Brussels Prime Minister cuts military aid to Ukraine, tensions in the Middle East continue to rise, US GDP exceeds expectations, and rates held by ECB.
In the latest blow to the Ukrainian war effort Slovakia’s Prime Minister Robert Fico has announced that that the country will no longer be providing military aid to Kyiv. This will come as deeply disappointing to Ukraine, which has benefited from Slovakia’s provisions of materiel including an S-300 air defence system and other items including de-mining vehicles. Fico’s move is indicative of a recent shift seen from some of Europe’s hard-right against supplying military aid to Ukraine. It also follows the election of Louisianan Republican Mike Johnson as the House speaker in the US earlier this week, who said that while he will support further funding going to Israel, he is against further American assistance to Ukraine.
Fico’s announcement, which came at yesterday’s EU summit, also involved him saying that he would not back fresh sanctions on Russia. As such, geopolitical fault lines are increasingly manifesting themselves under Brussels, shaking their ability to appear as a unified force in the Russian-Ukraine conflict. Leading the tremors has been Viktor Orbán, who yesterday stated that EU’s strategy on Ukraine ‘has failed’. He went further to maintain that Hungarian tax receipts ought not go to support a failing strategy. Orbán recently met with Vladimir Putin, marking the first time any EU leader has met the Russian president since the ICC put an arrest warrant on him.
The bloc’s military support for Ukraine relies on a fund managed by the Brussels and relies on unanimous support from EU member states to increase it. In February, the EU increased support to this fund, however Hungary have since vetoed further top-ups.
Fico and Orbán now appear to represent an alliance in Brussels which will make increasing the EU’s military support for Ukraine increasingly challenging. And both leaders’ lack of support for increasing sanctions on Russia further demonstrate growing disunity in the EU vis-à-vis the Russian-Ukraine war.
The situation in the Middle East continues to escalate, with the US undertaking missile strikes on two locations in eastern Syria this morning. The US say the strikes were on a weapons storage facility and an ammunition storage facility linked to Iran’s Revolutionary Guard. Last night Iran’s foreign minister spoke at the UN and said that “we do not welcome expansion of the war in the region. But if the genocide in Gaza continues, they will not be spared from this fire” – so both with words and with physical strikes, geopolitical tensions are manifestly increasing.
Yesterday afternoon, US GDP exceeded expectations, rising to 4.9% on a quarter-on-quarter basis for Q3. This represented the strongest level of growth since Q4 2021, when Q-on-Q GDP came in at 7%, as the world’s largest economy continued their post pandemic recovery. Yesterday’s print also marked a considerable increase seen from the 2.1% expansion seen in 2021.
Over the third quarter, consumer spending rose 4% as many households continued to see positive wage growth. Exports also surged 6.2% marking a strong rebound from Q2’s 9.3% contraction. Government spending also increased 4.6% helping to feed into dollar strength seen throughout the course of yesterday’s session. For example, yesterday’s print helped advance the DXY north of 106.75.
Yesterday, the ECB met market expectations in holding rates, marking the first hold since Frankfurt stated their latest tightening cycle in July 2022 which involved 10-consecutive rate hikes. Their decision means that their main refinancing operations rate stays at 4.5%, while their marginal lending facility is at 4.75% and their deposit facility is maintained at 4%. Their decision sees many within the financial markets hold the view that the ECB have reached their terminal rate.
With the main refinancing rate at a 22-year high and headline inflation easing to 4.3% across the eurozone, some are now speculating on when the Eurozone may start to potentially cut rates. For example, with Goldman Sachs projecting that the ECB rate cycle has finished they now expect Frankfurt to start cutting rates in Q3 of next year.
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