Global Make Slight Gains

Global equities made slight gains this week after reaching record levels mid-week. The S&P 500 gained 0.61% while the Dow Jones increased 1.45%. On the other hand, the Nasdaq was flat on the week. The US 10-year Treasury note ticked up to 4.25% and the price of a barrel of West Texas Intermediate crude oil rose 2.77%, closing Friday at $80.62. Volatility, as measured by the CBOE Volatility Index, rose slightly over the week to 13.20.

US Budget Deficit Revised Upward

The Congressional Budget Office substantially revised the forecast for the 2024 US budget deficit by 27% to $1.9 trillion. The revision comes after taking into consideration recent additions to government spending including the Biden administration’s student loan forgiveness plan and the bipartisan aid packages to Ukraine, Israel, and Taiwan, among other spending plans. The report also projects that the nation’s publicly held debt will rise from 99% of GDP by the end of 2024 to 122% of GDP by the end of 2034. Across the pond, the European Union (EU) warned France, Italy, Belgium, Poland, Malta, Slovenia, and Hungary that their fiscal deficits are too high and require adjustments.

International Developments

Putin’s Visit to Vietnam and North Korea Result in Several Agreements

Russian President Vladimir Putin visited Vietnam and signed multiple agreements aimed at deepening bilateral ties, focusing on energy, education, technology, and health sectors. Despite growing international isolation over Ukraine, Putin offered long-term fossil fuel supplies to Vietnam. Discussions also included plans for a nuclear science center and emphasized cooperation in defense and security amidst regional challenges. The visit, seen as Russia’s effort to bolster ties in Asia, follows similar trips to China and North Korea, signaling Moscow’s strategy to counterbalance Western pressure and expand its influence. Putin’s recent visit to North Korea secured a NATO-style defense pact and bolstered his international image amid isolation and legal challenges, emphasizing mutual military support and signaling defiance against Western policies.

EU Bans Re-Exports of Russian Gas

The European Union has introduced new sanctions targeting Russia’s liquefied natural gas (LNG) sector, specifically banning the re-export of Russian gas through European ports to third countries. This move, part of the EU’s 14th sanctions package since the start of Russia’s invasion of Ukraine, aims to deprive Russia of additional energy revenues. Despite the ban, experts suggest its impact will be limited as it addresses a small fraction of Russian LNG exports, primarily trans-shipped to Asia via ports like Zeebrugge and Montoir. Additional measures also target Russian efforts to circumvent sanctions using obscured-origin vessels and restrict the SPFS bank messaging system crucial for financial transactions.

Houthis Continue Attacks on Shipping in the Red Sea

Houthi militants have intensified attacks against ships in the Red Sea, utilizing an unmanned boat filled with explosives to sink the Liberian-flagged, Greek-owned cargo ship Tutor, resulting in casualties and renewed concerns over maritime security. This incident marks the second fatal attack by the Houthis on a vessel and the second ship confirmed sunk. US naval forces rescued the sailors on board, however, one sailor passed away due to injuries sustained. Insurance costs for ships navigating the Red Sea have surged to approximately 0.6% of the vessel’s value, up from 0.3%-0.4%, reflecting heightened risks following earlier escalations in Houthi attacks this year. Calls have grown louder for an expansion of naval patrols in the region, with EU’s Red Sea commander Vasileios Gryparis advocating a significant increase in the current force of four EU ships. Despite efforts by Western forces, including the EU’s mission, Houthi attacks continue unabated, severely impacting container shipping in the Red Sea since late 2023, which had already dropped by 90% as of mid-February 2024.

US Social & Political Developments

White House Announces Path to Legal Status for Certain Undocumented Spouses of US Citizens

President Joe Biden unveiled a new order that will potentially grant legal status to hundreds of thousands of immigrants without legal status in the US, following his early June executive order aimed at curbing illegal migration at the US southwest border. The new policy allows certain spouses of US citizens, who lack legal status, to apply for permanent residency and eventual citizenship without leaving the country. Biden’s recent orders highlight the balance his administration is trying to play between satisfying his base of progressives in the Democrat party while endearing himself to moderate and independent voters that will be essential for the November elections. The Governor of Texas, Greg Abbot believes that the order will be struck down in federal court, highlighting the need for formal legislation regarding immigration reform.

US Looking to Make Progress in High-Level Anti-narcotics Talks with China

The United States and China engaged in high-level discussions on Thursday regarding their cooperation in combating narcotics, following a breakthrough this week where they jointly targeted a major drug-linked money laundering operation. This renewed dialogue on counter-narcotics and law enforcement cooperation began earlier in the year and has been highlighted by China’s public security department as a rare successful instance of collaboration between the two global powers. The effort centered on dismantling a scheme involving Mexico’s Sinaloa Cartel, California-based groups, and Chinese underground banking, accused by the US Justice Department of laundering over $50 million in drug proceeds.

Corporate/Sector News

Nvidia surpasses Microsoft and Apple, Becoming World’s Most Valuable Company

Nvidia has overtaken Microsoft to claim the title of the most valuable U.S. company, a significant milestone in the tech industry’s ongoing evolution. This shift in leadership underscores Nvidia’s ascendance driven by its robust growth in AI-related technologies and the soaring demand for its specialized chips used in data centers. The company’s market value now stands at a staggering $3.4 trillion, reflecting investor confidence in its strategic focus and technological innovations. Nvidia’s dominance in AI chip sales has positioned it at the forefront of the industry’s expansion, with projections hinting at a potential $4 trillion market valuation in the near future.

Canada Planning EV Tariffs on China, Following the US and EU

Canada is considering imposing tariffs on Chinese electric vehicles to align with recent actions by the US and EU, responding to concerns about Chinese overproduction and its impact on global markets. Prime Minister Trudeau’s government may soon initiate public consultations on these tariffs, following pressure from domestic leaders like Ontario Premier Doug Ford to match US tariff levels, which go up to 102.5%. The surge in Chinese EV imports to Canada in 2023 ($1.6 billion), has raised concerns about market flooding with cheap vehicles, prompting calls for protective measures. While Trudeau seeks to balance industry protection with potential trade retaliation risks from China, his administration is also investing in developing a domestic electric vehicle sector.

GE Aerospace Developing Hybrid Plane with NASA

GE Aerospace is developing a hybrid electric engine for narrow-body aircraft in partnership with NASA. This hybrid system is designed to operate with or without energy storage like batteries. Initial component testing and baseline evaluations of the Passport engine have been completed, with results that will update models ahead of an upcoming ground test. The collaboration aims to significantly reduce carbon emissions from aviation, particularly from single-aisle aircraft, which are major contributors to global emissions. Additionally, GE is partnering with NASA on a megawatt-class hybrid electric propulsion system for aircraft, targeting ground and flight tests this decade, in collaboration with Boeing.

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Source: Wall Street Journal