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Drowning in Debt?

Strong performance from the US and UK stocks might feel the pressure, Scott Galloway's predictions on the US election, Biden's Ukrainian military aid package, and looking ahead at data releases.

Looking at the world through an economic lens, it’s becoming clear that 2024 maybe a New Year, but not necessarily a fresh start.

The US continues to be an economic outlier in terms of strong performance, but is finding that being the policeman to the world increasingly expensive. Those costs can be seen in Ukraine, Israel and now the wider Middle East, which all run into the tens of billions of dollars. These costs finding their way to the US tax payer, but are currently being paid for with record borrowing. More of that later, but the same theme of a lack of fresh start can be seen with US markets putting in a good turn and China, India and Europe failing to match them.

Equity markets kicked off the week in style yesterday, with rallies in US stock of 1.6% on the S&P500 and 2.2% on the Nasdaq. The UK didn’t fare quite as well, but it didn’t lose any value as the year really got underway, so we shall notch that up as a win.

UK stocks might feel a bit of pressure on the opening bell today though, as BRC retail sales for December made for disappointing reading: December spending, in cash terms, rose 2.7% compared to the year before, but with inflation around the four percent mark, this meant that the value of those sales actually fell – and possibly by a big enough margin to indicate a mild

recession in Q4 of 2023, though we’ll know more when see the official December GDP print from the Office of National Statistics in February.

Yesterday we touched on the US agreeing a budget that would see their 2024 budget deficit grow by around $1.5trn – so today it’s unsurprising that we see an article in the FT warning of investors ringing alarm bells over unfettered government debt issuance across the world. Those investors may have a point, as global debt is going to increase again this year and that many governments (including the UK) are risking excessive pre-election borrowing in a bid to woo voters.

By far the biggest debt issuers are the US, who will have to sell around $4trn worth of bonds, which is a 30% increase on last year and is expected to surpass even the extraordinary pandemic related borrowing in 2025. The concern in the US is that the lack of spending restraint going into the election isn’t likely to fade once the outcome is decided, with both Biden and Trump (the current Republican candidate frontrunner) very comfortable with high gearing ratios.

Speaking of Trump…

Listening to Scott Galloway’s predictions on what’s going to happen in 2024; he did some quick maths on Trump’s chances of winning the election and it doesn’t bode well for The Donald. He thinks that “Biden is re-elected, and Trump is sentenced. The former president is under 93 federal indictments in four different jurisdictions that have prosecution rates of between 71 and 93 percent. Odds that he is not convicted of at least one is about one in 700… and according to polls seven percent of his voters would not vote for him if he was convicted, which is an incredibly small number from a hardened base when you think about it, but it’s dramatically more than he needs to lose, to lose the election.. it’s also very unlikely that an incumbent president loses re-election when the economy is strong”. Click here to hear the full predictions podcast.

So as far as the elections go, it comes back to a familiar theme, which might as always be expressed as ‘it’s the economy, stupid’.


With the US Houses of Congress back in session this week, one item of global significance that will be the subject of debate is whether the stalemate can be broken on Biden’s Ukrainian military aid package. The aid package in question is an additional $61bn in funds which will go to support the Ukrainian war effort against Russia and will require the approval of both the House and Senate.

In early December, an emergency spending measure with $50bn for Ukraine and $14bn for Israel failed to get through the Senate with each of the 49 Republicans voting against it (along with Independent Bernie Sanders). Hence, with additional funding failing to be approved, on the 27 December 2023, the US sent material worth some $250m to Ukraine, in what was to be the final drawdown of all existing military aid packages. Thus, unless further funds are freed up, Kyiv faces the prospect of a squeeze on its finances, as the war looks set to enter its third year.

However, many in the Republican party appear set on leveraging the situation for political gain, while others in the GOP maintain that the funds should be used domestically. For example, a number of Republicans are indicating that their support for further military aid being sent to Ukraine would be contingent on major investment being pushed through for the US’ southern border.

Looking Ahead

This morning is a little light on the data front with the primary release being Eurozone Unemployment data at 1100. Here, the general market consensus is forecasting unemployment to remain at 6.5%, indicative of how the labour market remains resilient in light of tighter monetary conditions. Nevertheless, a growing disparity in unemployment rates across the currency union’s component parts is indicative of different economies’ economic experience with for example Spain at 12% while Germany is at just 3.1%.
As we know, data only takes the market so far, and as such it will be the things we don’t expect that could be the ones that really drive change.

Those expecting real change and a fresh start for 2024 will have to wait that little bit longer.

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