<Part 1> GTSE Global Market Dynamics: Key Developments

1.

India officially joined the JPMorgan Emerging Markets Bond Index today, marking an important milestone in the development of its financial markets. This move is expected to attract billions of dollars in investment, reflecting market confidence in India's economic prospects.

Analysis:

Impact on FX: Increased investment in India's debt market could strengthen the Indian rupee (INR).

·        FX Pair: USD/INR, EUR/INR, GBP/INR

Impact on Shares:

·        Indian Market: Positive impact on Indian stocks, particularly financial and infrastructure sectors.

Companies:

·        HDFC Bank (HDB)

·        Reliance Industries (RELIANCE.NS)

·        Infosys (INFY)

·        US Stock Market (NASDAQ, S&P 500): Minimal direct impact, but global financial institutions with significant Indian exposure might benefit.

Key Stocks/Indices:

·        BlackRock (BLK)

·        Morgan Stanley (MS)

2.

Nike, the world's largest sportswear company, released its full-year outlook, which fell short of expectations, sparking investor concerns about declining demand for its sneakers and apparel. The stock price fell by as much as 13% in extended trading in New York and has dropped 17% over the past 12 months. Combined with yesterday's disappointing earnings report from Walgreens, which saw a 25% drop, it suggests that US consumer spending may be weakening. While this is unfavorable for the economy, it could help alleviate inflation.

Analysis:

Impact on FX: Weak corporate earnings could signal a slowing US economy, potentially weakening the USD.

·        FX Pair: EUR/USD, GBP/USD, USD/JPY

Impact on Shares:

·        US Stock Market (NASDAQ, S&P 500): Negative impact, especially on consumer discretionary and retail sectors.

Companies:

·        Nike (NKE)

·        Walgreens (WBA)

·        Under Armour (UAA)

·        Foot Locker (FL)

3.

Japan, with the yen nearing a 40-year low, has appointed a new “currency czar.” According to the Nikkei, the Ministry of Finance appointed Atsushi Mimura as the new Vice Minister for International Affairs, replacing the retiring Masato Kanda.

Analysis:

Impact on FX: The appointment of a new “currency czar” could signal potential interventions to stabilize the yen (JPY), possibly strengthening it.

·        FX Pair: USD/JPY, EUR/JPY, GBP/JPY

Impact on Shares:

·        Japanese Market: Potential positive impact on Japanese stocks if the new policies stabilize the yen.

Companies:

·        Toyota (7203.T)

·        Sony (6758.T)

·        Mitsubishi UFJ Financial Group (8306.T)

·        US Stock Market (NASDAQ, S&P 500): Minimal direct impact.

4.

Since 2019, about half of Hong Kong's top court's overseas judges have resigned, primarily due to the national security law implemented by Beijing in 2020. These resignations have raised concerns among foreign companies about the future of the rule of law in Hong Kong and questioned its status as a global financial center. Three resignations were announced this month. Although the resignations of overseas judges have had limited short-term impact on Hong Kong's attractiveness as an international business center, the long-term impact could be negative if judicial independence continues to be questioned.

Analysis:

Impact on FX: Concerns over Hong Kong's judicial independence might weaken the Hong Kong dollar (HKD) over the long term.

·        FX Pair: USD/HKD

Impact on Shares:

·        H Shares: Potential negative impact on Hong Kong-listed stocks, particularly those with significant foreign investment.

Companies:

·        HSBC Holdings (0005.HK)

·        Tencent Holdings (0700.HK)

·        AIA Group (1299.HK)

·        US Stock Market (NASDAQ, S&P 500): Indirect impact if US companies with Hong Kong exposure face increased risk.

Key Stocks/Indices:

·        AIG (AIG)

·        MetLife (MET)

5.

Although the final US GDP growth for the first quarter recorded an annualized growth rate of 1.4%, slightly above the expected 1.3%, recent broad economic data suggests that the US economy is slowing down in the first half of 2024 due to the Fed's long-term high interest rate policy and ongoing inflation.

a. Personal consumption expenditure: The government revised the first-quarter annualized growth rate of personal consumption expenditure down to 1.5%, a decrease of 0.5 percentage points from the previous 3.3%.

b. Core capital goods orders and shipments: Core capital goods orders fell by 0.6% in May, and shipments fell by 0.5%.

c. Pending home sales: Pending home sales fell by 2.1% month-on-month in May.

d. Continuing unemployment claims: Continuing unemployment claims increased to 1.84 million, the highest level since 2021.

e. Goods trade deficit: The goods trade deficit widened to $100.6 billion in May, the largest in two years.

Analysis:

Impact on FX: Slowing economic growth and high inflation could weaken the USD as markets anticipate a potential policy shift from the Fed.

·        FX Pair: EUR/USD, GBP/USD, USD/JPY

Impact on Shares:

·        US Stock Market (NASDAQ, S&P 500): Negative impact on overall market sentiment, particularly in consumer discretionary and housing sectors.

Companies:

·        Lennar (LEN)

·        DR Horton (DHI)

·        Home Depot (HD)

·        Lowe's (LOW)

6.

The US Supreme Court ruled that the Federal Reserve has too much power: In the case of Securities and Exchange Commission v. Jarkesy, the US Supreme Court ruled that the Securities and Exchange Commission (SEC) must seek certain civil penalties for securities fraud through federal courts rather than its internal adjudication process. The court found that the Dodd-Frank Act provision allowing the SEC to pursue unregistered advisors without a jury trial unconstitutional, violating the Seventh Amendment. The Republican-controlled Supreme Court has begun paving the way for Trump‘s post-election declaration, “I want to weaken the Fed’s independence and get rid of Powell.”

Analysis:

Impact on FX: Legal challenges to regulatory bodies could create uncertainty, potentially weakening the USD.

·        FX Pair: EUR/USD, GBP/USD, USD/JPY

Impact on Shares:

·        US Stock Market (NASDAQ, S&P 500): Increased regulatory uncertainty might negatively impact financial stocks.

Companies:

·        Goldman Sachs (GS)

·        Morgan Stanley (MS)

·        Citigroup (C)