Assassination Attempt on Trump Sparks Political Concern

Macro Monday

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Assassination Attempt on Trump Sparks Political Concern

The big headline this morning comes from the United States, where former President Donald Trump has survived an apparent assassination attempt. The FBI has confirmed that Secret Service agents opened fire on a man identified as 58-year-old Ryan Routh, who was wielding an assault rifle at Trump’s golf course in West Palm Beach, Florida. The FBI is calling this a clear assassination attempt, marking the second such event in two months, as Trump continues to be a polarising figure in the 2024 election cycle.

Governor Ron DeSantis announced that Florida will conduct its own investigation, while President Joe Biden has directed federal resources to ensure that Trump’s security remains airtight. This political drama comes at a time when both the Republican and Democratic parties are preparing for intense campaign seasons, further injecting volatility into U.S. markets and global political sentiment.

China's Economic Slowdown Casts a Shadow Over Global Markets

Shifting the focus to Asia, China’s latest macroeconomic data has been nothing short of bleak. In August, factory output, consumption, and investment growth all slowed significantly, missing economists' expectations. These disappointing numbers have spurred renewed calls for Beijing to increase fiscal and monetary stimulus, but so far, the Chinese government has been hesitant to inject the massive stimulus it has relied on in the past. The People's Bank of China signalled its intent to ramp up monetary easing, but whether these efforts will be enough to hit the country’s 2024 GDP target remains uncertain.

The effects are rippling across various sectors, particularly commodities. Global agricultural markets are feeling the strain, with French barley exports to China tumbling, and the U.S. failing to sell a full cargo of corn for the new season. Wheat farmers in Australia are also growing anxious as Chinese demand shows no sign of picking up.

These economic headwinds are also affecting currency markets. The yuan continues to struggle against the U.S. dollar, while the Japanese yen strengthened past the 140 mark against the dollar for the first time since 2023, reflecting concerns about the stability of the Chinese economy and the broader Asia-Pacific region.

Central Banks Under Pressure

In Europe, central banks are also grappling with complex economic conditions. European Central Bank (ECB) policymakers are divided on whether more rate cuts are necessary, even as inflation in the Eurozone begins to stabilise. ECB officials, including Bundesbank President Joachim Nagel, expressed cautious optimism about inflation coming under control by the end of next year but warned that services inflation could pose a risk. ECB’s Pierre Wunsch echoed these sentiments, stating that inflationary pressures are easing, but the path forward remains fraught with uncertainties.

In the United States, the Federal Reserve is facing a critical juncture. With inflation seemingly under control and job market data signalling some weakness, the Fed is expected to announce its first rate cut in over four years later this week. Investors are widely anticipating a reduction of at least a quarter of a percentage point, although some speculate that the cut could be as large as 50 basis points. The move would mark a significant pivot for the Fed, which has been hiking rates aggressively since 2022 to combat inflation. However, the central bank's decision is complicated by concerns over high borrowing costs, especially for homebuyers and small businesses.

Notably, this potential shift by the Fed is happening in parallel with the Bank of England's tentative moves towards rate cuts. While inflation remains a concern in the UK, there is growing momentum to ease monetary policy. Meanwhile, European Central Bank officials are cautiously optimistic but remain vigilant about inflation risks in the services sector. This divergence in central bank policies reflects the different economic conditions across regions, with the U.S. and Europe wrestling with inflation and growth dynamics, while China faces more severe deflationary pressures.

Political Risks Weigh on Markets

Beyond the U.S. political situation, geopolitical risks are escalating on multiple fronts. Tensions are rising as Russia continues to cooperate with Iran on military technology, raising concerns that Tehran could be inching closer to nuclear weapons capability. Additionally, reports have surfaced that North Korea is supplying ammunition to Moscow, causing major headaches for Ukraine’s defence strategy as it continues to fend off Russia's full-scale invasion.

In the UK, Labour leader Keir Starmer is meeting with Italian Prime Minister Giorgia Meloni in Rome to discuss Russia and Ukraine, signalling a concerted effort among European leaders to present a unified front against Russian aggression. Meanwhile, the European Union is pushing for more sanctions against Russia, as it prepares to tweak its existing sanctions regime to unlock $50 billion in aid for Ukraine.

These geopolitical developments add to the uncertainty hanging over global markets, particularly in energy and defence sectors. Oil prices, which remain highly sensitive to geopolitical tensions, have shown mixed movements. Brent crude fell 0.04%, while WTI crude inched up 0.13%. The broader energy market remains subdued despite the ongoing tensions in the Middle East and the threat of further disruptions from Russian oil exports.

In currency markets, the focus remains on the major players. The British pound saw modest gains against both the U.S. dollar and euro, while losing some ground to the Japanese yen. The GBP/USD pair is trading at around $1.3154, up 0.15%, as the UK benefits from a combination of optimism over easing inflation and rising property prices. The euro also gained slightly against the U.S. dollar, trading at $1.1096, amid expectations that the ECB will take a cautious approach to further rate cuts.

Meanwhile, the yen's strength against the dollar, now trading at ￥140.17, reflects concerns about broader economic instability in Asia. This move is particularly significant as the yen’s position has been under pressure for much of the past year due to Japan’s dovish monetary policy but concerns over China’s economic outlook seem to be shifting sentiment.