Analysis: Trump’s Narrow Miss in Assassination Attempt Energizes Republican Convention
The recent assassination attempt on former President Donald J. Trump has had a significant impact on the Republican Convention. While Americans are relieved by Trump’s survival, this incident has given a new energy and momentum to the Republican Party. Despite President Biden’s attempts to demonize the “MAGA” Trump crowd, voters are primarily focused on key issues such as lack of upward mobility for young people, proposed military draft, open border concerns, and the need for more law and order. These factors suggest that Trump could be re-elected in a landslide, even if Joe Biden is replaced by a younger candidate.
Trump’s criticism of the Federal Reserve (Fed) for its impact on interest rate-sensitive sectors of the economy has resonated with many Americans. Fed Chairman Jerome Powell’s indecisiveness regarding interest rate cuts has been a subject of concern. Riding a new populist wave, Trump is expected to reignite the call for lower interest rates if elected. Additionally, he plans to prioritize the U.S. energy sector from day one of his administration.
Market News and Implications:
1. June Retail Sales Report: The upcoming June retail sales report will be a crucial economic indicator. If retail sales stall for the third consecutive month, the probability of an early Fed rate cut on July 31st will increase. Chicago Fed President Austan Goolsbee believes that easing price pressures and indicators like rising unemployment and consumer debt delinquencies support the need for key interest rate cuts.
2. June Producer Price Index (PPI): The increase in trade services and wholesale service costs contributed to the rise in the June PPI. However, wholesale goods prices declined, largely influenced by a strong U.S. dollar. The fact that Treasury bond yields did not rise after the PPI report suggests that a Fed rate cut on September 18th is likely. However, if it were up to the author, key interest rates would be cut at the July 31st Federal Open Market Committee (FOMC) meeting.
3. Personal Consumption Expenditure (PCE) Announcement: The PCE announcement is expected to be positive following a monthly decline in the Consumer Price Index (CPI). Notably, shelter costs based on owners’ equivalent rent rose minimally in June. Since PCE weighs owners’ equivalent rent lower than the CPI, it is anticipated that the June PCE will be favorable. This could prompt a dovish FOMC statement on July 31st.
Impending Fed Interest Rate Cuts Signal Positive Market Shift:
The recent surge in the Russell 2000 index indicates a significant shift in the stock market. Despite a negative CPI announcement, the breadth and power of the overall market have improved. Market pundits suggest that this shift anticipates multiple key interest rate cuts by the Fed, which would benefit domestic stocks compared to large multi-international stocks dominating the S&P 500. These anticipated rate cuts are expected to provide the much-needed boost to the stock market and the U.S. economy.
China’s Export Surge and Tariffs:
China’s National Bureau of Statistics reported a surge in exports by 8.6% in June, while imports declined by 2.3%. The Chinese trade surplus for June stood at a significant $99.1 billion. China’s overproduction of electric vehicles (EVs), batteries, and solar panels has resulted in a need to export these goods worldwide, even in the face of tariffs. This indicates that China’s exports continue to grow unabated.
Conclusion:
The current political landscape in the United States appears more certain with a likely Trump victory. The Fed is expected to follow other major central banks by cutting key interest rates no later than September 18th. Under Trump’s administration, tax cuts are anticipated to improve the velocity of money, facilitating a faster circulation of funds. Additionally, the strength of the U.S. dollar suggests that the country is poised to lead a global economic recovery.
