Market Update – 5th June 2024.

This week markets have digested plenty of election news. In Mexico, Claudia Sheinbaum made history as the first female president, succeeding her mentor Amlo who divided public opinion. Sheinbaum, a former mayor of Mexico City, maintained throughout her campaign that she would continue some of Amlo’s more favourable policies, like providing a universal pension to senior citizens and incentivised apprenticeships to young people. The new President has her work cut out for her as she inherits a sizable budget deficit alongside her seat in office, and yet she has still promised to invest in renewable energy methods and initiatives to drive down crime – something which will be welcomed news to foreign investors in the region.

In India, Prime Minister Modi is so far on track to being re-elected leader for the third consecutive term, although his opponents are yet to officially concede defeat. Modi at times has been the subject of controversy because of divisive comments he has made about some people within the population. It is reported that this term in office will be characterised by efforts to raise India’s significance in global manufacturing and supply chains, offering the region up as an alternative to China. More specifically, it is thought that Modi may offer subsidies for domestic production, reduce import taxes on certain inputs for goods that are produced locally and introduce regulations that ease the hiring and firing of workers.

Over in China, the latest data from the Caixin PMI showed the services sector had expanded the most it has in 10 months. The index rose to 54.0 in May from 52.5 in April, illustrating that economic momentum continued to tick on last month, and in a strong fashion at that. The growth is thought to be linked to the wealth of stimulus the government continues to plough into the economy, combined with accelerated growth of exports and a return to expansion in employment in the sector.

On Sunday, OPEC+ stated it would continue its oil output cuts into 2025 off the back of weaker demand and global supply competition. The group stated they will keep over 2 million barrels a day of crude oil out of the market until 2025 in an effort to show responsibility and discipline in how much they are producing and to shore up crude prices. Voluntary cuts of 2.2 million barrels per day were also pledged by eight cartel members, although this will be phased out in Q4 of this year, subject to market conditions. OPEC+ will hold its next meeting on the 1st of December this year.

Coming up this week we have the ECB’s latest decision. The market is pricing in a divergence in policy with the Fed, predicting the ECB will cut by 25 basis points. We also have Eurozone retail sales, US non farm payrolls and data on China’s imports and exports.

Nicola Tune, Portfolio Specialist

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