By Michael Every of Rabobank
Tomorrow, back to only thinking "Rate cuts!"
Today, markets are only interested in one economy, one field, and earnings from one company, which may or may not be in a bubble. It makes a change from a focus on “Rate cuts!” I guess. But in the real world, there’s lots to think about, politically.
Germany: After Monday’s IFO warning the economy risks a “crisis”, Tuesday’s consumer confidence (-22 vs. -18.2 consensus) and Q2 GDP data made the same point. The latter was -0.1% q-o-q, 0.3% y-o-y as expected, but only due to a 1.0% q-o-q surge in state spending to host Euro 2024. By contrast, private spending was -0.2% q-o-q and capital spending -2.2%. Pundit Gary Lineker once said in football, 22 men chase a ball for 90 minutes and the Germans win. Not anymore, and in geoeconomics, ‘24 men and women chase the ball endlessly and the Germans lose. Indeed, in September, key state-level elections could see the far right AfD and far-left BSW win over 50% of the votes between them: and we are just 13 months from federal elections, which could leave Germany ungovernable – not that the government they do have now is winning many plaudits from voters.
France: President Macron’s refused to see a left-wing government emerge from the new fractious National (Dis)Assembly, as one of his key allies suggests the president break constitutional precedent to propose a new prime minister himself: so, as things burn, it’s time to fiddle? Even if the New Popular Front (NFP) leftist alliance splits after this veto, it’s still hard to project a stable coalition involving the mainstream Socialists and right-wing parties. Or one popular with voters: the NFP has accused Macron of “opening the door” to the presidency for Le Pen. Elsewhere, Macron stated the arrest of UAE/St. Kitts/French citizen and billionaire founder of Telegram, Pavel Durov, was apolitical: yet potential cyber-crime charges are that the platform is used for illegal activities, and Durov won’t allow French authorities to monitor it. Again, Europe and social media monitoring and/or censorship are news. Telegram remains a favorite of the Macron circle even as the security of its messages is being called into question: if it is hackable, what might this show those who did? Meanwhile, showing how world power is rapidly shifting, the UAE made an official protest demanding access to Durov, and freezing military cooperation and the planned $19bn purchase of 80 French fighter jets.
US: Special Counsel Jack Smith re-charged Trump with interfering in the 2020 election after his first try was gutted by the Supreme Court over the issue of presidential immunity. Usually, no DOJ charges are filed so close to elections so as not to look political: Trump alleges this is the latest attempt to interfere in the 2024 election. A court hearing on the scope of presidential immunity, of vast constitutional importance, is needed: yet even if the related ruling is against Trump he will appeal again, and this issue won’t be resolved pre-election. Meanwhile, former Democrat Tulsi Gabbard has joined Trump alongside RFK, Jr; and many former Republican presidential staff have joined Harris, as a major political realignment continues. Re: the big day, Michigan and Wisconsin election boards say RFK must stay on their state ballots despite him dropping out to endorse Trump; Cornel West has been removed in Pennsylvania due to a Democrat protest, but stays on in Michigan after a judge overruled a similar appeal; so does Jill Stein of the Green Party, for now; and allegations and lawsuits over the rules under which the November 2024 vote will be held are already flying. Worse to come, it seems(?)
UK: UK Starmer, only in office for two months, yesterday had to defend his government against charges of cronyism, saying he just wants “the best people for the job” (who are Labour supporters or donors?) Ahead of an October budget we are told will hurt as it repairs years of damage under Tory leadership, former BOE MPC voter professor Danny Blanchflower, who backed Labour’s platform, now tweets: “Prove me wrong but @uklabour have no clear economic ideas at all. How is social cohesion to be restored? Where are the plans for restoring public services, building libraries, swimming pools, nurseries, schools and hospitals, hiring social workers and teachers and doctors and nurses and community workers? How to help the depressed young. They have NO VISION” We shall soon see, of course.
Australia: Monthly inflation data, which like foreign beer sizes, Aussies are still not used to, saw July’s headline drop from 3.8% to 3.5% y-o-y, but still a tick higher than expected. The trimmed mean was 3.8%, down from 4.1%, and core CPI 3.8%, down from 4.0%. Food was 3.8%; alcohol and ciggies 7.2%; clothing 1.9%; housing 4.0%; household furnishings -0.9%; health 5.3%; transport 3.4%; comms 1.9%; recreation 1.1%; education 5.6%; and insurance/financial services 6.4%. As the Aussie press puts it, a two-speed economy is evident ahead of next September’s federal election. If you have kids to educate, places to go, and insurance, food and booze to buy, you may worry; if you think “sofa, so good”, and like to dress up, chat, and recreate, you are more optimistic.
Japan: Saw a Chinese military plane breach its airspace for the first time ever, underlining rising regional tensions. In domestic political tensions, the race to become the new LDP leader is hotting up, with a large number of candidates whom those outside Japan can only pretend to know anything much about fighting to take over leadership of both the party and the country next month. Then the old issues of fiscal vs. monetary stimulus will need to be addressed.
China: Beijing hosted US national security advisor Sullivan, whose arrival at any geopolitical scene can be taken as a harbinger of failure as much success (see his pre-October 7 prognostications on the Middle East, for example). Apparently, Sullivan wants to try to “Trump-proof” US-China relations in advance. Good luck with that. Moreover, even as he arrived to smooth ruffled feathers, the ‘US military is open to escorting Philippine ships in South China Sea amid clashes with China’ - says the head of the US Indo-Pacific Command. Did someone not tell Sullivan in advance what the Pentagon is thinking, or was he hoping there was a way to sell this policy to Beijing? Tellingly, a prominent Chinese academic is warning that Asia is “rapidly sliding towards war” and the US is to blame for the region risking a “powder keg”. It’s a good job Sullivan, who China knows might be out of a job in a few months, is on the job…right?
Other than that, enjoy the US earnings data! Then tomorrow it’s back to only thinking “Rate cuts!”
