Bill Gross Says Trump Would Be Worse For Bond Markets Than Biden

Samantha Luan

Economic

Political

Bond

Summary:

Famed fixed-income investor warns that Republican’s proposed tax cuts would exacerbate rising US deficits.

A Donald Trump victory in the US presidential election would be “more bearish” and “disruptive” for the bond markets than the re-election of Joe Biden, according to Bill Gross, the longtime fixed-income investor.

Trump’s return to the White House would exacerbate the burgeoning US deficits that had soured Gross on the market that earned him the “bond king” sobriquet when he was running asset manager Pimco, he told the Financial Times.

“Trump is the more bearish of the candidates simply because his programmes advocate continued tax cuts and more expensive things,” Gross said, although he noted that Biden’s presidency had also been responsible for trillions of dollars of deficit spending.

“Trump’s election would be more disruptive.”

Gross’s comments come with less than six months to go until November’s US presidential election, and just days before a jury in Manhattan is expected to begin deliberations in the “hush money” case in which Trump could become the first former US president to be convicted of a crime.

Trump, a Republican, is leading Biden, the Democratic incumbent, in most national opinion polls as well as several recent surveys of voters in the key swing states that are likely to decide the election. He has also racked up high-profile endorsements in recent days, including from his former opponent Nikki Haley and billionaire GOP donor Stephen Schwarzman.

But Gross’s comments undercut one of Trump’s central arguments on the campaign trail: that he would be a better steward of the US economy and financial markets than Biden.

One of Trump’s key economic plans is a pledge to make his 2017 tax cuts permanent, a move that the Committee for a Responsible Budget, a think-tank, expects to cost $4tn over the next decade.

In an interview that ranged from his current market picks to the origins of his rare stamp collection, Gross elaborated on what he has learnt while compiling 40 years of his monthly investment outlooks into a new book.

The burgeoning US deficit has turned Gross off the bond strategy that made him famous and led him to declare in his most recent outlook that “total return is dead”. The US fiscal deficit hit 8.8 per cent of GDP last year — more than double the 4.1 per cent deficit figure recorded for 2022.

“It’s the deficit that is the culprit; a $2tn [annual] increase in supply . . . is going to put some pressure on the market,” he said.

Instead, Gross said, he had been putting his fixed-income allocation into a closed-end fund that invests in preferred securities, contingent capital and up to 20 per cent private credit, while using some leverage to boost returns.

“It’s certainly more attractive for an investor that doesn’t need a lot of liquidity.”

Gross is also relatively pessimistic about US equity markets, warning that investors “need to temper their expectations” rather than expect an indefinite repeat of last year’s 24 per cent return for the S&P 500.

“Over time the markets should mean revert. To me, that means prices going up less than they have,” he said.

“If people are expecting 10 or 15 per cent, [they] are going to be working with slimmer budgets,” he added.

Gross, who still spends five or six hours a day watching the markets on his personal Bloomberg terminal, also has chunky investments in tobacco stocks and securities known as master limited partnerships, a tax-advantaged way of funding pipelines and other companies.

In both cases, he is seeking to profit from corners of the market that others avoid. Many investors shun tobacco for its health impact, while MLPs lose some or all of their tax benefits when held in mutual funds and retirement vehicles.

Source:Financial Times

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Alex

Economic

Commodity

July Brent crude rose 6 cents to $83.16 a barrel by 0608 GMT. The more-active August futures rose 5 cents to $82.93.

U.S. West Texas Intermediate (WTI) crude futures for July were at $78.80 a barrel, up $1.08, or 1.39%, from Friday's close, having traded through a U.S. holiday to mark Memorial Day without a settlement.

Oil prices rose over 1% on Monday in muted trade owing to public holidays in Britain and the United States after a downbeat week characterised by the outlook for higher-for-longer U.S. interest rates in the face of sticky inflation.

Expectations of strong fuel demand with the start of the U.S. summer driving and vacation season provided price support, some analysts said.

Despite the general view that elevated interest rates could result in softer oil demand growth, "real-time mobility data indicates oil demand growth is still broadly healthy," said UBS analyst Giovanni Staunovo in a client note.

On the air travel front, U.S. seat numbers on domestic flights for May rose by 5% month-on-month and almost 6% year-on-year to slightly above 90 million, data from flight analytics firm OAG showed, surpassing 2019 levels. International flight seat numbers for May rose by 11% on-year to around 14.2 million, with the levels also 8% higher than the same period in 2019, the data added.

Meanwhile, all eyes will also be on the upcoming online meeting of the OPEC+ on Sunday, where traders and analysts are expecting production cuts to stay in place and buoy prices further.

"We expect oil prices to move higher in the coming days due to anticipated continued voluntary output cuts by oil producers and growing prospects for easing of U.S. monetary policy," said Satoru Yoshida, a commodity analyst with Rakuten Securities.

Yoshida added that the beginning of the U.S. driving season will also provide support.

Earlier, three sources from OPEC+ countries said an extension of voluntary output cuts of 2.2 million barrels per day into the second half of the year was likely.

Lending further support to prices was bullish demand expectations from China after Beijing set up its third planned state-backed investment fund to boost its semiconductor industry.

"Another positive driver for oil is an indirect external demand loop from China as more stimulus measures are being announced to support the local semiconductor industry by setting up a $47.5 billion chip fund (Big Fund III), the highest funded amount versus the previous two phases as part of the National Integrated Circuit Industry Investment Fund," said OANDA senior market analyst Kelvin Wong.

Source：Reuters

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Samantha Luan

Economic

Cryptocurrency

The SEC approved Ethereum’s spot ETF during the final week of May 2024, signifying a significant milestone in the investment landscape for prominent altcoins Chainlink (LINK) and XRP. Meanwhile, DTX Exchange’s (DTX) ongoing presale offers investors the potential for high returns, supported by its advanced trading features.

DTX Exchange investors expect major gains

The cryptocurrency market is abuzz with the introduction of DTX Exchange into the trading landscape. The hybrid exchange platform has generated significant investor interest and instilled a sense of optimism with its advanced trading features and presale gains.

DTX Exchange offers a wide range of assets, encompassing cryptos, forex, stocks, commodities, etc. Investors can trade these assets with 1000X leverage and a no-KYC policy, allowing a mixed investor base to seek diversity and optimize profits.

Moreover, the results of this upcoming ICO serve as evidence of DTX’s infrastructure and trading methodology. Additionally, DTX guarantees a secure and efficient trading experience through its fast execution speeds and commitment to compliance with international financial regulations.

Through user-centric features such as distributed liquidity pools, DTX Exchange effectively improves trading efficiency by reducing slippage. Additionally, the platform offers non-custodial wallets that provide enhanced security and privacy features. This empowers users to maintain complete control over their digital assets, thus mitigating the potential risks associated with centralized custody.

DTX Exchange’s ongoing presale stages offer promising returns for its investors. The initial price of $0.02 increased by 100% to $0.04, with an expected 50% rise to the next stage at $0.06.

The anticipated gains for current investors before the conclusion of the presale are projected to increase by 200%. Additionally, the earliest investors are expected to experience gains exceeding 300% once the presale cryptocurrency reaches its projected price of $0.12.

Chainlink price surges after the approval of Ethereum Spot ETF

Many prominent crypto coins did not exhibit the anticipated performance following the approval of the Ethereum spot ETF. However, despite facing numerous price fluctuations and challenges in 2024, Chainlink (LINK) demonstrated a glimmer of progress.

Chainlink’s price increased to $17.74 after the ETF was approved during the final week of May 2024. The surge was a significant 14% rise from LINK’s low of $15.58 the day before.

The prevailing sentiment surrounding Chainlink is bullish, as technical analysis indicates potential for further growth. Furthermore, if Chainlink surpasses the resistance level of $17.9, the price could surge to $20 before the end of May.

Furthermore, if LINK crosses the resistance level, it would signify the start of the subsequent upward trend, potentially leading to the altcoin’s end of Q2 trading at around $22.

XRP shows resilience after Ethereum ETF approval

XRP demonstrated resilience in the face of unexpected market trends following the approval of Ethereum’s spot ETF. On the day of the ETF approval during the final week of May 2024, XRP’s price increased by 6% to $0.5392 from a previous low of $0.5094.

The approval of the ETF boosted demand for XRP, resulting in a bullish sentiment. According to experts, the potential for market hype and the fear of missing out on the frenzy may result in XRP’s price exceeding initial expectations.

Based on current bullish sentiment, it is projected that the price of XRP will reach $0.57 by the end of May. Additionally, experts anticipate that the altcoin will reclaim its annual high of $0.74 by the end of the second quarter of 2024.

Source:Crypto.news

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FastBull Featured

Remarks of Officials

On May 27, local time, Bank of France Governor François Villeroy de Galhau said in an interview as follows:

In addition to the risk of not reaching the inflation target due to a premature rate cut, there is also a greater risk of a late rate cut, at which point the Eurozone could pay a huge price in terms of economic activity and employment.

June rate cut can be seen as a "done deal," barring any surprises.

I sometimes read that the ECB will only consider cutting rates when it releases its economic forecasts, but the ECB is making decisions on a data-dependent and meeting-by-meeting approach, and "maximum optionality" should not be ruled out. I'm not suggesting a rate cut in July, but we should keep policy decisions open and flexible. I don't say that we should commit already in July, but let us keep our freedom on the timing and pace.

ECB has "significant room" to loosen toward a neutral setting that's thought to be between 2% and 2.5%. After a 50 basis point rate cut, the Eurozone's monetary policy will remain in restrictive territory, and there is no reason to think that subsequent rate cuts will become more difficult.

Nominal wages in the Eurozone are slowing, and the latest acceleration in wage growth is due to individual events in Germany. Services inflation is the main driver of underlying inflation, and it is more important than wage growth data. I don't think the last mile of disinflation is going to be more difficult, but it may take longer.

The Federal Reserve's anticipated rate cuts later this year would not significantly steer the ECB. As the pass-through of currencies to inflation would be less than 10%. Tighter financial conditions from the US could be disinflationary for Europe.

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Thomas

Commodity

Economic

Global demand for Australia's most lucrative export, iron ore, shows no sign of waning, with one major bank forecasting a surge in demand that will keep the price high for the next 12 months.

Demand for gold, copper, silver and iron ore is rising as supplies tighten, fuelling a potential 'super bull' phase for commodity prices, according to HSBC.

"HSBC's forecast is that iron ore prices will average $US105 ($157) a tonne in 2025," chief economist Paul Bloxham said.

"So, lots of evidence really supports the idea that commodities prices will stay elevated and that we're in a bit of an upswing at the moment."

Demand from China, the largest buyer of Australia's iron ore, is expected to take a hit as its property market falters.

But a surge in renewable energy manufacturing in China and around the world will more than make up for any shortfall.

One major source of iron ore demand will be from projects funded by the US Inflation Reduction Act.

"It's a big policy measure there that has been taken to support investing in capacity to make the energy transition," Mr Bloxham said.

"It's happening in Europe, it's happening in Japan. Australia of course has followed as well to support our energy transition.

"That's driving a lot of the demand for the increase in the products that go into electric vehicles, solar panels, batteries, and wind farm equipment."

Budget bonus

May's federal budget papers show Treasury assumes the price of iron ore will hover around $US60 ($90) per tonne.

But it's currently close to $US120 per tonne and some economists predict prices are set to stay at about $US100 per tonne.

"The bottom line is that the extended deficits the Treasury's forecasting over the next couple of years, if commodities prices stay higher, they become smaller or potentially near a surplus," Mr Bloxham said.

"But it depends on a whole range of other things that go on in the economy as well, like how much spending gets factored in and how the economy more generally travels, because it's not just about commodities prices, it's about unemployment and inflation."

Independent economist and budget expert Chris Richardson also expects a massive improvement in next year's forecast budget deficit, currently forecast at over $20 billion.

"There are big differences; you look at today's iron ore price. and it's double what Treasury's assuming it will be in nine months' time.

"It's the same for the coal price.

"So it's big bucks, it's just not enough bucks."

Mr Richardson told the ABC a 2024/25 surplus was possible without the stage 3 tax cuts.

"But it's not necessarily the right thing to do," he said.

Australia's unemployment rate is also expected to rise to 4.5 per cent later this year.

But even a rising unemployment rate won't prevent the government hauling in an even bigger personal income tax take next financial year, according to Mr Bloxham.

"Well, so far the lift in the unemployment rate we've seen has mostly come about because we've boosted the population -- so we've got more people who are able to work -- and we've slowed down the job creation but we haven't actually seen widespread job losses."

"And we haven't seen even a fall in employment — it's being growing in a trend sense, it's just that we've got a lot more workers in the system."

So, if the government is expected to haul in a lot more cash next financial year, what could it do with the money?

The World Today asked the treasurer and his office said Treasury will update the budget in due course.

The other lingering question is, why would governments significantly undershoot the forecast price of Australia's biggest export?

Mr Richardson says it's because treasurers "love to have that wiggle room".

"Almost all of the time the news is going to be much better than that assumption, so they can announce extra dollars and pretend that it's their excellent management skills as opposed to something that was always going to happen," he said.

"But if the world economy runs into trouble and if key prices like iron ore fall over, then Treasury and the treasurer can say 'well, we were already being very conservative'."

Source: ABC News

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Warren Takunda

Stocks

Hong Kong stocks stayed mostly flat on Tuesday despite China’s property market showing signs of recovery and Beijing unveiling its plan for the country’s largest investment plan in the chip sector.

Shanghai offered easing of restrictions in home purchases by allowing multi-child families to buy one more home, offering a cut down on down-payment ratio, lowering mortgage rates, and offering subsidies to homebuyers.

Beijing disclosed a $47.5 billion investment plan in the chip sector to achieve self-sufficiency in the field, extending gains for chip makers.

The Hang Seng Index fell marginally by 0.03%, or 6.19 points, to close Tuesday’s session at 18,821.16. The Hang Seng China Enterprises Index fell marginally by 0.03%, or 2.00 points, to close Tuesday’s session at 6,686.13.

Hong Kong logged a trade deficit of HK$10.2 billion in April after recording a rise in imports and exports during the month, according to the city's Census and Statistics Department data. The department said the city's exports grew 11.9% year on year to HK$378.7 billion while imports rose 3.7% year on year to HK$388.9 billion during the month.

In corporate news, EDA Group Holdings made a strong trading debut in Hong Kong Tuesday morning as its shares soared over 89% at the opening bell. The supply chain services provider opened at HK$3.09 per share, well above its IPO price of HK$2.28.

Hing Yip Holdings’ unit Greengold Leasing agreed to acquire the ownership of certain assets comprising some designated sewage treatment equipment and facilities in Xian City for 40 million yuan as the company’s shares plummeted over 16% at today’s close.

Alibaba Health Information Technology's attributable profit rose to 883.5 million yuan, or 0.0627 yuan per share, in the year ended March 31, from 535.7 million yuan, or 0.0396 yuan per share, in the year-ago period as the company’s shares rose over 10% at today’s close.

New Sparkle Roll International Group expects a wider loss attributable to owners for the fiscal year 2024 and the company’s share rose over 5% at today’s close.

Source: MT Newswires

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FastBull Featured

Remarks of Officials

On May 27, local time, the ECB's chief economist Philip Lane gave an interview with the Financial Times, and the main points are as follows:

Q1: Let's start with the latest euro area wage data, which showed collective wage growth accelerating in the first quarter. Is this a worry?

A1: The overall direction of wages still points to deceleration, which is essential. However, deceleration does not necessarily mean an immediate return to a steady state. This year the adjustment is clearly quite gradual. Next year is seen as lower than this year, but wages will normalize only in 2026.

Wage data should be analyzed with the combination of inflation data. Services inflation is not yet in a normal place and that connects to the fact that wage inflation still has a lot of catch-up going on because of the staggered way in which wages are reset. But in the April data, services inflation has started to come down. Thus, inflation and wage growth are expected to be bound, despite the fact that they are under a descending trend.

Q2: Have the latest data changed your view on the likelihood of an interest rate cut at next month's meeting of the ECB's Governing Council?

A2: The ECB will have the May inflation data and there will be some national GDP and compensation per employee data before the June meeting. Barring major surprises, at this point in time there is enough in what the ECB sees to remove the top level of restriction, and the data flow over the coming months will help the ECB decide rate cut.

Q3: How about for the rest of this year, will the ECB be taking a cautious approach given that wages are still rising rapidly and services inflation is still well above 2%?

A3: The ECB still needs to be restrictive all year long. But within the zone of restrictiveness, the ECB can move down somewhat. In addition, the ECB doesn't need the data to say normalization is a lock. It is important to check if the interest rate is proportional, safe, and within the restrictive zone to move down.

Under the baseline forecasts, next year, when the ECB expects wages to have visibly decelerated when some of the base effects of fiscal measures that are pushing up inflation this year have faded out, then there will be a discussion about normalization. The debate regarding how to lower policy restrictions will be discussed in the next meeting.

Q4: More analysts are predicting the ECB will not do back-to-back rate cuts in June and July. Are they right?

A4: It is not particularly helpful to get involved in meeting-by-meeting rate cuts. Because of base effects, inflation is going to fluctuate around current levels for the rest of this year, so there is not a massive linear trend to guide the meetings.

The scale of the inflation the ECB still has in services and domestic inflation clearly means the ECB needs to be restrictive this year because the ECB needs to make sure that the still significant amount of cost pressure does not fuel price increases too much. In terms of the real rate, with inflation coming down compared to where the ECB was in the autumn, the same amount of real restriction with a lower nominal rate will exist.

Between now and this time next year, there will be shocks in Europe and shocks around the world. The ECB should think in terms of a baseline, but it also has to be reactive to whatever the world delivers in terms of new economic shocks.

Q5：Do you think the last mile will be the hardest part of disinflation? There are worries about sticky services inflation, high wage growth, and weak productivity − do you share those concerns?

A5: These kinds of concerns explain why the ECB thinks it needs to be restrictive for an extended period. It is basically saying that the massive shock to inflation we had in 2021 and 2022 is triggering a strong second round and a significant third round, which is less significant than the second round. The ECB is adjusting the policy to face the original shock, and the reversal of fiscal support measures in some countries in Europe is also relevant this year. The restrictive monetary policy is putting guard rails around that process, to make sure it is not converting into inflation that shows no sign of decelerating. If that happened, if inflation got embedded at some distance from the target, that would be very problematic and probably quite painful to eliminate.

Q6: Is there a limit to how much the ECB can diverge from the US Federal Reserve on monetary policy?

In the other direction, there is the exchange rate channel. Although the oscillating exchange rate may affect inflation, this impact will be gradual due to the pricing. Moreover, the US economy is growing more strongly which will put upward pressure on global prices. However, there are signs proving that in some sense, this stark differential between the US and European economies may narrow over the next year or two.

Q7: If the ECB cuts rates in June, is it risky to be the first major central bank to cut rates?

A7: It is not useful to think about it in relation to other central banks. Also keep in mind that in terms of the global central banking community, there are some central banks that have already moved. Each central bank has to address the circumstances it faces and make policies accordingly.

The Eurozone is in a transitional phase where it needs to remain restrictive for a good amount of time to come. But in terms of that first step, in saying that maybe it is time to come away from that peak, that is a sign that monetary policy has been delivering in making sure that inflation comes down in a timely manner.