Search our blog for articles and insights right here, just type your interest and dive into a world of knowledge.
Popular articles
Markets Face Uncertainties Amid Political and Economic Cooling
The second half of 2024 commences with evident signs of a cooling U.S. economy and political events taking center stage both in the U.S. and Europe. Financial markets are contending with the amalgamation of key elections and an economic slowdown in the U.S., which includes France's parliamentary elections, Britain's upcoming polls, and bolstered betting on the U.S. presidential race following the latest TV debate.
Despite some respite for U.S. technology stocks on Wall Street on Monday, concerns in the bond market and the steepening of long-term yield curves point to underlying political anxieties. The Institute for Supply Management (ISM) revealed that U.S. manufacturing underperformed predictions, contracting for the third consecutive month. Additionally, factory input prices hit a six-month low due to weak demand. These developments have led the U.S. economic surprise index to hit its most negative level in two years, while the Atlanta Fed's 'GDPNow' tracker fell to 1.7%, the lowest this year.
Market participants are hopeful for Federal Reserve easing within the year. However, skepticism remains about a rate cut before November's election. Futures indicate a less than 70% likelihood of a first cut in September. Federal Reserve Chair Jerome Powell's upcoming speech at the European Central Bank's (ECB) forum in Sintra, Portugal, may offer more clarity. Among crucial labor market updates this week, May's U.S. job openings data will also draw significant attention.
Bond markets are reacting to political developments, notably President Joe Biden's perceived weakness during last week's debate against Donald Trump and the Supreme Court's ruling on Trump’s partial immunity. This has increased the odds of a Trump victory in November, raising fiscal concerns amidst promises of tax cuts and tariff hikes. Consequently, 10-year Treasury yields reached their highest point in a month on Monday, and the yield curve inversion from 2 years to 10 years narrowed to its lowest since early May.
Fiscal worries and yield curve movements were mirrored in Europe, with French elections still uncertain ahead of Sunday's run-off. Although French far-right parties are unlikely to secure a majority, tactical voting may restrain their potential, keeping nerves high. This sentiment led to a partial retreat in French stocks, and the French-German 10-year yield premium increased slightly.
Last month's easing of euro zone inflation was overshadowed by persistent high prices in the services sector, potentially raising concerns among ECB policymakers about sustained domestic price pressures. The euro depreciated from its two-week peak, trading at approximately 1.0710 on Tuesday.
Globally, the dollar strengthened, reaching a 38-year high against Japan's yen, with no intervention from Japan to support the yen observed. Global stock markets generally declined, except for Japan’s Nikkei, which gained over 1% and surpassed the 40,000 mark for the first time in three months due to the weak yen. Meanwhile, Wall Street stock futures dropped 0.4% before the opening, and Treasury slid lower ahead of Tuesday's session.
