Global Financial Trends and Strategic Shifts

1

Japan's Prime Minister Fumio Kishida has decided not to run in the September Liberal Democratic Party leadership election, meaning Japan will have a new prime minister. Due to the LDP's dominance in the Diet, the winner is almost certain to become the next prime minister. Kishida's approval ratings have been declining due to scandals, inflation, and yen depreciation, leading to his decision not to seek re-election. Potential successors include former Defense Minister Shigeru Ishiba, Digital Transformation Minister Taro Kono, Foreign Minister Yoko Kamikawa, and former Prime Minister's son Shinjiro Koizumi.

Analysis:

Impact on FX:Political uncertainty may weaken the JPY in the short term.

FX Pair:USD/JPY, EUR/JPY

Impact on Shares:Japanese stocks may see increased volatility; potential sectors affected include defense and digital transformation.

Companies:Mitsubishi Heavy Industries, SoftBank Group

2

The U.S. Department of Justice is considering breaking up Google's parent company Alphabet Inc. after a court ruling found Google monopolized the online search market. This could lead to the first major tech breakup since Microsoft two decades ago. The DOJ might require Google to divest the Android OS, Chrome browser, or its AdWords platform. Additionally, the government may seek to limit Google's unfair advantage in AI products and require data sharing with competitors. This move aims to restore market competition and address Google's dominance in search and advertising.

Analysis:

Impact on FX:Uncertain; could lead to increased volatility in tech-related currencies.

FX Pair:USD/JPY, EUR/USD

Impact on Shares:Tech stocks, particularly in the FAANG group, could see increased volatility.

Companies:Alphabet Inc. (GOOGL), Microsoft (MSFT)

3

Financial markets are signaling an increased probability of a U.S. recession. Goldman Sachs and JPMorgan models show that based on U.S. bond market and certain stock performance, the market-implied recession probability has risen. Goldman estimates the current probability at 41%, while JPMorgan's model suggests 31%. The risks are driven by expectations that the Federal Reserve might accelerate rate cuts and the underperformance of cyclical stocks. Despite rising market risks, Goldman economists still see a 25% chance of recession.

Analysis:

Impact on FX:Increased recession risk could weaken the USD.

FX Pair:USD/JPY, EUR/USD

Impact on Shares:Defensive stocks may perform better; cyclical stocks could suffer.

Companies:Procter & Gamble (PG), Caterpillar Inc. (CAT)

4

Bond traders, after experiencing sharp volatility, are betting on a strong market rebound ahead of the key inflation report. U.S. Treasuries surged last week amid market turmoil and economic slowdown fears. Although traders have partially unwound extreme bullish positions, market sentiment remains strong. Citi and JPMorgan surveys indicate that long positions in the bond market remain at the highest levels of the year. The upcoming inflation data is expected to further support the bullish sentiment, with investors betting that the Fed might begin rate cuts due to economic slowdown. Additionally, options market positions indicate continued optimism about future yield declines and further bond market rallies.

Analysis:

Impact on FX:Potential for USD weakening if inflation data supports rate cuts.

FX Pair:USD/JPY, EUR/USD

Impact on Shares:Bond market strength could lead to lower yields, benefiting dividend-paying stocks.

Companies:U.S. Treasury securities, major bond ETFs

5

Former Chipotle CEO Brian Niccol has taken over as the CEO of struggling Starbucks. The previous leadership's failure to revive the business has led to underperformance in the restaurant industry. Former CEO Howard Schultz continues to publicly and privately criticize the company's operations, particularly stock prices, menu, and marketing strategies. Niccol, who successfully turned around Chipotle, now faces challenges such as inflation reducing high-priced coffee consumption, customer loss due to staff changes, and union negotiations. His top priority is to revamp the customer experience and improve in-store service to reverse Starbucks' current downturn. Upon this news, Starbucks shares surged 24%, indicating strong confidence in the new CEO.

Analysis:

Impact on FX:Positive news could strengthen the USD, particularly against safe-haven currencies.

FX Pair:USD/JPY, USD/CHF

Impact on Shares:Starbucks shares likely to see positive momentum; potential uplift for the broader restaurant sector.

Companies:Starbucks Corp. (SBUX), Chipotle Mexican Grill (CMG)

6

International students' future in developed economies is becoming increasingly uncertain as governments tighten immigration controls. The UK, Netherlands, Canada, and Australia have all introduced policies limiting foreign student admissions, leading to a significant drop in visa applications. While these measures are ostensibly to improve education quality and combat visa abuse, critics argue that they are politically motivated, responding to public opposition to immigration amid rising living costs and housing shortages. Meanwhile, the U.S. might benefit from restrictions in other markets, becoming a top destination for international students.

Analysis:

Impact on FX:Tighter immigration controls could strengthen domestic currencies due to reduced capital outflows.

FX Pair:GBP/USD, EUR/GBP

Impact on Shares:Education sector stocks in affected countries might face headwinds.

Companies:Universities, education service providers

7The upcoming U.S. Consumer Price Index (CPI) report is expected to show another small rise in inflation last month, further solidifying expectations that the Federal Reserve will cut rates in September. Analysts predict that core CPI's three-month growth will be the smallest since 2021, driven by a slowdown in rent growth, falling used car prices, and reduced consumer spending on discretionary services. While the decline in rents and used car prices helps curb overall inflation, uncertainty remains about the impact of airfares. The market is widely expecting that soft inflation data will prompt the Fed to begin cutting rates.

Analysis:

Impact on FX:Soft CPI data could weaken the USD.

FX Pair:USD/EUR, USD/JPY

Impact on Shares:Rate-sensitive stocks could benefit from the anticipation of rate cuts.

Companies:U.S. Treasury securities, rate-sensitive sectors like real estate and utilities

8

Google has announced the launch of upgraded smartphones, watches, and earbuds, aiming to compete with Apple and Samsung while providing more AI-driven functionalities. The newly released products include the Pixel 9 series of phones, Pixel Watch 3, and Pixel Buds Pro 2. These devices are equipped with Google's Gemini AI, allowing the Google Assistant to respond more intelligently to user needs. The Pixel 9 series boasts a more powerful camera and premium materials, with the Pixel 9 Pro Fold featuring a larger display. The Pixel Watch 3 offers a larger display area and longer battery life, while the Pixel Buds Pro 2 are lighter and offer longer battery life. Google's goal is to drive its AI business forward through tighter integration of hardware and software, while also gaining a larger market share in hardware.

Analysis:

Impact on FX:Positive product launch could support the USD, especially against JPY and EUR.

FX Pair:USD/JPY, EUR/USD

Impact on Shares:Google's stock could see positive momentum, boosting the broader tech sector.

Companies:Alphabet Inc. (GOOGL), Apple Inc. (AAPL)

9

Asian stocks rose on expectations that the upcoming U.S. Consumer Price Index (CPI) report will prompt the Federal Reserve to start cutting rates in September. Meanwhile, the New Zealand dollar fell sharply after the country's central bank unexpectedly cut rates. Most Asian markets were up.

Analysis:

Impact on FX:Rate cut expectations may weaken the USD, while NZD could continue to decline.

FX Pair:USD/NZD, USD/JPY

Impact on Shares:Asian markets, particularly rate-sensitive sectors, might benefit.

Companies:Key Asian market indices, New Zealand financial institutions

10

In the second quarter of this year, the median home price in Silicon Valley surpassed $2 million for the first time, making it the first metropolitan area in the U.S. to reach this milestone, reflecting the ongoing housing affordability crisis in the country. The median price of single-family homes in the San Jose-Sunnyvale-Santa Clara area rose 11.6% year-on-year to $2.08 million. San Francisco follows closely with a median price of $1.45 million. Nationally, the price of single-family homes rose 4.9% year-on-year to $422,100. With rising home prices, nearly half of U.S. markets now require an annual income of at least $100,000 to afford a mortgage. This trend has increased homeowner wealth but made it increasingly difficult for new buyers to enter the market.

Analysis:

Impact on FX:Rising home prices may support the USD.

FX Pair:USD/CAD, USD/EUR

Impact on Shares:Housing-related stocks could benefit from the wealth effect, while affordability concerns might weigh on broader consumer sentiment.

Companies:Real estate companies, home builders

11

Norway's $1.7 trillion sovereign wealth fund reduced its holdings in Meta, Novo Nordisk, and ASML during the first half of this year. These companies are among the fund's top ten holdings. According to the latest investment list, the fund reduced its stake in Meta from 1.22% at the end of 2023 to 1.18%, its stake in Novo Nordisk from 1.87% to 1.75%, and its stake in ASML from 2.61% to 2.54%.

Analysis:

Impact on FX:Reducing holdings in these major companies could impact their respective currencies.

FX Pair:USD/NOK, EUR/NOK

Impact on Shares:This could put downward pressure on Meta, Novo Nordisk, and ASML stocks.

Companies:Meta Platforms Inc. (META), Novo Nordisk, ASML Holding