At the Intersection of Geopolitics and Geoeconomics

June 20, 2024 | Volume 7, Issue 6 | The BlackSummit Team

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.

Top News This Month

  • Former Mexico City Mayor and protégé of the outgoing Mexican President Andres Manuel Lopez Obrador, Claudia Sheinbaum, won the Mexican presidency
  • Former president Donald Trump became the first former president to be convicted of a felony.
  • United Kingdom (UK) Prime Minister Rishi Sunak announced snap elections that will be held July 4th.
  • On June 12th, the EU announced additional long-expected tariffs of up to 38% on Chinese electric vehicles.
  • Narendra Modi’s nationalist Hindu BJP party suffered a surprising setback in the recent national elections, signaling a significant shift in the country’s political landscape.
  • Tensions have escalated on the Korean peninsula with South Korea formally suspending a 2018 military agreement with North Korea.

North America

  • On June 5th, the Biden administration’s new migration policy went into effect aimed at stemming the rising tide of migrants crossing the southern border illegally. The policy allows migration officials to rapidly deport migrants who cross the southern border illegally, without hearing asylum claims if migrant arrests surpass a seven-day average of 2,500 per day. The ban will stay in place until the average drops to 1,500 per day over seven days. In April, border arrests averaged 4,300 per day. Furthermore, administration officials announced that asylum seekers would now only have four hours to find a lawyer versus the previous 24 hours allotted to improve screening times. The American Civil Liberties Union plans to sue the government over the new policy. In other immigration policy news, the White House announced a new pathway for undocumented spouses of US citizens to receive green cards. The new measures are expected to impact more than half a million people.
  •  Former president Donald Trump became the first former president to be convicted of a felony following the decision of a Manhattan jury which found him guilty of 34 felony counts of falsifying business records in his hush money criminal trial. His sentencing is scheduled for July 11th. The US Constitution does not bar a convicted criminal from running for the presidency, so the conviction does not impact his eligibility as a presidential candidate in the upcoming November election. Earlier this year, the US Supreme Court rejected an effort made by several states to remove Trump from the ballot based on the 14th amendment. Likewise, experts say states are unlikely to succeed in passing additional eligibility requirements for a presidential candidate.
  • Former Mexico City Mayor and protégé of the outgoing Mexican President Andres Manuel Lopez Obrador, Claudia Sheinbaum, won the Mexican presidency by more than 30 percentage points. She is the first woman president of Mexico and will continue MORENA’s dominance in Mexican politics, as fears of a return to a one-party system rise. As a party, MORENA fell short of a supermajority in the Senate with control of 83 out of 128 seats but gained two-thirds control in the Mexican House winning 372 out of the 500 seats.
  •   In what has been the nation’s strongest step towards the regulation of artificial intelligence (AI), the US Justice Department and the Federal Trade Commission have begun antitrust investigations into the roles that Microsoft, OpenAI, and Nvidia play in the AI industry. The burst of generative AI – which can produce humanlike text, images, videos and audio – has created industry frenzy and with it has come greater regulatory scrutiny across the globe. The US lags behind Europe in regulating AI as European officials have already agreed on landmark rules for governing AI technologies. 
  • Market Implications: We continue the belief that US equity markets could gain another 3-4% by year’s end. Markets were fueled this week by AI momentum as Nvidia surpassed Microsoft to become the world’s most valuable company. With more than half of the S&P 500’s gains this year coming from just four stocks (NVDA, MSFT, AMZN, META), caution should be exercised, especially for conservative portfolios.

Europe

  • The recent European Union (EU) parliamentarian elections have sent ripples of uncertainty throughout the continent, especially in France. In terms of numbers, the traditional centrist and pro-EU parties still hold 450 of the body’s 720 seats with the center-right European People’s Party having bolstered its position with 186 seats, positioning it to lead a governing coalition. While both the far-right and far-left saw gains, they lacked sufficient numbers to form coalitions, nudging the EU parliament slightly rightward. French President Macron, responding to his party’s election setback, has opted to dissolve the National Assembly and thus trigger snap elections which are set for July, a risky move for his political future. Macron’s centrist alliance secured only 15% of the vote, while the far-right National Rally, led by political rivals Marine Le Pen and Jordan Bardella, garnered 31%.
  • United Kingdom (UK) Prime Minister Rishi Sunak announced snap elections that will be held July 4th despite having until January to do so. The prime minister’s decision was likely to show confidence in his Conservative party (aka the Tories), despite its 14 years of rule and ever-decreasing popularity among the British public. The Labour Party is expected to win big on July 4th as they try to capitalize on voter discontent regarding rising inflation, energy costs because of the conflict in Ukraine, and labor shortages. Keir Starmer, the leader of the Labour Party, will likely succeed Mr. Sunak as the British Prime Minister if elections go as expected.
  • During the G-7 summit, President Biden and European leaders reached an accord to support Ukraine financially by utilizing the interest-frozen Russian assets. This agreement, representing a unified stance against Russian aggression, aims to provide economic stability and assistance to Ukraine amid ongoing tensions with Russia. By leveraging these assets to finance a loan of up to $50 billion, the international community intends to bolster Ukraine’s resilience and reinforce its sovereignty in the face of Russian threats. This collaborative effort underscores the commitment of Western powers to stand with Ukraine and address geopolitical challenges posed by Russia’s actions in the region.
  • On June 12th, the EU announced additional long-expected tariffs of up to 38% on Chinese electric vehicles. Critics worry that this move will set off a trade war and make low-emission vehicles more attractive to EU consumers even as the EU seeks to ban all combustion vehicles by 2035. There had already been a 10% duty in place before the announcement that has ratcheted up tension with China. In a retaliatory move, the Chinese Ministry of Commerce was quick to announce an investigation into whether EU pork was being dumped in China for lower-than-fair prices.
  • Market Implications: Greater-than-expected gains for right-wing populist parties in Europe rattled markets, especially in France, but it did not upset the status quo as centrists retained power at the pan-European level. European equity markets are projected to continue exhibiting strength, so we believe some EU exposure is warranted. The Euro may experience minor tremors due to the potential for political instability following France’s snap elections.

Asia, Eurasia, & the Pacific

  • Narendra Modi’s nationalist Hindu BJP party suffered a surprising setback in the recent national elections, signaling a significant shift in the country’s political landscape. Before the election, Modi had claimed that the BJP and its allies would win over 400 legislative seats, but official results show that they only won 293 seats out of the 543 up for grabs (240 directly for BJP). Opposition parties, like the increasingly populist-acting Congress party, hold less than half (99) of the seats that the BJP has in the legislature. Still, they are chipping away at Modi and his power structure after only securing 52 seats in the 2019 election.
  • Tensions have escalated on the Korean peninsula with South Korea formally suspending a 2018 military agreement with North Korea. The decision was made following Pyongyang’s recent missile launches and a barrage of trash balloons that it sent over the border into South Korea. The 2018 agreement, which was partially suspended last year by South Korea due to North Korea’s launching of a spy satellite, called for both sides to reduce their military presence near the Demilitarized Zone. North Korea said it sent the 15 tons of trash via the balloons in retaliation for propaganda balloons previously sent by activists in South Korea. Meanwhile, South Korea and the United States have conducted joint aerial bombing drills utilizing precision-guided munitions to deter further aggressive actions from North Korea. On the other hand, North Korea and Russia just announced a bilateral defense pact.
  • Armenian Prime Minister Nikol Pashinyan announced that a peace treaty with Azerbaijan is nearing completion, however, Armenia rejected Azerbaijan’s demand to amend its constitution. Following Pashinyan’s remarks, protests erupted in Yerevan against his policies, including returning villages to Azerbaijan, with demonstrators calling for his resignation. Clashes between police and protesters resulted in injuries to 79 civilians and 17 officers. Despite tensions, Pashinyan described the treaty text as advanced and ready for signing after necessary adjustments, aiming to end the long-standing Nagorno-Karabakh conflict between the two former Soviet republics.
  • Thailand’s main opposition party, the Move Forward Party, is facing disbandment and a lifetime political ban on its leaders by the Constitutional Court. Move Forward claims that the court lacks the authority to dissolve political parties despite the same court’s order to dissolve its predecessor in 2020. Dissolution of Move Forward could reignite protests akin to those following the dissolution of the Future Forward Party in 2020, with around 47% of respondents in a recent survey backing Move Forward’s candidate Pita Limjaroenrat for prime minister. Move Forward has garnered popularity for its platform centered on easing penalties for royal insults and reforming the finances of the royal household.
  • Market Implications: We continue to recommend limited exposure to Asian markets, particularly Japan and India. Despite Modi suffering a surprising setback, but nonetheless winning re-election, we expect India to continue outperforming other emerging markets, though the slow development of its employment market could hold it back.

Continue Reading for news from the Middle East, Latin America, and Sub-Saharan Africa

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