- Race for US presidency heats up,
- Macron fuels Russian propaganda machine,
- Oil gains on expectations of supply cuts,
- Currencies continue to take cues from data and central bank rhetoric.
NAVIGATING THE UNPRECEDENTED TERRAIN OF THE 2024 US PRESIDENTIAL ELECTION
The impending 2024 United States (US) presidential election is poised to redefine modern political landscapes. With former President, Donald Trump, positioning himself for the Republican nomination amidst legal entanglements, and incumbent President, Joe Biden, seeking re-election amid scrutiny over his age and health, the stage is set for a riveting showdown.
Republican landscape: Trump’s dominance and legal hurdles
At 77, Donald Trump commands the Republican field, buoyed by a steadfast base and muted criticism from within the party ranks. However, his legal woes, stemming from the 2020 election, have cast a shadow, with challenges emerging, such as being barred from the ballot in Illinois which is based on the 14th Amendment. Despite these obstacles, Trump remains a frontrunner, amplified by his claim of presidential immunity from prosecution, a matter soon to be deliberated by the US Supreme Court.
Democratic front: Biden’s bid and health scrutiny
On the Democratic front, Joe Biden, at 81, eyes a second term but faces intensified scrutiny over his age and health. While a recent medical examination yielded positive results, concerns persist, fuelled by a special counsel report painting him as elderly and forgetful. Biden’s narrative pivots on continuity and safeguarding democracy, contrasting sharply with Trump’s polarising rhetoric.
Policy implications: from clean energy to hybrid threats
Amidst the political theatrics, policy implications loom large. Biden’s landmark clean energy legislation hangs in the balance, with presumptive Republican nominee Donald Trump vowing to dismantle it, signalling potential shifts in clean energy incentives and climate diplomacy. Additionally, the spectre of a combination of threats from foreign adversaries adds another layer of complexity, underscoring the critical intersection of US national security and electoral dynamics.
Voter dynamics: the rise of dissatisfaction and third-party appeal
Notably, voter sentiment reflects a rising tide of dissatisfaction with traditional party choices, epitomised by the “Double Haters” cohort, disillusioned with both Biden and Trump. Third-party candidates emerge as potential disruptors, particularly in swing states, where a significant segment of voters remain open to alternatives, signalling a potential reconfiguration of electoral computations.
Navigating uncertainty in unprecedented times
As the 2024 US presidential election unfolds against a backdrop of legal battles, health concerns, and policy debates, one thing remains clear: the American electorate stands at a crossroads, poised to chart the course of the nation’s future. In this era of unprecedented uncertainty, the resilience of democracy hinges on informed choices and robust civic engagement.
MACRON’S NATO BLUNDER: A LESSON IN DIPLOMATIC FOLLY
On the other side of the Atlantic, French President, Emmanuel Macron’s recent suggestion of deploying Western ground troops in Ukraine – which was swiftly rejected by the North Atlantic Treaty Organisation (NATO) allies – has not only left France isolated but has also provided a moment of delight for Russian officials. Macron’s proposal, made during discussions with European leaders and representatives from the US, United Kingdom, (UK), and Canada, quickly drew criticism and contradiction from key NATO members, including the US, Germany, and the UK.
Russia wasted no time seizing upon Macron’s gaffe, relishing in the evident discord within NATO and France’s diplomatic embarrassment. Dmitry Medvedev, former Russian president and prime minister, derided Macron’s remarks as a bout of verbal “incontinence,” while Russian State Duma Chairman, Vyacheslav Volodin, likened Macron’s statements to the ill-fated decisions of Napoleon Bonaparte.
Moreover, Macron’s comments have inadvertently fuelled Russia’s propaganda machine, providing ammunition for Moscow’s narrative of NATO aggression and betrayal. The Kremlin swiftly warned that any deployment of Western troops in Ukraine would lead to an inevitable conflict between NATO and Russia.
The fallout from Macron’s blunder extended beyond diplomatic circles, with French opposition lawmakers and foreign policy analysts criticising his remarks. Marine Le Pen, of the National Rally party, accused Macron of moving towards “co-belligerence,” while Timothy Ash, an emerging markets strategist, labelled Macron’s comments as “idiotic.”
In an attempt to mitigate the fallout, French Foreign Minister, Stéphane Séjourné, emphasised non-combat roles for French troops in Ukraine, but the damage to France’s credibility was already done. The White House distanced itself from Macron’s statements, stressing that the US had no plans to send combat troops to Ukraine.
Macron’s misstep underscores the complexities of diplomatic discourse and the importance of strategic cohesion within alliances like NATO. His unilateral suggestion not only strained France’s relations within NATO but also provided Russia with a propaganda victory and highlighted the need for careful and coordinated diplomacy in addressing the crisis in Ukraine.
Macron’s NATO blunder serves as a cautionary tale, illustrating the perils of impulsive diplomacy and the necessity of unity and coherence in navigating geopolitical challenges. As the conflict in Ukraine continues to evolve, it is imperative for world leaders to exercise prudence and foresight in their actions, lest they inadvertently play into the hands of adversaries.
A LOOK AT THE MARKETS
Equity markets: a showcase of resilience
Stock futures in the US rebounded on Thursday, showcasing resilience amidst economic fluctuations. The S&P 500 and the Nasdaq 100 surged by 0.3% and 0.5%, respectively, with the Dow Jones also climbing, all driven by Personal Consumption Expenditure (PCE) data meeting expectations. In January, PCE prices rose by 0.3% month-on-month, while the core index accelerated to 0.4%, aligning with forecasts. This data instilled confidence in investors regarding inflation stability and the Federal Reserve’s (Fed’s) policy outlook, easing concerns and fuelling speculation of a more accommodative approach by the Fed. Simultaneously, investor focus remained on earnings updates, influencing market movements. Data-cloud company, Snowflake, saw its shares plummet by 22% in premarket trading following the Chief Executive Officer’s retirement and weak revenue guidance. Conversely, identity management and access management company, Okta, surged by 24.4% on robust quarterly results, underscoring the volatility of corporate announcements on market sentiment.
In Europe, Frankfurt’s DAX 40 Index reached a new record high of 17,670 points, reflecting investor optimism despite mixed economic indicators. Germany witnessed cooling inflationary pressures in February, while retail sales contracted unexpectedly for the third consecutive period. Despite challenges, strong corporate results buoyed market sentiment, with companies like consumer health company, Haleon, and specialist kitchen and joinery company, Howden Joinery experiencing significant gains on positive earnings and outlooks.
Meanwhile, in Asia, the Nikkei 225 Index closed marginally lower at 39,166 points, influenced by caution ahead of a crucial US inflation reading. Domestic factors, including a decline in January industrial production and steady retail sales growth, contributed to market sentiment.
In South Africa, the JSE All Share Index edged upwards, supported by a mix of economic data and anticipation surrounding the Fed’s inflation report. Notably, South Africa’s producer inflation rose to 4.7% in January, slightly above market estimates, while the budget deficit narrowed.
Anticipated supply cuts bolster the oil price
Brent Crude futures held steady above $82/barrel, signalling a robust monthly increase of nearly 2.5%, propelled by speculation surrounding the expanded Organisation of the Petroleum Exporting Countries (OPEC+) supply cuts. The anticipated continuation of these cuts, coupled with geopolitical tensions, has led to a gradual tightening of the oil market. All eyes are now focused on the upcoming OPEC+ meeting in March, where discussions on prolonging output cuts will unfold. Producers are expected to uphold voluntary production limits until at least OPEC’s June Ministerial Meeting, underscoring their commitment to market stability. Geopolitical risks, including the Israel-Hamas ceasefire and Houthi attacks on Red-Sea shipping, have also contributed to a risk premium in oil prices.
In parallel, gold surged to around $2,050/ounce, hitting its highest level in nearly a month. This upward trajectory was driven by the release of the closely watched PCE data from the US, which reinforced investors’ beliefs in the US Fed’s accommodative stance. PCE prices rose by 0.4% in the month, aligning with expectations. Coupled with downwardly revised US fourth-quarter GDP (gross domestic product) growth, this data reinforced market expectations of a potential Fed rate cut in June, amplifying the allure of holding gold as a hedge.
RAND REMAINS IN OMINOUS TERRAIN
The US Dollar Index remained steady near the 103.9 mark, as markets scrutinised key economic indicators for insights into the Federal Reserve’s monetary policy stance. In addition to the PCE data, concerns arose around the US’s economic resilience as outstanding unemployment claims reached a three-month high, hinting at a softening US labour market.
Against major currencies, the dollar held its ground but depreciated against the yen following calls for talks, by a Bank of Japan official, for the Japanese central bank to potentially exit its ultra-easy monetary policy. Meanwhile, the euro maintained its strength above $1.08/€, buoyed by US PCE price figures and weaker-than-expected German inflation data, suggesting room for European Central Bank interest rate cuts as soon as June. In Europe, inflation eased in France and Spain, while the British pound remained stable, supported by positive indicators from the Bank of England, hinting at a potential rate cut in August.
In South Africa, the rand traded around R19.20/$ on Thursday, close to a recent four-month low, amidst a strengthening dollar and domestic economic concerns. Challenges at public entities and upcoming elections pose risks to the economy, requiring effective implementation of budgetary measures and political navigation post-election. In addition, headline inflation upticks will continue to see the South African Reserve Bank maintain a cautious stance, awaiting sustained trends towards its target range midpoint of 4.5% before it considers rate adjustments. The recent warning by ratings agency, S&P, around the utilisation of profits in the GFECRA account also weighed on the local currency, as investors look to the government for plans to address structural issues in the long term.
Key Indicators:
USD/ZAR: 19.14
EUR/ZAR: 20.71
GBP/ZAR: 24.19
Brent Crude: $82.20
Gold: $2,045.58
Sources: Reuters, Bloomberg and Trading Economics.
Written by: Citadel Global Director, Bianca Botes.