Market Update – 10th August 2022.

The tension between Taiwan and China is growing, as this week China extends military drills around Taiwan, a move that Taiwan’s foreign minister (Joseph Wu) said is a game-plan for invasion.

The issue has spread to Twitter (as does any geopolitical event worth its salt) as a Chinese foreign ministry spokesperson tweeted that there are 38 and 67 Chinese-style dumpling and noodle restaurants in Taipei, alleged proof that – as Chinese culture is alive in Taiwan – Taiwan is a part of China. Trolls came to the platform to conclude – tongue-in-cheek – that the number of KFC, Starbucks, Burger King and McDonald’s restaurants in Beijing must mean that China is part of the US.

In other news, China’s trade surplus hit a record high of $101 billion for the month of July. Strong demand from Southeast Asia, Europe, and Russia propped up the exports. Shipments climbed 18% YoY – the long-awaited emergence of Shanghai lockdowns (which had compressed valuations in the region) has allowed exports to surge.

In the US, renewable energy stocks rallied on Monday, a day after the U.S. Senate passed a bill known as the Inflation Reduction Act that unlocks nearly $370 billion for climate action – the biggest investment in American history. The bill looks to cut the country’s carbon emissions by 40%. The bill – a key part of President Joe Biden’s agenda – is expected to be backed by the Democrat-controlled House as soon as this week.

In addition, this week US President Joe Biden signed into law a $250 billion package focused on domestic semiconductor manufacturing and scientific research. Backers of the bill from both parties have described it as meeting critical national security.

Looking to earnings, the US firm Nvidia (graphic processor manufacturer) and Semiconductor firm Micron Technology released results this week. Whilst results came in weak, this will temper market expectations for further interest rate hikes that followed bullish outlooks from technology firms in recent weeks. As we have said previously, the US Federal Reserve will likely increase rates at a slower pace than the market has priced and will remain data dependent. It must be remembered, any policy adjustments take time to work themselves into the economic data, as the data sets are backwards looking. Consequently, the Fed do not want to overheat.

Turning to the UK Conservative Party leadership race, from most recent polls it looks like the Party prefer Foreign Secretary Liz Truss over former Chancellor Rishi Sunak. Truss takes a double-digit lead as the leadership race enters its final month.

Meanwhile, retail sales in the UK increased by 1.6% in July from a year ago rising for the first time in five months. Expenditure on hot weather essentials in the record heatwave last month, has been credited for the boost.

Later, we have US CPI – economists predict that inflation in the region has peaked, with the measure predicted to decrease from the previous months.

Investment Management Team.

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