Global News Update from 22 to 27 July 2024

United States:

- Political Climate: Biden abandoned his re-election bid and endorsed Kamala Harris, citing party and national interests. Pelosi backed Harris, helping her secure donors and delegates and bringing her closer to the nomination.

- Economic Data:

  - Inflation-adjusted consumer spending rose 0.2% in June, with May’s increase revised higher.

  - PCE price index increased by 0.1% MoM and 2.5% YoY.

  - Core PCE price index rose by 0.2% MoM and 2.6% YoY.

- Market Reactions: Treasuries rallied, and stock futures remained higher. The dollar traded in a narrow range ahead of US tech earnings.

- Debt Securities: The Fed’s tightening campaign is progressing well, with expectations of a rate cut in September.

- AI Developments: AI developer Cohere raised $500 million, boosting its valuation to $5.5 billion. Google’s NeuralGCM model effectively uses AI for climate trend tracking.

United Kingdom:

- Political Developments: Chancellor Rachel Reeves hinted at above-inflation pay rises of 5.5% for teachers and nurses, aiming to prevent strikes and attract new joiners.

- Currency Outlook: Sterling is expected to continue its strong performance, buoyed by a resilient economy and hopes for political stability.

- Economic Data:

  - Average earnings excluding bonuses rose 5.7% in May, down from 6% in April.

  - Services inflation slightly decreased to 5.6% in June.

- Jobs: The BOE and government face uncertainty over the jobs market due to delays in the new labour force survey rollout.

Eurozone:

- Monetary Policy: ECB’s Makhlouf stated no rush to make decisions, with the inflation target of 2% being met despite a bumpy road.

- Fiscal Health: France’s national auditor raised concerns about budget deficits and public debt, indicating non-compliance with EZ fiscal rules.

China:

- Economic Growth:

  - Profits at Chinese industrial firms grew 3.6% YoY in June, up from a 0.7% increase in May.

  - For the first half of the year, profits rose 3.5% to 3.5 trillion yuan ($484 billion).

  - GDP grew by 4.7% YoY in Q2, below the expected 5.1%.

- Monetary Policy: The People’s Bank of China implemented rate cuts to support the economy, lowering a key short-term rate and the one-year rate.

- Global Trade and Policy: Vice Finance Minister Liao Min emphasized China’s role in providing affordable manufactured goods and green technologies. He defended China’s economic model against US criticism.

Japan:

- Monetary Policy: Bank of Japan officials are cautious about raising interest rates due to weak consumer spending, with some considering skipping a rate hike in July.

- Economic Data: Inflation rose 2.6% YoY in June, up from 2.5% in May, driven by slightly higher energy costs.

Canada:

- Economic Outlook: The finance minister projected a soft landing for the economy, with inflation retreating and interest rates decreasing. However, polls show Trudeau’s unpopularity due to issues like the cost of living and housing shortages.

New Zealand:

- Inflation: Inflation fell to 3.3% in Q2 from 4% in Q1, below the consensus of 3.6%, due to ongoing stickiness in domestic prices like rents and insurance, raising concerns for the RBNZ.

Australia:

- Jobs: Employment rose by 50.2k in June, driven by full-time jobs, with the unemployment rate ticking up to 4.1% as more people sought work, showing labour market resilience to high interest rates.

Artificial Intelligence (AI):

- Corporate Moves: Cohere raised $500 million, boosting its valuation to $5.5 billion. Google’s NeuralGCM model effectively tracks long-term climate trends and extreme weather events using AI.

Environmental, Social, and Governance (ESG):

- Corporate Policies: Companies like AMD, Motorola, and Regions Financial removed diversity criteria from executive bonus plans following pressure from conservatives, reflecting ongoing political backlash.

Fed Interest Rate Cut Analysis:

Given the recent economic data, it appears increasingly likely that the Fed will cut interest rates in September. The consistent rise in consumer spending and the PCE price index aligning with expectations suggest that inflation is being controlled effectively. The real consumer spending increase and the Core PCE price index’s modest rise indicate a balanced economic outlook without overheating risks. Treasuries rallying and stock futures remaining higher reflect market optimism towards the potential rate cut.

The Fed’s focus will likely be on ensuring that the economy continues to grow without significant inflationary pressures. With improved inflation data and signs of a cooling labour market, the conditions are favourable for a rate cut to support sustained economic growth. Powell and other Fed officials have hinted at this possibility, and the data supports a move to provide additional stimulus while maintaining price stability.