Volume 7, Issue 7

Here is a summary of important events that unfolded over the last month, and which may affect economic, financial, and geopolitical issues in the months ahead. Furthermore, we share our thoughts on the market implications of the reported developments.

North America

• US President Joe Biden formally announced that he was dropping out of the 2024 Presidential race on Sunday, July 21st. This development follows an intensifying campaign from the media, voters, and Democratic Party insiders to convince him to exit the race after what was seen as a poor performance during the June 27th debate against Donald Trump in Atlanta, Georgia. The announcement, delivered four months before the election in November, was quickly followed by an official endorsement of Vice President Kamala Harris to carry on as the Democratic Party’s presidential nominee. Harris has already garnered endorsements from influential figures in the Democratic Party, including Nancy Pelosi, and Hillary and Bill Clinton. The party will gather on August 19th for an open convention, where Harris is expected to be officially nominated. Her running mate has yet to be announced, but some potential names are North Carolina Gov. Roy Cooper, Pennsylvania Gov. Josh Shapiro, Arizona Sen. Mark Kelly, and others.
• On July 13th, a gunman attempted to assassinate Donald J. Trump, the former president and current Republican candidate for the Presidency, during his rally in Butler, PA. The FBI is leading an investigation into the assassination attempt, in which Thomas Matthew Crooks fired his AR-15 rifle from a roof 150 yards away from where Trump was speaking. Crooks was killed by counter-fire from Secret Service agents; however, Secret Service and local law enforcement partners are being blamed for the incident after several reports that some rally attendees were trying to alert security personnel to the shooter. Today, Secret Service Director Kimberly Cheatle stepped down from her position following a hearing held yesterday by the House Oversight Committee which ended in calls for her resignation from both Republican and Democratic lawmakers.
• On the first day of the Republican National Convention, Donald Trump announced on his social media platform Truth Social that 39-year-old Ohio Senator JD Vance would be his running mate. Senator Vance rose to fame on the back of his popular memoir Hilbilly Elegy and represents a faction of the Republican Party with views that are increasingly protectionist in terms of trade policy, populist in nature, and isolationist regarding foreign policy. Senator Vance is viewed as a pick that would satisfy Trump’s loyal base.
• The US will apply a 25% national security tariff on some steel and aluminum imports from Mexico, aiming to curb Chinese metals from entering the US. The White House reported the action was being taken jointly with Mexico as Mexico has agreed to ask its importers to provide more information about what country their steel products are coming from. Any steel that was not melted and poured in North America will face a 25% tariff, and aluminum-containing primary smelt from China, Belarus, Iran, or Russia will face a 10% tariff. While the US already has tariffs of 25% in place on imports of steel and aluminum from China, these new tariffs will specifically target shipments that enter the country through Mexican ports.
• China called off arms control and nuclear proliferation talks with the US last week over Washington’s weapons sales to Taiwan. China’s foreign ministry said “the US must respect China’s core interests and create the necessary conditions for dialogue” in order to resume negotiations. In June, the US approved two military sales to Taiwan worth $300 million in total. In an effort by Presidents Xi Jinping and Joe Biden to ease relations and open dialogue between the two nations, China and the US had begun nuclear weapons discussions in November in addition to opening communication on other key issues like climate change and anti-narcotics. Just last month, Washington and Beijing established a direct communication channel to coordinate on potential synthetic drug threats and jointly investigate a drug-linked money laundering operation that spans China, Mexico, and the US.
• Market Implications: The momentum in US markets appears to be shifting as investors are rotating out of tech stocks and into small-caps stocks. This shift has come as inflation begins to lower and expectations are that the Federal Reserve will begin cutting rates as early as September. Some caution should be exercised as markets could be volatile over the next few months.

Europe

• The French left’s alliance, the New Popular Front (NFP), won a surprising victory in the recent parliamentary elections that kept the far-right National Rally (RN) Party from winning a majority. However, it is struggling to choose a leader. Four founding parties of the alliance that spans from center-left to far-left have proposed multiple candidates for prime minister, all of whom have been rejected, leading to a deadlock in negotiations. Critics, including President Emmanuel Macron, have pointed out the alliance’s significant disagreements on strategy and policy. President Macron, in a letter to the French public, noted that the election was not a win for any party. If the NFP fails to appoint a leader soon, it risks fracturing, allowing opponents to form an alternative coalition that weakens the leftist alliance before it fully takes power. Until a new Prime Minister is chosen, Gabriel Attal will stay on in a caretaker capacity after resigning from office after the election results were announced.
• For the first time, during its 75th annual summit, NATO accused China of enabling Russia’s attacks on Ukraine by providing crucial technology and equipment. This statement, approved by the 32 leaders of the alliance, marks a significant shift in NATO’s stance which previously did not officially view China as a concern. The declaration warns that China’s support for Russia could harm its interests and reputation, suggesting potential economic sanctions. This change in perspective follows intelligence evidence presented by the Biden administration, highlighting China’s role in supplying components to rebuild Russia’s defense capabilities. Meanwhile, President Biden announced at the summit that the US, Germany, the Netherlands, Romania, and Italy would be providing Ukraine with the equipment for five additional strategic air defense systems in light of constant Russian bombardments on Ukrainian cities.
• Newly elected British Prime Minister Keir Starmer aimed to reset the United Kingdom’s relations with Europe by hosting the European Political Community (EPC) summit. The 45 European leaders in attendance discussed regional security issues such as supporting Ukraine, addressing migration issues, and bolstering energy security. The EPC was established in 2022 in response to Russia’s invasion of Ukraine. At last week’s summit, the leaders demonstrated united support for Ukraine and Zelensky while also expressing concern for the direction of the US.
• The European Union (EU) has halted Georgia’s accession process and frozen €30 million in financial aid due to the controversial new “foreign influence” law seen as curbing democratic freedoms. The decision follows large-scale domestic protests against the new law, which now requires organizations receiving over 20% of their funding from abroad to register as foreign agents. Critics liken the law to Russian legislation used to stifle dissent, and EU officials have labeled it undemocratic, jeopardizing Georgia’s EU membership prospects. The EU plans to redirect support to Georgian civil society and media, and the US has also indefinitely postponed military drills in Georgia as part of a review of bilateral relations.
• Market Implications: European equity markets continued exhibiting strength this month on upbeat earnings and global investor optimism regarding a Fed rate cut. The outlook for the Euro has improved as fears of a political/economic crisis in France have diminished and as the European Central Bank has held rates steady. We still hold the view that some European market exposure is warranted and, at the same time, understand that more rate cuts are expected in Europe. However, if the US markets experience some correction, the EU markets will follow.

Asia, Eurasia, & the Pacific

• Indian Prime Minister Narendra Modi met Russian President Vladimir Putin in Moscow on July 8th for his first visit to Moscow since Russia invaded Ukraine in 2022. Modi’s visit aims to deepen the strategic partnership between the two countries, focusing on trade, defense, and regional issues, despite Russia’s closer ties with China. Modi emphasized the importance of India-Russia relations and the need for a peaceful resolution to the Ukraine conflict. The two leaders pledged to increase bilateral trade to $100 billion by 2030, up from $65 billion presently. Ukrainian Prime Minister labeled the visit a huge disappointment as Ukraine continues to defend itself against Russia.
• The recently signed Reciprocal Access Agreement (RAA) between Japan and the Philippines allows Japanese troops to conduct joint drills and training in the Philippines, marking a significant step toward deeper defense collaboration amid rising tensions in the South China Sea. This agreement, the Philippines’ third-of-its-kind following bilateral deals with the US and Australia, is seen as a foundation for expanding bilateral defense ties, potentially including logistics and base access agreements. Analysts highlight its potential to enhance interoperability between the armed forces of both countries and address security challenges, including China’s assertive actions in the region.
• Australian mining giant BHP Group will suspend its Australian nickel operations later this year due to a global surplus of the metal, which has made the operations unprofitable. This decision follows a sharp decline in nickel prices and a surge in cheap Indonesian exports, affecting the global battery-metals market. The suspension impacts a key Western source of nickel essential for electric vehicle (EV) batteries—BHP produces enough nickel to make 700,000 EV batteries annually— challenging US efforts to reduce dependency on China for nickel supply. BHP plans to review the suspension by February 2027, maintaining optimism about the nickel market’s potential improvement beyond the decade’s end. Meanwhile, Hyundai Motor Group and LG Energy Solution inaugurated Indonesia’s first EV battery cell production plant with an annual capacity of 10 GWh, as part of a larger $9.8 billion investment to develop an EV supply chain in the country.
• Malaysia and Thailand have announced plans to apply for BRICS+ membership, signaling the region’s intention to hedge between major powers and promote multi-alignment. This move comes amid BRICS expansion, which previously included only South Africa in 2010 and now welcomes Argentina, Egypt, Ethiopia, Iran, UAE, and Saudi Arabia. Malaysia and Thailand’s entry into BRICS+, which is likely to be accepted, will enhance their access to the BRICS+ development bank and the Contingent Reserve Arrangement while reinforcing their call for international system reforms. Both countries aim to balance relations with China and the US, with Malaysia conducting nearly 20% of its trade in non-dollar currencies and Thailand maintaining strong trade and investment ties with China.
• Market Implications: We continue to recommend limited exposure to Asian markets, while being cautious of China. China’s struggling property sector and the burden of over-indebtedness are weighing heavily on the country’s growth outlook. An export recovery, concentrated in semiconductors but spreading out to other sectors, in emerging markets like South Korea is leading growth in the region.

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