented a rate cut and would have caused stock markets to fall. Let us explain them: the only data in favour of the stock markets has been a rebound in the unemployment rate, which has gone from 3.9% to the current 4%. However, non-farm payrolls have risen significantly stronger than expected, resulting in 272 K versus 182 K expected.

Not only this, average hourly earnings, have risen by 4.1% over the last month, against expectations of a decline to 3.9%. In other words, earnings were expected to weaken, and they have strengthened. Under this scenario, labour costs will not fall and core inflation, derived from the service sector, will remain solid, pushing the possibility of a rate cut further away, which is why stock markets are reacting downwards.

💵 The dollar index DXY has rallied strongly from 104 support. The dollar has hit the euro 70 pips lower, taking the EURUSD to 1.030 from almost 1.09 before the data. The world’s largest equity index, the SP500, which had since yesterday managed to position itself above its highs of 5350 points, has fallen back below those levels and is now struggling to regain them.

🏦 According to Bloomberg, JP Morgan CitiGroup continues to forecast a US interest rate cut next month. The market, however, is discounting that the rate cut would not happen until November.

📈 Inflation pressures: Multiple precursor indicators of inflation are accelerating. Trade cost measurement indices are rising to levels similar to the end of 2021, just before the inflation wave hit. The Basltic Dry index, which expresses shipping costs, has a clear upward trend since 2023. The WCI, World Container Index, in a clear uptrend, is already above the 15 year average and traces a very similar pattern to what it was doing in 2021. The CRB commodity index, Benchmark since the 1950’s on commodity prices, which covers everything from oil to food, has recently broken the highs reached in 2022.

🚨 If what we are seeing in these indices is correct, inflation is about to return, and it is a matter of a few months before it starts to be reflected in goods and services.

🌎 Geopolitics:

🇷🇺 According to Russian political philosopher Aleksandr Dugin, one of Putin’s shadow geopolitical strategists, the St. Petersburg International Economic Forum, celebrated this week, serves primarily as a vehicle for the advancement of the new multipolar global order, “the West was cut”, ‘This is the first time that our agenda is primarily oriented towards a multipolar world order, this is just the beginning’ ‘This is the multipolar Davos’.

🇧🇷 Dilma Rousseff, the current president of the New BRICS Development Bank (NDB) and a former president of Brazil, stated on Thursday that a multipolar economy is necessary to lessen the risk of global economic instability brought on by issues in large economies. “The so-called developed countries or, as they are also called, the Global North, without a doubt, are not capable of providing solutions to persistent problems that the world faces at the moment,” she said.

🚢 Meanwhile, Russian warships heading for Caribbean. US officials said Russian warships were tracked heading to the Caribbean without prior Kremlin notification, as is standard procedure. The move comes amid escalating tensions between Russia and the West over the war in Ukraine. Putin recently warned Russia could supply advanced weapons elsewhere to enable strikes on “sensitive” Western targets. 

🇫🇷 Only yesterday, France officially authorised the use of its long-range weapons to attack Russian targets inside Russia, once again crossing the red lines drawn by Moscow to avoid a direct confrontation with NATO. Russia considers this to be a direct NATO intervention.