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 The outlook has not changed, sentiment remains buoyant. Firstly, it is looking increasingly probable that the US will avoid recession. Its economy grew by a forecast-beating 2.4% in 2Q although consumer spending slowed a little and weekly jobless claims fell implying a continuously strong labour market. Despite the economic expansion inflation cooled considerably last quarter, the Commerce Department found. In this auspicious environment the central bank might just pause rate hikes from now on but if not, one more increase would be sufficient to end monetary tightening.

The ECB did not rock the boat either and broadly agrees. As expected, the European Central Bank increased its benchmark deposit rate by 25 basis point to 3.75% matching the peak 22 years ago noting that it stands ready to ensure interest rates “will be set at sufficiently restrictive levels for as long as necessary”.

Investors warming up to the idea of peak rates getting ever closer also boosted oil, which continued its march higher, once again led by products. Apart from the sanguine economic backdrop and healthy demand the production cuts from the OPEC+ alliance helped push Brent to highs not seen since April. Those who expected an upside break-out feel vindication and whilst the journey north will be paved with occasional retreats it would take a brave man to bet against re-visiting the 2023 summit set at $89.09/bbl on January 23.

GMT +1	Country	Today’s data	Expectation
09.00	Germany	Flash Growth Rate 2Q	-0.3%
13.00	Germany	Preliminary Inflation Rate July	6.2%
13.30	US	Core Price Index June	4.2%
15.00	US	Michigan Consumer Sentiment Final	72.6

 

Face Off

With the Iowa caucus, where the selection of the US presidential candidates begins, less than 6 months away it is a timely attempt to sum up who the most likely nominees are for the two main US parties. The Democrats’ choices seem simpler than that of the Republicans. There are three officially declared or potentially undeclared candidates amongst the donkeys: the incumbent president, Joe Biden, Robert F. Kennedy Jr., senior attorney and Marianne Williamson, political activist. The field the elephants are stampeding on is more crowded: there are possibly two favourites in the GOP, three contenders and ten unlikely nominees. Health allowing, the Democrats will plausibly nominate Joe Biden to take on his Republican peer. Donald Trump, despite his countless legal troubles, is currently enjoying the support of 40% of Republican voters with the balance split between the remaining numerous candidates. It is, therefore, probably a fair shout to conclude that come November 2024 we will see the repeat of the 2020 contest.

The two trailblazers could not be any different (well, there is no-one really from the Democratic Party who could or would want to compare himself/herself in any way to the former president), yet curiously there are striking similarities both in the domestic political agenda and in their foreign policy. As for the US economy, Trump was and possibly will be, the advocate of supply side economics incentivizing deregulation, tax cuts and less government intervention. Conversely, Joe Biden is the vocal proponent of full employment, economic support via infrastructure projects, clean energy initiatives, tax increase on high earners and corporations and increasing the minimum wage. As for healthcare, Trump unsuccessfully tried to repeal Obamacare and Biden sought to expand it. For climate change Trump repudiatesthe global warming phenomenon and withdrew from the Paris climate agreement, Biden rejoined it. The common economic ground between the two is protectionist policies; for Trump by default, for Biden out of necessity. The former’s ‘America First’ programme will likely be relaunched in case he gets re-elected whilst Biden, in the light of the economic devastation caused by the pandemic and Russia’ war, has been forced to implement his Inflation Reduction Act to provide a massive adrenalin shot to the US, much to the chagrin of his allies. The US stock market more than doubled under Trump and has risen by 8% during Biden’s reign after recovering from a nearly 40% fall caused by the Russian invasion. As for foreign policy, one chiefly needs to consider China, Iran and Russia. In his attempt to protect the US economy Trump waged a massive trade war on China and Biden has not rolled back those protectionist measures. A unilateral act despite emphasizing multilateralism, because the need for international alliances and diplomacy help to put pressure on the US's economic adversary. Just think of the US ban on chip exports to China. Trump withdrew from the Iranian nuclear deal and Iran’s crude oil export ban remained in place during the Biden administration. A stark difference is observed in their approach towards Russia. Trump openly courted and even admired Vladimir Putin and claims that if he is re-elected, he would end the war in 24 hours without elaborating – a frightening prospect. Under Biden the US, by far, has proven to be the largest donor of military aid to Ukraine. This trend, depending on the composition of the Congress, is set to continue if the incumbent gets the vote of confidence again. The narrative on energy policies differs, but the gap is not as yawning as before Russia’ unprovoked invasion. The Biden administration was to focus on renewable energy and set target of carbon free electricity sector by 2035 thus achieving net-zero emissions 15 years later. Donald Trump would prioritize fossil fuel production, including oil, gas, and coal. Energy security and independence are of paramount importance for both. Trump will want to ensure it via an increase of domestic fossil fuel production. Joe Biden has sought to diversify the energy mix and reduce the role fossil fuel plays in it but because of the Ukrainian crisis this focus has reversed lately, and oil and gas are likely to remain the focal point of the Biden administration until Russia is re-integrated in the global oil trade, which is not an imminent prospect. Whoever gets re-elected, protectionism will triumph, tacit from Biden and explicit from Trump. Domestic interests, call it MAGA or IRA, will prevail, and this attitude will plausibly hasten de-globalization. In case of a Republican win an added bonus would be the showbizification of politics and economics where simple solutions will be offered to complex problems making the actions of the second Trump administration ever more unpredictable and erratic. No question, exciting and worrying times lie ahead.

Overnight Pricing

 

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