Words by: Jonathon Davidson
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[For my personal website]— G'day! Welcome to the end of Week 30, 2023. I'm going to talk about something a bit different to start with. First and foremost, interest in, and enthusiasm for, the defence investment thematic is likely to rejuvenate across the next week given that at least 100 Wagner soldiers in Belarus, a close ally of Russia, are currently setting up shop right at the Polish border.
Earlier this week, Putin and Belarus both told a conference Poland is planning to invade Ukraine and Belarus. The Polish PM has said it's possible Wagner soldiers will disguise themselves as middle eastern immigrants to enter the country. While 100 Wagner soldiers are unlikely to be able to start a war in Poland — and Poland, being a NATO country, is probably well prepared to take on any flavour of Russian invasion, given that Russia is badly losing in Ukraine, according to Citigroup research — there's still a possibility of terrorist attacks in Poland, either conducted by Wagner itself or manufactured by Wagner.
Not so fun fact: Wagner is thought to be behind a recent massacre in African Mali where 500 were killed, and not long after, UN Peacekeepers were mysteriously told to leave the country, now making Wagner Mali's "peacekeeping force."
But the Polish PM is also worried about ongoing inflows of Middle Eastern and North African immigrants into Poland through Belarus, which is facilitated by Wagner. Wagner is basically an extension of the Russian military and continues to act as such, even after an alleged and directionally vague mutiny thrown by the groups' commander against Putin.
For years now, Middle Eastern citizens have been able to buy Belarusian visas from companies tied to Belarusian government members, under the arrangement they will then be smuggled into Poland or Lithuania where the borders touch Belarus. Wagner, a Russian paramilitary quite clearly aligned with the Kremlin's overall strategic desires, facilitates this, and the immigrants themselves are ultimately just trying to get to Germany.
It's quite clear in my view that Russia, through Belarus, and by using Wagner, is seeking to destabilise political coherence in Poland. The refugee "crisis" will inevitably lead to anti-immigration protests, and then pro-immigration protests, and ultimately inflame tensions between Polish citizens themselves. It's probable there are already disinformation campaigns to this end taking place to ratchet the tension—just go look at the comments sections on any recent videos of the Polish PM speaking on the situation. This, in my view, is probably the strategy, rather than preparing to launch a new war in Poland. May that prove to be true.
At any rate, defence stocks will probably take a shine in Week 31. Ukraine has also begun firing rockets into some Russian areas, and is now using US-provided cluster munitions.
Let's get back to regular programming.
The US Fed and ECB both raised interest rates this week, but as people are confident the cycle is coming to an end (possibly), the market didn't really react much. Fatigue for macroeconomic data is also a consideration.
In Australia, retail spending has dipped slightly, leaving at least one analyst positive the news 'cements in' an RBA rate pause. Of course, inflation remains at 6% — and trimmed mean, the new favoured measurement of everybody with no patience — more or less sits at 6%, too. Time will tell.
In China, the Politburo meeting (which, mind you, I incorrectly said last week was going to happen this weekend, but in fact happened earlier,) didn't really answer the market's questions at all. A lot of talk, as you'd expect from a government shindig, but no real clear guidance or action.
The market continues to wait. However, the perception of a snapback in Chinese oil demand is increasing, pushing Brent Crude to US$84/bbl — the kind of thing which will make inflation go back up, per VanEck's Head of Quant David Schassler's thesis inflation will continue to rise and fall in waves before it finds eventual equilibrium in the target band — hopefully.
Poland wants to close Belarus border as 100 Wagner soldiers gather near checkpoint
The Guardian
The Polish prime minister said on Saturday that more than 100 mercenaries belonging to the Russian-linked group had moved close to the Polish border. Mateusz Morawiecki said the mercenaries had moved close to the Suwalki Gap, a strategic stretch of Polish territory situated between Belarus and Kaliningrad, a Russian exclave.
Lithuania has repeatedly warned its western allies that Wagner mercenaries could disguise themselves as asylum seekers trying to cross Belarus's borders with EU member states, or stage provocations involving refugees.
US Fed raises interest rates by another 25bps but market reaction subdued
CNBC
The Federal Reserve on Wednesday approved a much-anticipated interest rate hike that takes benchmark borrowing costs to their highest level in more than 22 years. In a move that financial markets had completely priced in, the central bank's Federal Open Market Committee raised its funds rate by a quarter percentage point to a target range of 5.25%-5.5%. The midpoint of that target range would be the highest level for the benchmark rate since early 2001.
US inflation data shows slowdown with core at 4% but, consumers spending more again
FXEmpire
Today the Bureau of Economic Analysis (BEA) released its most current inflationary data vis-à-vis the PCE (Personal Consumption Expenditure Price Index). The report revealed that in June inflationary pressures continues to diminish while consumer spending continues to expand.
The PCE index rose by 0.2% in June compared to an increase of 0.3% in May. Core inflation rose 4.1% annually which is a dramatic decline from the annual increase in May which came in at 4.6%. Although inflation is far from the Federal Reserve's target of 2% today's numbers come in at a level that shows the slowest rise of inflation in over two years.
European Central Bank raises interest rate by 25bps
AFR
The European Central Bank raised interest rates for the ninth straight time in its year-long campaign to stamp out painfully high inflation, coming as worries about recession fuel speculation that this rate rise could be its last. ECB President Christine Lagarde had all but promised the quarter-percentage point increase, putting the focus at her post-meeting news conference on whether the bank will raise rates again at its September meeting or hold off after a record series of rate increases.
Australian retail spending falls somewhat, leading some analysts excited for a rate pause
TMH
The Australian Bureau of Statistics (ABS) has released the latest figures on retail spending for June, which reveal a mid-year spending dive of 0.8 per cent.
The drop follows a 0.8 per cent rise in May, driven by the lead-up to mid-year sales, and a 0.1 per cent fall in April. June's results do represent a 2.3 per cent increase compared to figures seen in June 2022.
City Index Senior Market Analyst Matt Simpson said the latest figures almost "cement" a rates pause by the RBA next week.
Chinese politburo meeting fails to introduce any real meaningful stimulus measures
HSN
China pledged to step up stimulus measures as the economy faces what it described as "new" difficulties and a "tortuous" recovery, following a meeting of the powerful politburo of the ruling Communist Party this week. Below are the key takeaways from the official readout of the meeting on the direction China's economic policy will take in the second half of 2023, which left many issues unaddressed.
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