📢 Macro-News Round-up

📈 Market News

🌍 Today, in a little while, we will know the Bank of England’s interest rate decision. As we commented in our previous report, it is difficult to see any changes in monetary policy just before the extraordinary elections called by the government.

💹 The interest rate remains at 5.25%. Levels not seen since 2008. For its part, the UK inflation rate has fallen to 2%, however, like the US, annualised core inflation stands at 3.5%. Its unemployment rate and economic growth rate are at 4.40% and 0.6% year-on-year, respectively.

🔻 Unlike the US, the UK is likely to implement rate cuts to try to revive its economy.

🇨🇳 China left its benchmark one-year and five-year loan prime rates (LPR) unchanged at 3.45% and 3.95% respectively in June, in line with expectations. New home prices in China fell at their fastest pace in over 9.5 years in May, showing the property sector remains depressed. The five-year LPR, the reference for pricing the mortgages, was cut by 25 basis points in February to support housing, leaving room for potential further adjustments. On the other hand, China’s ability to ease monetary policy faces internal and external constraints on interest rate adjustments. The yuan is at an all-time low against the dollar.

🇩🇪 Germany: Tax and regional revenues improved by 2.6% in May from a year earlier. Taxes on income increased, taxes on companies and sales decreased. However, Germany maintains a deficit of -2.5%, and a public debt of 63.60%, incompatible with the Maastricht commitments signed in 1992.

⚔️ Trade War:

🔁 China is prepared to respond to proposed EU tariffs on electric vehicles with targeted sanctions against European exports. Possible targets include: Brandy and wines: France, Pork: Spain, Vehicles: Germany and Slovakia, Dairy products: Denmark and the Netherlands. Although alternative suppliers exist for most of these products, limiting the impact on Chinese consumers, sanctions would represent a major blow to European farmers and businesses. This is reminiscent of the trade war between China and Australia following Australia’s request for an international investigation into the origins of Covid.

📊 Market:

The US market continues to advance. SP500 is approaching 5,600 points, Nasdaq 100 is already above 20,000 points. Europe, however, seems to be attempting a bullish rebound, but without much power. Dax 40 is above 18,150 points.

EURUSD also seems to be bouncing, having fallen back to 1.0715 a few hours ago. The dollar index DXY remains strong above 105 points.

Crude oil prices have risen, with Brent crude oil above 85 dollars. Chinese stock markets retreated, following the strong performance of the Hong Kong HSI index early Wednesday morning.

Bonds remain relatively calm, with US and German 2-year bonds above 4.70% and 2.80% respectively.

🌐 Geopolitics:

🇫🇷 France in the war business: Armenia and Azerbaijan traded accusations after France pledged new arms sales to Yerevan, including CAESAR howitzers praised by Ukraine. Azerbaijan criticized the French move as harmful to regulating relations with Armenia and a blow to peace treaty progress. The two South Caucasus countries have fought two wars since the 1990s over Nagorno-Karabakh. Azerbaijan retook large territory including Karabakh last year, displacing most ethnic Armenians. France has traditionally backed Armenia given its large Armenian diaspora community.

🚢 Disrupted supply chain: Leading shipping industry groups called for urgent action in the Red Sea to stop Houthi attacks on merchant vessels after the sinking of a second ship. The Greek-owned Tutor coal carrier struck last week by Yemen’s Houthis has now sunk, according to salvagers. International naval forces have deployed but attacks have increased, using missiles, drones and explosive-laden remote boats. Insurers are increasingly concerned about the use of attack drone boats, which are harder to defend against and potentially more lethal.

🇰🇵 North Korea and Russia: Agreed to provide immediate military assistance if either faced armed aggression, under a new strategic partnership pact. The agreement revives a 1961 mutual defense treaty annulled in 1990 when Russia established ties with South Korea. The pact also includes cooperation on nuclear energy, space, food/energy security and not allowing their territories to harm each other. Japan expressed grave concerns while the US and South Korea did not immediately comment.

💣 Hezbollah threatens Cyprus: Hezbollah chief Nasrallah warned Israel that no place would be spared in case of full war and threatened Cyprus if it opened airports to Israel. He said Israel must expect Hezbollah on land, sea and air, and that the group could penetrate northern Israel in a war imposed on Lebanon. Israel approved operational plans for an offensive in Lebanon and warned of Hezbollah’s destruction in “total war”. Nasrallah said opening Cypriot airports and bases to Israel would mean Cyprus is part of the war and Hezbollah will deal with it as such.