Morning Brew July 18 2024

Good Morning all,

We got a reminder yesterday of what to expect in a Trump presidency and that is unexpected volatility. We saw sharp moves in Chip stocks yesterday that were triggered by three news coinciding as far as I can tell.

There were reports on severe trade restrictions against China (this still from the Biden administration to appear firm) at the same time Trump stated he expects Taiwan to pay for it`s own defense and reports he asked Jerome Powell not to lower rates ahead of the election.

This combination caused a massive selloff in chipmakers, the Chipmaker Index fell by 6.8% in the largest fall since the corona pandemic. The Nasdaq lost 2.8%, the S&P500 1.4% and the Dow gained 0.6%. Nvidia fell 6.6%, AMD 10, Meta 5.7% and Apple as well as Tesla 2.5% and 3.1% respectively. Outlier was Intel at +0.5%. Watch TSSM today, the stock in under pressure due to the news but expected to report very strong results. Let us see who wins the tug of war.

Rheinmetall fell more than 5% yesterday, likely on the disappointing German budget, surveys in Germany see car companies reducing staff the next few years.

Yields were largely unaffected by any turmoil, we remain at 4.17%, and the USD Index falls to 103.78. EURUSD rises to 1.0930, GBPUSD is breaking the 1.30 as I am writing, let us see if we hold here. USDJPY is at 156.10. So fart his intervention seems to be going in the desired way.

Silver sold off more than 3% while Gold gave up much less, we are at 30.40 and 2470.

The question if we calm down here and are in a Buy the Dip scenario or it is a larger trend reversal will be on everybody`s mind today and has the possibility for sharp moves.

Besides the obvious risk sentiment, there are some key events to watch:

• Joe Biden has been diagnosed with Corona and isolating himself. Is this his way to withdraw from the race as more and more democrats withdraw support? Chuck Schumer and former House Speaker Nancy Pelosi have increased pressure according to
• ECB rate decision and press conference – No action expected but a strong hint at a September cut. Traders are looking for 47 basis points cuts this year, the fed is at 63 basis points.
• Earnings by TSMC, Nokia and Netflix.

Thursday
- Data UK Labor data, ECB Rate decision, Initial Jobless claims & Philly Fed Business, Logan speaks
- Earnings: TSMC, Nokia, Netflix,
Friday
- Data Japan JPI, UK retail Sales. Bostic speaks

- Earnings:  American Express, Halliburton, Travelers,

Altheas ECB Outlook:

• Rate Cut Probabilities and ECB Stance: Markets are assigning no chance of a rate cut this week, with bond futures indicating only a 4% probability. However, there is an 81% chance of a rate cut in September, and markets project a policy rate of 2.75% by 2026. Despite these expectations, we anticipate the ECB will remain data-driven, making even a September rate cut unlikely given the rebound in economic activity and potential upward revisions to the ECB’s inflation forecasts due to high oil prices.
• Final June CPI Data: The final June CPI data on Wednesday is expected to show minimal improvement on the inflation front. Headline inflation is projected to remain steady at 2.5%, while core inflation is anticipated to stay at 2.9%, slightly above the June projections. This indicates persistent inflationary pressures, particularly from the robust labor market and strong wage growth.
• ECB Member Dissent: Dissent among ECB policymakers was evident in the minutes of the May meeting, where disagreements over the rate-cutting cycle were highlighted. The upcoming meeting will be crucial to understanding what conditions might warrant another rate cut, especially given the rebounding economy and sticky inflation. This will help gauge the ECB's future policy direction amidst the current economic uncertainties.
• French Political Turmoil in Focus: French political turmoil may sway the decision for upcoming rate cuts. Extreme volatility in the European sovereign space could conflict with continuous quantitative tightening, as disinvestments under the PEPP have started this month. If European sovereign spreads become increasingly more volatile, policymakers might opt for a rate cut in Septemberdespite the economy and inflation remaining underpinned.