🎙️ Resilient Growth Masks Debt

⚾ Happy Jackie Robinson Day!

Today marks 77 years since Robinson broke the color barrier in baseball, becoming the first Black player to take the field for a Major League team. “A life is not important except in the impact it has on other lives,” Robinson said.

Meanwhile, the S&P 500 and Nasdaq retreated again as rising Treasury bond yields and conflict in the Middle East spooked traders.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• A resilient global economy masks growing debt and inequality

• U.S., UK ban Russian metals from exchanges

This, and more, in just 5 minutes to read.

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In The News

🌎 How a Resilient Economy Masks Global Debt and Inequality

Few areas of markets and economies are as black and white as textbooks portray them. Often, they’re a mixed picture full of gray areas and surprise. 

That’s most definitely the case about economic growth and avoiding a major recession. 

A big picture lay of the land:

• On the one hand, there's short-term optimism driven by a resilient U.S. economy, a rebounding UK, and signs of recovery in Germany and China. The International Monetary Fund (IMF) is expected to revise upwards its growth forecasts, with Bloomberg Economics predicting a 2.9% global growth for 2024.
  

• But beneath this optimistic facade lie deeper challenges: Geopolitical tensions are escalating, notably between Israel and Iran, with potential economic repercussions worldwide, especially if oil flows are disrupted or trade through the Strait of Hormuz.
  

• Policymakers fear that geopolitical realignments and technological disruptions could slow global growth and concentrate gains in a few wealthy nations. 

A step back: According to Bloomberg, climate change, rising debt burdens, and food price increases are driving a surge in migration that’s reshaping politics in richer nations.

• The pandemic has halted the decades-long trend of economic convergence, widening the gap between rich and less well-off countries. 
  

• After years of remarkable progress, the number of people living in extreme poverty has increased, and low-income countries are burdened by debt servicing costs that limit their growth prospects.
  

• Meanwhile, as pictured below, progress in reducing global inequality has slowed.

Why it matters:

Trade tensions are escalating, particularly between the U.S. and China. 

China's aggressive industrial policies — creating subsidized gluts of cheap goods that its own consumers can’t absorb — are causing concerns in the U.S. and other industrialized countries, leading to potential trade wars. Rich countries are adopting industrial policies such as aerospace, semiconductors, and electric vehicles, which could reduce investment in poorer nations, exacerbating global inequality.

• Because of lingering inflationary pressures, central banks are becoming more cautious, delaying expected interest rate cuts. This cautious approach has consequences for heavily indebted countries, where debt-servicing costs consume a significant portion of GDP.
  

• The OECD projects that government debt in its member countries will reach a record $56 trillion this year—no, folks, that’s not a typo. 

Reconfigured: The global economy is reconfiguring, with countries organizing into geopolitical blocs while navigating technological disruptions like AI that promise to redefine countries’ labor forces. 

• The rise of connector economies like Mexico, Morocco, and Vietnam brings resilience to trade networks, but the future still remains uncertain.

Read more

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🔻 Trump Media shares plunge 15% after company files to sell more stock

🎟️ StubHub eyes summer IPO, seeks $16.5 billion valuation

✈️ The top 20 travel destinations for summer vacation in 2024, per Google

⛏️ U.S. And UK Ban Russian Metals From Exchanges

It’s been two years since Russia invaded Ukraine, but new sanctions continue to be imposed on Russia. On Friday, the U.S. and UK banned newly produced Russian aluminum, copper, and nickel from being delivered to exchanges where global prices are set, like the London Metals Exchange (LME).

While many analysts expect the sanctions to have limited impacts, the Russian aluminum giant United Co Rusal International warned that the restrictions could jeopardize as much as 36% of its sales.

• As a result of the sanctions, the price of aluminum spiked by 10% in early London trading, while copper rose 0.7% and nickel rose 2.3%.

• At the LME, Russian aluminum has recently comprised nearly 90% of the exchange’s warehouse inventories. As one expert put it, “The LME’s new measures should reverse this.”

Russian metals discount: The aim is to undermine Russia’s status as one of the world’s biggest metal producers. Russia generates 6% of all aluminum mined, 4% of copper, and 3% of nickel. Revenue from these commodity sales largely channels back to state-owned businesses, which indirectly supports Russia’s ability to fund its ongoing war in Ukraine.

• Taking Russian metals off the global market is difficult and would be inflationary, given their fundamental role in our lives. Instead, according to Citigroup analysts, the aim is to reduce the ease with which Russian metals can be traded.
  

• If Russian metals are less accessible and more of a headache, they’re more likely to trade at a discount to global benchmarks.
  

• So, in theory, discounted Russian metals should have negligible effects on commodity prices globally (the supply of metals is unchanged) but reduce the Russian state’s revenues.

Why it matters:

For an example, look no further than sanctions on Russian crude oil. By making it harder to transport, purchase, and store Russian crude, it trades at a $12-20 discount per barrel to benchmark oil prices.

For metals like aluminum, the U.S. has already imposed heavy tariffs on Russian supplies. Now, U.S. and UK metals exchanges will work with authorities to ensure they aren’t delivering or storing Russian metals, either.

• Metals are Russia’s most valuable commodity after oil and gas, but their revenues are dropping fast, falling from $25 billion in 2022 to $15 billion in 2023.
  

• China, India, and Turkey will likely absorb Russian metals instead of the U.S. and its allies.

Read more

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Quick Poll

On Friday, we asked: Are you concerned that AI will be able to replace your job?

— Most respondents are not at all concerned about AI doing their job. “I’m a veterinarian,” one said. “I’m a doctor. Patients want face-to-face care and hands-on treatment.” Others: “I don’t think AI will take over property owners.” And: “AI will never take over retired. Lol.”

— Another reader pointed out that, “AI is a tool, and like all new technologies, it will create jobs.”

— Others were more cautious. “The AI will replace many jobs…the richer will be even richer.”

See you next time!

That's it for today on We Study Markets!

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