'Trump 2.0' could muddle friendly Fed cuts - Citi
U.S. equity index futures mixed, little changed
Euro STOXX 600 index off ~0.4%
Dollar up slightly; bitcoin gains; crude slips; gold down >1%
U.S. 10-Year Treasury yield rises to ~4.24%
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'TRUMP 2.0' COULD MUDDLE EM-FRIENDLY FED CUTS - CITI
Everyone says when the U.S. sneezes, the world catches a cold. Citi analysts say a slowing U.S. economy and incoming interest rate cuts by the Federal Reserve should not undermine emerging markets too much. But a potential return of former U.S. President Donald Trump to the White House might make things a little more complicated.
The assassination attempt on the Republican candidate last week has prompted a wave of repricing of the odds of a Trump victory. But Citi suggests it is too early to assume a 'Trump 2.0' is fully priced in as the election factor will intertwine with Fed easing drivers.
"Some of the bearish market signals in EM may persist, despite Fed policy support," they wrote in a note.
Perhaps the biggest of the EMs in the firing line of a potential Trump return is China. Citi anticipates heightened trade policy uncertainties, with perhaps the steepest tariffs being reserved for China. Assuming a 60% threat dilution in negotiations and domestic pullback, they see a 2.4% reduction in China's real GDP.
The selection of J.D. Vance as Trump's running mate heightens the "America First" foreign policy instincts of a potential Trump 2.0 administration. This could undermine both Ukraine's interests and the integrity of the NATO security alliance, pushing defense spending across Central Eastern Europe (CEE) and driving up imports, Citi said.
A more forceful Trump 2.0 agenda on Mexico and other parts of Latin America to tackle migration and drug trafficking, or limiting Chinese investments in the region, could also hurt economic interests and add expenditure pressure in a region with very limited fiscal space, the bank said.
(Shashwat Chauhan)
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FOR FRIDAY'S EARLIER LIVE MARKETS POSTS:
S&P 500 INDEX: A QUICK GOODBYE TO THIS WEEK'S RECORD HIGHS CLICK HERE
THE BOE'S NEWEST RATE SETTER COULD HOLD THE DECIDING VOTE - CLICK HERE
UK TO BENEFIT FROM TECH ROUT, IMPROVING MACRO - CLICK HERE
BEIJING MAY HAVE TO ACCEPT LOWER GROWTH - CLICK HERE
SHARES DIP, CYBER OUTAGE IN FOCUS - CLICK HERE
SPX07192024E https://tmsnrt.rs/3W9H2ZN
(Terence Gabriel is a Reuters market analyst. The views expressed are his own)
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