Macro-News round-up

๐Ÿ“ˆ Yesterday, in a speech, Fed policymaker Harker stated that, given the Fed’s projections, one rate reduction in 2024 was appropriate. This has given even more confidence to the US indices (only to the tech indices, keep reading and you will understand soon enough).

๐Ÿ“Š Market: The SP500 index hits another all-time high, rising to 5,550 points on the mini futures. Nasdaq 100 also sets new records, if approaching 20,000 points. However, the interesting thing to note today, is that the indices that do not contain the big tech companies are not advancing. Both Dow Jones 30 and Russell 2000 are showing signs of sideways price movement, even bearish patterns.

๐Ÿ‡ช๐Ÿ‡บ European markets recovered some of the ground lost last week. Today we are witnessing a weak bullish rebound. As we will discuss in the geopolitics section, polls in France continue to show an increasing number of Le Pen’s political party’s voting intentions, which puts the European budget at risk.

๐Ÿ’ต The EURUSD, which has lost 1.07, has rebounded to 1.0740 and is now falling again, although it remains above 1.07. The dollar index DXY continues to push and is holding 105.50 points, with a clear indication of bullish strength.

๐Ÿ‡ฉ๐Ÿ‡ช Germany: ZEW economic sentiment indices, which measure the 6-month economic outlook, come out weaker than expected.

๐Ÿ‡บ๐Ÿ‡ธ US retail sales and industrial production will be released today. Both data will give us clues about the real state of the US economy. If we detect weakness in these data, markets could take this as a bullish sign, as it will put pressure on the Fed to cut rates.

๐Ÿ‡ฏ๐Ÿ‡ต Japan: Although the weaker yen makes import costs more expensive, and this will impact on further inflation, rising wages are expected to support consumption and economic recovery by offsetting the higher cost of goods and services. The Bank of Japan’s decision to reduce bond purchases and raise interest rates are separate processes with different timetables, as we have already seen, and have different impacts on the Yen.

The details of the BOJ’s bond purchase tapering plan will be announced next month, without using it as a policy tool. Inflation above 2% for two years indicates that rates could be raised to a range of 1-2% to prevent the economy from cooling or overheating. The Governor of the Bank of Japan stated that the central bank could raise interest rates as early as next month, depending on upcoming economic data.

๐ŸŒŽ Geopolitics: 

โš”๏ธ Trade War: Following the EU’s decision to impose anti-subsidy duties of up to 38.1% on Chinese electric vehicles, China has opened an anti-dumping investigation on pork and by-products imported from the EU, targeting mainly the main suppliers, Spain, the Netherlands and Denmark.

The investigation could cause other suppliers, such as the United States, South America and Russia, to gain market share if China restricts EU imports.

๐Ÿ‡ซ๐Ÿ‡ท France Elections and Ukraine: Volatility has wiped about $260 billion from French stocks, reflecting the fragility of sentiment. A National Rally victory could rattle EU leaders, given their divergent positions on issues such as Europe, Russia and climate. Commitments such as โ‚ฌ3 billion in aid to Ukraine may be at risk depending on the election results. Uncertainty also lingers over Macron’s pledge to send fighter jets to Ukraine, pending clarification.

๐Ÿ‡ท๐Ÿ‡บ Putin: After his meeting with North Korea, where he promised trade and security beyond the reach of the West, Putin will visit Vietnam, one of Asia’s fastest-growing countries with a GDP that exceeds that of South Africa, Denmark and Hong Kong. 

๐Ÿ‡บ๐Ÿ‡ฆ Ukrainian Bonds: Ukraine failed to reach an agreement with bondholders over restructuring $20 billion of international debt during formal talks.
The current debt payment suspension ends in August, raising the risk of potential default if no deal is reached. Analyst estimates suggest a 30% haircut plus coupon relief could allow Ukraine to meet IMF targets. Going into default could complicate future funding sources though Ukraine already lacks market access. The IMF is soon due to release a review determining needed debt relief.

๐Ÿ‡ฎ๐Ÿ‡ฑ New war front for Israel: Israeli PM Netanyahu dissolved the six-member war cabinet following the departure of centrist former general Benny Gantz from government. Netanyahu is expected to hold consultations on Gaza with a smaller group of ministers including Defence and Strategic Affairs ministers. The move comes as US envoy Amos Hochstein visits seeking to calm tensions on the Lebanon border with Iran-backed Hezbollah. Tens of thousands have been evacuated on both sides of the Blue Line dividing Israel and Lebanon due to near-daily bombardment.  A recent survey found more Israelis favouring an immediate strike on Hezbollah due to escalating rocket attacks. Protests have intensified against the government over hostages and its handling of the conflict.