Global Economic Tensions: US Resilience, European Struggles, and China’s Investment Decline

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Investors, including JPMorgan Asset Management and Aviva Investors, increased their holdings in emerging market bonds during the early August downturn in risk assets. They believe the Federal Reserve's continued dovish stance will enhance the appeal of high-yield assets in developing countries, although some fund managers warn that the market could face further downturns if U.S. recession fears resurface. JPMorgan and others find current yields on emerging market bonds attractive, particularly in high-risk markets like Ukraine and Ecuador. Meanwhile, some investors remain cautious about U.S. economic data and geopolitical risks.

Analysis:

Impact on FX:Potential strengthening of emerging market currencies against the USD if the Fed maintains a dovish stance.

FX Pair:USD/BRL, USD/TRY

Impact on Shares:Positive for emerging market bonds and equities; mixed for U.S. markets depending on economic data.

Companies:Emerging market sovereign bonds, high-yield corporate bonds.

4

Singapore's Prime Minister, Lawrence Wong, announced a series of new welfare measures ahead of the upcoming election, including unemployment support, housing subsidies, training grants, and mandatory paternity leave. These measures mark a shift in the government's stance on providing unemployment benefits, aiming to benefit all social strata. In his National Day speech, Wong emphasized that the government will continue to maintain a business-friendly environment while remaining prudent and decisive in responding to global uncertainties. The speech is seen as a major political statement by the ruling People's Action Party ahead of next year's election.

Analysis:

Impact on FX:Potential strengthening of SGD due to increased social spending and improved consumer confidence.

FX Pair:USD/SGD

Impact on Shares:Positive for consumer-related sectors in Singapore; potential boost to domestic spending.

Companies:Singaporean real estate developers, retail companies.

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Thailand's recent political turmoil may threaten the Thai baht's rebound. Despite the baht becoming the best-performing currency in the region since early July due to a recovery in tourism, the uncertainty surrounding the new Prime Minister Srettha Thavisin's government and the removal of his predecessor have increased market risks. Some analysts predict that the baht could weaken to 36 THB per USD by the end of the year. The market will also focus on the Bank of Thailand's interest rate decision this week. Although the rate is expected to remain unchanged, political tensions could weigh on the baht in the short term.

Analysis:

Impact on FX:Increased political uncertainty may weaken the THB.

FX Pair:USD/THB

Impact on Shares:Negative for Thai equities due to heightened political risks; potential outflows from foreign investors.

Companies:Thai tourism companies, financial institutions.

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The strong rally in Indian auto stocks is reversing due to rising unsold inventory levels, and increased discounts offered by automakers to maintain market share, which is putting pressure on profits. In August, the NSE Nifty Auto Index fell by 4.1%, outpacing the Nifty 50 Index's decline. Passenger car inventories have surged to record highs, with waiting times for some models nearly disappearing from 12 months a year ago. These factors raise concerns about whether local automakers can sustain the strong sales seen post-pandemic. Looking ahead, the upcoming festive season is not expected to bring significant market recovery.

Analysis:

Impact on FX:Weakened demand may put pressure on INR as investor sentiment wanes.

FX Pair:USD/INR

Impact on Shares:Negative for Indian auto stocks due to inventory build-up and discounting pressures.

Companies:Indian automakers like Tata Motors, Mahindra & Mahindra.

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Due to a slowdown in immigration and more New Zealand citizens seeking job opportunities and higher wages abroad, New Zealand's population growth further slowed in the second quarter. According to Statistics New Zealand, the population increased by 7,000 in the three months ending June 30, marking the slowest growth in two years. Meanwhile, a weakening economy has led to rising unemployment, reducing demand for foreign workers. The Reserve Bank of New Zealand began easing monetary policy last week and expects net migration numbers to decline further in the coming years. These factors collectively contribute to slowing population growth, adding to the uncertainty in New Zealand's economic outlook.

Analysis:

Impact on FX:Continued economic challenges may weaken the NZD.

FX Pair:NZD/USD

Impact on Shares:Negative for New Zealand equities due to slowing economic growth and rising unemployment.

Companies:New Zealand real estate, consumer goods.

8

Israel and Hamas are trading accusations over the issues of a ceasefire agreement and hostage exchange, leading to stalled negotiations. Israeli Prime Minister Benjamin Netanyahu stated that some issues in the talks are negotiable, while others are not, whereas Hamas accused Israel of introducing new demands that obstruct progress. Meanwhile, U.S. Secretary of State Antony Blinken arrived in Israel to meet with Netanyahu and other officials to push forward the ceasefire negotiations. Despite progress in talks held in Doha, significant differences remain, particularly concerning whether Israeli troops will remain stationed in Gaza and the details of the hostage exchange.

Analysis:

Impact on FX:Prolonged conflict may lead to a weaker ILS as geopolitical risks rise.

FX Pair:USD/ILS

Impact on Shares:Negative for Israeli equities due to increased geopolitical tensions.

Companies:Israeli defense contractors, multinational companies operating in Israel.

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Wall Street is closely watching Federal Reserve Chair Jerome Powell's speech at the Jackson Hole symposium, hoping for confirmation of an upcoming rate cut. However, uncertainty remains about the size and timing of the cut. If Powell fails to clearly signal that a rate cut is imminent, it could trigger a sharp sell-off in the stock market. Investors have heavily bought into tech stocks, driving the S&P 500 index higher, but any hint of a hawkish tone from Powell could lead to a rapid deterioration in market sentiment. The market widely expects the Fed to begin cutting rates in September, but the exact scale is still unknown, making Powell's speech a focal point for investors.

Analysis:

Impact on FX:Potential for USD volatility depending on Powell's tone; a dovish signal could weaken the USD.

FX Pair:USD/EUR, USD/JPY

Impact on Shares:Rate-sensitive stocks, particularly in the tech sector, could face volatility based on Powell's comments.

Companies:U.S. tech giants, interest-rate-sensitive sectors.

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A class-action settlement over U.S. real estate commission practices went into effect on August 17, marking the beginning of significant changes in the real estate industry. The new rules will give consumers more power to negotiate commissions, which is expected to gradually reduce real estate agent fees. Previously, sellers typically negotiated commissions with their agents, with buyers bearing the cost. The new rules require buyer agents to explicitly state their commission in the contract, potentially leading sellers to be more willing to pay buyer commissions to secure higher bids, thereby altering the industry landscape. While the reduction in commissions may be gradual, the change is seen as a critical step toward increasing transparency.

Analysis:

Impact on FX:Limited direct impact on FX markets.

FX Pair:None

Impact on Shares:Potential negative impact on real estate brokerage firms as commission structures evolve.

Companies:U.S. real estate brokerages, property listing services.

12

Turkey is expanding its influence in Africa through multiple initiatives, including an upcoming offshore oil exploration along the Somali coast. Turkey's cooperation with African countries spans intelligence, defense, mining, and energy sectors. Somalia serves as a key base for Turkey in Africa, where it operates its largest overseas military base and manages the port and airport in Mogadishu. Additionally, Turkey has sold drones to several African countries, showcasing its growing geopolitical influence. However, these actions come with risks, particularly in conflicts with other nations.

Analysis:

Impact on FX:Increased geopolitical activities may lead to TRY volatility.

FX Pair:USD/TRY

Impact on Shares:Positive for Turkish defense and energy sectors, though geopolitical risks remain.

Companies:Turkish defense contractors, energy firms.

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The UK housing market shows signs of recovery after the Bank of England's first rate cut since the pandemic. According to Rightmove, the number of potential buyers contacting estate agents for viewings increased by 19% year-on-year since the August 1 rate cut, and the number of new sellers listing properties also rose by 5%. While the housing market's recovery varies across regions in 2024, lower borrowing costs and a shift in central bank policy have boosted confidence in a market rebound in the second half of the year. Rightmove has revised its 2024 house price forecast upward, predicting a 1% annual increase. However, despite increased buyer activity, asking prices for sellers still fell by 1.5% month-on-month in August.

Analysis:

Impact on FX:Positive for GBP as the housing market recovery boosts economic sentiment.

FX Pair:GBP/USD

Impact on Shares:Positive for UK homebuilders and real estate firms; potential increase in mortgage lending.

Companies:UK homebuilders, mortgage lenders.

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Thailand's new Prime Minister, Srettha Thavisin, announced that the government plans to distribute approximately $14 billion in cash subsidies to stimulate the economy, but the proposal requires further study to ensure it complies with the fiscal discipline law. Thavisin emphasized that the plan remains a key measure for economic growth but needs more input, including from coalition government partners. She denied reports that her father, Thaksin Shinawatra, asked her to abandon the policy.

Analysis:

Impact on FX:Uncertainty around fiscal spending may weaken the THB.

FX Pair:USD/THB

Impact on Shares:Mixed impact on Thai equities depending on the final implementation of the subsidies.

Companies:Thai banks, consumer goods companies.

15

San Francisco Federal Reserve Bank President Mary Daly stated in an interview with the Financial Times that it is time to consider adjusting borrowing costs (i.e., interest rates), with the current range being 5.25% to 5.5%. She emphasized that gradual rate adjustments are prudent rather than being delayed or slow. Although the labor market has softened, it is not weak. Daly also noted that while it is too early to tell if employment data indicates an economic slowdown, it is crucial to prevent the labor market from slipping into recession. She expressed increased confidence that inflation will return to the 2% target. Fed Chair Jerome Powell is expected to deliver an economic outlook speech at this week's Jackson Hole symposium.

Analysis:

Impact on FX:Potential USD strength if rate adjustments are seen as supportive of economic stability.

FX Pair:USD/JPY, EUR/USD

Impact on Shares:Positive for U.S. financials and interest-rate-sensitive sectors.

ompanies:U.S. banks, real estate, utilities.