Emerging-Market Currencies Under Threat as Trump Odds Rise

Economic

Summary:

Policies Trump has promised seen inflationary, boosting dollar. Asian currencies slipped after Trump assassination attempt.

A potential return of Donald Trump as the next US president may bring bad news for emerging-market currencies, given the threat of his protectionist economic policies.

The South Korean won led the broader declines in Asia after the assassination attempt on Trump over the weekend boosted his odds of winning the presidency. Indonesia’s rupiah and Thailand’s baht snapped eight days of gains, while Malaysia’s ringgit slipped from its highest level in January.

Elsewhere, Mexico’s peso fell 0.8%, with the South African rand down 0.6%.

Investors are worried that Trump’s plans to slash taxes and raise tariffs, if elected, could stoke inflation and boost the case for the Federal Reserve to keep monetary policy restrictive for longer. The former president’s protectionist policies could also pose headwinds to the EM nation’s external finances, according to Sumitomo Mitsui Banking Corp.

“There’s a lot of caution in the market right now,” said Fiona Lim, senior currency strategist at Malayan Banking Bhd. “Trump’s policies are inflationary and a return of US economic outperformance and higher-for-longer US rates environment could potentially sink EM currencies once again.”

Emerging-Market Currencies Under Threat as Trump Odds Rise_1

Emerging markets have benefited from rising odds of monetary easing across the globe as inflation showed signs of abating. The developing-world currency index is up about 1.5% from a five-month low hit in April, while a gauge of dollar-hedged local-currency bonds looks set for a third monthly advance.

All those gains could be at risk with traders mindful of the dollar’s dominance during Trump’s years in office, when currencies like the Chinese yuan and the Mexican peso came under pressure after he unleashed higher tariffs.

“Trump’s policies are likely more protectionist against other countries and may cause headwinds to exporters,” said Jeff Ng, head of Asia macro strategy at Sumitomo. “This is particularly significant for Asian exporting nations. Risks to current-account balances may be detrimental to currencies.”

Source:Bloomberg

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Samantha Luan

Economic

Britain’s services sector and jobs market are likely to show lingering signs of strong inflation this week, a warning sign that may prompt the Bank of England to hold off on cutting interest rates in August.

Official data due Wednesday is expected to show services inflation ticked down to 5.6% in June from 5.7% the month before, a survey of economists showed. A day later regular pay growth is predicted to cool below 6% for the first time in 20 months in figures covering the three months to May.

While the headline rate of inflation is set to remain around the BOE’s 2% target for a second month, officials at the central bank are looking at underlying measures to get a better sense of how long price pressures will persist. And it’s those indicators that are underpinning concerns about cutting rates too soon.

“An upside surprise/re-acceleration in services inflation and wage growth could put the August cut in question,” said Sonali Punhani, UK economist at Bank of America.

Stubborn Services Inflation in UK Leaves BOE Cut on a Knife Edge_1

This week’s figures are the last major data releases before the BOE decides whether to ease off on its fight against inflation and cut rates for the first time since the start of the pandemic. While the European Central Bank has already moved to loosen policy, the UK election and lingering concerns about underlying price pressures have delayed a pivot by the BOE.

The minutes of the BOE’s last meeting in June showed that the decision not to lower rates from a 16-year high of 5.25% was “finely balanced” for some of the nine members of the Monetary Policy Committee.

However, last week the BOE’s more hawkish rate-setters were quick off the blocks to warn of persistent inflation pressures after being silent during the election blackout period. Chief Economist Huw Pill, and rate-setters Jonathan Haskel and Catherine Mann all signaled caution over whether to reduce rates in appearances.

Investors place a 45% chance of a rate cut in August, down from odds of 60% at the start of this month. The pound last week hit its highest level against the dollar in a year on expectations that rates in the UK will remain elevated for some time and that economic growth is picking up. The UK currency is near the highest since August 2022 against the euro.

Wednesday’s CPI data “will make or break the August meeting,” said Kirstine Kundby-Nielsen, an analyst at Danske Bank. Stronger UK economic data, hawkish BOE comments and political stability following the election have helped boost the pound to its strongest level since 2022 versus the euro, she said.

A monthly survey showed economists revising up gross domestic product growth forecasts for this year to 0.8% from 0.7%. About 86% of those surveyed expect a rates cut in August.

Stubborn Services Inflation in UK Leaves BOE Cut on a Knife Edge_2

Some economists expect data on Wednesday to show headline inflation dipping below 2% for the first time since April 2021. A handful expect an increase to 2.1%, leaving the median forecast for another on-target reading.

However, services inflation — which the BOE is watching more closely for signs of cooling domestic pressures — has not slowed by as much as the central bank had hoped at its last forecasts in May.

The arrival of Taylor Swift’s Eras tour in the UK in June could put some upward pressure on the services number, according to some forecasters.

Services inflation is likely to remain well above the 5.1% rate the BOE had expected by June. However, the rate-setters played down the overshoot at the meeting last month, pointing to volatile or index-linked parts of the basket. Pay growth excluding bonuses is expected to fall from 6% to 5.7%.

Stubborn Services Inflation in UK Leaves BOE Cut on a Knife Edge_3

“We think the data will keep the prospect of an August interest rate cut alive, though recent comments from policymakers suggests it’s far from a done deal,” said Dan Hanson and Ana Andrade, economists at Bloomberg Economics.

“Wage gains have recently been sticky, partly impacted by the near-10% increase the National Living Wage, but should show clearer signs of easing in upcoming releases,” they said.

There were other signs of the jobs market cooling on Monday. A separate report showed active job postings fell 1.6% in June from a month earlier to 1.69 million — still above pre-pandemic levels. New advertisements for jobs fell 2.6%, according to the Recruitment & Employment Confederation.

“Recruiters reported some hesitancy among businesses about hiring,” said Neil Carberry, chief executive officer of REC. “The jobs market is proving remarkably resilient to economic pressures.”

The BOE’s rate-setters also have to judge whether a faster-than-expected economic recovery in the UK will hinder their ability to loosen policy.

Last week figures showed that the economy grew 0.4% in May, double the pace expected by economists. It means that, if GDP is flat in June, the economy would have grown by 1.4% in the first half of the year, above the 1.2% expansion expected by the BOE.

Source:Bloomberg

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Warren Takunda

Economic

Stocks

London stocks were set to fall at the open on Monday as investors digested disappointing Chinese GDP figures.

The FTSE 100 was called to open down around 22 points.

Data released earlier by China’s National Bureau of Statistics showed that second-quarter growth slowed to 4.7% year-on-from 5.3% in the first quarter, missing expectations of 5.1% growth.

ING said "weak consumption and property continued to be a drag on growth".

It added that more policy support will be needed in order to achieve this year's 5% growth target.

On home shores, investors will be mulling the latest data from Rightmove, which showed that house prices dipped in July as the general election, international sporting events and the start of the summer holidays unsettled the market.

According to Rightmove’s latest house price index, house prices eased 0.4% in July month-on-month, compared to June, when growth was flat. On an annual basis, prices ticked up 0.4%.

The national average asking price now stands at £373,493.

Rightmove said the drop was bigger than usual for this time of year, with new sellers hit with a series of distractions, including Euro 2024 and weeks of campaigning ahead of the 4 July general election.

The 20-year average for July is a 0.2% decline.

However, Rightmove added that growing expectations for an imminent cut in interest rates, along with a more stable political outlook following Labour’s historic win, boded well for the autumn market.

The number of sales being agreed was also an "encouraging" 15% above the same period a year ago, it noted.

Tim Bannister, director of property science at Rightmove, said: "Three major uncertainties hanging over the property market at the start of the year were when the first interest rate cut would be, and the timing and result of the general election.

"We’ve now got the political certainty of a new government with a large majority, which we expect will help home-mover confidence. It’s very early days, but the new chancellor’s immediately announcements on housebuilding targets and planning reform are positive signs."

The cost of borrowing currently remains at a 16-year high of 5.25%. But the market widely expects the first cut in either August or September.

In corporate news, luxury goods maker Burberry said it has suspended dividend payments and that it expects to post an interim operating loss after a slump in first-quarter revenues.

The company said retail sales in the 13 weeks to June 29 fell by 22% to £458m.

"The slowdown in trading we experienced in Q1 FY25 continued into July. If this trend were to continue through the current quarter, we would expect to report a H1 FY25 operating loss and FY25 operating profit to be below current consensus," Burberry said.

Elsewhere, Me Group International reported a strong first-half financial and strategic performance, with a 4.6% revenue increase to £150.4m and a 10.3% rise in profit before tax to £30.0m.

The FTSE 250 company said growth was driven by the expanding Wash.ME laundry operations and increased installations of Revolution laundry machines, alongside a 2.4% revenue increase in Photo.ME machines.

It said it maintained a robust balance sheet with significant cash generation, supporting investments and a 16.2% increase in the interim dividend, while projecting continued growth and record profitability for the full year.

Source: Sharecast

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Samantha Luan

Economic

Indonesia's trade surplus narrowed in June to its smallest in four months as exports rose less than expected amid strong import growth, data from the statistics office showed on Monday, after two big copper miners halted shipments.

The June surplus was $2.39 billion, falling short of economists' median forecast of $2.98 billion in a Reuters survey, and May's revised surplus of $2.92 billion.

The value of shipments from Indonesia, the biggest economy in southeast Asia, has gradually declined from its peak during a global commodity boom in 2022, amid softening prices.

Several economists said the June data remained in line with market expectations of a trend of a narrower goods trade surplus this year, which will widen the current account deficit and may pressure the rupiah exchange rate.

"We anticipate a widening current account deficit, in line with the declining trade surplus, primarily due to weakening global demand for export products," economist Hosianna Situmorang of Bank Danamon said on the WhatsApp messaging app.

June exports rose 1.17% on a yearly basis to $20.84 billion, less than the 5.46% expected in the Reuters poll.

However, a drop of 16% in June shipments of mining products dampened overall export growth, which included falling shipments of coal, steel and copper.

Copper miners Freeport Indonesia, a unit of U.S. mining giant Freeport-McMoran, and Amman Mineral Internasional , could not ship any copper concentrate to overseas buyers last month as the Indonesian government was still working on extending their export permits.

Jakarta was supposed to stop all copper concentrate exports by the end of May, but authorities have promised a dispensation until the end of the year for Freeport and Amman, whose refining smelters have yet to reach full capacity.

Freeport's new permit was issued this month, but Amman's permit is still being processed.

June imports were worth $18.45 billion, up 7.58% on a yearly basis, compared with the poll forecast of 6.55%.

The rise in imports of fuel, as well as raw materials and consumer goods, drove overall growth.

State energy firm Pertamina ramped up tenders for fuel purchase in June after a fire at one of its production units at the Balikpapan refinery. It had sought June deliveries of products such as jet fuel and gasoil.

Source:Reuters

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Warren Takunda

Central Bank

Economic

Federal Reserve Chair Jerome Powell on Monday kicks off what is shaping up as a key week of commentary from U.S. central bank officials taking stock of slowed inflation and mulling whether to signal the start of interest rate cuts because of it.

The Fed meets July 30-31, but under the central bank's rules policymakers can't comment about monetary policy from this Saturday, July 20, until the Friday after the meeting.

With inflation edging closer to their 2% target and rising concerns about how long the job market can stay strong with the Fed's foot on the economic brake, they may well use those final days to either flag that rate cuts are imminent or explain why recent data still doesn't warrant a turn to easier monetary policy.

The betting in recent days has tilted strongly towards the Fed, after a false pivot late last year that seemed to put rate cuts on the horizon, finally deciding that the pandemic-era outbreak of inflation has been controlled.

"We expect a strong signal in July that cuts will begin at an upcoming meeting," likely September if the economy evolves as expected, Citi analysts wrote on Friday, a day after weak June inflation prompted investors to boost the estimated likelihood of a September cut to over 90%, according to data from CME Group's FedWatch, opens new tab tool, while some major banks and investment houses pulled forward their own rate cut calls.

Policymakers are not expected in the coming meeting to lower the benchmark interest rate from the 5.25% to 5.5% range where it has been held since July of 2023. But recent weak inflation reports may lead them to change their policy statement in a way that flags a possible rate cut at the next meeting in September, and this week's comments will be parsed to see how the latest data has shaped policymakers' views.

The Consumer Price Index fell in June after remaining unchanged in May, while a Friday report on wholesale prices showed price pressures slowing in areas like healthcare that should further build the case for easier monetary policy.

Powell Opens Key Week of Fedspeak as Rate Cut Case Develops_1

ENOUGH GOOD DATA?

Powell speaks at 12:30 p.m. EDT (1630 GMT) Monday at the Economic Club of Washington.

He told U.S. lawmakers last week that "more good data" on inflation would pave the way to lower borrowing costs, but said he would not hint at the timetable for making a decision.

His congressional testimony, however, came before CPI and Producer Price Index reports led economists to estimate that the Personal Consumption Expenditures price index, used by the Fed to set its inflation target, fell below 2.5% in June from 2.6% in May. PCE data for June will be released on July 26.

Powell and other Fed officials say they want to begin cutting rates before inflation actually hits 2% since the impact of monetary policy takes time to reach the economy. Waiting too long, they fear, could keep interest rates too high and slow things more than necessary.

Among this week's speakers, Fed Governor Adriana Kugler delivers remarks on Tuesday afternoon, while Fed Governor Chris Waller has an event scheduled on Wednesday morning and New York Fed President John Williams has an overseas appearance on Friday. Richmond Fed President Thomas Barkin, a current voter on interest rate policy, speaks Wednesday morning as well.

Waller's remarks at a Kansas City Fed event could be of particular note. He has been an important voice in the inflation debate, considered hawkish by temperament but someone who has recently noted from his own research that the job market is at a point where further weakening could lead to a faster rise in the unemployment rate.

Powell Opens Key Week of Fedspeak as Rate Cut Case Develops_2

Cooling in the job market so far, Fed officials feel, has been absorbed largely through a decline in the massive number of job openings posted by businesses in response to the strong demand for goods and services coming out of the pandemic.

Nevertheless, the unemployment rate has been steadily ticking up. It breached 4% for the first time in over two years in June, when 4.1% of people wanting a job did not have one.

In late May Waller said he still wanted to see "several more months of good inflation data" before he would support a rate cut, and on Wednesday he will have the opportunity to say how much progress he feels has been made.

Since his last monetary policy remarks, the PCE price index has fallen from 2.7% to 2.6% in May, with a further decline now expected.

If coming data, including an initial report on second-quarter economic growth, continues to show easing price pressures, it may cause the Fed in its next statement to change longstanding language that says inflation "remains elevated," a phrase many economists see needing to be altered to open the door to rate cuts.

"You're seeing the inflation rate...come down to something like what the target is," Chicago Fed President Austan Goolsbee said Friday on National Public Radio's Morning Edition. "The more data you get like what we got this week...the more confident you will be that you're on the path back to 2%."

Source: Reuters

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Warren Takunda

Central Bank

Economic

China's economic growth slowed to 4.7% in the second quarter from a year earlier, likely amplifying calls for more effective stimulus as Communist Party leaders begin their highly anticipated third plenum in Beijing.

The gross domestic product figure, announced by the National Bureau of Statistics (NBS) on Monday, fell short of the 5.3% increase in the January-March quarter and was below a consensus forecast of 5.1% by 30 economists in a Nikkei poll.

On a quarterly basis, the GDP grew by 0.7% during the April-June period, lower than the revised 1.5% recorded for the previous term.

Calling the performance "generally stable," the bureau conceded, "The current external environment is complex, domestic effective demand is still insufficient, and the foundation for economic recovery still needs to be consolidated." A bureau spokesperson also blamed "short-term factors" such as severe weather.

Even though China's 5% growth for the first half keeps it on track for the full-year target of "around 5%," some analysts are wary of the coming months in the absence of strong policy support, due to the country's prolonged property crisis, weak consumer demand and escalating trade tensions.

"China's economy hit the brakes in the June quarter," Harry Murphy Cruise, an economist at Moody's Analytics, said in a note. "The weaker-than-expected result was driven by a sharp slowing in household spending and continued falls in the property market. Turning these trends around should be front and centre of this week's third plenum."

The plenum, which lasts four days, will offer a window on how China's top leadership plans to address the problems. The meeting is traditionally known for determining the direction of economic development.

In a China Business Outlook survey by rating agency S&P published last week, confidence among respondents fell to 11% from 15% in February, the second-lowest level since the initial wave of the COVID-19 pandemic in early 2020. The number was also considerably lower than the global average of 28%.

Earlier on Monday, China's central bank maintained the one-year medium-term lending facility (MLF) rate -- at which it lends to financial institutions to boost liquidity -- at 2.5%.

In response to the disappointing GDP numbers, Oxford Economics on Monday observed that "ineffective transmission of cautious policy easing efforts and the overhang of property weighed on the Chinese economy in Q2, despite the promising start to the year."

It added that "stagnating household credit growth, consumer confidence, and personal savings rates hint at no sign of a genuine recovery yet." China GDP Growth Slows to 4.7% in Q2, Missing Forecasts_1

China GDP Growth Slows to 4.7% in Q2, Missing Forecasts_1

The government's latest attempt to rescue its property market by buying up unsold homes and cutting mortgage rates has failed to revive confidence so far. Investment in property dropped 10.1% during the first six months of the year, while home prices kept falling in cities across the country.

"We should also see that current real estate-related indicators are still declining, and the real estate market is still in the process of adjustment and transformation," an NBS spokesperson acknowledged.

The property pressure continued to weigh on overall investment in fixed assets, which expanded 3.9% during the first half of 2024, according to other data released Monday -- matching a consensus forecast in a Bloomberg poll.

Total retail sales of consumer goods, a gauge of household spending, rose 2.0% in June, compared with the previous month's 3.7% and well below a forecast of 3.4%. It was the lowest reading since December 2022 despite aggressive subsidized trade-in programs meant to encourage consumers to replace old appliances and automobiles, which have cost authorities more than 13 billion yuan ($1.79 billion).

The value of car sales fell 6.2% on the year in June, down for the fourth consecutive month.

"Even with the car trade-in-subsidy policy, consumers are still in a wait-and-see mood and have high expectations for further price cuts," Citi Research observed in a note published on Thursday.

The tepid consumption, which was also underlined in last week's weak import and consumer prices data, contributed to a lower industrial production growth rate of 5.3% on the year in June. The reading slipped from the 5.6% recorded in May but surpassed a consensus forecast of 5%.

China continues to lean heavily on exports, a source of friction with many of its trade partners. Exports jumped 8.6% last month, marking the fastest growth since March 2023.

The statistics bureau on Monday also released the latest industrial capacity utilization rate, which rose to 74.9% in the second quarter from 73.6% in the first, which had been the lowest since the first quarter of 2020.

The jobless rate stabilized at 5.0% in June, unchanged from May.

The NBS spokesperson insisted that favorable conditions "are stronger than the unfavorable factors," but said, "Looking ahead to the second half of the year, the external environment is becoming more unstable and uncertain, and there are still many difficulties and challenges at home."

Moody's Analytics' Murphy said the property market and domestic demand require significant intervention, but like many analysts, he is tempering expectations for the third plenum.

"While the case for reform is high, it's unlikely to be a particularly exciting affair," Murphy said of the plenum. "Big policy pivots can be taken as an admission of failure and a sure-fire way to lose face. Instead, we expect a modest policy tweak that expands high-tech manufacturing and delivers a sprinkling of support to housing and households."

Assuming reforms are modest, Moody's Analytics expects China to "only just scrape through" and hit its "around 5%" growth target, before a growing divide between the fortunes of manufacturers and households slows growth to 4.5% in 2025.

Zichun Huang, China economist at Capital Economics, struck a slightly more optimistic note, expressing doubt that the GDP result is the beginning of a renewed downturn.

"While consumer spending is likely to stay subdued, continued price cuts among Chinese manufacturers mean that exports should remain robust for now despite increased tariffs from the U.S. and EU," she said. "Together with a likely ramp up in fiscal spending over the coming months, this should lead to a near-term reacceleration in growth, albeit one that is unlikely to be sustained over the medium term."

Source: NikkeiAsia

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Alex

Economic

Commodity

Soybeans dropped to their lowest levels in four years, while corn fell on expectations ample global supplies.

“US wheat harvest in nearly done and Russian weather is good for harvest to progress,” said one Singapore-based trader.

“We have seen pretty big drop in prices as supplies are rising.”

The most-active wheat contract in the Chicago Board of Trade (CBOT) lost 1.3% to $5.43-3/4 a bushel as of 0334 GMT, after dropping to its lowest since April 3 at $5.41-3/4 a bushel earlier in the session.

Corn gave up 0.8% to $4.11-1/2 a bushel and soybeans slid 1.1% to $10.53-1/2 a bushel, after falling to their lowest since 2020 at $10.52 a bushel earlier on Monday.

Wheat prices have been weighed down by warm and dry weather, which is boosting harvest in key Northern Hemisphere suppliers.

The US Department of Agriculture (USDA) on Friday raised its estimate for corn production and cut the soybean production forecast, adjusting its estimates in line with the amount of acres planted with each crop.

The USDA also predicted that the 2024/25 corn crop is poised to be the third-largest in US history, with corn end-stocks being the largest in six years, as of September 2025.

Still, USDA estimated old-crop corn ending stocks would be 1.877 billion bushels, when traders had expected the USDA to set the number at 2.049 billion bushels.

Meanwhile, Ukraine’s grain exports in the 2024/25 marketing season rose to 1.5 million metric tons by July 12 from 894,000 tons a year earlier, agriculture ministry data showed on Friday.

Large speculators increased their net short position in CBOT corn futures in the week ended July 9, regulatory data released on Friday showed.

The Commodity Futures Trading Commission’s weekly commitments of traders report also showed that non-commercial traders, a category that includes hedge funds, trimmed their net short position in CBOT wheat and increased their net short position in soybeans.