More attention on the US Election

Thoughts of the Day

The market is now becoming more focused on the US Presidential election that will be held on 5 November later this year. After the first debate between a former President, Trump, and a sitting President, Biden, the market is left confused as to whether the Democratic candidate will indeed be Biden.
The bookmakers’ odds of Trump winning the election shot from below 50% prior to the debate to above 60% after the debate, largely due to the listless and incoherent performance put in by the 81-year-old Biden. In the days ahead, there will likely be more talk of the Democratic party considering other possible candidates to take over from Biden as the nominee.

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Tradertainment

How Democrats could replace Biden as presidential candidate before November

The Democratic Party has had no real Plan B for Biden as its presidential candidate. He ran virtually unopposed for the party’s presidential nomination this year.

He will not be nominated officially until later this summer, so there is still time to make a change and a handful of scenarios to enact one: Biden could decide himself to step aside before he is nominated; he could be challenged by others who try to win over the delegates he has accrued; or he could withdraw after the Democratic convention in Chicago in August, leaving the Democratic National Committee to elect someone to run against Trump in his place.

Considering how badly he performed at the presidential debate, it is likely that the Democrats will replace Biden soon if they do not want to be crushed in the elections.

Week Ahead

Monday:

Tuesday: RBA Meeting Minutes

[Euro Area Inflation] Headline Consumer Price Index: +2.5% expected vs +2.6% previous, core CPI: +2.8% expected vs +2.9% prev.

[Euro Area Unemployment] +6.4% expected and prev

[US Labour] JOLTS job openings: 7.85 million expected vs 8.059 million prev

ECB President Lagarde and Federal Reserve Chairman Powell are due to participate in a panel discussion titled “Policy panel” at the ECB Forum on Central Banking, in Sintra.

Wednesday: The FOMC Minutes for the Federal Reserve June meeting will be released.

[US Labour] The ADP Employment Change is expected to show +170k jobs being added to the economy vs +152k previously.

Thursday: US Independence Day – Stock and bond markets will be closed.

The UK General Election will be held.

The ECB Monetary Policy Meeting Accounts will be released.

Friday: [US Labour] Non Farm Payrolls: +180k expected vs +272k prev, Unemployment Rate: 4% expected and prev, Average Hourly Earnings: +0.3% Month-on-Month expected vs +0.4% prev

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What Happened Yesterday

Market Movements as of New York Close 28 Jun 24 (30 Jun for Crypto)
  • [Fedspeak]
    Barkin (current voter, known hawk): “Lags are still playing out, policy tightening will eventually slow the economy further. Open to the idea that rate hikes are not constraining the economy as much as we think, given the remarkable strength we are seeing.”
    Daly (current voter, known hawk): “If inflation stays sticky or comes down slowly, rates would need to be higher for longer. Getting evidence that policy is tight enough.”
    [Barkin is starting to tilt hawkishly from being neutral while Daly remains on the wait and see camp.]
  • The annual PCE inflation rate in the US decreased to +2.6% in May, down from +2.7% in the previous two months as expected. The core PCE inflation rate, which excludes food and energy prices, also fell to +2.6% as expected, the lowest since March 2021, from +2.8% in April.
  • The US stock market opened higher from Thursday. It then attempted to move higher before making a reversal for the rest of the day as markets started to price in the uncertainty in the US presidential elections. The S&P 500 ended -0.41% lower on the day (high: +0.74%, low: -0.58%), the Dow Jones inched -0.12% lower (high: +0.71%, low: -0.58%) while the Nasdaq slipped -0.54% (high: +1.16%, low: -0.62%).
  • The crypto market actively traded over the weekend with Bitcoin falling close to the 60,000 level on Saturday before rising above 62,000 on Sunday. Bitcoin is up +1.17% over the weekend while Ether is down -0.38%.

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Headlines & Market Impact

China’s June factory activity contracts again, services slows

Notable Snippet:  China’s manufacturing activity fell for a second month in June while services activity slipped to a five-month low, an official survey showed on Sunday, keeping alive calls for further stimulus as the economy struggles to get back on its feet.

The National Bureau of Statistics (NBS) purchasing managers’ index (PMI), at 49.5 in June, was unchanged from May, below the 50-mark separating growth from contraction and in line with a median forecast of 49.5 in a Reuters poll.

“Actual industrial activity should be stronger than the data suggests as our observation is that the official PMI fails to fully capture the current export momentum, which has been the major economic driver this year,” said Xu Tianchen, senior economist at the Economist Intelligence Unit.

Still, Xu added that external and domestic demand remains relatively inadequate to absorb China’s manufacturing capacity and this will prevent a recovery in producer prices.

While a sub-index of production was above 50 in June, other indexes of new orders, raw material stocks, employment, supplier delivery times and new export orders were all in contractionary territory, the NBS survey showed.

China’s exports exceeded forecasts in May, but analysts said the jury is still out on whether export sales are sustainable given growing trade tension between Beijing and Western economies. Meanwhile, a protracted property crisis continues to drag on domestic demand.

The services PMI sank to 50.2, a five-month low, and construction PMI slipped to 52.3, the weakest reading since July last year.

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China issues rare earth regulations to further protect domestic supply

Notable Snippet:  China has unveiled a list of rare earth regulations aimed at protecting supplies in the name of national security, laying out rules on the mining, smelting and trade in the critical materials used to make products from magnets in electric vehicles to consumer electronics.

The regulations, issued by the State Council or cabinet on Saturday, say rare earth resources belong to the state, and that the government will oversee the development of the industry around rare earths – a group of 17 minerals of which China has in recent years become the world’s dominant producer, accounting for nearly 90% of global refined output.

Their global industrial significance is such that under a law that entered into force in May the EU set ambitious 2030 targets for domestic production of minerals crucial in the green transition – particularly rare earths due to their use in permanent magnets that power motors in EVs and wind energy.

EU demand is forecast to soar sixfold in the decade to 2030 and sevenfold by 2050.

The new Chinese regulations, which will take effect on Oct. 1, say the State Council will establish a rare earth product traceability information system.

Enterprises in rare earth mining, smelting and separation, and the export of rare earth products, shall establish a product flow record system, shall “truthfully” record the flow, and shall enter it into the traceability system, the State Council said.

China already last year introduced restrictions on exports of the elements germanium and gallium, used widely in the chip-making sector, citing the need to protect national security and interests.

It also banned the export of technology to make rare earth magnets, in addition to imposing a ban on technology to extract and separate rare earths.

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Japan big manufacturers’ mood improves to 2-year high, BOJ tankan shows

Notable Snippet: Confidence among big Japanese manufacturers improved in the three months to June to reach levels unseen in two years, a closely-watched survey central bank showed, backing up on its view the economy is on track for a moderate recovery.

But the mood among big service-sector firms worsened for the first time in four years, the “tankan” survey showed on Monday, suggesting that rising living costs from the weak yen were weighing on consumption.

The headline sentiment index for big manufacturers rose to +13 in June from +11 in March, slightly exceeding a median market forecast for a reading of +12, the survey showed on Monday.

An index measuring big non-manufacturers’ sentiment stood at +33, matching market forecasts and down from +34 in the previous quarter.

Big firms plan to raise capital expenditure by 11.1% in the current fiscal year ending in March 2025, compared with 4.0% seen in the previous tankan survey. It compared with a median market forecast for a 13.9% increase.

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Phan Vee Leung
CIO & Founder, TrackRecord