Global News Update 19 to 24 August 2024
United States:
- Economic Growth and Monetary Policy:
Kamala Harris unveiled parts of her economic program, including new tax reliefs and a crackdown on price gouging, aimed at tackling the ongoing cost-of-living crisis.
The U.S. dollar reached its lowest level since the start of the year, as expectations grew for the Federal Reserve to begin cutting interest rates in September.
In his Jackson Hole speech, Fed Chair Jerome Powell confirmed the Fed’s readiness to start cutting rates, emphasizing a "cooling labor market" and acknowledging recent progress on inflation. This spurred a significant market rally, with stocks rising and bond yields tumbling.
The S&P 500 rose by 1.15%, the Nasdaq 100 by 1.2%, and the Russell 2000 by 3.2%.
United Kingdom:
-Economic Policy and Inflation:
Chancellor Rachel Reeves announced plans to raise social rents by inflation plus 1% for the next 10 years, aimed at boosting affordable housing.
Government borrowing rose to £3.1 billion in July, driven by higher inflation and wage growth.
The Trades Union Congress is expected to push for "pay restoration" for public sector workers, adding strain to the Labour government's relationship with unions.
Eurozone:
- Inflation and Wage Growth:
The Bundesbank reported robust wage growth in Germany, with earnings up 4.2% in the spring. Union demands remain high, with wage increases between 7% and 19% for the next 12 months, raising concerns for the European Central Bank (ECB) as it battles inflation.
France’s caretaker government announced plans to freeze state spending as part of its 2025 budget, though these plans could be reversed by a new Prime Minister.
Canada:
- Inflation and Monetary Policy:
Canadian inflation rose by 2.5% in July, the slowest pace in over three years, driven by lower travel, vehicle, and electricity prices.
This keeps the Bank of Canada on track to cut interest rates for a third consecutive meeting in September.
Japan:
- Exports and Monetary Policy:
Japan's exports grew by 10.3% year-over-year in July, driven by chip parts and cars, largely due to the yen’s depreciation.
Governor Kazuo Ueda of the Bank of Japan faced scrutiny for his recent rate hike and hawkish stance, which contributed to global market volatility.
China:
- Trade Tensions and Economic Policy:
China launched an anti-dumping investigation into imported European dairy products in response to the European Commission’s additional levies on Chinese electric vehicle imports.
Chinese economists are calling for the government to break away from an implicit budget deficit ceiling to support the faltering economy through increased central government borrowing.
Artificial Intelligence (AI):
- Corporate Moves and Regulation:
AMD agreed to acquire AI infrastructure group ZT Systems in a $4.9 billion deal, part of its strategy to challenge Nvidia's dominance in the AI market.
Condé Nast signed a multiyear agreement with OpenAI to license its content for AI training, while OpenAI criticized California's SB1047 bill aimed at regulating AI, arguing it could threaten growth.
AI-driven market dynamics also influenced corporate partnerships and product offerings, including new features from OpenAI allowing companies to customize AI models.
Debt Securities and Market Reactions:
- Market Movements:
Powell's speech at Jackson Hole led to a rally in U.S. stocks and a drop in bond yields. The two-year Treasury yield fell below 4%, and the dollar lost 1%.
Swap traders now expect 102 basis points of rate cuts by the end of the year, with one 50-basis-point cut likely.
Global Inflation and Recession Risks:
- Recession Concerns:
Powell’s speech at Jackson Hole emphasised the Fed’s intent to avoid a severe economic slowdown, but the need for potentially larger rate cuts could signal concerns about an imminent recession.
This is balanced by the Fed's cautious optimism regarding inflation control and economic growth, which has reassured markets but also highlighted the delicate balance the Fed must maintain.