Global Market Developments: Bond Market Interventions, Tech Stock Rebounds, and Rising Geopolitical Tensions

1

Japan's Nikkei 225 Index, after experiencing its largest decline since October 1987, has now rebounded to levels close to those before last week's crash. The index rose by 2.3%, primarily supported by a weaker yen, particularly benefiting exporters such as automakers and tech companies. Stocks like Tokyo Electron Ltd. surged, and Rakuten Group became one of the top gainers following progress in its mobile business. With the massive sell-off ending, investors are now focusing on fundamentals like corporate earnings, seeing the current low stock valuations as a buying opportunity. However, since the Bank of Japan's rate hike and plan to reduce bond purchases at the end of July, the Nikkei 225 Index is still down about 13% from its previous high.

Analysis:

Impact on FX:A weaker yen could continue to support Japanese exports.

FX Pair:USD/JPY, EUR/JPY

Impact on Shares:Japanese Market: Positive impact on export-oriented sectors.

Companies:Toyota, Sony, Tokyo Electron Ltd.

3

Elon Musk proposed during a conversation with former President Trump that he take on the role of chairing a committee to reduce federal spending if Trump secures a second term, signaling his increasing influence in U.S. politics. Musk has previously expressed public support for Trump and offered to help ensure that taxpayer money is used efficiently. Trump welcomed the proposal, praising Musk as the “greatest cutter.” As the election approaches, Musk plans to support Trump through political action committees and substantial funding, highlighting his active involvement in influencing the election outcome.

Analysis:

Impact on FX:Potential political instability could increase demand for safe-haven currencies like USD.

FX Pair:USD/JPY, USD/CHF

Impact on Shares:U.S. Market: Possible volatility in sectors influenced by government spending.

Companies:Tesla, SpaceX, other Musk-affiliated companies

4

General Motors is cutting its workforce in China and plans to discuss larger structural adjustments to its Chinese operations with its local partner, SAIC Group. This adjustment reflects the unlikelihood of GM returning to its 2017 sales peak in China. GM faces intense competition from local rivals in the Chinese market, leading to significant overcapacity. The company plans to shift towards producing electric vehicles, focusing on high-end models and importing luxury vehicles. Additionally, GM's joint venture with SAIC Wuling will continue to produce and export lower-cost electric vehicles.

Analysis:

Impact on FX:Potential weakening of CNY due to reduced foreign investment in China.

FX Pair:USD/CNY, EUR/CNY

Impact on Shares:Chinese Market: Negative impact on auto manufacturing sector.

Companies:General Motors, SAIC Group, Tesla (as a competitor)

5

With the rapid growth of Middle Eastern sovereign wealth funds (such as those from Qatar, Saudi Arabia, and the UAE), major Wall Street asset management companies like Apollo and Blackstone are adjusting their long-term operations to attract investments from these funds. These Middle Eastern funds, managing nearly $4 trillion in assets, are demanding more involvement in local economies, including setting up regional offices and hosting more events locally. This shift requires financial institutions to rethink their collaboration with these sovereign wealth funds, especially regarding fee structures and investment returns. Additionally, geopolitical factors are influencing these wealth funds' investment decisions, particularly after the recent conflict between Israel and Hamas. Overall, Middle Eastern sovereign wealth funds are increasingly influencing global financial markets and demanding more strategic partnerships and returns.

Analysis:

Impact on FX:Increased foreign investment could strengthen local currencies in the Middle East.

FX Pair:USD/SAR, USD/AED

Impact on Shares:Global Market: Potential positive impact on companies involved in asset management and investment.

Companies:Apollo, Blackstone, Middle Eastern banks

6

New Zealand's net immigration has dropped to its lowest level in 16 months, with a record number of citizens leaving the country in search of better job opportunities and pay abroad. Data shows that net immigration for the year ending in June fell to 73,270, compared to 83,740 for the 12 months ending in May. This trend reflects a sluggish domestic economy, stalled hiring, and a bleak outlook.

Analysis:

Impact on FX:Reduced immigration and economic slowdown could weaken the NZD.

FX Pair:USD/NZD, EUR/NZD

Impact on Shares:New Zealand Market: Negative impact on sectors reliant on a growing labor force.

Companies:Air New Zealand, local job agencies

7

Hong Kong's real estate market slump has severely impacted the government's primary revenue source—land sales. Historically, the government has generated significant revenue through land auctions, supporting its low-tax regime and solidifying Hong Kong's position as a business hub. However, the continued decline in the real estate market has led developers to either stop bidding or bid at extremely low prices, resulting in a sharp drop in land revenue. The land revenue for the 2023-2024 fiscal year has hit its lowest level since the global financial crisis, at just HKD 1.96 billion, far below expectations. With an aging population and rising spending on major projects, the Hong Kong government faces fiscal deficit pressures, and deficits are expected to continue expanding in the coming years. The government is seeking measures to increase revenue and control spending, including issuing more bonds, but Hong Kong remains heavily dependent on land sale revenue.

Analysis:

Impact on FX:Fiscal challenges could weaken the HKD.

FX Pair:USD/HKD

Impact on Shares:Hong Kong Market: Negative impact on the real estate and construction sectors.

Companies:Hong Kong developers, government bonds

8

Australia's consumer confidence improved in August, boosted by tax cuts and the Reserve Bank's pause on rate hikes. However, despite the improvement, consumer sentiment remains in pessimistic territory, indicating that pressures from rising living costs and interest rates persist. Meanwhile, the business environment improved for the first time in five months, driven mainly by job growth. While business confidence slightly declined, overall business conditions remain below long-term averages. With the global monetary easing cycle progressing and fiscal support in place, Australia's economic growth outlook has improved for the second half of the year. However, the Reserve Bank is not yet ready to cut rates and is still monitoring consumer and business responses to economic policies.

Analysis:

Impact on FX:Improved consumer confidence could support a stronger AUD.

FX Pair:AUD/USD, EUR/AUD

Impact on Shares:Australian Market: Positive impact on retail and financial sectors.

Companies:Commonwealth Bank of Australia, Westpac, local retailers

9

Singapore expects its economy to grow between 2% and 3% in 2024, driven primarily by the finance, insurance, and information communication services sectors. However, manufacturing, particularly in the biomedical sector, has seen a decline. GDP grew by 0.4% quarter-on-quarter and 2.9% year-on-year in the second quarter. Despite global economic risks, Singapore's external demand outlook remains resilient. The government expects a recovery in the electronics manufacturing sector to support trade-related services, while continued recovery in aviation and tourism will also bolster economic growth.

Analysis:

Impact on FX:Positive growth outlook could strengthen the SGD.

FX Pair:USD/SGD, EUR/SGD

Impact on Shares:Singapore Market: Positive impact on finance and tech sectors.

Companies:DBS Bank, Singapore Airlines, local tech firms

10

A hedge fund managed by Boaz Weinstein, focusing on BlackRock's closed-end funds, surged 22% in the first seven months of 2024. The fund invests in 10 of BlackRock's closed-end funds. Weinstein, through his Saba Capital Management, has been pushing BlackRock to take measures to reduce the trading discounts on its closed-end funds, such as share buybacks and fund liquidations. Weinstein argues that if BlackRock allows shareholders to exit these funds at net asset value, investors could gain $1.4 billion.

Analysis:

Impact on FX:Potentially higher returns could increase demand for USD.

FX Pair:USD/JPY, USD/GBP

Impact on Shares:Global Market: Positive impact on hedge funds and asset management firms.

Companies:BlackRock, Saba Capital Management

11

During a televised meeting with defense officials, Russian President Putin abruptly interrupted the report of Alexey Smirnov, the acting governor of the Kursk region. Smirnov reported that Ukrainian forces had taken control of 28 towns and villages in Russia's Kursk border region, causing about one-sixth of the population to flee. Putin responded by stating that military actions should be evaluated by the military and asked Smirnov to focus on reporting the region's socio-economic conditions and the assistance provided for evacuating residents.

Analysis:

Impact on FX:Increased geopolitical tensions could strengthen the USD as a safe-haven currency.

FX Pair:USD/RUB, EUR/USD

Impact on Shares:Russian Market: Negative impact on the broader market due to increased tensions.

Companies:Russian defense companies, energy exporters

12

Johnson & Johnson (J&J) has made significant progress in advancing a $6.5 billion settlement plan to resolve thousands of lawsuits claiming that its baby powder caused cancer. Reportedly, over 75% of the relevant litigation groups have accepted J&J's proposal, which could help the company limit liability to a subsidiary set up to handle these claims.

Analysis:

Impact on FX:Potential for market stability could positively affect the USD.

FX Pair:USD/EUR, USD/JPY

Impact on Shares:U.S. Market: Positive impact on J&J stocks.

Companies:Johnson & Johnson, legal firms involved in the settlement

13

In Pakistan, the sharp rise in electricity prices has caused some residents' electricity bills to exceed their rent. Since 2021, electricity prices have increased by 155%, part of the government's reform measures to meet International Monetary Fund (IMF) loan conditions. Nearly half of Pakistan's population lives on less than $4 a day, making the electricity price hike a severe burden. Due to rising electricity costs and 12% inflation, many people and businesses are turning to solar panels to reduce their reliance on the national grid.

Analysis:

Impact on FX:Economic strain could lead to a weakening of the PKR.

FX Pair:USD/PKR, EUR/PKR

Impact on Shares:Pakistani Market: Negative impact on utility and energy sectors.

Companies:Local energy companies, solar panel providers

14

The U.S. believes that the likelihood of an Iranian attack on Israel has significantly increased and could occur as early as this week. White House spokesman John Kirby stated at a press briefing that the U.S. and its allies must be prepared for a potential major attack. Israel also views the probability of an attack by Iran and its proxies as increasingly likely, prompting the U.S. Department of Defense to deploy more forces to the Middle East to support Israel in countering potential threats.

Analysis:

Impact on FX:Increased geopolitical risks could strengthen safe-haven currencies like the USD and CHF.

FX Pair:USD/CHF, EUR/USD

Impact on Shares:Global Market: Negative impact on global markets due to heightened tensions.

Companies:Defense contractors, energy companies

15

The recently released July U.S. jobs report has triggered significant global market volatility, but economists are still debating the actual state of the U.S. labor market. While the unemployment rate has risen, some economists believe this may be linked to an increase in immigration or natural disasters like hurricanes. However, the U.S. Bureau of Labor Statistics has stated that these factors did not have a significant impact on the employment data.

Analysis:

Impact on FX:Mixed signals from the labor market could lead to continued volatility in the USD.

FX Pair:USD/EUR, USD/JPY

Impact on Shares:U.S. Market: Uncertainty may lead to increased volatility across all sectors.

Companies:Major U.S. employers, labor market-related sectors