Volume 7, Issue 8 

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

• On August 6^th, Vice President Kamala Harris selected Minnesota Governor Tim Walz as her running mate, highlighting his track record and crossover appeal in battleground states like Wisconsin and Michigan. Walz, known for his progressive policies, executive experience, and rapport with Harris, brings a background as a veteran, teacher, and former congressman. Despite being less known nationally, his recent media appearances and critiques of Donald Trump and JD Vance have increased his popularity among Democrats. Harris bypassed Pennsylvania Governor Josh Shapiro, who was seen as a more conventional pick but might have alienated some progressives due to his stance on private school vouchers and support for Israel.
• After the Trump campaign claimed that it had been hacked and had internal documents stolen by Iranian hackers, Google confirmed that an Iranian group connected to the country’s Revolutionary Guard had made attempts to hack email accounts of a dozen people close to President Biden and former President Trump. Google’s threat intelligence division said that operations are still underway to target people associated with Trump, Biden, and Vice President Harris, targeting current and former government officials and campaign associates. Google’s report noted that the same hacking group attacked the Biden and Trump campaigns in 2020 and is also active in cyber espionage in the Middle East against Israeli diplomats, academics, and military affiliates.
• On August 1st three Americans—Evan Gershkovich, Alsu Kurmasheva, and Paul Whelan—were welcomed home by President Biden and Vice President Harris at Joint Base Andrews in Maryland after a major prisoner swap with Russia. The exchange, involving 24 people across multiple countries, was the largest since the Cold War and took place in Turkey. Gershkovich, a journalist, Whelan, a former Marine, and Kurmasheva, an editor, had been detained on charges the US deemed illegitimate. They were taken to Brooke Army Medical Center in San Antonio for medical checks and reintegration support, a process used for former detainees like Brittney Griner.
• On July 25th, Ismael Zambada García, a founder of the Sinaloa drug cartel, was captured at a small airport outside El Paso in a dramatic operation involving subterfuge and betrayal by Joaquín Guzmán López, the son of Zambada’s former partner, Joaquín “El Chapo” Guzmán. Zambada García, known as El Mayo, had evaded capture for decades despite a $15 million bounty. He was tricked into boarding a plane under the guise of inspecting real estate but was delivered to US federal agents. The capture is expected to cause significant upheaval within the Sinaloa cartel and could lead to increased violence and instability in Mexico.
• Market Implications: US markets have experienced heightened volatility over the last couple of weeks as investor sentiment bounces between recession fears and hopes of a soft landing. 3-4 quarter point rate cuts are expected from the Federal Reserve by the end of the year. We expect markets to continue experiencing volatility and thus maintain our conservative stance in this period of uncertainty.

Europe

• On August 6th, thousands of Ukrainian troops crossed from the Sumy region into Kursk, Russia, capturing over 1,000 square kilometers of territory, including 74 settlements. The move has exposed vulnerabilities in Russia’s defenses and forced the evacuation of tens of thousands of civilians. Ukrainian officials have stated that the incursion aims to push Russia towards negotiating on fair terms. The operation has not only shifted the battlefield dynamics but also boosted Ukrainian morale, reminiscent of their successful counteroffensives in Kherson and Kharkiv in 2022. This development comes at a time when Russian forces are pushing against Ukraine’s eastern front, where Kyiv has recently ordered evacuations due to the onslaught.
• Newly elected British Prime Minister Keir Starmer faces immediate challenges with violent anti-immigrant riots in England and Northern Ireland, following a stabbing attack misattributed to a migrant. The riots have led to widespread violence, looting, and injuries to dozens of police officers, driven by misinformation about the attacker’s identity. Starmer’s government has taken a strong law-and-order approach, promising swift action against rioters and increased police presence while facing challenges with an overwhelmed criminal justice system and prison capacity. Despite some criticism, there has been broad political support for the government’s firm response.
• Germany’s economy contracted by 0.1% in the second quarter of 2024, contrary to economists’ expectations of 0.1% growth, signaling ongoing economic struggles. This contraction follows 0.2% GDP growth in the first quarter and a significant decline in the final quarter of 2023. Contributing factors include weak demand in the manufacturing sector, high borrowing costs, and geopolitical pressures, though the services sector and construction appear more stable. The European Central Bank’s (ECB) recent rate cuts and expected continued easing of monetary policy may provide some relief, with the Bundesbank predicting a 0.3% GDP growth rate for 2024 and 1.1% for 2025.
• Coinciding with the start of the Summer Olympics, France experienced significant disruptions to its rail network, with far-left saboteurs suspected of burning signaling cables at three sites. French Interior Minister Gérald Darmanin indicated that profiles of potential saboteurs have been identified, linking these actions to ultra-left tactics. Controversy continued in France with the opening ceremony of the Olympics in Paris which featured a contentious scene resembling “The Last Supper” which featured drag queens and a mostly naked actor posing as the Greek god Dionysus. The display received heavy criticism from religious groups and conservative politicians and led to apologies from Paris 2024 organizers.
• Market Implications: European markets fell in the beginning of the month amid US recession fears but have since regained ground. On the other hand, Germany’s economy continues to struggle amid falling exports and high public debt levels. Additional rate cuts from the ECB are expected and we retain cautious optimism that some European market exposure is warranted while understanding that European markets will follow the volatility in US markets.

Asia, Eurasia, & the Pacific

• Japanese Prime Minister Fumio Kishida announced his decision to step down as the leader of the ruling Liberal Democratic Party (LDP) in September 2024, ending his three-year term. His tenure has been marred by political scandals, including a significant fundraising scandal involving unreported political funds. Kishida’s approval ratings have plummeted, with one poll showing an approval rating as low as 15.5% in July. His decision to step down is seen as a move to allow the LDP to present a fresh face to the public and address rising living costs and other pressing issues. Kishida has pledged to continue working diligently until his term ends and to support his successor in leading Japan forward.
• Bangladesh Prime Minister Sheikh Hasina resigned and fled the country on August 5^th amid violent protests against her 15-year rule, a controversial government job quota system, and popular discontent with the state of the economy. The unrest has resulted in the deaths of over 300 protestors since it began in July, with protesters attacking Hasina’s residences and party buildings. Military Chief, General Waker-uz-Zaman initially assumed temporary control, promising an investigation into the violence and a new national government. On August 6^th, President Mohammed Shahabuddin announced that Muhammad Unus, a Nobel Laureate and pioneer in microfinance, would lead an interim government. The situation remains volatile, with ongoing demonstrations, an increased role for the military, and calls for a peaceful transition as the country faces severe political and socioeconomic challenges.
• 37-year-old Paetongtarn Shinawatra was elected prime minister, Thailand’s youngest ever leader. As the daughter of former Prime Minister Thaksin Shinawatra and a prominent member of the influential Shinawatra political dynasty, Paetongtarn leads the Pheu Thai Party. Despite coming in second behind the now-banned Move Forward Party in the 2023 elections, Pheu Thai has formed a new ruling coalition. Her election follows the surprising dismissal of former Prime Minister Srettha Thavisin by a constitutional court. Meanwhile the former Move Forward Party, now called the People’s Party, is expected to struggle to overcome legal hurdles and potential bans.
• Earlier this month, coast guards of the Philippines and Vietnam began their first-ever joint maritime exercises in Manila to enhance cooperation despite their competing claims in the South China Sea. This collaboration follows a bilateral agreement struck to build maritime capacity between Manila and Hanoi in January 2024 and is part of a broader strategy to counter China’s assertiveness in the region. The US has also announced $500 million in defense aid to the Philippines to bolster its military modernization efforts amid rising Chinese aggression, complementing Manila’s plans to modernize its military with a $35 billion investment over the next decade. In the same vein, Germany plans to sign a defense agreement later in the year with the Philippines to expand cooperation between their armed forces.
• Market Implications: Despite some major volatility in Japanese markets earlier this month, Japan’s economy continues demonstrating signs of growth. On the other hand, China continues to struggle despite efforts by the government and central bank to boost growth. We continue to recommend limited exposure to Asian markets, while being cautious of China.

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