Impact of the euro falls short

Industrial slowdown

Figure 1. Germany not a clear economic winner among its peers

25 years of the euro

Source:Miroslav Singer 

It's actually better than it looks

The key number we highlight above - the month-on-month change in August NODX, is a bit misleading. This is hugely choppy data. One of the main components, pharmaceuticals, is subject to batch production, and hence exports and shipments also tend to come in batches leading to big month-on-month swings. Petrochemicals can also be choppy. Fluctuating run rates of refiners coupled with variations in the number of ships docking to pick up cargoes of oil and gas and other products over a given month can also lead to big swings. 

For exactly these reasons, in July, NODX surged by 12.2%MoM. So a 4.7% contraction in August has to be viewed against the backdrop of volatility that always accompanies this data.

For that reason, a lot of people will focus on year-on-year growth. That growth rate slowed down from 15.7% to 10.7% in August. But erratic data can also mess up year-on-year comparisons, especially as the series was no less erratic last year. And we are not big fans of year-on-year analysis for this data for that reason. 

We tend to look at NODX as holistically as possible. We have 3m annualised measures - these are still very choppy. 6m annualised - less choppy but you lose a lot of the recent trend. For choice, this month, we are drawn to the year-to-date year-on-year figures. These have the advantage of embedding in previous surges and troughs, and in doing so, absorbing much of the volatility, while enabling underlying trends to emerge.  

When you do this, what you see is that overall, NODX is growing, though only at about a 5.5% pace. Electronics and petrochemicals have driven the gains, though petrochemicals seem to be losing some momentum, which might well tally with a slowdown in global / regional demand. Pharmaceuticals exports are still down on this time last year, though they are much less of a drag than they were, and may soon break back into positive territory. 

In short, the direction is positive, and getting more so, but the rate of growth is quite subdued. That should not come as a surprise.  

Exports: Year-to-date, year-on-year by major group

That's the "what?", what about the "where"?

The chart of where Singapore's exports are going is quite interesting. We only show the major export destinations. And what is immediately obvious is that the G-7 isn't doing very well, with exports all negative on the same year-to-date, year-on-year basis. 

Greater China is doing better. Exports to Mainland China are still up more than 10%. Taiwan and Hong Kong are also doing well. 

But the strongest growth is from other SE Asian economies. Thailand is topping the current list, followed by Indonesia and Malaysia. This is interesting because this also tallies with observations that China's largest trading area these days is not the US, or the EU, but ASEAN. 

This region has considerable growth potential and deserves closer attention while other parts of Asia, and even the world are struggling. 

Exports: Year-to-date, year-on-year %, by destination

In crises, it becomes clear how much citizens’ perceptions of reality differ from the sometimes distorted images presented to them by those in power. Established democracies are experiencing an endemic crisis of confidence fueled by leaders’ quests for power, combined with uncontrolled immigration, that is shaking the foundations of social cohesion. The radical forces on the fringes of society are growing, the political center is shrinking, and with it, the voice of reason. Manipulation of public opinion by those in power – or those seeking to destabilize it – is accelerating radicalization, already leading to civil war-like conflicts in some hotspots.

Two recent examples come to mind in the democratic world. In the United States, President Joe Biden’s physical and psychological overexertion was already obvious when, in 2023, he announced his candidacy for a second term. Yet the White House, the Democratic Party establishment and a majority of commentators in the country’s leading media outlets repeatedly maintained that he was fully fit to hold office. In the United Kingdom, the newly elected Labour government faced riots directed against migrants; Downing Street was right to use police force to counter the violence. But instead of also analyzing the multifaceted causes of the anger impartially and preparing a change in economic and migration policies to address grievances, it chose to mobilize exclusively against “Islamophobia” and the “far right.” This suggested that even in the motherland of parliamentary democracy, the contours of authoritarianism may be emerging.

Democracy faces a test

Ignoring growing criticism on social media, governments and government-affiliated media in both countries sought to impose a distorted picture of reality on the public by concealing, whitewashing and sewing outright disinformation. That is eerily similar to the complete lack of freedom of information in authoritarian states like China and Russia, where those in control, in an effort to entrench their uncontested rein on power domestically and further it beyond their borders, routinely deceive their people and hide the truth. That such attempts fail sooner or later is a lesson from history: “You can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time,” as Abraham Lincoln is purported to have said.

In recent American history, Watergate, the Iran-Contra affair and the weapons of mass destruction allegedly stored in Iraq were examples of “fooling by disinformation.” That ploy was used again by the Democratic camp in the current election campaign. The party establishment’s claim that Joe Biden was physically and mentally capable of another four years of the presidency was stubbornly maintained even when Americans had long since formed their own opinion of the president’s condition from his TV appearances. The first doubts about Mr. Biden’s health were already expressed when he announced his candidacy in April 2023. A poll published in August of that year found that 77 percent of Americans, including 69 percent of Democrats, thought President Biden was too old to run against Donald Trump again. Nevertheless, it would be 10 months before Mr. Biden’s pitiful debacle in the CNN debate with former President Trump on June 27 in front of 50 million viewers brought clarity.

“The debate was not just a catastrophe for President Biden,” wrote American journalist Bari Weiss, “it was more than that. It was a catastrophe for an entire class of experts, journalists and pundits, who have, since 2020, insisted that Biden was sharp as a tack, on top of his game, basically doing handstands while peppering his staff with tough questions about care for migrant children and aid to Ukraine.”

 “You can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time.”

Anyone who committed the transgression of using their own eyes on the 46th president was accused, variously, of being Trumpers; MAGA cult members who do not want American democracy to survive; ageists; or just dummies easily duped by “disinformation,” “misinformation,” “fake news” and, most recently, “cheapfakes” (media manipulations produced using inexpensive, widely available tools).

The reason people hide the truth

But why did the White House and the Democratic Party cling to the legend of the fit president for so long? One honorable motive was respect for Mr. Biden and his life’s work. Another was to protect him as best as possible from attacks from the Trump camp.

Mr. Biden’s weaknesses were denied until, due to time constraints, only Vice President Kamala Harris was considered viable as his successor. It was by no means certain that the Democratic Party would have chosen Ms. Harris in a fair intra-party contest. Before being nominated as the party’s candidate for the presidency, her popularity was low, and her performance as vice president was unremarkable. Even sympathetic commentators admitted that she had failed in the area of addressing the root causes in third countries of mass immigration to the U.S., which she was given responsibility for curbing. Had an open debate taken place earlier in the campaign cycle, it could have destabilized the party and caused political chaos. The Democratic establishment expected Ms. Harris to guarantee the continuation of President Biden’s reelection course.

Three months before the presidential election in the U.S., Americans were presented with a paradoxical picture: President Biden, who was campaigning for the last time despite his cognitive deficits due to advanced aging, was considered by many of the American people to be the only candidate who could defeat Mr. Trump. Then, rather suddenly, he was eliminated after the truth came out on the televised debate. Subsequently, following her accepting the Democratic nomination in August, 59 year-old Kamala Harris has avoided giving interviews or press conferences at which she would have to comment on fundamental political questions. Instead, she goes from one rally to the next with her trademark laugh, thinking that she is spreading good cheer and making 78 year-old Mr. Trump look elderly.

Abraham Lincoln’s warning is still valid, but needs to be updated on one important point: Those who deliberately leave the public in the dark by withholding information or actively disinforming them are themselves the ones who contribute most to the spread of fake news and conspiracy myths. That shakes confidence in democracy or obliterates it. The result of the destruction of democracy can be seen in today’s Russia. President Vladimir Putin has done just this, prohibiting free media, imprisoning and killing voices of reason and forcibly spreading his own narrative to feed his hunger for power. Russia’s elections, like its democracy, are no longer considered either free or fair.

Migration and its challenges deserve honest consideration

With a total population of nearly 67 million in the UK, the 2021-2022 census registered 10.7 million migrants (foreign-born members of the population). This represents a share of just under 17 percent, though it increased by nearly a third compared to the 2011 census. It is estimated that the number of migrants increased by a further 1.4 million in 2022 and 2023 alone, two-thirds from non-EU countries, with immigration of people born in the EU decreasing. The proportion of people born abroad is particularly high in London and the southeast of England, where around 47 percent of foreign-born UK residents live.

Unlike the U.S., the UK was not a country of immigration until the second half of the 20th century. It was not until after World War II in 1948 that the British Nationality Act legalized immigration from countries that were once part of the Empire and now are part of the Commonwealth. By the 1960s, hundreds of thousands of people had already come to the UK in this way. The Commonwealth Immigrants Act (1962) accelerated immigration by making it easier for families to join those already in the UK.

The first major conflicts between migrants and locals broke out in London at the end of the 1950s. However, the attempt by right-wing extremists around fascist leader Oswald Mosley to use the unrest for their own ends failed. At the time, the majority of Britons spoke out against the steady influx of migrants, but racist motives played only a minor role. An April 1968 poll by Gallup found that 75 percent of the British public believed that controls on immigration were not strict enough. That figure would soon rise to 83 percent. On April 20, 1968, the Conservative Member of Parliament Enoch Powell warned party members in Birmingham of the consequences. Quoting Virgil, he said, “As I look ahead, I am filled with foreboding; like the Roman, I seem to see ‘the River Tiber foaming with much blood.’” The speech sparked heated debate and prompted Edward Heath to exclude Mr. Powell from his shadow cabinet. Nevertheless, polls showed that his position was widely approved (69 percent) and it probably contributed significantly to the Conservatives’ election victory in June 1970.

Late Prime Minister Margaret Thatcher made similar comments in a television interview in 1978:

If we went on as we are then by the end of the century there would be four million people of the new Commonwealth or Pakistan here. Now, that is an awful lot and I think it means that people are really rather afraid that this country might be rather swamped by people with a different culture and, you know, the British character has done so much for democracy, for law and done so much throughout the world that if there is any fear that it might be swamped people are going to react and be rather hostile to those coming in.

But even during Ms. Thatcher’s time in office and especially after the end of her era in November 1990, the “multicultural” transformation continued through the constant influx. Instead of addressing concerns, politicians and the press began to throw accusations back at the public, ignoring reality. This was done not just through charges of “racism” and “bigotry,” but in a series of deflecting tactics that became a replacement for action. Socialists, liberals and conservatives all came to terms with it. The more recent prime minister, Boris Johnson, wrote in The Telegraph in 2012: “We need to stop moaning about the dam-burst. It’s happened. There is nothing we can now do except make the process of absorption as eupeptic as possible.”

There are also concerns about migrant crimes, especially sexual crimes against native populations. But such worries in the UK are swept under the carpet and have not changed the optimistic tone of the government and the well-meaning press. Authorities look the other way. It took more than 10 years to solve the case of the abuse of 1,400 mostly vulnerable white girls of working class origin and the daughters of Asian families by Pakistani child molesters. Every time “grooming” scandals occurred, local authorities turned a blind eye for fear of causing community problems or being accused of racism, disinforming their constituents.

Source: GIS

Late entry

The US presidential election is drawing ever closer and there can be no doubt that the race heated up after President Joe Biden abruptly dropped out. His vice president, Kamala Harris, was the obvious choice to replace him despite doubts about her electability.

Yet, she managed to steal Donald Trump’s thunder almost immediately after Biden’s endorsement made her the frontrunner to replace him. It didn’t take long for other senior Democrats to give their backing too, and Harris soon had enough delegate votes to secure the party’s nomination. After that, from her pick of Tim Walz as her running mate to the star-studded Democratic National Convention where she was formally nominated, the momentum just kept growing.

Light on policy

However, her campaign hit its first major bump when she gave a lackluster performance in an interview with CNN, providing the Trump team a much-needed boost. More importantly, as the initial euphoria for Harris fades, the focus is shifting back to policy details, or the lack of.

Whilst there are key differences between the two candidates when it comes to hot issues such as immigration, tariffs, foreign policy and tackling climate change, the pros and cons are not so obvious when it comes to economic policies, at least not when it concerns the markets.

Tax cuts vs spending

The Republicans are traditionally the party for lower taxes, while the Democrats tend to support more spending. Looking at their policies, neither candidate is steering away from convention. Trump wants to extend the Tax Cuts and Jobs Act of 2017 from his first term that is set to expire in 2025 and is pledging to make further reductions to the corporate tax rate. Other tax reductions are being floated too.

It’s not surprising therefore that the majority of investors favour Trump to win the November 5 election. But from a voter perspective, the advantages are not so clear. For one, the US has been running excessive budget deficits since the 2008 financial crisis and government debt has more than tripled during this period to almost $35 trillion.

America’s growing debt mountain

A Trump victory could see another $5.8 trillion being added to the debt pile over the next decade according to one study by the Penn Wharton Budget Model, whereas Harris’ policies would add only $1.2 trillion.

Failure to tackle America’s growing deficit problem runs the risk of a debt episode similar to what the UK experienced with its mini budget debacle, as it’s doubtful whether markets would be able to turn a blind eye for much longer.

Biden’s mixed economic track record

High inflation has been the Biden administration’s biggest Achilles’ heel, as it’s overshadowed an otherwise good track record on the economy. The problem for Harris, however, is that having served as vice president, she cannot disassociate herself entirely from Biden’s legacy.

Nevertheless, her combined proposals on capping food prices, building more affordable homes, continuing Biden’s reforms on lowering drug prices, and expanding child tax credits and other tax breaks for families and workers may win round quite a few voters.

Potentially a bigger worry for the Democrats than the absence of headline grabbing policies is the risk of a worsening labor market in the run up to polling day. The Fed looks set to begin cutting interest rates at its September meeting, but this may be too little, too late for voters. Even worse, if any deterioration in employment conditions is not matched by downside surprises in inflation, rate cut odds won’t rise very substantially and Wall Street won’t be able to stage much of a rally.

Who will lift Wall Street the most?

The post-election impact on the stock market is also not very clear-cut. Whilst Trump’s proposed tax cuts would likely be positive for consumers, the boost would be limited if the reductions are targeted mainly at the rich. His stance on corporation tax is also aimed more at big businesses.

This is in sharp contrast to Harris’s focus on supporting the middle class as well as smaller businesses when it comes to tax relief. However, even if the real economy were to benefit more from Democratic policies than Republican ones, Harris’ proposed increase in the corporate tax rate from 21% to 28% alone could be a significant drag on Wall Street shares.

The race for Congress

In reality, the extent to which either candidate will be able to enact all their proposals will depend on how the composition of Congress changes after the election. The Democrats currently control the Senate, while the Republicans have a majority in the House of Representatives.

If Trump wins but the Republicans do not control Congress, the tax cut plans might have to be scaled down and some sort of compromise would have to be reached with the Democrats, for example, not to lower the corporate tax rate.

But if Harris becomes the next president and Congress is split, it will be difficult for the Democrats to pass any bills containing tax hikes on the wealthy and some of the tax credits and spending increases might have to be financed by savings elsewhere to receive the backing of Republicans.

Dollar bulls might prefer Trump

What all this means for the US dollar is that a Republican-led Congress is likely to be inflationary due to looser fiscal policy and higher tariffs, forcing the Fed to maintain restrictive monetary policy. Trump’s promise to clamp down on illegal immigrants could also stoke inflation by rekindling wage pressures.

All this would create a bullish backdrop for the greenback. Equities would be bolstered too by lower taxes, that is until higher tariffs kick in and inflation starts to cause fresh headaches for the Fed.

However, a victory for Kamala Harris and the Democrats would almost certainly keep the Fed on an easing path, placing the dollar under fresh selling pressure. Yet, a relatively tighter fiscal policy might not be the best environment for stocks to thrive, although rate cuts and a soft landing could eventually revive the rally on Wall Street.

Gold and oil take different sides

Not to forget the implications for key commodities such as gold and oil. Gold is less likely to maintain its record-setting streak under a Trump administration as interest rates would not be cut as much and may even rise again, hurting the appeal of the non-yielding yellow metal.

But oil might perform better despite Trump’s pledge to encourage more production of fossil fuels, which would weigh on prices. Oil futures could benefit from the greater demand generated by a potentially stronger US economy. Meanwhile, Trump’s tougher stance on Iran as well as his unwavering support for Israel carries some risks, possibly inflaming geopolitical tensions and pushing up oil prices.

That’s not to say that there wouldn’t be any danger of a geopolitical escalation with the Democrats remaining in power. But a more modest fiscal boost as well as the ongoing efforts for a ceasefire in Gaza would alter little from the current demand outlook for oil.

Cryptos and the Trump trade

With many of the policies laid out unlikely to be fully shaped until once a new administration is in place, most investors will probably stick to the view that Trump is more pro-business than Harris and therefore his return to the White House would be positive for risk assets. And whilst Trump’s economic policies have a slimmer edge over his rival this time round than in previous elections, some investors may find individual stock sectors or assets that fall under the ‘Trump trade’ more attractive.

Cryptocurrencies and crypto-related stocks are a surprise inclusion in the Trump trade. During his first term as president, Trump did not hide his disapproval of cryptos. But he has seemingly made a U-turn, becoming one of the industry’s most ardent supporters. Harris has signaled she also favors further growth in digital currencies, although it’s not clear whether she would take a laxer stance on regulation than Biden.

Will election fever grip the markets?

With election day fast approaching, further surprises cannot be ruled out as Trump and Harris ramp up their campaigns and investors start to pay closer attention to the opinion polls, particularly in the battleground states. But the fact that Trump did not manage to swing the pendulum back towards him after the first and only televised debate between the two hopefuls indicates that it will be tough for the Republicans to regain momentum.

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Australia’s ‘millennial’ households — those aged 29-43 years — have experienced the largest decline in their real average disposable incomes over the past two years, Goldman Sachs Group Inc said, downgrading estimates for the country’s broader economic growth.

Real incomes per millennial household have fallen 9.4% over the past two years, marking the largest decline across any age cohort, Goldman estimates.

“While inflation has been the largest headwind across all households, younger and middle-aged households have also experienced large headwinds from higher taxes and interest rates,” economist William Nixon wrote in a note to clients , saying the cohort “disproportionately” spends on discretionary items.

“We are mindful of the risk the Reserve Bank pivots over the coming months alongside evidence of subdued consumer spending, softer wages growth and rising unemployment,” Nixon added. The RBA next meets on Sept 23-24, where it is widely expected to leave interest rates at a 12-year high of 4.35% and stick to its hawkish rhetoric.

The weaker starting point for the level of income means the recovery in consumption is likely to be more gradual than Goldman previously estimated, with the government’s recent tax cuts having a “limited impact,” Nixon said.

As a result, Goldman downgraded forecasts for aggregate annual consumption growth to 0.9% in 2024, from 1.1% previously, and 1.5% in 2025, from 2.2%. Both are below the RBA’s estimates of 1.5% and 2.8% respectively.

The investment bank also lowered Australia’s gross domestic product growth forecast for 2025 to 2.0%, from 2.3% — again below the central bank’s 2.5% estimate. Goldman left 2024 forecasts unchanged at 1.2%, saying firmer government spending is likely to offset weaker household consumption in the near term.

Source: Theedgemarkets