Bloomberg Summary, July 14

【Answer 1】・ The U.S. Department of Commerce has launched an investigation into imports of drones, drone components, and polysilicon—a key raw material for solar energy. ・ Conducted under Section 232 of the Trade Expansion Act, the probe primarily assesses national security risks posed by foreign suppliers, especially from China. ・ The investigation could lead to new tariffs on these goods. ・ It reflects a broader U.S. trend toward sector-based tariff protection in critical industries. ・ Read full article 2. JPMorgan Establishes New Customized Financing Team ・ JPMorgan has formed a dedicated unit called “Strategic Financing Solutions.” ・ The team focuses on customized financing structures spanning both public and private markets. ・ Key areas include structured private equity, infrastructure financing, asset-backed securities, commercial lending, and direct lending. ・ This move aims to deliver highly tailored financing solutions for complex client needs. ・ Read full article 3. Mexico Tomato Tariff Raised to 17% ・ The Trump administration has withdrawn from the long-standing U.S.-Mexico tomato trade agreement. ・ It announced new tariffs exceeding 17% on most Mexican tomato imports. ・ The move is expected to significantly impact U.S. food prices. ・ It follows recent tariff hikes on other Mexican goods not covered by the USMCA. ・ Read full article 4. Trump Threatens 100% Tariffs on Russia, Vows Military Aid to Ukraine ・ Trump threatened to impose 100% tariffs on Russia if it does not agree to a ceasefire in Ukraine by September. ・ He pledged to supply Ukraine with “top-tier U.S.-made weapons,” financed by NATO allies or European governments. ・ Potential tariffs could involve “secondary” measures targeting countries trading with Russia. ・ Details of the arms plan and secondary tariffs/sanctions remain under development; the U.S. would currently manufacture but not directly fund the weapons—others would purchase them. ・ Read full article 5. EU Proposes Retaliatory Tariffs on Boeing, U.S. Autos, and Bourbon ・ The EU has drafted a $84 billion (€72 billion) retaliatory tariff list. ・ Primary targets include Boeing aircraft, U.S.-made automobiles, and bourbon whiskey. ・ The list also covers machinery, plastics, chemicals, medical devices, and agricultural products. ・ Such countermeasures would only be implemented if the U.S. imposes further tariffs on the EU. ・ Read full article 6. Morgan Stanley: Tax Reform and Earnings to Lift U.S. Mega-Caps ・ Morgan Stanley expects U.S. mega-cap stocks to benefit from tax cuts and strong Q2 earnings. ・ It favors “stock-picking” opportunities, with large-cap stocks outperforming the broader market. ・ S&P 500 Q2 profit growth is forecast at 2.5%. ・ Full-year profit growth expectations have been revised down from 9.4% to 7.1%. ・ Read full article 7. Benchmark’s $75M Investment in China-Linked AI Startup Manus Sparks Divisions in Silicon Valley ・ Benchmark’s participation in the funding round for Manus—an AI startup with Chinese ties—has triggered security and political controversy. ・ U.S. lawmakers and fellow VCs question whether such investments bolster Chinese technology and intensify competitive pressure on the U.S. ・ Benchmark states that the product runs on U.S.-developed large language models and stores no data in China. ・ The episode reveals Silicon Valley’s heightened sensitivity and internal contradictions regarding AI investment in China in 2025. ・ Read full article 8. Fed’s Loretta Mester Supports Pausing Rate Cuts Amid Inflation Uncertainty ・ Cleveland Fed President Loretta Mester supports holding off on rate cuts until inflation shows clearer signs of subsiding. ・ She prefers first assessing the economic impact of recent policy changes before acting. ・ Mester remains concerned that the Fed has yet to achieve its inflation target and urges continued caution. ・ Her stance reflects the Fed leadership’s prevailing “wait-and-see” posture amid mixed economic signals. ・ Read full article

Morgan Stanley: Eight Surprises for Emerging Markets in 2024

【Answer 2】 In its latest emerging markets strategy report, Morgan Stanley strategists led by James Lord state that, with global central banks broadly on a dovish path and the U.S. economy avoiding a hard landing, emerging markets are poised for another favorable year—but market performance will not be smooth. Analysts identify eight key surprise factors that could significantly impact emerging markets: 1. Emerging Market Sovereign Credit Bond Returns Fall to 0%: If U.S. inflation reignites and U.S. Treasury yields rebound, EM sovereign credit spreads could widen to 450 basis points, pushing returns to zero. 2. Local-Currency Bonds Outperform Dollar-Denominated Bonds: Morgan Stanley forecasts local-currency bonds may outperform dollar-denominated bonds—if EM currencies appreciate. A favorable FX environment requires U.S. soft landing, revived European growth, and improved Chinese growth—boosting commodity prices. 3. Return of EM Capital Inflows: If the U.S. achieves a soft landing, EM returns could stabilize around 10%, potentially restoring capital inflows while maintaining low volatility. 4. Egypt’s Debt Restructuring: Over the past two years, Egypt’s five-year bond yield surged from 14% to 24% amid rising inflation, sharply increasing its debt-servicing burden. Morgan Stanley expects Egypt may undertake debt restructuring in the near term. 5. Panama’s Copper Mine Crisis: The shutdown of Panama’s largest copper mine could hurt its sovereign credit rating. However, the May 2025 elections may reverse this decision, boosting the economy and avoiding costly arbitration rulings. 6. Argentina’s Debt Returns Hit 100%: Under an ideal scenario where yields fall to 11%, Argentine bond returns could reach 100%—but this hinges on the successful implementation of President Milei’s economic reforms. 7. Saudi Arabia Ends All Oil Production Cuts: Current production curbs have already strained Saudi Arabia’s fiscal capacity to fund its Vision 2030 reforms, increasing pressure on the government to raise crude output. 8. Colombian Peso Outperforms Other EM Currencies Again: The Colombian peso was the best-performing EM currency in 2023. Morgan Stanley notes it may retain that status next year—but also highlights mounting risks, leaving the firm hesitant about initiating a short position. 01. EM Sovereign Bond Returns Fall to 0% in 2024 Morgan Stanley believes that if U.S. inflation reignites, EM sovereign credit spreads could widen to 450 basis points, driving returns to zero. EM sovereign debt performance next year will hinge largely on U.S. Treasury yields. The first adverse scenario: U.S. inflation flares up again, forcing the Fed to resume hiking—pushing the benchmark 10-year Treasury yield back to 5%. As shown in the chart below, this would cause EM sovereign credit spreads to widen to 450 basis points, resulting in zero returns. The second scenario: The U.S. slips into recession, triggering a sharp decline in interest rates. While markets have long priced in recession—especially given the extent of monetary tightening—in recent months, recession risk appears to have faded from investors’ minds, replaced by pricing for a soft landing.

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