Dear valued client,
Markets are on track for more gains this week following reassuring inflation data. The U.S. CPI came in at 3% in June (compared to 3.3% in May and 3.4% in April). Fed Chair Jerome Powell, while addressing Congress, noted progress in reducing inflation and a cooling job market but didn’t comment on future interest rate plans. Higher rates have worked to significantly ease inflation from a peak of 9.1% in June 2022. The Fed has kept the federal funds rate at a record high of 5.25%–5.50% for a year now, but holding off on cuts for too long risks squeezing the economy and worsening unemployment, which reached a 2.5-year high of 4.1% in June, up from 4% in May. Given the decrease in inflation, with gas prices dropping by 3.8%, analysts predict an 80% chance of a rate cut by September.
American lawmakers were busy this week as a bipartisan group of senators proposed the Ending Trading and Holdings in Congressional Stocks (ETHICS) Act to crack down on stock trades by members of Congress. This act, created by five senators, mandates that members of Congress, their spouses, and their dependent children divest their assets by 2027 and bans trading for 90 days after the bill becomes law. Violators would face penalties of either their monthly salary or 10% of the assets’ value, whichever is greater, and divestment is required even for holdings in blind trusts. This follows the ineffective 2012 STOCK Act, which only imposes a $200 fine for late trade disclosures. The ETHICS Act is set to be reviewed by the Homeland Security and Governmental Affairs Committee on July 24.
In a surprising turn of events in France, the New Popular Front, an alliance of left-wing parties, won the most seats in France’s National Assembly, overturning expectations of a right-wing victory by the National Rally. This outcome followed a strategic withdrawal of over 200 left and center candidates to consolidate votes against the National Rally. For the New Popular Front to secure an absolute majority, coalition building will be necessary. This may lead Macron to adopt parts of the left’s economic agenda, such as reinstating a wealth tax, increasing taxes on the highest incomes, lowering the retirement age, and eliminating certain business tax breaks, despite concerns about the financial viability of these programs.
For nine months following the Hamas-led October 7 attack and Israel’s invasion of Gaza, Hezbollah and Israel have exchanged strikes across Lebanon’s southern border. As Israel winds down its operations in Gaza, Prime Minister Benjamin Netanyahu warns that a broader conflict with Hezbollah may be imminent. Tensions have escalated with an Israeli drone strike killing a senior Hezbollah commander, prompting Hezbollah to launch over 200 missiles. Despite this, neither side calls it a war, recognizing the potential for far greater destruction. The situation is precarious, with both sides testing each other’s limits, and Netanyahu’s upcoming address to the U.S. Congress on July 24 could be pivotal. The conflict is deeply intertwined with Iran’s influence over Hezbollah and Israel’s political pressures, including the need to return evacuated citizens to northern Israel safely. The risk of an all-out war remains high, posing severe consequences for Lebanon’s fragile infrastructure and economy.
At a high-stakes press conference, President Joe Biden insisted he will continue his presidential campaign despite growing calls from Democratic lawmakers and donors, including George Clooney, to step aside. Biden said he won’t drop out unless polls show he cannot win. However, during the NATO summit, he made several gaffes, including referring to Ukraine’s President Zelensky as “President Putin” and mixing up the names of Vice President Kamala Harris and Donald Trump. Time will tell whether or not Biden is on the ticket in November.
“What gives light must also endure burning.” – Viktor Frankl
Have a terrific weekend,
PW
