Global News Update: 29 July to 3 August 2024

The most impactful global developments included significant shifts in monetary policy and economic indicators. The US Federal Reserve hinted at potential interest rate cuts in September amidst weak economic data and corporate earnings, causing dramatic declines in Wall Street stocks and a rally in US Treasuries. The Bank of England cut rates for the first time in over four years to 5%, boosting economic growth prospects but cautioning against rapid successive cuts. Eurozone inflation rose to 2.6% YoY in July, complicating potential ECB rate cuts, while Japan’s BOJ raised rates and halved bond purchases, strengthening the yen and impacting exports. Additionally, the AI sector saw regulatory scrutiny and significant corporate movements, including Meta’s commitment to AI spending and the US DOJ’s investigation of Nvidia’s acquisition for antitrust violations. These developments highlight the volatile interplay between monetary policies, economic data, and technological advancements, shaping the global economic landscape.

United States:

- Economic Growth and Jobs:

  - 29 July: Banking regulators plan to limit investment managers’ influence over bank governance, viewed as an attempt to curb shareholder input.

  - 31 July: Fed suggested a potential rate cut as soon as September due to “further progress” towards lowering inflation to its 2% goal.

  - 3 August: Wall Street stocks declined sharply, with the Nasdaq 100 tumbling 3% in its fourth week of losses and the S&P 500 down 2%. Yields on 10-year Treasuries fell nearly 40 basis points due to weak economic data and corporate earnings.

The labour market showed signs of weakness, with the unemployment rate rising to 4.3%, the highest in nearly three years.

  - Economic Data: The Sahm rule indicated a recession as the three-month moving average of the jobless rate exceeded the 12-month low by half a percentage point.

- Debt Securities:

  - 29 July: UST rallied as weak economic data spurred fears of a slowdown. The bond market indicated that the Fed’s restrictive stance might lead to a policy error.

  - 31 July: Yields on 10-year Treasuries tumbled by the most since 2008.

- Artificial Intelligence (AI):

  - 29 July: Regulatory scrutiny over Musk’s X feeding users’ data into his AI start-up xAI without explicit consent.

  - 1 August: Chip stocks rebounded, driven by confidence in continued AI infrastructure investment. The US considered restrictions on China’s access to AI memory chips.

  - 2 August: Meta shares rose on strong advertising business, supporting AI spending. The US DOJ investigated Nvidia’s acquisition of Run:ai for antitrust issues. Apple predicted AI features would spur iPhone upgrades.

United Kingdom:

- Economic Growth and Jobs:

  - 29 July: Chancellor Reeves announced spending cuts and tax rises to address a £22bn fiscal deficit. BOE expected to cut rates on 1 August.

  - 31 July: Reeves warned of upcoming tax rises in the autumn Budget but ruled out increases to VAT, national insurance, or income tax.

  - 2 August: BOE cut rates to 5% for the first time in over four years, boosting economic growth efforts. House prices rose 2.1% YoY in July, the fastest pace since the end of 2022.

- Debt Securities:

  - 2 August: The rate cut by the BOE raised hopes for a recovery in house buyer demand due to softening borrowing costs.

- ESG:

  - 31 July: The UK’s Labour government proposed record financial support for new renewable power projects, aiming to meet clean energy targets and expedite wind farm projects.

Eurozone:

- Economic Growth and Inflation:

  - 29 July: Italy’s Meloni pledged to strengthen economic ties with China after exiting Beijing’s Belt and Road Initiative.

  - 31 July: Eurozone economy grew 0.3% in Q2, matching Q1’s growth and beating the consensus of 0.2%. German inflation accelerated to 2.6% YoY in July.

  - 1 August: Eurozone inflation rose to 2.6% YoY in July from 2.5% in June, complicating potential ECB rate cuts in September.

Japan:

- Economic Growth and Jobs:

  - 29 July: BOJ Governor Ueda outlined plans for quantitative tightening and potential rate hikes. Unemployment rate edged lower to 2.5% in June.

  - 31 July: Industrial production declined 3.6% MoM in June, better than expected but indicating ongoing economic struggles.

  - 2 August: Japanese stocks plunged due to expectations of further monetary tightening, with the yen trading near its strongest since March, impacting exports.

- Debt Securities:

  - 31 July: BOJ raised rates to 0.25% and halved monthly bond purchases, strengthening the yen by over 1.7%.

China:

- Economic Growth:

  - 29 July: Manufacturing PMI contracted to 49.4 in July, marking the third consecutive month of contraction and indicating a weak economic outlook.

Australia:

- Economic Growth and Inflation:

  - 29 July: Debate over a late-cycle policy tightening by the central bank. Core inflation unexpectedly decelerated to 3.9% in Q2, supporting views of easing prices.

  - 31 July: Inflation data prompted traders to bet on an interest rate cut, with a 50% chance of a cut in December.

AI (General) and Corporate Earnings:

- 31 July: Credo AI announced a $21 million funding round, doubling its previous valuation to $101 million, focusing on risk and compliance in AI adoption.

- 2 August: Intel shares slid due to poor AI race performance. Amazon tumbled after prioritizing AI spending over immediate profits.

Environmental, Social, and Governance (ESG):

- 1 August: Environmental Defense Fund reported methane emissions from US oil and gas operations at 7.5 million tonnes per year, significantly higher than regulator estimates and voluntary targets.