Εβδομαδιαία Επισκόπηση: Διεθνής Οικονομία & Αγορές, 22/07/24
Biden withdrew from the 2024 Presidential Election, with a Republican “sweep” remaining the most likely outcome according to prediction markets
Technology stocks took a beating in the past week (MSCI IT: -5.2%), with trade protectionism rhetoric being ramped up. A massive IT outage on a global scale also depressed risk appetite.
The S&P500 fell by -2.0% wow (+15% ytd), dragged down by the S&P500 Semiconductor & Semiconductor Equipment index which lost -8.8% wow (still +63% ytd). The latter was also weighed by comments from Mr. Trump regarding the appropriate US foreign policy on Taiwan, a major international hub of semiconductor manufacturing.
US 10-Year Treasury yields moved slightly higher in the past week (+5 bps to 4.24%), albeit having declined by circa 50 bps from their April highs as the deceleration of growth and inflation should be viewed as a tailwind to monetary policy easing by the Federal Reserve.
US real GDP growth for Q2:2024 will be closely monitored on July 25th. The economy is slowing, albeit stronger than expected retail sales suggest upside risks to consensus analysts’ expectations for +1.9% qoq saar.
On Monday July 22nd, market reaction to the latest US political developments was orderly. President Biden dropped out of the race on July 21st following a disappointing performance in a debate with Trump on June 27th. Biden endorsed incumbent Vice President Kamala Harris to be the nominee of the Democratic Party. Democrats are due to nominate their candidate at their convention on August 19th -22nd at the latest. All told, Harris’ market-implied odds to win the nomination stand at c. 80%.
President Biden is set to remain in office until the end of his term in January 2025, despite calls from high-ranking officials of the opposition Republican Party to resign immediately. In such an event, Harris would serve as the 47th President.
The implied odds of a Republican sweep (i.e. winning the Presidency and both chambers of the legislature) edged down to around 40% but this remains the most likely outcome by a significant margin (see graph below). Having said that, at such an early point in the new phase that the respective campaigns have entered, predictions are accompanied by a high level of uncertainty.
Regarding monetary policy, the ECB stood pat on July 18th, as expected, following the reduction of 25 basis points in June (Deposit Facility Rate: 3.75%). The ECB characterized domestic price pressures as “still high”, albeit more importantly, the outlook for a return of inflation to the 2% target in the second half of 2025, remained in place. Overall, the ECB refrained from any explicit guidance on its next moves, to maintain flexibility.
The likelihood of a rate cut on September 12th is high, with financial markets, according to overnight index swaps, assigning a c. ¾ chance for -25 bps (-50 bps cumulatively by end-2024 are priced-in). That meeting will be accompanied by updated economic projections, with a plethora of economic data having become available by then, starting with July’s preliminary PMI figures, due on July 24th.
Consensus analysts expect little change versus June’s PMI outcome of 50.9, implying a soft momentum. Overall, the view for a gradual economic improvement remains in place, with the IMF pointing to real GDP growth of +0.9% in 2024 followed by +1.5% in 2025, from +0.5% in 2023.
Technology stocks took a beating in the past week (MSCI IT: -5.2%), with trade protectionism rhetoric being ramped up. A massive IT outage on a global scale also depressed risk appetite.
The S&P500 fell by -2.0% wow (+15% ytd), dragged down by the S&P500 Semiconductor & Semiconductor Equipment index which lost -8.8% wow (still +63% ytd). The latter was also weighed by comments from Mr. Trump regarding the appropriate US foreign policy on Taiwan, a major international hub of semiconductor manufacturing.
US 10-Year Treasury yields moved slightly higher in the past week (+5 bps to 4.24%), albeit having declined by circa 50 bps from their April highs as the deceleration of growth and inflation should be viewed as a tailwind to monetary policy easing by the Federal Reserve.
US real GDP growth for Q2:2024 will be closely monitored on July 25th. The economy is slowing, albeit stronger than expected retail sales suggest upside risks to consensus analysts’ expectations for +1.9% qoq saar.
On Monday July 22nd, market reaction to the latest US political developments was orderly. President Biden dropped out of the race on July 21st following a disappointing performance in a debate with Trump on June 27th. Biden endorsed incumbent Vice President Kamala Harris to be the nominee of the Democratic Party. Democrats are due to nominate their candidate at their convention on August 19th -22nd at the latest. All told, Harris’ market-implied odds to win the nomination stand at c. 80%.
President Biden is set to remain in office until the end of his term in January 2025, despite calls from high-ranking officials of the opposition Republican Party to resign immediately. In such an event, Harris would serve as the 47th President.
The implied odds of a Republican sweep (i.e. winning the Presidency and both chambers of the legislature) edged down to around 40% but this remains the most likely outcome by a significant margin (see graph below). Having said that, at such an early point in the new phase that the respective campaigns have entered, predictions are accompanied by a high level of uncertainty.
Regarding monetary policy, the ECB stood pat on July 18th, as expected, following the reduction of 25 basis points in June (Deposit Facility Rate: 3.75%). The ECB characterized domestic price pressures as “still high”, albeit more importantly, the outlook for a return of inflation to the 2% target in the second half of 2025, remained in place. Overall, the ECB refrained from any explicit guidance on its next moves, to maintain flexibility.
The likelihood of a rate cut on September 12th is high, with financial markets, according to overnight index swaps, assigning a c. ¾ chance for -25 bps (-50 bps cumulatively by end-2024 are priced-in). That meeting will be accompanied by updated economic projections, with a plethora of economic data having become available by then, starting with July’s preliminary PMI figures, due on July 24th.
Consensus analysts expect little change versus June’s PMI outcome of 50.9, implying a soft momentum. Overall, the view for a gradual economic improvement remains in place, with the IMF pointing to real GDP growth of +0.9% in 2024 followed by +1.5% in 2025, from +0.5% in 2023.